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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-12954
CADMUS COMMUNICATIONS CORPORATION
(Exact Name of Registrant as specified in its charter)
VIRGINIA 54-1274108
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6620 West Broad Street, Suite 240
Richmond, Virginia 23230
(Address of principal executive offices, including zip code)
------------
Registrant's telephone number, including area code: (804) 287-5680
------------
Securities registered pursuant to Section 12(g) of the Act:
Cadmus Communications Corporation Common Stock, $.50 par value, and
Preferred Stock Purchase Rights
(Title of Class)
------------
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ( )
As of July 31, 1996, 7,907,556 shares of Registrant's common stock
were outstanding, and the aggregate market value of the Registrant's common
stock held by non-affiliates was approximately $93,525,760 based on the last
sale price on July 31, 1996.
Documents Incorporated by Reference:
None.
INDEX
PART I
Page
Item 1. Business................................................3
Item 2. Properties..............................................7
Item 3. Legal Proceedings.......................................7
Item 4. Submission of Matters to a Vote of Security Holders.....7
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters.........................9
Item 6. Selected Financial Data................................10
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......11
Item 8. Financial Statements and Supplementary Data............15
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................32
PART III
Item 10. Directors and Executive Officers of the Registrant.....34
Item 11. Executive Compensation.................................39
Item 12. Security Ownership of Certain Beneficial Owners
and Management.....................................45
Item 13. Certain Relationships and Related Transactions.........47
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K................................48
PART I
ITEM 1. BUSINESS
Introduction
Cadmus Communications Corporation, a Virginia corporation,
("Cadmus" or "Company"), is a graphic communications company offering
specialized products and services in three broad areas: printing,
marketing, and publishing. Cadmus was formed in 1984 through the merger
of The William Byrd Press, Incorporated ("Byrd"), a leading regional
publications printer in Virginia, and Washburn Graphics, Inc.
("Washburn"), a graphic arts firm based in North Carolina. Since the
merger, Cadmus has grown through enhancement of existing products,
internal development of new products, and acquisitions. The Company's
principal executive offices are located at 6620 West Broad Street, Suite
240, Richmond, Virginia 23230, and its telephone number is (804)
287-5680. The Company's Internet address is http://www.cadmus.com.
Unless the context otherwise requires, references herein to Cadmus or
the Company shall refer to Cadmus Communications Corporation and its
consolidated subsidiaries.
The most significant acquisitions to date include: in 1986, a
company providing promotional printing and production of
point-of-purchase advertising materials located in Atlanta, Georgia
(American Graphics, Inc.); in 1987, a company offering retail and other
direct mail catalog production services located in Atlanta, Georgia
(Three Score, Inc.), and a printing company, located in Baltimore,
Maryland (Garamond/Pridemark Press); in 1992, a custom publisher of
newsletters and magazines located in Boston, Massachusetts (Marblehead
Communications, Inc.) and a publisher of specialty magazines located in
Richmond, Virginia (Tuff Stuff Publications, Inc.); in 1993, the assets
of a division engaged in the business of printing scientific, technical,
and medical journals, located in Baltimore and Easton, Maryland (the
Waverly Press Division of Waverly, Inc.); and in 1995, a direct
marketing agency located in Los Angeles, California, and Denver,
Colorado (Ronald James Direct, Inc.). In fiscal 1996, the Company
acquired all the outstanding stock of Lancaster Press, Inc. and
Subsidiary, a Pennsylvania-based producer of scientific, technical, and
medical journals; substantially all the assets and certain liabilities
of The Software Factory, Inc., an Atlanta-based provider of software
packaging and media duplication services; the assets of Na-Tex, Inc.,
the publisher of Collector's World of Racing (subsequently named Tuff
Stuff's RPM); certain assets of The Mowry Company, a direct marketing
agency located in Long Beach, California; the assets of PeachWeb Corp.,
a developer of Internet web sites; and the assets of the Atlanta
division of Encryption Technology Corporation, a provider of software
packaging, media duplication, and documentation services.
Cadmus has developed new products and services that are extensions of its
traditional product lines. Examples include Cadmus' specialty packaging and
point-of-purchase product lines. Cadmus is also developing interactive products
and services for tradeshows, kiosks, electronic catalogs, and Internet and other
electronic media. In its journal product line, Cadmus has expanded the
electronic products and services it offers to scientific, technical, and medical
journal publishers, developing a growing portfolio of skills and capabilities to
provide electronic publishing solutions, ranging from fully searchable databases
to Internet home pages created and maintained by Cadmus.
Business Groups and Product Lines
Product offerings as of June 30, 1996 consisted of three business
groups: printing, marketing, and publishing.
Printing
Fiscal Year 1996 Revenues
Product Line (in thousands)
------------ -------------------------
Journal Services $ 108,232
Magazines 51,661
Promotional Printing 41,125
Financial Communications 30,485
Specialty Packaging 9,383
--------
Total Printing Revenues $240,886
========
Cadmus printing operations provide customers a full range of services
which include state-of-the-art digital imaging, electronic prepress, sheetfed
and web offset printing, digital press multi-color printing, custom binding,
fulfillment, and distribution. Printing generated approximately 72% of the
Company's net sales in fiscal 1996.
Journal Services. Cadmus is an industry leader in the production of
medical, technical, and scientific journals. Cadmus offers a full range of
journal production services, including typesetting, editing, content management,
printing, packaging and fulfillment services to many of the most prestigious
scientific, technical, and medical journal publishers. The Company operates one
of the largest journal typesetting operations in the United States. Its six
production facilities are linked through a sophisticated electronic network and
high speed telephony. In response to increasing interest in Internet products,
the Company offers customers a full range of electronic publishing products,
ranging from Internet home pages to fully searchable databases created and
maintained by Cadmus.
Magazines. Cadmus offers print production services to publishers of
professional, trade, corporate, and consumer magazines. Such services include
electronic publishing, litho preparation, printing, finishing, and distribution.
The Company also offers customers consulting services in magazine production
planning, conversion to desktop publishing, and postal and distribution
services.
Promotional Printing. Cadmus produces catalogs, directories, programs,
corporate identity and promotional brochures, specialty books and product
literature for corporations, agencies, and educational institutions. Cadmus
offers full service graphic communications solutions to meet each customer's
unique needs including creative design, complete prepress, multi-color sheetfed
and web printing, binding, fulfillment, and distribution services.
Financial Communications. Cadmus provides financial and shareholder
communication services to corporate customers. Services provided include design,
typesetting, printing, finishing, electronic filing and fulfillment for debt and
equity offerings, proxy statements, annual reports, and quarterly reports. Many
of the Company's larger customers are electronically linked with Cadmus
facilities, giving Cadmus the ability to send documents directly to its
customers for review. Cadmus has also developed proprietary software, EDNA(TM),
to assist in the conversion of MacIntosh-based files and other graphical and
tabular material into EDGAR format for filing with the Securities and Exchange
Commission.
Specialty Packaging. Cadmus produces folding cartons, computer hardware
and software cartons, promotional packaging, portfolio folders, 3-D mailers, and
disk sleeves for computer software publishers and technology and consumer
products companies. Cadmus offers film preparation, structural engineering,
design and development of innovative packaging and printing, and finishing
services using state-of-the-art Heidelberg presses and Bobst die-cutting
equipment.
Marketing
Fiscal Year 1996 Revenues
Product Line (in thousands)
------------ -------------------------
Point-of-Purchase $31,628
Direct Marketing 20,528
Catalogs 11,164
Software Replication 8,227
Interactive 2,652
-------
Total Marketing Revenues $74,199
=======
Cadmus provides its clients with creative, database management,
production, mailing, and fulfillment services for direct marketing,
point-of-purchase, retail catalogs, and interactive multimedia programs and
systems. Marketing generated approximately 22% of the Company's net sales in
fiscal 1996.
Point-of-Purchase. Cadmus offers full service point-of-purchase support
including design, production, database management, fulfillment, and printing.
Additional services include merchandising, consulting, and point-of-purchase
program management. Through its fulfillment services, Cadmus maintains finished
goods inventories of point-of-purchase products and delivers these products for
Cadmus customers on an as needed basis. The Company's fulfillment capabilities
rely on a sophisticated inventory management system, customer database, and
telephonic and electronic links between Cadmus facilities and those of its
customers.
Direct Marketing. Cadmus develops and implements direct marketing
programs. Whether through direct mail, print, or other media, Cadmus
combines creative excellence with the response modeling and analytic
tools of database management. In addition, Cadmus also develops
customized software to help clients meet their own specific marketing
challenges and goals.
Catalogs. Cadmus creates and produces high quality catalogs both to
promote sales in retail locations and to offer consumers direct-order
convenience. Using a state-of-the-art photography studio, Cadmus creates work
for a collection of the largest, best-known retail brands in the U.S.
Software Replication. Cadmus offers turnkey software replication and
distribution services for software companies.
Interactive. Cadmus creates and provides interactive and multimedia
products including kiosks, CD-ROM, and Internet applications, to Fortune 1000
customers in the hospitality, travel, banking, and telecommunications
industries. Cadmus has formed an interactive multimedia marketing and software
solution development team with significant technical expertise.
Publishing
Fiscal Year 1996 Revenues
Product Line (in thousands)
------------ --------------------------
Custom Publishing $12,008
Consumer Publishing 9,562
-------
Total Publishing Revenues $21,570
=======
Publishing is comprised of two divisions, Consumer Publishing and Custom
Publishing. Publishing generated approximately 6% of the Company's net sales in
fiscal 1996.
Custom Publishing. Cadmus provides custom publishing services to customers
with narrowly defined target audiences in the health care, travel, financial,
technology, and non-profit areas. Publishing services include design, editorial,
advertising sales, production, and distribution of newsletters and magazines.
Services also include research and marketing to assist the customer in
efficiently reaching its target audience. Current titles include Profiles, a
Continental Airlines in-flight magazine, Living Healthy, a magazine for Blue
Cross and Blue Shield of Massachusetts, and Union Plus, a monthly magazine
published for Union Privilege, a consumer benefits organization of the AFL-CIO.
Consumer Publishing. Cadmus publishes its own special-interest magazines
that target consumers who have passionate interests in a hobby or sport.
Currently Cadmus owns four periodic publications and several annual guides. The
periodic publications are: Tuff Stuff Magazine; Tuff Stuff's Collect!; Kenner
Guide; and Tuff Stuff's RPM. Tuff Stuff Magazine, the largest Cadmus consumer
publishing title, is a 225,000 run-length monthly magazine directed at trading
card collectors. Tuff Stuff's Collect! is a monthly magazine directed at
non-sport trading card collectors and hobbyists. Kenner Guide is a quarterly
guide to Kenner sports figurines. Tuff Stuff's RPM is a monthly magazine
directed at collectors of NASCAR racing-related memorabilia. These magazines are
published, edited, managed, and printed by Cadmus.
The above product line descriptions refer to the group structure of
printing, marketing, and publishing that existed during fiscal 1996. Effective
July 1, 1996, the Company reorganized its operational and reporting structure
into the graphic communications, periodicals, marketing, and publishing groups.
Under the new group structure, the graphic communications group includes
financial communications, specialty packaging, promotional printing, marketing
services, and technology services; the periodicals group includes journal
services and magazines; the marketing group includes Cadmus Direct, Cadmus
Catalogs, Cadmus Interactive, Custom Publishing, and Point-of-Purchase; and the
publishing group includes consumer publishing. Revenues for fiscal 1996 under
the new group structure would have been as follows:
Fiscal Year 1996 Revenues
New Group Structure (in thousands)
------------------- -------------------------
Graphic Communications $89,247
Periodicals 159,893
Marketing 77,953
Publishing 9,562
--------
Total Revenues $336,655
========
Other Factors Affecting the Business of Cadmus
Seasonal Fluctuations
Seasonal fluctuations occur in the overall demand for printing. Printing
of both periodicals for the educational and scholarly market and promotional
materials tends to decline in the summer months. However, consumer publications
tend to peak before Christmas and before Easter. Printing of interim financial
statements clusters around the end of the first month in each calendar quarter
and printing of annual reports tends to fall into the first and second calendar
quarters. All of these factors combine to give Cadmus a seasonal pattern with
the months October through June typically stronger than the months July through
September.
Raw Materials
The principal raw material used in Cadmus' business is paper. Significant
stock inventories are not maintained except at Cadmus Financial in Richmond and
Cadmus Journal Services, where a supply of roll paper stock is required to
operate the web presses. The other companies generally purchase paper on a
direct order basis for specific jobs. Cadmus purchases its paper requirements
under agreements that guarantee tonnage and provide short range price protection
for three to six month intervals. The price of paper charged to customers is
subject to escalation so that, except in rare instances, Cadmus does not have
exposure to changes in the cost of paper.
The Company uses a variety of other raw materials including ink, film,
offset plates, chemicals and solvents, glue, wire, and subcontracted components.
In general, the Company has not experienced any significant difficulty in
obtaining raw materials.
Competition
Cadmus is subject to competition from a large number of companies, some of
which have greater resources and capacity. In recent years, there has been an
excess of capacity in the printing industry which has increased competition.
Rapid technological change has brought new competitors to the marketplace.
The markets served by Cadmus face competition based on a combination of
factors including quality, service levels, and price.
Employees
As of July 31, 1996, Cadmus employed approximately 3,200 persons,
approximately 7% of which are currently covered by collective bargaining
agreements. Cadmus believes its relationship with its employees is excellent.
Regulation
The printing business uses or generates substantial quantities of inks,
solvents, and other waste products that require disposal. Cadmus usually returns
salvageable waste ink to its suppliers and contracts for the removal of other
waste products.
Cadmus believes it is in substantial compliance with all applicable air
quality, waste disposal, and other environmental-related rules and regulations,
as well as with other general employee health and safety laws and regulations.
ITEM 2. PROPERTIES
The Company considers all of its properties, together with the related machinery
and equipment contained therein, to be well-maintained, in good operating
condition, and adequate for its present needs. The Company will expand as
necessary for the continued development of its operations. The production
operations of the Company are conducted at the following facilities:
Cadmus Product
Location Lines Served Building
-------- -------------- --------
Richmond, Journal Owned;
Virginia Services, 274,000
Magazines, sq. ft.
Promotional
Printing,
Consumer
Publishing, and
Custom
Publishing
Easton, Maryland Journal Services Owned;
202,400
sq. ft.
Atlanta, Georgia Point-of-Purchase Owned;
179,000
sq. ft.
Charlotte, North Financial Owned;
Carolina Communications, 118,000
Specialty sq. ft.
Packaging,
Promotional
Printing, and
Direct Marketing
Richmond, Promotional Owned;
Virginia Printing, 89,100
Financial sq. ft.
Communications,
Journal
Services, and
Direct Marketing
Baltimore, Journal Owned;
Maryland Services 51,700
sq. ft.
Baltimore, Promotional Owned;
Maryland Printing and 43,000
Financial sq. ft.
Communications
Lancaster, Journal Services Owned;
Pennsylvania 176,000
sq. ft.
Akron, Journal Services Owned;
Pennsylvania 46,000
sq. ft.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various legal actions that are ordinary and
incidental to its business. While the outcome of legal actions cannot be
predicted with certainty, management believes the outcome of these proceedings
will not have a materially adverse effect on its consolidated financial position
or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Cadmus are elected by the Board of Directors
("Board") of the Company to serve one-year terms. The following table contains
information about the executive officers of Cadmus:
Other Business
Position and Length of Experience During Past
Name (Age) Service Five Years
- ---------- ---------------------- ----------------------
C. Stephenson Chairman of the Board, President and Chief
Gillispie, Jr. (54) President, and Chief Operating Officer,
Executive Officer, Cadmus Cadmus 1990-1992;
1992- present. President and Chief
Executive Officer, Byrd
1989-1992.
Michael Dinkins (42) Group President, Cadmus Vice President and
Graphic Communications Chief Financial
Group 1996-present. Officer, Cadmus
1993-1996; Manager
Finance for Marketing, GE
Appliance 1993; Manager
Finance for Sales, GE
Appliance 1992; Manager
of Commercial Real
Estate, GE Capital
1989-1992.
John H. Phillips (52) Vice President, Support Vice President and
and Development, Cadmus Regional Manufacturing
1996-present. Officer, Cadmus
1994-1996; Vice President
- Operations and Chief
Operating Officer, Cadmus
1992-1994; Executive Vice
President and Chief
Operating Officer, Byrd
1990-1992.
Bruce V. Thomas (39) Vice President and Chief Vice President, Law and
Financial Officer, Cadmus Development, Cadmus
1996-present. 1992-1996; Partner,
Mays & Valentine
1989-1992.
David E. Bosher (43) Vice President and Vice President,
Treasurer, Cadmus Treasurer, and Chief
1993-present. Financial Officer,
Cadmus 1990-1993.
Gregory Moyer (48) Vice President, Human Corporate Vice
Resources and Quality, President of Human
Cadmus 1994-present. Resources,
Dyncorp 1993-1994; Vice
President of Human
Resources and Quality,
P.R.C., Inc. 1989-1993.
Edward B. Fernstrom Vice President, Vice President, Chief
(47) Information Information Officer,
Technology, Cadmus Dyncorp 1990-1995.
1995-present.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Cadmus common stock is traded in the over-the-counter market and has been
quoted in the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq") under the symbol "CDMS" since July 2, 1984 and in
the Nasdaq National Market since April 16, 1985. Information with respect to
market prices is presented in Item 8 of this report.
As of August 30, 1996, the approximate number of beneficial holders of
Cadmus common stock was 4,700, which includes stockholders recorded on security
position listings.
On August 14, 1996, Cadmus declared a regular quarterly cash dividend of
$.05 per share, payable on September 6, 1996, to shareholders of record as of
August 23, 1996. Additional information with respect to dividends declared is
presented in Item 8 of this report.
Cadmus anticipates that it will continue its policy of paying regular
quarterly dividends. The amount of any future dividends will depend on general
business conditions encountered by Cadmus, as well as the financial condition,
earnings and capital requirements of Cadmus, and such other factors as the Board
of Directors may deem relevant. For additional information regarding
restrictions on payment of dividends, see the Notes to Consolidated Financial
Statements (Note 6) presented in Item 8 of this report.
ITEM 6. SELECTED FINANCIAL DATA
Cadmus Communications Corporation and Subsidiaries
SELECTED FINANCIAL DATA(1)
The following data should be read in conjunction with the consolidated financial
statements of the Company and management's discussion and analysis that appear
elsewhere in this report.
(Dollars and shares in thousands,
except per share data) Years Ended June 30,
1996 1995 1994 1993 1992
OPERATIONS
Net sales $336,655 $279,641 $247,730 $198,126 $188,006
Cost of sales 259,086 209,415 184,088 146,031 142,425
Gross profit 77,569 70,226 63,642 52,095 45,581
Selling and administrative expenses 61,204 52,172 48,824 40,753 35,176
Operating income(2) 16,365 18,054 12,918 11,342 10,405
Income before income taxes, extraordinary
item, and cumulative effect of changes in
accounting principles(2) 10,408 12,682 7,933 7,480 6,448
Income before extraordinary item and cumulative effect
of changes in
accounting principles(2) 6,504 7,479 4,807 4,533 3,901
Net income(2)(3) 5,709 7,479 5,208 4,533 3,901
PER SHARE DATA
Income before extraordinary item and cumulative effect
of changes in
accounting principles(2) $ .87 $ 1.21 $ .79 $ .76 $ .65
Net income(2)(3) .76 1.21 .86 .76 .65
Cash dividends .20 .20 .20 .20 .20
Shareholders' equity 13.60 10.26 9.18 8.52 7.96
FINANCIAL POSITION
Current assets $109,728 $ 76,319 $ 61,937 $ 48,766 $ 44,261
Current liabilities 50,171 43,906 38,581 32,227 25,523
Working capital 59,557 32,413 23,356 16,539 18,738
Property, plant, and equipment 203,839 161,359 147,890 129,097 122,540
Accumulated depreciation 87,474 76,789 70,818 63,114 57,668
Goodwill, net 52,846 8,281 7,617 7,717 9,082
Total assets 282,763 171,570 160,129 134,189 123,054
Short-term borrowings 3,323 3,775 -- 4,000 1,000
Long-term debt, including current maturities 106,801 56,342 58,440 46,483 44,916
Shareholders' equity 107,568 61,882 54,929 50,693 47,571
Total capital 217,692 121,999 113,369 101,176 93,487
SELECTED RATIOS
Gross profit margin 23.0% 25.1% 25.7% 26.3% 24.2%
Operating income margin(2) 4.9% 6.5% 5.2% 5.7% 5.5%
Effective tax rate 37.5% 41.0% 39.4% 39.4% 39.5%
Sales to average total capital 2.0 2.4 2.3 2.0 2.0
Current ratio 2.2 1.7 1.6 1.5 1.7
Debt as a percent of total capital 50.6% 49.3% 51.5% 49.9% 49.1%
Operating income return on average
total capital(2) 9.6% 15.3% 12.0% 11.7% 11.3%
Net income return on average
shareholders' equity(2)(3) 6.7% 12.8% 9.9% 9.2% 8.4%
OTHER DATA
Weighted average common shares outstanding 7,495 6,195 6,085 5,972 5,986
Shares outstanding at fiscal year end 7,908 6,030 5,984 5,948 5,975
Stock market price data:
High $ 29 7/8 $ 24 3/4 $ 19 1/2 $ 11 $ 10
Low 13 1/4 14 1/2 8 1/2 6 1/4 5 3/4
Close 15 3/8 23 5/8 17 3/4 8 3/4 9 1/4
Number of employees 3,234 2,380 2,400 1,780 1,895
(1) Certain reclassifications were made to prior years' amounts to conform with
current year presentation.
(2) After restructuring charge in fiscal 1994 of $1.9 million pretax, $1.1
million after tax.
(3) After extraordinary loss on early extinguishment of debt in fiscal 1996 of
$0.8 million (net of tax) and income from cumulative effect of changes in
accounting principles in fiscal 1994 of $0.4 million (net of tax).
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cadmus Communications Corporation and Subsidiaries
MANAGEMENT'S DISCUSSION AND ANALYSIS
RESULTS OF OPERATIONS
This discussion and analysis will focus on the group structure of printing,
marketing, and publishing. Effective July 1, 1996, the Company reorganized its
operational and reporting group structure into the graphic communications,
periodicals, marketing, and publishing groups. All discussion and analysis in
the future will be done around the Company's new group structure.
The following table presents the major components from the Consolidated
Statements of Income as a percent of net sales:
[CAPTION]
Years Ended June 30,
1996 1995 1994
Net sales 100.0% 100.0% 100.0%
Cost of sales 77.0 74.9 74.3
Gross profit 23.0 25.1 25.7
Selling and administrative expenses 18.2 18.6 19.7
Restructuring charge -- -- 0.8
Operating income 4.8 6.5 5.2
Interest expense 1.5 1.9 1.9
Other expenses, net 0.2 0.0 0.1
Income before income taxes, extraordinary item, and cumulative
effect of changes in accounting principles 3.1% 4.6% 3.2%
Comparison of Fiscal 1996 with Fiscal 1995
Net sales in fiscal 1996 were $336.7 million, an increase of 20.4% over fiscal
1995 sales of $279.6 million, with growth in each of the Company's three
business groups: printing -- 13.5%, marketing -- 31.0%, and publishing --
11.4%. Adjusted for acquisitions, net sales rose 12.1%.
The 13.5% growth in printing sales was driven primarily by a 59.4% increase
in financial communications, a 17.7% increase in specialty packaging, a 16.7%
increase in magazines, and an 8.5% increase in journal services sales.
Financial communications revenues increased as a result of continued growth in
the mutual fund business, along with the addition of several full-service
contracts for financial communications customers. The increase in specialty
packaging sales was due to both the expansion of services for existing
customers, as well as the addition of new customers. Sales growth in the
magazines product line was also a result of the addition of several new
customers. The increase in journal services revenues was primarily attributable
to the acquisition of Lancaster Press, Inc. and Subsidiary ("Lancaster") in May
1996. Adjusted for this acquisition, journal services sales increased slightly,
up 1.2% from fiscal 1995. The promotional printing product line showed a slight
increase in sales.
The 31.0% increase in marketing revenues for fiscal 1996 was attributable to
both internal growth and to the acquisition of substantially all the assets of
Cadmus Technology Solutions (formerly "The Software Factory, Inc.") and two
direct marketing agencies. Point-of-purchase sales rose 6.8% for fiscal 1996 due
to increased activity with quick-service restaurant customers as well as the
addition of new customers. These increases were offset somewhat by decreased
demand from beverage customers, decreased volume resulting from the merger of
customer accounts, and the cessation of operations of two marketing services
programs, Kids Link and Sports Marketing. Direct marketing revenues increased
41.3% due to the acquisition of Ronald James Direct, Inc., in the fourth quarter
of fiscal 1995 and the acquisition of certain assets of The Mowry Company in the
first quarter of fiscal 1996. Adjusted for these acquisitions, direct marketing
revenues declined 9.9% in fiscal 1996. This decrease was due to the loss of
certain customers combined with the slow-down in new customer account
development. Cadmus Interactive sales increased 88.7%, or $1.2 million, during
fiscal 1996. Catalogs also posted an increase in revenues of 15.7%, or $1.5
million, for fiscal 1996.
Publishing sales growth of 11.4% resulted from increases in the custom
publishing product line offset with slight declines in consumer publishing.
Custom publishing revenues increased 33.7% in fiscal 1996 as a result of the
addition of new titles and new customer accounts. Sales in the consumer
publishing product line declined by 3.3% due to the continued softness in the
hobby and trading card collectibles markets.
Gross profit in fiscal 1996 was 23.0% of sales compared with 25.1% of
sales in fiscal 1995. The decline in gross profit margin is attributable
to manufacturing inefficiencies and excess production capacity, along
with a change in
product sales mix. Manufacturing inefficiencies resulted from external factors,
including severe winter weather experienced at all facilities and a fire in the
Charlotte facility in March 1996, as well as overall poor production performance
at certain manufacturing facilities. These inefficiencies were partially offset
by savings from procurement activities, a reduction in depreciation expense due
to the assignment of salvage values to certain equipment, and from reductions in
the workforce related to the fiscal 1995 restructuring of the Company's
composition and prepress operations. The change in product sales mix was a
result of a shift from high-margin creative projects to lower value projects
with higher material costs in the direct marketing and
point-of-purchase product lines.
The Company's selling and administrative expenses as a percent of sales
improved from 18.6% in fiscal 1995 to 18.2% in fiscal 1996. However, total
selling and administrative expenses for fiscal 1996 increased by $9.0 million.
This increase resulted primarily from expenses associated with reorganizing and
unifying Cadmus, establishing and operating a New York office for the financial
communications product line, expanding the capacity and capabilities of the
Company's fulfillment operations, and hiring executives and staff to support the
Company's full-service offerings. Acquired companies accounted for the remainder
of this increase. The decline in the selling and administrative expense ratio is
due to these increased costs offset by a combination of increased sales volume
along with management efforts within each product line to limit overhead costs
through discretionary spending control measures.
Other expenses increased $0.8 million in fiscal 1996 as compared to fiscal
1995. The increase is due primarily to goodwill amortization associated with
fiscal 1996 acquisitions.
The effective income tax rate of 37.5% in fiscal 1996 decreased from 41.0% in
fiscal 1995 due primarily to tax liabilities arising from the sale of the
Company's 50% joint venture interest in Central Florida Press, L.C. in the third
quarter of fiscal 1995. The fiscal 1995 effective tax rate, excluding this
transaction, was 38.7%.
Comparison of Fiscal 1995 with Fiscal 1994
Net sales in fiscal 1995 were $279.6 million, representing an increase of 12.9%
over fiscal 1994 sales of $247.7 million. Sales growth occurred in each of the
Company's three business groups: printing -- 14.8%, marketing -- 12.6%, and
publishing -- 5.7%.
The 14.8% growth in printing sales was driven by a 25.3% increase in journal
services sales, a 53.0% increase in specialty packaging sales, and a 13.2%
increase in sales of promotional printing. In addition, higher paper prices
accounted for 2.3% of the increase in fiscal 1995 printing sales. Excluding the
full-year impact of the Waverly Press acquisition, journal services sales
increased 9.2% due primarily to an increase in the number of titles. The
increase in specialty packaging sales was principally the result of growth from
existing customers.
The 12.6% increase in sales for the marketing group resulted from a 22.1%
growth in point-of-purchase revenues combined with a 5.4% increase in direct
marketing sales. In addition, the formation of Cadmus Interactive in the first
quarter of fiscal 1995 accounted for 22.0% of the overall increase in marketing
revenues. These increases were partially offset by a decline in marketing
services revenues due to the loss of a customer in fiscal 1994. This customer
entered into a new contract with the Company in late fiscal 1995. Effective June
30, 1995, the Company ceased operating two marketing services programs, Kids
Link and Sports Marketing, which together contributed $1.9 million to fiscal
1995 sales.
Publishing sales growth of 5.7% resulted from new titles and expanded product
circulation, an increased market share, and a 25.3% cover price increase for
Tuff Stuff magazine. New product circulation involved the introduction in March
1994 of Mid-Atlantic Soccer, a regional magazine focused on promoting youth
soccer. In addition, circulation of Tuff Stuff's Collect!, a magazine serving
the non-sports collectibles market, was expanded through an increase in the
frequency of distribution from bi-monthly to monthly. Market share expansion was
achieved through extensive telemarketing efforts within consumer publishing
despite a decline in sports card collecting due in part to the baseball strike.
Gross profit in fiscal 1995 was 25.1% of sales compared with 25.7% in fiscal
1994. The gross profit decline in fiscal 1995 was a result of increased paper
prices and a change in sales mix due to the full year impact of the acquisition
of Waverly Press, which had a relatively lower gross margin. Excluding Waverly
Press, the gross margin was 27.0% and 26.8% for fiscal 1995 and 1994,
respectively. The decline in gross profit was partially offset by approximately
$1.3 million in savings generated in fiscal 1995 from the restructuring and
transfer of the Company's Springfield, Virginia, composition and prepress
activities to Richmond, Virginia, and Baltimore, Maryland.
The Company's selling and administrative expenses as a percent of sales were
18.6% and 19.7% in fiscal 1995 and 1994, respectively. The decrease in the
selling and administrative expense ratio in fiscal 1995 was primarily
attributable to the full year impact of the acquisition of Waverly Press, which
had a lower selling and administrative expense ratio of 8.8%. In addition,
savings of approximately $0.3 million generated from the restructuring and
consolidation of composition and prepress facilities in Richmond, Springfield,
and Baltimore contributed to the decline in the selling and administrative
expense ratio in fiscal 1995.
The effective income tax rate of 41.0% in fiscal 1995 increased from 39.4% in
fiscal 1994 due to a one-time liability of $0.3 million arising from the sale of
the Company's fifty percent joint venture interest in CFP. Exclusive of the sale
transaction, the effective rate would have been 38.7%, a decrease attributable
to both higher levels of pretax income and a decrease in the overall state
effective tax rate.
Extraordinary Item
In December 1995, the Company retired $11.2 million principal of 9.76%
Senior Notes originally due June 2000 and recorded a $1.3 million ($0.8
million after tax) extraordinary loss relating to the early retirement
of this debt. The funds used for the debt retirement were provided from
the proceeds of the issuance of 1.725 million shares of the Company's
common stock.
Restructuring Charge
In the fourth quarter of fiscal 1994, the Company announced a plan to
restructure its journal services and specialty magazine printing divisions,
resulting in a one-time pretax charge of $1.9 million. This charge resulted from
reductions in the workforce related to the closing of the Company's
Springfield, Virginia, composition and prepress facility and the transfer of
these activities to the Richmond, Virginia, and Baltimore, Maryland,
facilities. These actions were substantially complete by June 30, 1995. During
fiscal 1995, the Company recognized pretax cost savings of $1.6 million,
primarily due to payroll-related savings.
The total original restructuring reserve of $1.9 million included costs
relating to employee separations, equipment write-downs, and other direct costs
relating to the restructuring. As of June 30, 1996, all restructuring costs had
been incurred and charged to the restructuring reserve.
LIQUIDITY AND CAPITAL RESOURCES
Management believes that the Company has the financial resources and access to
capital necessary to fund internal growth and acquisitions. The Company's major
demands on capital are for investments in property, plant, and equipment,
working capital, and acquisitions.
Net cash provided by operating activities in fiscal 1996 increased to $13.8
million from $5.4 million in fiscal 1995. The increase in funds available was
due primarily to reduced cash requirements to fund the Company's working
capital investment. As the rate of growth in inventory and accounts receivable
levels moderated in fiscal 1996, the amount of funds required to finance these
investments declined. Together, funds used to finance the Company's investment
in inventories and accounts receivable declined from $16.9 million in fiscal
1995 to $9.7 million in fiscal 1996. The Company continued to experience a
slowdown in its sales collection cycle, though the rate of the slowdown was
slightly improved from fiscal 1995. The slowdown in collections continues to
occur with selected product lines' Fortune 500 customers and does not reflect a
deterioration of the quality of the Company's overall receivables portfolio.
Net cash used in investing activities totaled $98.3 million in fiscal 1996,
as compared to $9.9 million in fiscal 1995, and included primarily the use of
$98.7 million to fund fiscal 1996 acquisitions and capital expenditures.
Capital investment in property, plant, and equipment totaled $25.3 million up
from fiscal 1995 expenditures of $21.0 million. Significant projects in fiscal
1996 included new presses for both Richmond and Baltimore manufacturing
facilities, a saddle stitcher and digital scanning equipment for one of the
Richmond manufacturing facilities, various prepress equipment for certain
facilities, an automated imposing platemaker for the magazine product line in
Richmond, a platesetter for the Easton manufacturing facility, and a die cutter
and gluer for the Charlotte manufacturing facility. The Company anticipates
that capital spending in fiscal 1997 will approximate $18.0 million.
Net cash provided by financing activities increased from $0.9 million in
fiscal 1995 to $85.4 million in fiscal 1996. This increase is attributable to
$38.4 million in net proceeds received from the issuance of 1.725 million shares
of the Company's common stock, and to $62.7 million of proceeds from long-term
borrowings used primarily to finance the acquisition of Lancaster. These
proceeds were partially offset by the use of these funds to repay $11.2 million
of 9.76% Senior Notes and the $1.3 million ($0.8 million after tax) prepayment
penalty, and to repay short-term borrowings which were used to finance seasonal
working capital needs.
Total debt at June 30, 1996 was $110.1 million, representing an increase of
$50.0 million from the $60.1 million at June 30, 1995. The increase in debt
relates to amounts borrowed to fund both
acquisitions and operations, offset by the retirement of the 9.76% Senior Notes.
The higher debt levels resulted in a slight increase in the Company's
debt-to-capital ratio from 49.3% at June 30, 1995 to 50.6% at June 30, 1996. At
June 30, 1996, borrowings under the Company's $115.0 million credit facility
totaled $60.0 million, leaving an unused balance of $55.0 million. Borrowings
under this agreement had a weighted average interest rate of approximately
5.97%.
In January 1996, the Company entered into an agreement for a revolving credit
facility of $85.0 million with four major banks, replacing the former $25.0
million revolving credit facilities. In June 1996, the $85.0 million agreement
was replaced with a $115.0 million committed revolving credit/term loan facility
with the same four major banks. The $115.0 million agreement is composed of an
$85.0 million revolving credit facility which has a five-year term, expiring in
June 2001, and a $30.0 million seven-year term loan expiring in May 2003. The
Company has the following interest rate options: (i) LIBOR; (ii) prime rate or
(iii) money market rate. The $85.0 million revolving credit facility requires
commitment fees of 1/8 to 1/4 of 1% per annum on the total facility. At June 30,
1996, borrowings under each of the term and the revolving credit facility
totaled $30.0 million.
During fiscal 1996, the Company entered into two interest rate swap agreements
with notional amounts of $22.5 million and $7.5 million. Together these swaps,
which expire in May 2003, effectively convert $30.0 million of variable-rate
debt to fixed-rate debt. Under the terms of these agreements, the Company makes
payments at a fixed rate of 6.54% and receives payments based on 30-day LIBOR.
The net interest paid or received is included in interest expense. At June 30,
1996, the fair value of these contracts was $0.3 million.
During fiscal 1995, the Company entered into two interest rate swap agreements
with two banks to convert debt with an initial aggregate notional amount of $8.7
million from floating-rate to fixed-rate debt. The notional amount of these
swaps, which have terms of four years, was $17.9 million at June 30, 1996. Under
the terms of these agreements, the Company makes payments at a fixed interest
rate of 8.061% and will receive payments based on six-month LIBOR in arrears.
The net interest paid or received is included in interest expense. These swaps
are hedged against the $35.0 million of 6.74% Senior Notes which were originally
converted to floating-rate debt in fiscal 1994. At June 30, 1996, the fair value
of these contracts was negative $0.6 million.
In fiscal 1994, the Company entered into a fixed-to-floating interest rate
swap agreement with a bank with a notional amount of $35.0 million to convert
that amount of the 6.74% Senior Notes due in 2003, to floating-rate debt. This
swap has an initial term of three years which is renewable at the bank's option
for an additional two years. Under the terms of this agreement, the Company
makes payments at variable rates which are based on six-month LIBOR and receives
payments at a fixed interest rate of 5.265%. The net interest paid or received
is included in interest expense. At June 30, 1996, the variable rate was 5.8125%
and the fair value of this contract was negative $1.1 million.
In November 1995, the Company completed the issuance of an additional 1.725
million shares of common stock through a public offering, resulting in net
proceeds (after deducting issuance costs) of $38.4 million. The Company used the
net proceeds to (i) repay the $11.2 million of 9.76% Senior Notes due in June
2000, plus a $1.3 million prepayment penalty, (ii) fund the cash portion of the
acquisition costs of the assets of The Software Factory, Inc. and two smaller
acquisitions, and (iii) repay short-term borrowings used to fund seasonal
working capital needs.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Cadmus Communications Corporation and Subsidiaries
SELECTED QUARTERLY DATA (unaudited)
(In thousands, except per share data)
1996 QUARTERS ENDED Sept. 30 Dec. 31 March 31 June 30
Net sales $74,673 $85,835 $84,362 $91,785
Gross profit 17,870 20,745 17,786 21,168
Operating income 3,952 5,757 2,281 4,375
Income before extraordinary item 1,516 2,736 754 1,498
Net income 1,516 1,941 754 1,498
Earnings per share:
Income before extraordinary item $ .24 $ .38 $ .09 $ .19
Net income .24 .26 .09 .19
Cash dividends per share .05 .05 .05 .05
Stock market price data:
High $27 1/4 $29 7/8 $29 1/2 $18 7/8
Low 22 1/4 24 16 7/8 13 1/4
Close 25 27 17 1/8 15 3/8
1995 QUARTERS ENDED Sept. 30 Dec. 31 March 31 June 30
Net sales $60,383 $67,237 $74,846 $77,175
Gross profit 13,752 16,793 19,438 20,243
Operating income 2,755 4,238 5,482 5,579
Net income 974 1,784 2,068 2,653
Net income per share $ .16 $ .29 $ .33 $ .43
Cash dividends per share .05 .05 .05 .05
Stock market price data:
High $18 3/4 $18 3/4 $19 1/4 $24 3/4
Low 15 14 7/8 14 1/2 17
Close 18 1/2 15 3/4 18 3/4 23 5/8
Cadmus Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
(In thousands, except per share data) Years Ended June 30,
1996 1995 1994
Net sales $336,655 $279,641 $247,730
Operating expenses:
Cost of sales 259,086 209,415 184,088
Selling and administrative 61,204 52,172 48,824
Restructuring charge -- -- 1,900
320,290 261,587 234,812
Operating income 16,365 18,054 12,918
Interest and other expenses:
Interest 5,144 5,351 4,813
Other, net 813 21 172
5,957 5,372 4,985
Income before income taxes, extraordinary
item, and cumulative effect of changes
in accounting principles 10,408 12,682 7,933
Income taxes 3,904 5,203 3,126
Income before extraordinary item and
cumulative effect of changes in
accounting principles 6,504 7,479 4,807
Extraordinary loss on early extinguishment
of debt (net of income tax benefit of $487) (795) -- --
Cumulative effect of changes in
accounting for:
Postretirement benefits (net of
income tax benefit of $355) -- -- (532)
Income taxes -- -- 933
Net income $ 5,709 $ 7,479 $ 5,208
Earnings per share:
Income before extraordinary item and
cumulative effect of changes
in accounting principles $ .87 $ 1.21 $ .79
Extraordinary loss on early extinguishment
of debt (.11) -- --
Cumulative effect of changes in
accounting for postretirement
benefits and income taxes -- -- .07
Net income $ .76 $ 1.21 $ .86
Weighted average common shares outstanding 7,495 6,195 6,085
See accompanying Notes to Consolidated Financial Statements.
Cadmus Communications Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
[CAPTION]
(In thousands, except share data) At June 30,
ASSETS 1996 1995
Current assets:
Cash and cash equivalents $ 1,141 $ 226
Accounts receivable, less allowance for doubtful
accounts ($2,310 in 1996 and $1,153 in 1995) 76,889 57,204
Inventories 23,486 16,308
Deferred income taxes 2,150 1,092
Prepaid expenses and other 6,062 1,489
Total current assets 109,728 76,319
Property, plant, and equipment, net 116,365 84,570
Goodwill, net 52,846 8,281
Other assets 3,824 2,400
TOTAL ASSETS $282,763 $171,570
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 3,323 $ 3,775
Current maturities of long-term debt 136 2,381
Accounts payable 26,361 18,818
Accrued expenses 20,351 18,932
Total current liabilities 50,171 43,906
Long-term debt 106,665 53,961
Other long-term liabilities 9,555 7,180
Deferred income taxes 8,804 4,641
Commitments and contingencies
Shareholders' equity:
Common stock ($.50 par value; authorized shares
-16,000,000; issued and outstanding shares
-7,908,000 in 1996 and 6,030,000 in 1995) 3,954 3,015
Capital in excess of par value 52,971 12,448
Retained earnings 50,643 46,419
Total shareholders' equity 107,568 61,882
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $282,763 $171,570
See accompanying Notes to Consolidated Financial Statements.
Cadmus Communications Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) Years Ended June 30,
1996 1995 1994
OPERATING ACTIVITIES
Net income $ 5,709 $ 7,479 $ 5,208
Adjustments to reconcile net income to net
cash provided by operating activities:
Extraordinary loss on early extinguishment of debt 795 -- --
Cumulative effect of changes in accounting for:
Postretirement benefits -- -- 532
Income taxes -- -- (933)
Depreciation and amortization 14,563 12,132 11,474
Restructuring charge -- -- 1,900
Deferred income taxes 1,784 2,080 284
Other, net 1,942 1,010 657
24,793 22,701 19,122
Changes in working capital sources (requirements),
excluding debt and effects of acquisitions:
Accounts receivable, net (7,064) (11,999) (2,515)
Inventories (2,596) (4,897) 2,780
Accounts payable and accrued expenses 1,680 624 6,959
Other, net (2,993) (1,069) (353)
(10,973) (17,341) 6,871
Net cash provided by operating activities 13,820 5,360 25,993
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (25,289) (20,959) (11,742)
Proceeds from sales of property and equipment 651 3,610 502
Sale of unconsolidated joint venture -- 6,800 --
Proceeds from life insurance loans 306 2,940 159
Payments for businesses acquired (73,372) (1,519) (19,740)
Other, net (609) (740) (181)
Net cash used in investing activities (98,313) (9,868) (31,002)
FINANCING ACTIVITIES
Proceeds from stock offering, net 38,376 -- --
Retirement of long-term debt (11,200) -- --
Penalty on early extinguishment of debt (1,282) -- --
Proceeds from short-term borrowings 33,048 79,825 43,709
Repayment of short-term borrowings (33,500) (76,050) (47,709)
Proceeds from long-term borrowings 62,724 111 40,069
Repayment of long-term borrowings (1,302) (2,250) (28,112)
Dividends paid (1,485) (1,201) (1,192)
Proceeds from exercise of stock options 631 449 220
Other, net (602) (5) (327)
Net cash provided by financing activities 85,408 879 6,658
Increase (decrease) in cash and cash equivalents 915 (3,629) 1,649
Cash and cash equivalents at beginning of year 226 3,855 2,206
Cash and cash equivalents at end of year $ 1,141 $ 226 $ 3,855
See accompanying Notes to Consolidated Financial Statements.
Cadmus Communications Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation. The consolidated financial statements include the
accounts and operations of Cadmus Communications Corporation and Subsidiaries
(the "Company"), a Virginia corporation. All significant intercompany accounts
and transactions have been eliminated in consolidation.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Nature of Operations. The Company is a graphic communications company operating
primarily on the East Coast, offering specialized products and services to
domestic markets in three broad areas: printing, marketing, and publishing.
Revenue Recognition. Substantially all printing, marketing, and publishing
products are produced to customer specifications. The Company recognizes revenue
when service projects are completed or products are shipped.
Cash and Cash Equivalents. Cash and cash equivalents include all cash balances
and highly liquid investments with an original maturity of three months or less.
Inventories. Inventories are valued at the lower of cost or market. Inventory
costs have been determined by the first-in, first-out (FIFO) method for 69.8%
(at June 30, 1996) and 50.8% (at June 30, 1995) of inventories. Costs for the
remaining inventories have been determined by the last-in, first-out (LIFO)
method.
Property, Plant, and Equipment. Property, plant, and equipment are stated at
cost net of accumulated depreciation. Major renewals and betterments are
capitalized, whereas ordinary maintenance and repair costs are expensed as
incurred. Gains or losses on disposition of assets are reflected in earnings,
and the related asset costs and accumulated depreciation are removed from the
respective accounts. Depreciation is calculated by the straight-line method
based on useful lives of 30 years for buildings and three to ten years for
machinery, equipment, and fixtures.
Goodwill. Goodwill includes the costs in excess of purchase price over net
assets of businesses acquired and is being amortized by the straight-line method
over periods of 15 to 40 years. The carrying value of goodwill is periodically
reviewed, and if there is evidence that these values are impaired, the Company's
carrying value of goodwill would be reduced to its estimated fair value.
Accumulated amortization was $5.0 million and $3.8 million at June 30, 1996 and
1995, respectively.
Income Taxes. Effective July 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes." SFAS No.
109 requires the liability method of accounting for deferred income taxes,
whereby enacted statutory tax rates are applied to the differences between the
financial reporting and tax bases of assets and liabilities (see Note 7).
Earnings Per Share. Earnings per share is computed on the basis of weighted
average common shares outstanding and common equivalent shares in the form of
stock options.
Reclassifications. Certain previously reported amounts have been reclassified to
conform to current year presentation.
2. ACQUISITIONS
Lancaster Press, Inc. and Subsidiary
In May 1996, the Company acquired all of the outstanding stock of Lancaster
Press, Inc. and Subsidiary ("Lancaster"), a Pennsylvania-based producer of
scientific, technical, and medical journals, for total consideration, including
assumed debt and transaction costs, of approximately $58.7 million. Goodwill of
$31.3 million is being amortized by the straight-line method over 40 years. The
acquisition was funded by borrowings under the Company's revolving credit/term
loan facility with its banks (see Note 6).
The Software Factory, Inc.
In November 1995, the Company acquired substantially all the assets and assumed
certain liabilities of The Software Factory, Inc. (the "Software Factory"), an
Atlanta-based provider of software packaging and media duplication services. The
$14.1 million purchase price consisted of 79,681 shares of the Company's common
stock, at an aggregate value of $2.0 million, and $12.1 million in cash
payments, including direct acquisition costs. Goodwill of $12.5 million is being
amortized by the straight-line method over 20 years.
Other Fiscal 1996 Acquisitions
In the first quarter of fiscal 1996, the Company acquired the assets of Na-Tex,
Inc. ("Na-Tex"), the publisher of Collector's World of Racing (subsequently
named Tuff Stuff's RPM), and acquired certain assets of The Mowry Company
("Mowry"), a direct marketing agency located in Long Beach, California. In
addition, in the second quarter of fiscal 1996 the Company acquired the assets
of PeachWeb Corp. ("PeachWeb"), a developer of Internet web sites and acquired
the assets of the Atlanta division of Encryption Technology Corporation
("ETC"), a provider of software packaging, media duplication, and documentation
services. Total cash paid for these four acquisitions was $3.4 million.
Goodwill of $1.5 million is being amortized by the straight-line method over
lives ranging from 15 to 20 years. The Na-Tex, Mowry, PeachWeb, and ETC
acquisitions were not material, either individually or in the aggregate, to the
Company's consolidated financial statements taken as a whole. The funds used to
acquire the Software Factory, ETC, and PeachWeb were provided from the proceeds
of the issuance of 1.725 million shares of the Company's common stock (see Note
10).
All fiscal 1996 acquisitions were accounted for under the purchase method, and
accordingly, the costs of the acquisitions were allocated to the assets acquired
and liabilities assumed based on their respective fair values. The results of
operations of each of the acquired companies have been included in the Company's
consolidated results of operations since each respective date of acquisition.
The unaudited consolidated results of operations on a pro forma basis, as
though the Software Factory and Lancaster had been acquired as of the beginning
of fiscal 1996 and 1995, are as follows:
(In thousands, except per share data) 1996 1995
Revenues $391,804 $343,302
Income before extraordinary item 8,372 10,398
Net income 7,577 9,018
Earnings per share:
Income before extraordinary item $ 1.12 $ 1.66
Net income 1.01 1.44
Acquisition of Waverly Press
In November 1993, the Company acquired the net assets of the Waverly Press
printing division ("Waverly Press") from Waverly, Inc. for approximately $20.0
million, which was funded through the placement of senior notes with two
insurance companies (see Note 6). Waverly Press, a leading printer of
scientific, technical, and medical journals, was renamed Cadmus Journal
Services, Inc. ("Cadmus Journal Services"), following the acquisition. The
acquisition was accounted for under the purchase method, and accordingly, the
costs of the acquisition were allocated to the assets acquired and liabilities
assumed based upon their respective fair values. The operating results of
Waverly Press have been included in the consolidated results of operations since
the date of acquisition.
3. INVENTORIES
Inventories at June 30, 1996 and 1995 consist of the following:
(In thousands) 1996 1995
Raw materials and supplies $ 7,345 $ 6,044
Work in process:
Materials 5,356 3,270
Other manufacturing costs 7,937 5,315
Finished goods 2,848 1,679
Inventories $23,486 $16,308
If the FIFO inventory valuation method had been used exclusively, inventories
would have been $1.9 million and $1.8 million higher at June 30, 1996 and 1995,
respectively.
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at June 30, 1996 and 1995 consist of the
following:
(In thousands) 1996 1995
Land $ 4,072 $ 2,866
Buildings and improvements 49,305 39,844
Machinery, equipment, and fixtures 150,462 118,649
Total property, plant, and equipment 203,839 161,359
Less: Accumulated depreciation 87,474 76,789
Property, plant, and equipment, net $116,365 $ 84,570
Commitments outstanding for capital expenditures at June 30, 1996 totaled $3.4
million.
The Company leases office, production and storage space, and equipment under
various noncancelable operating leases. A number of leases contain renewal
options and some contain purchase options. Certain leases require the Company to
pay utilities, taxes, and other operating expenses.
Future minimum rental payments required under operating leases that have initial
or remaining noncancelable lease terms in excess of one year as of June 30, 1996
are as follows: 1997 - $5.2 million; 1998 - $5.1 million; 1999 - $4.9 million;
2000 - $3.2 million; 2001 - $2.4 million; and thereafter - $7.1 million.
Total rental expense charged to operations was $5.7 million, $4.1 million, and
$3.0 million in fiscal 1996, 1995, and 1994, respectively. Substantially all
such rental expense represented the minimum rental payments under operating
leases.
In September 1994, the Company sold the land, building, and building
improvements of Three Score, Inc., in Tucker, Georgia, for $2.9 million (which
approximated net book value) under sale and leaseback agreements. The lease is
classified as an operating lease in accordance with SFAS No. 13, "Accounting for
Leases." The Company has lease renewal options after the initial 15 year lease
term at projected future fair market values under the lease. Average annual
rental payments on the lease are $0.3 million.
5. OTHER BALANCE SHEET INFORMATION
Accrued expenses at June 30, 1996 and 1995 consist of the following:
(In thousands) 1996 1995
Compensation $10,181 $10,905
Deferred revenue 6,598 5,174
Other 3,572 2,853
Accrued expenses $20,351 $18,932
Other long-term liabilities consist principally of amounts recorded under
deferred compensation arrangements with certain executive officers and other
employees and amounts recorded under the pension and other postretirement
benefit plans (see Notes 8 and 9).
6. DEBT
Long-term debt at June 30, 1996 and 1995 consists of the following:
(In thousands) 1996 1995
Long-term debt:
Revolving credit/term loan facility $ 60,000 $ --
Senior unsecured notes, 6.74%, due 2003 40,000 40,000
Senior unsecured notes, 9.76%, retired December 1995 -- 11,200
Tax-exempt variable rate industrial development bonds, weighted
average interest rates of 3.8% to 5.1%, due serially through
2011 3,315 4,482
Mortgage payable, 10%, due 2002 2,718 --
Various other notes 768 660
Total long-term debt 106,801 56,342
Less: Current maturities of long-term debt 136 2,381
Long-term debt $106,665 $53,961
In January 1996, the Company entered into an agreement for a revolving credit
facility of $85.0 million with four major banks, replacing the former $25.0
million revolving credit facilities. In June 1996, the $85.0 million agreement
was replaced with a $115.0 million committed revolving credit/term loan facility
with the same banks. The $115.0 million agreement is composed of an $85.0
million revolving credit facility which has a five-year term, expiring in June
2001, and a $30.0 million seven-year term loan expiring in May 2003. The Company
has the following interest rate options: (i) LIBOR; (ii) prime rate or (iii)
money market rate. The $85.0 million revolving credit facility requires
commitment fees of 1/8 to 1/4 of 1% per annum on the total facility. At June 30,
1996, borrowings under each of the term loan and the revolving credit facility
totaled $30.0 million.
During fiscal 1994, the Company entered into agreements for revolving credit
facilities aggregating $25.0 million with its four major banks, replacing the
former lines of credit. These unsecured, committed lines of credit had a
three-year term that would have expired in February 1997, at which time any
loans outstanding under the facilities would have converted to term loans with a
two-year maturity. The Company had the following interest rate options: (i)
adjusted CD rate or (ii) adjusted LIBOR. These agreements also required
commitment fees of 1/4 to 1/2 of 1% per annum on any unused portion of the lines
of credit. At June 30, 1995, borrowings under these revolving credit facilities,
which are included in short-term borrowings on the Consolidated Balance Sheets,
totaled $3.8 million, leaving an unused balance of $21.2 million. In January
1996, these revolving credit facilities were replaced with the $85.0 million
revolving credit facility.
Short-term borrowings as of June 30, 1996 consist of $3.3 million under the
Company's short-term uncommitted line of credit. The interest rate under this
line of credit was 6.625% at June 30, 1996. No debt was outstanding under this
agreement as of June 30, 1995.
In December 1995, the Company retired $11.2 million principal of 9.76% Senior
Notes originally due June 2000 and recorded a $1.3 million ($0.8 million after
tax) extraordinary loss relating to the early retirement of this debt. The funds
used for the debt retirement were provided from the proceeds of the issuance of
1.725 million shares of the Company's common stock (see Note 10).
In December 1993, the Company completed the placement of $40.0 million in senior
unsecured notes with two insurance companies. The notes have a fixed interest
rate of 6.74%, with an average life of 8.1 years and are due in 2003. The
proceeds of this placement were used to fund the acquisition of Waverly Press
and to refinance approximately $20.0 million of revolving bank credit and term
loans.
The Company periodically enters into interest rate swap agreements to moderate
its exposure to interest rate changes and to lower the overall cost of
borrowing. During fiscal 1996, the Company entered into two interest rate swap
agreements with notional amounts of $22.5 million and $7.5 million. Together
these swaps, which expire in May 2003, effectively convert $30.0 million of
variable-rate debt to fixed-rate debt. Under the terms of these agreements, the
Company makes payments at a fixed rate of 6.54% and receives payments based on
30-day LIBOR. The net interest paid or received is included in interest expense.
At June 30, 1996, the fair value of these contracts was $0.3 million.
During fiscal 1995, the Company entered into two interest rate swap
agreements with two banks to convert debt with an initial aggregate
notional amount of $8.7 million from floating-rate to fixed-rate debt.
The notional amount of these swaps, which have terms of four years, was
$17.9 million at June 30, 1996. Under the terms of these agreements, the
Company makes payments at a fixed interest rate of 8.061% and will
receive payments based on six-month LIBOR in arrears. The net interest
paid or received is included in interest expense. These swaps are hedged
against the $35.0 million of 6.74% Senior Notes which were originally
converted to floating-rate debt in fiscal 1994 as discussed below. At
June 30, 1996 and 1995, the fair value of these contracts was negative
$0.6 million and negative $0.9 million, respectively.
In fiscal 1994, the Company entered into a fixed-to-floating interest
rate swap agreement with a bank with a notional amount of $35.0 million
to convert that amount of the 6.74% Senior Notes due in 2003 to
floating-rate debt. This swap has an initial term of three years, which
is renewable at the bank's option for an additional two years. Under the
terms of this agreement, the Company makes payments at variable rates
which are based on six-month LIBOR and receives payments at a fixed
interest rate of 5.265%. The net interest paid or received is included
in interest expense. At June 30, 1996, the variable rate was 5.8125%.
The fair value of this contract was negative $1.1 million and negative
$1.2 million at June 30, 1996 and 1995, respectively.
During fiscal 1990, the Company entered into two interest rate swap agreements
with an initial notional amount of $10.0 million, which expired in December
1995. The swap agreements originally converted certain variable-rate term loans
into fixed-rate obligations with a fixed rate of 9.01%. Under the terms of these
agreements, the Company made payments at a fixed interest rate of 8.34% and
received payments at variable rates which were based on LIBOR. The net interest
paid or received was included in interest expense. In fiscal 1994, the Company
repaid the balance of these term loans and utilized these swap agreements as a
hedge against the $35.0 million floating-rate swap mentioned above. At June 30,
1995, the fair value of this contract was negative $0.1 million.
The notional amounts and applicable rates of the Company's interest rate swap
agreements are as follows:
Paid Fixed, Paid Floating,
Received Floating Received Fixed
(In thousands) 1996 1995 1994 1996 1995 1994
Notional amount:
Beginning balance $17,375 $ 9,125 $10,000 $35,000 $35,000 $ --
New contracts 37,900 10,000 -- -- -- 35,000
Expired contracts (7,375) (1,750) (875) -- -- --
Ending balance $47,900 $17,375 $ 9,125 $35,000 $35,000 $35,000
Weighted Average
Interest Rates
Type of swap: Paid Received
Paid fixed, received floating 7.728 % 5.754%
Paid floating, received fixed 6.038 % 5.265%
Hedging activities increased interest expense by $0.7 million in fiscal 1996 and
1995, and by $0.5 million in fiscal 1994.
The notional amount of the swap contracts does not represent exposure to credit
loss. In the event of default by the counterparties, the risk, if any, in these
transactions is the cost of replacing the swap agreement at current market
rates. The Company continually monitors its positions and the credit ratings of
its counterparties and limits the amount of agreements it enters into with any
one party. Management does not anticipate nonperformance by the counterparties;
however, if incurred, any such loss would be immaterial.
The fair value of long-term debt as of June 30, 1996 and 1995 was $105.8 million
and $53.9 million, respectively, based on the market value of debt with similar
maturities and covenants.
The Company's debt agreements contain covenants regarding fixed charge coverage
and net worth and contain other restrictions, including limitations of
additional borrowings, the acquisition, disposition and securitization of
assets, and payments of dividends to shareholders. Under the terms of the
various debt instruments, retained earnings of approximately $48.7 million at
June 30, 1996 is available for cash dividends and stock acquisitions.
Maturities of long-term debt for the five years ending June 30, 2001 are as
follows: 1997 - $0.1 million; 1998 - $1.6 million; 1999 - $9.0 million; 2000 -
$10.5 million; and 2001 - $42.1 million. The book value of all encumbered
properties as of June 30, 1996 totaled $4.5 million.
The Company incurred interest expense of $5.4 million, $5.5 million, and $4.8
million for fiscal 1996, 1995, and 1994, respectively, of which $0.3 million for
1996, and $0.1 million for 1995 were capitalized. Interest paid, net of amounts
capitalized, totaled $5.0 million, $5.3 million, and $4.8 million for fiscal
1996, 1995, and 1994, respectively.
7. INCOME TAXES
Effective July 1993, the Company adopted SFAS No. 109, "Accounting for Income
Taxes." SFAS No. 109 requires the liability method of accounting for deferred
income taxes, whereby enacted statutory tax rates are applied to the differences
between the financial reporting and tax bases of assets and liabilities. The
cumulative effect of the change in accounting principle was a reduction in the
deferred income tax liability and a corresponding increase in net income of $0.9
million in fiscal 1994.
Income tax expense, for the years ended June 30, 1996, 1995, and 1994,
consists of the following:
(In thousands) 1996 1995 1994
Current:
Federal $2,139 $3,052 $2,313
State 418 297 360
Total current 2,557 3,349 2,673
Deferred:
Federal 1,176 1,743 133
State 171 111 320
Total deferred 1,347 1,854 453
Income taxes $3,904 $5,203 $3,126
The amounts of income tax expense differ from the amounts obtained by
application of the statutory U.S. rates to income before income taxes,
extraordinary item, and cumulative effect of changes in accounting principles
for the reasons shown in the following table:
(In thousands) 1996 1995 1994
Computed at statutory U.S. rate $3,539 $4,312 $2,697
State income taxes, net of Federal tax benefit 388 269 449
Goodwill amortization 251 221 242
Charitable contribution -- -- (127)
Research tax credit (217) -- --
Sale of joint venture -- 295 --
Other (57) 106 (135)
Income taxes $3,904 $5,203 $3,126
Cash paid for income taxes totaled $2.4 million, $3.3 million, and $3.0 million
for fiscal 1996, 1995, and 1994, respectively.
The net current and noncurrent components of deferred income taxes included in
the Consolidated Balance Sheets at June 30, 1996 and 1995 are as follows:
(In thousands) 1996 1995
Net current assets $2,150 $1,092
Net noncurrent liabilities 8,804 4,641
Net liability $6,654 $3,549
The Company has state net operating loss carryforwards aggregating approximately
$29.8 million, which expire during fiscal years 2004 to 2011. A valuation
allowance of $0.4 million has been established for state net operating loss
benefits that are not expected to be realized.
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities in the Consolidated Balance Sheets at June
30, 1996 and 1995 are as follows:
(In thousands) 1996 1995
Assets:
Allowance for doubtful accounts $ 784 $ 368
Inventories 274 135
Employee benefits 3,363 3,056
State net operating loss carryforwards 891 501
Debt discount 236 --
Other -- 77
Gross deferred tax assets 5,548 4,137
Liabilities:
Property, plant, and equipment 11,603 7,230
Other 187 182
Gross deferred tax liabilities 11,790 7,412
Less: Valuation allowance 412 274
Net liability $6,654 $3,549
8. RETIREMENT PLANS
Retirement benefits are provided to substantially all employees principally
through a noncontributory, defined benefit pension plan ("Core Plan") and a
thrift savings plan. The Core Plan benefits are based on the plan provisions
relating to employees' compensation and years of service. Assets under the plans
consist of marketable securities, including common stock of the Company of $1.5
million as of
August 1996, and are held in trust funds managed by independent investment
advisors. These plans are qualified plans under the Internal Revenue Code. The
policy of the Company is to fund the Core Plan at amounts not less than the
minimum requirements of the Employee Retirement Income Security Act of 1974. A
supplementary nonqualified, nonfunded pension plan ("Supplemental Plan") for
certain key executives is also maintained and is provided for by charges to
earnings sufficient to meet the projected benefit obligation. The pension cost
for this plan is based on substantially the same actuarial assumptions as those
used for the Core Plan.
The components of net pension costs for fiscal 1996, 1995, and 1994 follow:
Core Plan Supplemental Plan
(In thousands) 1996 1995 1994 1996 1995 1994
Present value of benefits earned $ 1,940 $ 1,685 $ 1,056 $ 70 $ 78 $ 80
Interest cost on plan liabilities 1,979 1,647 1,419 326 299 237
Return on plan assets:
Actual (4,522) (2,257) (14) -- -- --
Deferred 2,382 371 (1,921) -- -- --
Amortization of transition (asset) obligation (180) (180) (215) 76 68 37
Net pension costs $ 1,599 $ 1,266 $ 325 $472 $445 $354
The actuarial assumptions used in determining net pension cost and the related
benefit obligations for the Core Plan were as follows:
1996 1995 1994
Discount rate for liabilities 8.25% 8.50% 8.50%
Discount rate for expenses 8.25% 8.50% 8.50%
Rate of increase in compensation 4.50% 4.50% 4.50%
Long-term rate of return on plan assets 9.00% 9.00% 9.00%
A summary of the funded status of the pension plans at June 30, 1996 and 1995
follows:
Supplemental
Core Plan Plan
(In thousands) 1996 1995 1996 1995
Plan assets at market value $27,771 $24,192 $ * $ *
Plan liabilities:
Present value of benefit obligation:
Vested 22,882 18,896 2,816 2,886
Nonvested 1,558 637 541 411
Accumulated benefit obligation 24,440 19,533 3,357 3,297
Adjustment for future salary increases 4,244 4,154 634 637
Projected benefit obligation 28,684 23,687 3,991 3,934
(Excess) deficiency of plan assets over plan liabilities 913 (505) 3,991 3,934
Unrecognized transition asset (obligation) 2,269 2,449 (798) (838)
Adjustment required to reflect minimum liability -- -- 17 219
Unrecognized gains (losses) 282 (79) 69 (65)
Accrued pension costs $ 3,464 $ 1,865 $3,279 $3,250
*The Supplemental Plan is technically a nonfunded plan; however, the Company has
acquired life insurance contracts, in the approximate amount of $14.6 million
and $14.5 million at June 30, 1996 and 1995, respectively, intended to be
adequate to fund future benefits. The cash surrender value of these contracts,
net of policy loans, was $1.2 million and $1.1 million at June 30, 1996 and
1995, respectively, and is included in other assets in the Consolidated Balance
Sheets.
The Company made the required cash contributions to the Core Plan of $2.8
million and $1.4 million for fiscal 1996 and 1995, respectively. Due to the
overfunded status, no contributions were made for fiscal 1994.
The thrift savings plan enables employees to save a portion of their earnings on
a tax-deferred basis and also provides for matching contributions from the
Company for a portion of the employees' savings. Additionally, the plan provides
for individual subsidiary companies to make profit-sharing contributions. The
Company's expense under this plan was $1.8 million, $1.5 million, and $1.1
million for fiscal 1996, 1995, and 1994, respectively.
9. OTHER POSTRETIREMENT BENEFITS
All employees of the Company are eligible for retiree medical coverage if they
retire on or after attaining age 55 with ten or more years of service. Benefits
differ depending upon the date of retirement. For those employees who retired
prior to April 1, 1988, and are under age 65, coverage is available at a cost to
the retiree equal to the cost to the Company for an active employee less the
fixed company subsidy. Once employees in this group have reached age 65,
coverage is available at a cost to the retiree equal to the cost to the Company
for a post-65 retiree less the fixed company subsidy.
For those employees who retired on or after April 1, 1988, but before January 1,
1994, coverage is available until the earlier of the retiree's death or
attainment of age 65. The retiree contributes the full active rate. Upon
reaching age 65, coverage under the Company's plan ceases and the retiree
becomes covered by Medicare.
For those employees who retire on or after January 1, 1994, coverage is
available until the earlier of the death of the retiree or attainment of age 65.
The retiree contributes the full retiree rate, which is equal to the cost to the
Company for a pre-65 retired employee. Upon reaching age 65, coverage under the
Company's plan ceases, and the retiree becomes covered by Medicare.
Effective July 1993, the Company adopted SFAS No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions." SFAS No. 106 requires
recognition of the cost of postretirement benefits during the employees' service
periods. Previously, such expenses were accounted for on a cash basis. The
Company elected to immediately recognize the liability for prior years' service
as the cumulative effect of a change in accounting principle. Accordingly, in
the first quarter of 1994, the Company recorded an accumulated postretirement
benefit obligation ("APBO") and a corresponding charge to net income of $0.9
million and a noncurrent deferred income tax benefit of $0.4 million, resulting
in an after-tax charge of $0.5 million. This is an unfunded plan.
The APBO existing at July 1, 1996 was $0.2 million. The discount rate used in
determining the APBO was 8.25%. An 11% rate of increase in the per capita cost
of covered health care benefits was assumed for fiscal 1996, with the rates
gradually decreasing to 5.5% in the year 2003 and remaining level thereafter. A
one percentage-point increase in the assumed health care cost trend rates would
not change the APBO.
10. SHAREHOLDERS' EQUITY
Shareholders' equity consists of the following:
(Dollars in thousands, except Common Stock Capital in Excess Retained
per share data) Shares Amount of Par Value Earnings
Balance at June 30, 1993 5,948,000 $2,974 $11,594 $36,125
Net income -- -- -- 5,208
Cash dividends - $.20 per share -- -- -- (1,192 )
Net shares issued upon exercise of
stock options 36,000 18 202 --
Balance at June 30, 1994 5,984,000 2,992 11,796 40,141
Net income -- -- -- 7,479
Cash dividends - $.20 per share -- -- -- (1,201 )
Net shares issued upon exercise of
stock options 46,000 23 652 --
Balance at June 30, 1995 6,030,000 3,015 12,448 46,419
Net income -- -- -- 5,709
Cash dividends - $.20 per share -- -- -- (1,485 )
Issuances of stock 1,805,000 902 39,459 --
Net shares issued upon exercise of
stock options 73,000 37 1,064 --
Balance at June 30, 1996 7,908,000 $3,954 $52,971 $50,643
In November 1995, the Company completed the issuance of an additional 1.725
million shares of the Company's common stock through a public offering,
resulting in net proceeds (after deducting issuance costs) of $38.4 million. The
Company used the net proceeds to (i) repay the $11.2 million of 9.76% Senior
Notes due in June 2000, plus a $1.3 million ($0.8 million after tax) prepayment
penalty, (ii) fund the cash portion of the acquisition costs of the assets of
the Software Factory, ETC, and PeachWeb, and (iii) repay short-term borrowings
used to fund seasonal working capital needs.
In February 1989, as part of a shareholder rights plan, the Board of Directors
declared a dividend distribution of one preferred share purchase right for each
outstanding share of common stock. Each right entitles the shareholder to buy
one unit (one one-thousandth of a share) of Series A Preferred Stock at a
purchase price of $45 per share (the "Purchase Price"), subject to adjustment.
The rights will become exercisable initially if a person or group acquires or
announces a tender offer for 20% or more of the Company's common stock
("Acquiring Person"), at which time each right will be exercisable to purchase
one unit of Series A Preferred at the Purchase Price. At any time after a person
becomes an Acquiring Person, the Company may issue a share of common stock in
exchange for each right other than those held by the Acquiring Person. If an
Acquiring Person acquires 30% or more of the Company's common stock or an
Acquiring Person merges into or combines with the Company, each right will
entitle the holder, other than the Acquiring Person, upon payment of the
Purchase Price, to acquire Series A Preferred or, at the option of the Company,
common stock, having a market value equal to twice the Purchase Price. If the
Company is acquired in a merger or other business combination in which it does
not survive or if 50% of its earnings power is sold, each right will entitle the
holder, other than the Acquiring Person, to purchase securities of the surviving
company having a market value equal to twice the Purchase Price. Unless redeemed
earlier, the rights expire on February 13, 1999. The rights may be redeemed by
the Board of Directors at any time prior to the tenth day after a person becomes
an Acquiring Person, subject to the Board of Directors' ability to extend or
reinstate the redemption period under certain circumstances. The rights may have
certain anti-takeover effects. An Acquiring Person will experience substantial
dilution under certain circumstances. However, the rights should not interfere
with any merger or other business combination approved by the Board of Directors
because the rights are generally redeemable at the discretion of the Board.
The Board of Directors has authorized the purchase of up to 200,000 shares of
the Company's stock from time to time on the open market. The shares, if and
when purchased, may be used for the funding of employee benefit plans. As of
June 30, 1996, 133,000 shares had been repurchased under this authorization.
In addition to its common stock, the Company's authorized capital includes
1,000,000 shares of preferred stock ($1.00 par value), issuable in series, of
which 100,000 shares are designated as Series A Preferred.
11. STOCK OPTIONS
Under the Company's stock option plans, selected employees and non-employee
directors may be granted options to purchase its common stock at prices equal
to the fair market value of the stock at the date the options are granted.
There are no charges to earnings resulting from the plans. In October 1995,
SFAS No. 123, "Accounting for Stock-Based Compensation," was issued and is
effective for fiscal 1997. The impact of the statement is expected to be
immaterial. The Company has elected to apply the accounting provisions of
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees," and will comply with the disclosure requirements of SFAS No. 123 in
fiscal 1997.
The following is a summary of changes in options outstanding:
Number of Option Price Option Price
(Dollars in thousands, except per share price) Shares Per Share Total
Outstanding and exercisable at June 30, 1993 470,000 $ 4.60 to $28.00 $ 4,589
Exercised (43,000) $ 4.60 to $ 9.75 (301)
Granted 117,000 $ 9.45 to $14.13 1,144
Lapsed or canceled (91,000) $ 9.50 to $12.38 (1,067)
Outstanding and exercisable at June 30, 1994 453,000 $ 6.38 to $28.00 4,365
Exercised (50,000) $ 9.00 to $10.63 (486)
Granted 204,000 $16.75 to $19.19 3,846
Outstanding and exercisable at June 30, 1995 607,000 $ 6.38 to $28.00 7,725
Exercised (71,000) $ 6.38 to $ 9.75 (632)
Granted 169,000 $16.75 to $25.06 3,114
Lapsed or canceled (32,000) $16.75 to $25.06 (705)
Outstanding and exercisable at June 30, 1996 673,000 $ 8.25 to $28.00 $ 9,502
At June 30, 1996, 1,077,000 shares of authorized but unissued common stock were
reserved for issuance upon exercise of options granted or grantable under the
plans. Options are exercisable under the plans for periods of five to ten years
from the date of grant.
12. SALE OF UNCONSOLIDATED JOINT VENTURE
In February 1995, the Company sold its 50% joint venture interest in Central
Florida Press, L.C. ("CFP") to The Lanman Companies, Inc., the other owner of
CFP, for $6.8 million in cash. The sale resulted in an after-tax charge of $0.4
million, or $.06 per share, arising primarily from certain tax liabilities
related to the transaction.
13. RESTRUCTURING CHARGE
In the fourth quarter of fiscal 1994, the Company recorded a restructuring
charge of $1.9 million. This charge resulted from reductions in its workforce
related to the decision to close its Springfield, Virginia, composition and
prepress facility and to transfer these activities to Richmond, Virginia, and
Baltimore, Maryland, facilities. The Company recorded a charge of $1.6 million
related to employee termination benefits with the remaining $0.3 million charge
related to equipment write-offs and miscellaneous other direct costs associated
with the discontinuation of the operations and other exit costs. During fiscal
1995, the Company substantially completed its restructuring plan. Actual amounts
charged against the reserve for fiscal 1995 were $1.8 million, with the
remaining $0.1 million charged against the reserve in fiscal 1996.
14. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to concentrations of
credit risk consist principally of trade receivables. Concentrations of credit
risk with respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base, and their dispersion across
different businesses and geographic regions. As of June 30, 1996 and 1995, the
Company had no significant concentrations of credit risk.
15. SUPPLEMENTAL CASH FLOW INFORMATION
The effect of certain noncash activities has been excluded from the Consolidated
Statements of Cash Flows. The Company assumed $2.7 million of obligations in
conjunction with acquisitions for the fiscal year ended June 30, 1996. There
were no noncash investing or financing activities in fiscal 1995 and 1994.
16. CONTINGENCIES
The Company is party to various legal actions which are ordinary and incidental
to its business. While the outcome of legal actions cannot be predicted with
certainty, management believes the outcome of any of these proceedings, or all
of them combined, will not have a materially adverse effect on its consolidated
financial position or results of operations.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Cadmus Communications Corporation:
We have audited the accompanying consolidated balance sheets of
Cadmus Communications Corporation and Subsidiaries ("Cadmus") as of June
30, 1996 and 1995, and the consolidated related statements of income and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform an 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cadmus as of June 30, 1996 and
1995, and the results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Notes 7 and 9 to the consolidated financial statements,
effective as of July 1, 1993, the Company changed its method of accounting for
income taxes to conform with Statement of Financial Accounting Standards No. 109
and its method of accounting for postretirement benefits other than pensions to
conform with Statement of Financial Accounting Standards No. 106.
Our audits were made for the purpose of forming an opinion on the 1996 and
1995 basic financial statements taken as a whole. The schedules listed in the
index of financial statements are presented for purposes of complying with the
Securities and Exchange Commissions rules and are not part of the basic
financial statements. These 1996 and 1995 schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly state in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Richmond, Virginia
August 1, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Cadmus Communications Corporation:
We have audited the consolidated statements of income and cash flows of
Cadmus Communications Corporation and Subsidiaries for the year ended June 30,
1994. We have also audited the 1994 financial statement schedule listed in the
Index to Financial Statements and Schedules of this Form 10-K. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated results of operations and cash flows of
Cadmus Communications Corporation and Subsidiaries for the year ended June 30,
1994 in conformity with generally accepted accounting principles. In addition,
in our opinion, the 1994 financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
As discussed in Notes 7 and 9 to the consolidated financial statements,
effective as of the beginning of 1994, the Company changed its method of
accounting for income taxes to conform with Statement of Financial Standards No.
109 and its method of accounting for postretirement benefits other than pensions
to conform with Statement of Financial Accounting Standards No. 106.
COOPERS & LYBRAND L.L.P.
Richmond, Virginia
August 2, 1994
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported in the Company's Form 8-K and 8-K/A filed with the
Securities and Exchange Commission on August 23, 1994 and Septemb