SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K/A
Amendment No. 1
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 8, 1993
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 0-12954 54-1274108
(State or other jurisdiction (Commission (I.R.S Employer
of incorporation) File Number) Identification No.)
6620 West Broad Street, Suite 500, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 287-5680
(Former name or former address, if changed since last report.)
Item 7. Financial Statements and Exhibits
The following financial statements and pro forma financial information
omitted from the Form 8-K/A dated November 10, 1993 in reliance upon
instruction 7(a)(4) and 7(b)(2) of Form 8-K/A are filed herewith.
(a) Financial statements of Waverly Press
Report of Independent Accountants
Balance Sheets--
June 30, 1993 and December 31, 1992 and 1991
Statements of Operations--
Six months ended June 30, 1993 and 1992 and
Twelve months ended December 31, 1992 and 1991
Statements of Divisional Equity--
Six months ended June 30, 1993 and 1992 and
Twelve months ended December 31, 1992 and 1991
Statements of Cash Flows--
Six months ended June 30, 1993 and 1992 and
Twelve months ended December 31, 1992 and 1991
Notes to Financial Statements
(b) Pro forma financial statements of Cadmus Communications Corporation
and Subsidiaries
Pro Forma Consolidated Balance Sheet--
June 30, 1993
Pro Forma Consolidated Statement of Income--
Year ended June 30, 1993
Notes to Pro Forma Consolidated Financial Statements
WAVERLY PRESS
(AN OPERATING DIVISION OF WAVERLY, INC.)
FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
of Waverly, Inc.
In our opinion, the accompanying balance sheets and the related statements of
operations, of divisional equity and of cash flows present fairly, in all
material respects, the financial position of Waverly Press (an operating
division of Waverly, Inc.) at December 31, 1992 and 1991, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the division's management; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s./ Price Waterhouse
Price Waterhouse
Baltimore, Maryland
November 5, 1993
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
BALANCE SHEETS
(In thousands of dollars)
June 30, December 31, December 31,
1993 1992 1991
ASSETS (unaudited)
Current assets
Accounts receivable, less allowance
for doubtful accounts ($125 for
all periods presented) $ 8,095 $ 8,154 $ 6,539
Inventories 1,513 2,068 1,683
Prepaid expenses 147 184 192
Total current assets 9,755 10,406 8,414
Property and equipment
Land 61 61 61
Buildings and improvements 5,593 5,593 5,472
Machinery and equipment 24,579 24,091 23,396
Construction in progress 325 197
30,558 29,745 29,126
Less: accumulated depreciation 19,983 18,838 17,416
Net property and equipment 10,575 10,907 11,710
Other assets
Prepaid pension 1,431 1,416 1,300
Total assets $21,761 $22,729 $21,424
LIABILITIES AND DIVISIONAL EQUITY
Current liabilities
Accounts payable $ 2,319 $ 2,115 $ 1,542
Accrued expenses 666 739 566
Current deferred income taxes 31 31 18
Total current liabilities 3,016 2,885 2,126
Postretirement benefit obligation 3,347 3,201 0
Deferred income taxes 500 635 2,031
Total liabilities 6,863 6,721 4,157
Commitments and Contingencies
(Notes 8 and 10)
Divisional equity 14,898 16,008 17,267
Total liabilities and divisional
equity $21,761 $22,729 $21,424
See accompanying notes to financial statements
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
STATEMENTS OF OPERATIONS
(In thousands of dollars)
Six Months Ended Twelve Months Ended
June 30, December 31,
1993 1992 1992 1991
(Unaudited)
Net sales:
External customers $19,162 $19,052 $37,900 $35,729
Interdivisional sales 6,482 5,877 11,812 12,967
Total Net Sales 25,644 24,929 49,712 48,696
Costs and expenses:
Cost of sales (exclusive of
depreciation shown below) 19,874 19,284 38,554 36,844
Selling and distribution 1,148 1,241 2,416 2,287
General and administrative 2,039 1,936 3,813 4,199
Depreciation 1,277 1,322 2,836 2,393
Total operating expenses 24,338 23,783 47,619 45,723
Income before taxes 1,306 1,146 2,093 2,973
Provision for income taxes 496 435 795 1,130
Income before accounting
changes 810 711 1,298 1,843
Cumulative effect of
accounting changes (1,429) (1,429)
Net income (loss) $ 810 $ (718) $ (131) $ 1,843
STATEMENTS OF DIVISIONAL EQUITY
(In thousands of dollars)
Six Months Ended Twelve Months Ended
June 30, December 31,
1993 1992 1992 1991
(Unaudited)
Beginning balance $16,008 $17,267 $17,267 $17,642
Net earnings 810 (718) (131) 1,843
Net cash transferred to
Waverly, Inc. (1,920) (851) (1,128) (2,218)
Total divisional equity $14,898 $15,698 $16,008 $17,267
See accompanying notes to financial statements
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
STATEMENTS OF CASH FLOWS
(In thousands of dollars)
Six Months Ended Twelve Months Ended
June 30, December 31,
1993 1992 1992 1991
(Unaudited)
Cash flows from operating activities
Net income (loss) $ 810 $ (718) $ (131) $ 1,843
Adjustments to reconcile
net income (loss) to net
cash provided by operating
activities
Postretirement benefit
obligation 146 3,171 3,201
Depreciation 1,277 1,322 2,836 2,393
Deferred income taxes (135) (1,273) (1,383) 39
Net periodic pension
credit (15) (65) (116) (160)
(Gains) losses on sales
of property and equipment (25) (48) (345)
Change in assets and liabilities:
Accounts receivable 59 (797) (1,615) (641)
Inventories 555 64 (385)
Prepaid expenses 37 40 8 (49)
Accounts payable 203 126 573 (258)
Accrued expenses (72) (85) 173 144
Net cash flows from
operating activities 2,865 1,760 3,113 2,966
Cash flows from investing activities
Net change in property
and equipment (945) (909) (1,985) (748)
Net cash flows used for
investing activities (945) (909) (1,985) (748)
Cash flows from financing activities
Net cash transferred
to Waverly, Inc. (1,920) (851) (1,128) (2,218)
Net cash flows used for
financing activities (1,920) (851) (1,128) (2,218)
Net increase (decrease)in cash
and cash equivalents 0 0 0 0
Cash and cash equivalents at
beginning of period 0 0 0 0
Cash and cash equivalents at
end of period $ 0 $ 0 $ 0 $ 0
See accompanying notes to financial statements
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
(amounts in thousands)
Information pertaining to June 30, 1993
and 1992 is unaudited
Note 1 - Business operations
Waverly Press (the Division) is the trade name for the printing division of
Waverly, Inc. (Waverly). The business is concentrated primarily with
customers who publish periodical journals that serve members of technical and
professional societies and industry associations. The business operates
solely in the United States. Sales to Waverly's Periodical Division
constitute between 23% and 27% of total net sales and are reflected at prices
similar to that charged external customers.
Note 2 - Summary of significant accounting policies
These financial statements reflect the printing division of Waverly on a stand
alone basis and, accordingly, include direct and allocated management costs of
Waverly. The accounting and financial reporting policies of the Division
conform to generally accepted accounting principles and reflect practices
common in the printing industry.
Revenue recognition
Sales are recognized upon shipment.
Inventories
Inventories are principally valued at the lower of last-in, first-out (LIFO)
cost or market. Such costs include raw materials, subcontract composition and
printing, direct labor, and production overhead.
Property and equipment
Property and equipment are stated at cost. Expenditures for additions and
betterments also are capitalized at cost. Expenditures for repairs and
maintenance are expensed as incurred. The cost and accumulated depreciation
applicable to assets retired or sold are removed from the respective accounts,
and gains or losses are included in the determination of income. Depreciation
is computed by the straight-line method based on the estimated service lives
of the assets. Service lives range from 10 to 35 years for buildings and
improvements and from 3 to 10 years for machinery and equipment. Depreciation
charged to operations amounted to $1,277 and $1,322 for the six months ended
June 30, 1993 and 1992, respectively, and $2,836 and $2,393 for the fiscal
years of 1992 and 1991, respectively.
Concentrations of credit risk
The Division is not subject to any significant credit risk from concentrations
of receivables or other assets in a particular customer group. The products
and services are used primarily by professional societies.
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
Income taxes
Deferred income taxes are determined utilizing a liability approach. This
method gives consideration to the future tax consequences associated with
differences between financial accounting and tax bases of assets and
liabilities. These differences principally relate to items such as retirement
plans, postretirement benefits and depreciation. All tax items are determined
as if the Division were a separate tax payer. The Division is included in the
consolidated tax returns of Waverly.
Note 3 - Overhead Allocation
Included in costs and expenses are allocations of various corporate overhead
costs. These costs are summarized below by period:
Six months ended June 30, 1993 $1,638
Six months ended June 30, 1992 1,756
Twelve months ended December 31, 1992 3,495
Twelve months ended December 31, 1991 3,705
The above allocations have been made to fully reflect the operating costs of
the Division. These expenses are principally for executive management,
finance, information systems, human resources and occupancy costs related to
shared facilities. Such expenses have been allocated to their appropriate
expense categories based on proportionate usage. Management believes the
allocation method used is reasonable.
Note 4 - Accounting Changes
LIFO Inventory valuation - Effective January 1, 1992, Waverly changed its
method of computing LIFO inventory by establishing separate LIFO pools for the
printing operations and the book publishing operations. Waverly believes that
the newly adopted method provides a better matching of costs with revenues
under its current production processes. The cumulative effect of this
accounting change as it relates to the Division for years prior to 1992 is to
increase printing net income by $455. The effect of this change on reported
earnings for 1992 or individual prior years is not material.
Accounting for income taxes - Effective January 1, 1992, Waverly adopted
Statement of Financial Accounting Standards No. 109 (FAS 109) "Accounting for
Income Taxes." FAS 109 is an asset and liability approach that requires the
recognition of deferred tax assets and liabilities for the expected future tax
consequences of events that have been recognized in Waverly's financial
statements or tax returns. In estimating future tax consequences, FAS 109
generally considers all expected future events other than enactments of
changes in the tax laws or rates. Under FAS 109, Waverly must recognize a net
asset for future tax benefits of expenses recorded in the financial statements
to the extent such benefits are considered more likely than not to be
realized. Previously, Waverly used the FAS 96 asset and liability approach
that gave no recognition to future events, other than the recovery of assets
and settlement of liabilities at their carrying amounts. The new method does
not have material effect on earnings reported for 1991.
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
Employer's accounting for postretirement benefits other than pensions -
Effective January 1, 1992, Waverly adopted the provisions of Statement of
Financial Accounting Standards No. 106 (FAS 106), "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This new standard requires
Waverly to accrue the estimated cost of retiree benefit payments, other than
pensions, during employees' active service period. Waverly previously
expensed the cost of these benefits, which are principally health care, as
claims and insurance premiums were paid.
Waverly has elected to recognize this change in accounting on the immediate
recognition basis. The cumulative effect on the Division as of January 1,
1992, of adopting FAS 106 was to record a one-time, non cash charge against
earnings of $3,038 before taxes and $1,884 (including $384 of tax benefits
recognized under FAS 109) after taxes. This cumulative catch-up adjustment
represents the discounted present value of expected future retiree health
benefits attributable to employees' services rendered prior to January 1,
1992. The new standard will result in ongoing annual expenses for the
Division, which in 1992 totaled $271 before taxes.
A summary of the cumulative effect of accounting changes is presented below:
LIFO inventory valuation $ 455
Accounting for income taxes 384
Postretirement health care benefits (2,268)
Cumulative effect of accounting changes $(1,429)
Note 5 - Employee benefit plans
Funded pension plan
Waverly has a defined pension plan covering substantially all employees of the
Division. Plan benefits are determined using a career average earnings
formula. Waverly's funding policy is to contribute the amount necessary to
insure that plan assets meet current plan obligations. The projected benefit
obligations at December 31, 1992 and 1991 were determined using assumed
discount rates of 8.22% and 8.3%, respectively. The assumed long-term rate of
compensation increase is 6% per year and the assumed long-term rate of return
on plan assets is 9% per year. Mortality rates and turnover rates were
applied based on appropriate statistical tables and applicable experience. A
summary of cost components included in the net pension credit and funded
status of the plan as it relates to the Division is presented below:
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
1992 1991
Service cost benefits earned in the period $ 221 $ 179
Interest cost on projected benefit obligation 527 465
Amortization of loss and prior service cost 25
Return on plan assets
Actual (517) (1,343)
Deferred (144) 766
Amortization of unrecognized net gain at date
of initial application of FAS 87 (228) (228)
Net periodic pension credit $ (116) $ (161)
The funded status of the plan at December 31 is presented below:
1992 1991
Actuarial present value of:
Vested benefit obligation $(5,355) $(4,806)
Non vested benefit obligation (189) (166)
Accumulated benefit obligation (5,544) (4,972)
Effect of projected salary increases (1,248) (1,043)
Actuarial present value of projected benefit
obligation (6,792) (6,015)
Market value of plan assets at end of period 7,585 7,498
Excess of plan assets over plan liabilities 793 1,483
Unamortized net gain at date of initial
application of FAS 87 (682) (910)
Unrecognized net loss 1,305 727
Prepaid pension expense $ 1,416 $ 1,300
Savings Plan
Waverly offers an employee savings plan qualifying under Section 401(k) of the
Internal Revenue Code. The Plan covers substantially all employees with more
than one year's service. Employees are encouraged to make contributions to
the Plan. Waverly matched 25% of such contributions up to a maximum employee
contribution of 6% of annual salary. Expenses of $106 and $104 were incurred
by the Division for the six month periods ending June 30, 1993 and 1992,
respectively and $190 and $178 for the twelve months ending December 31, 1992
and 1991, respectively.
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
Postretirement benefits
Waverly provides certain health care benefits for retired employees.
Substantially all of the Division's retirees and full-time employees are or
become eligible for these benefits if they meet minimum age and service
requirements. The cost of providing most of these benefits has been shared
with retirees in differing proportions based on length of service and
retirement date. Currently, this plan is unfunded and Waverly has no
immediate plans for funding the liabilities.
Summary information on the postretirement benefit plan as it relates to the
Division at June 30, 1993 and December 31, 1992 are presented below.
Accumulated postretirement benefit obligation:
June 30 December 31
1993 1992
(Unaudited)
Fully eligible, active plan participants
accounting for the accumulated post-
retirement benefit obligation $3,347 $3,201
Retirees - -
Claims paid - -
Accrued postretirement benefit obligation $3,347 $3,201
Net periodic postretirement benefit cost for the six months ended June 30,
1993 and 1992 and for the twelve months ended December 31, 1992 includes the
following components:
Six months ended Twelve months ended
June 30, December 31,
1993 1992 1992
(Unaudited)
Service cost of benefit
earned $ 47 $ 16 $ 34
Interest cost on accumulated
obligation 99 119 237
Net periodic cost $146 $135 $271
The discount rate used in determining the accumulated postretirement benefit
obligation (APBO) was 7.8% for 1993 and 8.1% for 1992. The assumed health
care cost trend used in measuring the APBO was 15% in 1992, and 14% in 1993
declining incrementally to 6% in the ninth year.
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
If the health care cost trend rate assumption were increased by 1%, the APBO
would be increased by approximately $248 in each period represented. The
effect of this change on the sum of the service cost and interest cost
components of net periodic postretirement would be to increase annually by
approximately $23.
Note 6 - Inventory
The period end inventories consist of the following:
June 30 December 31
1993 1992 1991
(Unaudited)
Work-in process $ 717 $1,352 $ 895
Raw materials 796 716 788
$1,513 $2,068 $1,683
If the FIFO method of inventory valuation had been used by the Division,
inventories would have been $2,111, $2,071, and $1,932 higher than reported at
June 30, 1993, December 31, 1992 and December 31, 1991, respectively.
Note 7 - Incentive plan
Waverly has an incentive plan for virtually all employees under which the
amount available for bonuses is based on achievement of profit targets and
individual performance goals. Compensation earned under the Plan as it
relates to the division was $212 and $609 for the annual periods of 1992 and
1991 respectively. There was $316 and $143 accrued for the six month periods
ending June 30, 1993 and 1992, respectively.
Note 8 - Lease commitments
The Division has various operating lease commitments through 1999 relating
principally to its computer equipment. Rental expense for operating leases
was $36 and $33, for the twelve month periods ending December 31, 1992 and
1991. Future minimum rental payments through 1991 approximate $30 per annum.
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
Note 9 - Income taxes
The provision for income taxes as if the Division were a separate tax payor is
presented below:
Six months ended Twelve months ended
June 30, December 31,
1993 1992 1992 1991
(Unaudited)
Current provision
Federal $ 530 $ 465 $ 859 $ 916
State 101 89 164 175
631 554 1,023 1,091
Deferred Provision
Federal (113) (100) (192) 33
State (22) (19) (36) 6
(135) (119) (228) 39
Provision for income taxes $ 496 $ 435 $ 795 $1,130
Deferred income tax provisions resulting from differences between accounting
for financial statement purposes and accounting for tax purposes were as
follows:
Six months ended Twelve months ended
June 30, December 31,
1993 1992 1992 1991
(Unaudited)
Depreciation $ (80) $(115) $ (229) $(25)
Pension 6 25 44 61
Postretirement obligation (61) (28) (56)
Other (1) 13 3
$(135) $(119) $(228) $ 39
Income tax balance sheet accounts represent the deferred payable to Waverly
resulting from tax accounting effects.
WAVERLY PRESS, AN OPERATING DIVISION OF WAVERLY, INC.
NOTES TO FINANCIAL STATEMENTS
The difference between the provision for income taxes and income taxes
computed using the U.S. federal tax rate of 34% was as follows:
Six months ended Twelve months ended
June 30, December 31,
1993 1992 1992 1991
(Unaudited)
Computed expected tax expense $444 $390 $712 $1,011
State taxes, net of federal
tax benefit 52 45 83 119
Provision for income taxes $496 $435 $795 $1,130
Effective tax rate 38% 38% 38% 38%
Note 10 - Subsequent Event
The Division is subject to federal, state, and local laws and regulations
concerning the environment. The Division has recently become aware that
potential ground and inside air contamination may exist at its Easton,
Maryland printing facility. Waverly is conducting an environmental study of
the site. This study is designed to determine the extent of any contamination
at the site, identify various alternatives for remediation and recommend
remedial action, if necessary. Based upon information available at this time,
the cost of the ultimate resolution of this matter is not expected to exceed
$300 and could be substantially lower. Waverly will absorb any costs related
to the remediation and monitoring of environmental problems.
CADMUS COMMUNICATIONS CORPORATION
PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated financial statements of
Cadmus Communications Corporation and Subsidiaries (the Company) give effect
to the acquisition of Waverly Press (the Acquired Company), an operating
division of Waverly, Inc., on November 1, 1993, as if such transaction had
occurred as of July 1, 1992 for the Statement of Income and as of June 30,
1993 for the Balance Sheet.
The pro forma information is based on the historical financial statements
of the Acquired Company giving effect to the transaction under the purchase
method of accounting and the assumptions and adjustments described in the
accompanying notes to the Pro Forma Consolidated Statement of Income and
Balance Sheet.
The pro forma information does not purport to be indicative of the
combined results of operations or financial position that would have been
reported had the transaction taken place as of July 1, 1992 with respect to
the Statement of Income data and as of June 30, 1993 with respect to the
Balance Sheet data as the case may be, or future results of operations or
financial position of the Company. The Pro Forma Consolidated Statement of
Income and Balance Sheet should be read in conjunction with the Company's
separate historical consolidated financial statements and related notes
thereto, not included herein, and the historical financial statements and
notes thereto of the Acquired Company included elsewhere herein.
CADMUS COMMUNICATIONS CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET (Unaudited)
Year Ended June 30, 1993
(in thousands)
Historical
Cadmus Communications The Adjustments
Corporation and Acquired for
Subsidiaries Company Acquisition Pro Forma
Assets
Current assets
Cash and cash equivalents $ 2,206 $ $ $ 2,206
Accounts receivable, less
allowance for doubtful
accounts 35,768 8,095 (100)(a) 43,763
Inventories 10,263 1,513 2,111 (b) 13,887
Prepaid expenses 529 147 676
Total current assets 48,766 9,755 2,011 60,532
Other assets 5,224 5,224
Prepaid pension 1,431 (1,431)(c)
Investment in joint venture 6,499 6,499
Property, plant & equipment,
(net) 65,983 10,575 (3,631)(a) 72,927
Goodwill and intangibles 7,717 7,717
Total Assets $134,189 $21,761 $(3,051) $152,899
Liabilities and Equity
Current liabilities
Short-term borrowings $ 4,000 $ $ $ 4,000
Current maturities of
long-term debt 3,234 3,234
Accounts payable 11,898 2,319 14,217
Accrued expenses
Compensation 8,839 552 121 (d) 9,512
Other 4,256 114 4,370
Deferred income taxes 31 (31)(c)
Total current liabilities 32,227 3,016 90 35,333
Long-term debt 43,249 15,604 (e) 58,853
Other long-term
liabilities 5,376 3,347 (3,347)(c) 5,376
Deferred income taxes 2,644 500 (500)(c) 2,644
Equity
Common stock 2,974 2,974
Capital in excess of
par value 11,594 11,594
Retained earnings 36,125 36,125
Divisional equity 14,898 (14,898)(f)
Total equity 50,693 14,898 (14,898) 50,693
Total Liabilities & Equity $134,189 $21,761 $(3,051) $152,899
See notes to unaudited pro forma consolidated financial statements
CADMUS COMMUNICATIONS CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME (Unaudited)
Year Ended June 30, 1993
(in thousands, except per-share data)
Historical
Cadmus Communications The Adjustments
Corporation and Acquired for
Subsidiaries Company Acquisition Pro Forma
Net sales $198,126 $50,427 $ $248,553
Operating expenses
Cost of sales 143,333 41,544 (1,422) (a) 183,456
Selling and
administrative 43,991 6,630 ( 810) (a,b) 49,810
Operating income 10,802 2,253 2,232 15,287
Financial and other expenses
Financial 2,693 800 (c) 3,493
Other expense 629 629
Income before income taxes 7,480 2,253 1,432 11,165
Income taxes 2,947 856 559 (d) 4,362
Net income $ 4,533 $ 1,397 $ 873 $ 6,803
Net income per share $ .76 $ 1.14
Average number of common
shares outstanding 5,972 5,972
See notes to unaudited pro forma consolidated financial statements
CADMUS COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
Note 1 - Basis of Reporting
The accompanying unaudited pro forma consolidated financial statements of
Cadmus Communications Corporation and Subsidiaries (the Company) give effect
to the acquisition of Waverly Press (the Acquired Company), an operating
division of Waverly, Inc., on November 1, 1993, as if such transaction had
occurred as of July 1, 1992 for the Statement of Income and as of June 30,
1993 for the Balance Sheet.
The pro forma information is based on the historical financial statements
of the Acquired Company giving effect to the transaction under the purchase
method of accounting and the assumptions and adjustments described in the
accompanying notes to the Pro Forma Consolidated Statement of Income and
Balance Sheet. The purchase method of accounting resulted in a new basis of
accounting for the Acquired Company assets and liabilities. Such new basis
has been determined in accordance with generally accepted accounting
principles based upon the assigned purchase price of $15,604,000. The
assigned purchase price is preliminary and is not intended to be an indication
of the final value to be assigned to the net assets acquired and liabilities
assumed of the Acquired Company. There are additional payments of up to
$4,500,000 which are contingent upon confirmation of certain representations
made by Waverly, Inc. and certain contingencies relating to 1994 operations of
the Acquired Company.
The pro forma information does not purport to be indicative of the
combined results of operations or financial position that would have been
reported had the transaction taken place as of July 1, 1992 with respect to
the Statement of Income, and as of June 30, 1993 with respect to the Balance
Sheet, as the case may be, or future results of operations or financial
position of the Company. The Pro Forma Consolidated Statement of Income and
Balance Sheet should be read in conjunction with the Company's separate
historical consolidated financial statements, not included herein, and related
notes thereto, and the historical financial statements and notes thereto of
the Acquired Company included elsewhere herein.
Note 2 - Consolidated Balance Sheet Pro Forma Adjustments
The pro forma consolidated balance sheet gives effect to the adjustments
described below.
(a) Adjustment to record the net assets acquired and liabilities assumed at
their fair values with the excess of the fair value of the net assets
acquired over the assigned purchase price allocated proportionately to
reduce non-current assets.
(b) To restate inventory from the last-in, first-out method of accounting to
the first-in, first-out method.
CADMUS COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
(c) To exclude assets and liabilities not included in the transaction (in
thousands):
Assets
Prepaid pension $1,431
Liabilities
Current deferred income taxes $ 31
Postretirement benefit obligation 3,347
Deferred income taxes, non-current 500
Total liabilities $3,878
(d) To record an accrual for compensated absences of the Acquired Company's
employees which was previously recorded on Waverly, Inc. financial
statements.
(e) Pro forma adjustment to record additional debt incurred to fund the
acquisition.
On December 23, 1993, the Company entered into an agreement with two
insurance companies for the private placement of $40,000,000 in senior
notes with an average life of 8.1 years and a final maturity in 2003.
These senior notes carry a coupon rate of 6.74%. The proceeds of this
placement were used to finance the acquisition of the Acquired Company
and to repay short-term revolving bank debt.
The Company has also entered into an interest rate swap agreement to
convert $35,000,000 of the senior notes to floating rate debt. The swap
agreement has a term of 3 years and effectively converts the $35,000,000
of the private placement debt to variable rate debt. Under the terms of
this agreement, the Company makes payments at variable rates which are
based upon six-month LIBOR and receives payments at a fixed interest
rate.
(f) Adjustment to eliminate divisional equity of the Acquired Company.
Note 3 - Consolidated Statement of Income Pro Forma Adjustments
The pro forma consolidated statement of income gives effect to the adjustments
described below.
(a) Adjustment to reflect pro forma depreciation expense on the fair values
of property and equipment calculated using the straight-line method over
the estimated remaining useful lives of the assets acquired (two to
twenty years). The decrease in depreciation expense is due primarily to
a reduction in the assigned property and equipment values resulting from
the application of the purchase method of accounting, and the related
reassignment of estimated useful lives of these assets.
CADMUS COMMUNICATIONS CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
The total decrease in depreciation expense is $1,653,000 of which
$1,422,000 has been recorded as an adjustment to cost of sales. The
remaining $231,000 represents a reduction of selling and administrative
expenses.
If the contingent payments of $4,500,000 are made (see Note 1),
additional depreciation expense of $720,000 will be recorded of which
$605,000 will increase cost of sales and $115,000 will increase selling
and administrative expenses. This increase in depreciation expense would
have the effect of reducing pro forma net income by $0.07 per share.
(b) Adjustments to selling and administrative expenses are as follows:
Fiscal Year Ended
June 30, 1993
(in thousands)
Waverly, Inc. corporate overhead allocation $(500)
Savings due to consolidation and
elimination of duplicative services (300)
Reduction in depreciation expense (Note a) (231)
Change in accounting for compensated
absences 121
Increase in bad debt expense 100
Total $(810)
Selling and administrative expenses are reduced by the amount of Waverly,
Inc. corporate overhead previously allocated to the Acquired Company.
Reductions to selling and administrative expenses of $300,000 are
expected to result from the consolidation of functions and the
elimination of duplicative services and facilities. In addition, selling
and administrative expenses have been increased $121,000 to record an
expense for compensated absences [see Note 1 (d)]. Also, expense has
been increased $100,000 to reflect what the Company believes to be more
representative of bad debt expense on a recurring basis.
(c) Adjustment to record interest expense on debt obtained to finance the
acquisition at an effective rate of 5.1%. The effect of a 1/8% change in
the effective average interest rate would approximate a change in the
interest expense of $20,000 for the year ended June 30, 1993.
If the contingent payments of $4,500,000 are made (see Note 1),
additional interest expense of $230,000 will be incurred which will
result in a $0.07 per share reduction in pro forma net income
(d) Represents the tax effect of pro forma adjustments at an effective tax
rate of 39%.
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CADMUS COMMUNICATIONS CORPORATION
January 24, 1994 By: /s/ C. Stephenson Gillispie, Jr.
(Date) C. Stephenson Gillispie, Jr.
President and Chief Executive
Officer