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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, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO
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 500
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(B) OF THE ACT: NONE
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 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 (check mark) 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, 1995, 6,034,825 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 $137,072,405 based on the last sale
price on July 31, 1995.
DOCUMENTS INCORPORATED BY REFERENCE:
None.
INDEX
PART I
PAGE
Item 1. Business 3
Item 2. Properties 7
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
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 16
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30
PART III
Item 10. Directors and Executive Officers of the Registrant 31
Item 11. Executive Compensation 34
Item 12. Security Ownership of Certain Beneficial Owners and Management 39
Item 13. Certain Relationships and Related Transactions 41
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 42
2
PART I
ITEM 1. BUSINESS
INTRODUCTION
Cadmus Communication Corporation, a Virginia corporation ("Cadmus" or
"Company"), is a graphic communications company offering specialized products
and services in three areas: printing, marketing, and publishing. Cadmus was
formed in 1984 through the merger of The William Byrd Press, Incorporated
("Byrd"), a leading publications printer based 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 500, Richmond, Virginia
23230, and its telephone number is (804) 287-5680. 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, Inc.); 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, medical, and
scholarly 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.). The
Company believes that the continued consolidation in the industry will provide
attractive acquisition opportunities in the future.
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 maintained by Cadmus. Cadmus' journal home page is found
at HTTP://WWW.CADMUS.COM.
BUSINESS GROUPS AND PRODUCT LINES
Cadmus has aligned its product offerings into three business groups:
printing, marketing, and publishing.
PRINTING
FISCAL YEAR
1995 REVENUES
PRODUCT LINE (IN THOUSANDS)
Journal Services $ 93,615
Promotional Printing 41,760
Magazines 40,777
Financial Communications 19,132
7,822
Specialty Packaging
$ 203,106
Total Printing Revenues
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 73% of net sales
in fiscal year 1995. Included in printing revenues are revenues from digital
imaging and composition services, which comprised approximately 18% of the net
sales of this group.
JOURNAL SERVICES. Cadmus is an industry leader in the production of medical
and biomedical, technical and scientific, learned and scholarly, and mathematics
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,
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technical, and medical journal publishers. The Company operates one of the
largest journal typesetting operations in the United States. Its four 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.
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, and fulfillment and distribution services.
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 other 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 Commission.
SPECIALTY PACKAGING. Cadmus produces folding cartons, computer hardware and
software cartons, promotional packaging, portfolio folders, 3-D mailers, and
diskette sleeves for computer software publishers and technology and consumer
products companies. Specializing in short run production and using
state-of-the-art Heidelberg presses and Bobst die-cutting equipment, Cadmus
offers film preparation, structural engineering, printing, and finishing
services.
MARKETING
FISCAL YEAR
1995 REVENUES
PRODUCT LINE (IN THOUSANDS)
Point-of-Purchase $31,581
Direct Marketing 14,530
Catalogs 9,649
1,406
Interactive
$57,166
Total Marketing Revenues
Cadmus provides its customers 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 20% of net sales in fiscal year 1995.
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' fully integrated direct marketing agency provides
measurable, response-oriented advertising services, including research, design,
creative, database management, and marketing information analysis. The agency is
organized into client-focused, cross-functional teams. Cadmus' direct marketing
services use a proprietary strategy development process that is
information-based. Advanced statistical analysis precedes all strategy and
creative development and is also performed following every advertising event.
CATALOGS. Cadmus offers catalog design, creative services, and photography
for nationwide customers in the retail industry. These services include design,
layout, copywriting, and studio and location photography.
4
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. Cadmus is also
working to create interactive and multimedia products for retail sale by Cadmus
customers. These products will be marketed as inexpensive and impulse purchase
items to be sold on a national basis. Cadmus will obtain a fee for development
of the prototype and will collect a royalty on each unit sold.
PUBLISHING
FISCAL YEAR
1995 REVENUES
PRODUCT LINE (IN THOUSANDS)
Consumer Publishing $10,387
8,982
Custom Publishing
$19,369
Total Publishing Revenues
Publishing is comprised of two divisions, Consumer Publishing and Custom
Publishing. Publishing generated approximately 7% of net sales in fiscal year
1995.
CONSUMER PUBLISHING. Cadmus publishes its own special-interest magazines
that target consumers who have passionate interests in a hobby or sport.
Currently Cadmus owns five publications: TUFF STUFF; COLLECT!; KENNER GUIDE;
MID-ATLANTIC SOCCER; and RPM. TUFF STUFF, the largest Cadmus consumer publishing
title, is a 225,000 run-length monthly magazine directed at trading card
collectors. COLLECT! is a monthly magazine directed at non-sport trading card
collectors and hobbyists. KENNER GUIDE is an annual guide to Kenner sports
figurines. MID-ATLANTIC SOCCER is a seasonal, regional magazine focused on
promoting youth soccer. RPM is a monthly magazine directed at collectors of
NASCAR racing-related memorabilia. These magazines are published, edited,
managed, printed, and fulfilled by Cadmus.
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.
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 producing volumes slightly greater 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.
5
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 June 30, 1995, Cadmus employed approximately 2,380 persons. No
employees are currently covered by a collective bargaining agreement. 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.
6
ITEM 2. PROPERTIES
The following table contains information regarding the Company's primary
facilities as of June 30, 1995:
SQUARE OWN/
FACILITY FEET LEASE(1) USE
Cadmus Communications Corporation 25,000 Lease Office
Richmond, VA (headquarters)
American Graphics, Inc. 120,000 Own Office, production, and storage
Atlanta, GA (3)
The William Byrd Press, Incorporated 274,000 Own Office, production, and storage
Richmond, VA (2)
The William Byrd Press, Incorporated 72,000 Lease Storage
Richmond, VA
Cadmus Direct Marketing, Inc. 30,000 Lease Office and storage
Charlotte, NC (2)
Cadmus Interactive 18,000 Lease Office, production, and storage
Atlanta, GA
Cadmus Journal Services, Inc. 202,400 Own Office, production, and storage
Easton, MD
Cadmus Journal Services, Inc. 51,700 Lease Office, production, and storage
Linthicum, MD
Cadmus Promotional 89,100 Own Office, production, and storage
Richmond, VA (2)
Garamond Pridemark/Press, Inc. 43,000 Own Office, production, and storage
Baltimore, MD
Graftech Corporation 18,000 Own Office, production, and storage
Charlotte, NC
Three Score, Inc. 60,000 Lease Office, production, and storage
Atlanta, GA
Tuff Stuff Publications, Inc. 15,000 Lease Office and storage
Richmond, VA
Washburn Graphics, Inc. 100,000 Own Office, production, and storage
Charlotte, NC
Washburn of New York, Inc. 15,000 Lease Office
New York, NY
(1) Cadmus does not consider any of the leased premises material to the overall
business of its subsidiaries.
(2) Includes two facilities.
(3) Includes three facilities.
7
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 of
the Company ("Board") to serve one-year terms. The following table contains
information about the executive officers of Cadmus:
POSITION AND OTHER BUSINESS EXPERIENCE
NAME (AGE) LENGTH OF SERVICE DURING PAST FIVE YEARS
C. Stephenson Gillispie, Jr. (53) Chairman, President, and Chief Executive President and Chief Operating Officer,
Officer, Cadmus 1992-present. Cadmus 1990-1992; President and Chief
Executive Officer, Byrd 1989-1992.
Michael Dinkins (41) Vice President and Chief Financial Manager Finance for Marketing, GE
Officer, Cadmus 1993-present. Appliance 1993; Manager Finance for
Sales, GE Appliance 1992; Manager of
Commercial Real Estate, GE Capital
1989-1992.
John H. Phillips (51) Vice President and Regional Vice President -- Operations and Chief
Manufacturing Officer Cadmus Operating Officer, Cadmus 1992-1994;
1994-present. Executive Vice President and Chief
Operating Officer, Byrd 1990-1992;
Senior Vice President of Manufacturing
and Plant Operations, Byrd 1987-1990.
Bruce V. Thomas (38) Vice President -- Law and Development, Partner, Mays & Valentine 1989-1992.
Cadmus 1992-present.
David E. Bosher (42) Vice President and Treasurer, Cadmus Chief Financial Officer, Cadmus
1993-present. 1990-1993; Corporate Controller, Cadmus
1988-1990.
Gregory Moyer (47) Vice President -- Human Resources and Corporate Vice President of Human
Quality, Cadmus 1994-present. Resources, Dyncorp 1993-1994; Vice
President of Human Resources and
Quality, P.R.C., Inc. 1989-1993.
Edward B. Fernstrom (46) Vice President -- Information Vice President, Chief Information
Technologies, Cadmus 1995-present. Officer, Dyncorp 1990-1995.
8
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Common Stock, $.50 par value per share, of the Company ("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. The stock of Byrd, the predecessor issuer to Cadmus, was
also quoted in Nasdaq from September 7, 1983, the date of Byrd's first public
offering, until June 29, 1984. Information with respect to market prices is
presented in Item 7 of this report.
As of August 30, 1995, the approximate number of beneficial holders of
Common Stock was 3,300, which includes shareholders recorded on security
position listings.
On August 9, 1995, Cadmus declared a regular quarterly cash dividend of
$.05 per share, payable on September 4, 1995, to shareholders of record as of
August 18, 1995. Information with respect to dividends declared is presented in
Item 7 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
may deem relevant. For additional information regarding restrictions on payment
of dividends, see the Notes to Consolidated Financial Statements (Note 9)
presented in Item 8 of this report.
9
ITEM 6. SELECTED FINANCIAL DATA
YEARS ENDED JUNE 30,
1995 1994(1) 1993(1) 1992(1) 1991(1)
(IN THOUSANDS, EXCEPT PER SHARE DATA AND SELECTED RATIOS)
OPERATIONS
Net sales $279,641 $247,730 $198,126 $188,006 $177,691
Cost of sales 209,415 184,088 146,031 142,425 135,551
Gross profit 70,226 63,642 52,095 45,581 42,140
Selling and administrative expenses 52,172 48,824 40,753 35,176 33,265
Operating income (2) 18,054 12,918 11,342 10,405 8,875
Income before income taxes (2) 12,682 7,933 7,480 6,448 5,008
Income before cumulative effect of changes in accounting
principles (2) 7,479 4,807 4,533 3,901 2,987
Net income (2) 7,479 5,208 4,533 3,901 2,987
Average common shares outstanding 6,195 6,085 5,972 5,986 6,007
PER SHARE DATA
Income before cumulative effect of changes in accounting
principles (2) $ 1.21 $ .79 $ .76 $ .65 $ .50
Net income (2) 1.21 .86 .76 .65 .50
Cash dividends .20 .20 .20 .20 .20
Shareholders' equity 9.99 9.03 8.49 7.95 7.47
FINANCIAL POSITION
Current assets $ 76,319 $ 61,937 $ 48,766 $ 44,261 $ 41,668
Current liabilities 43,906 38,581 32,227 25,523 22,741
Working capital 32,413 23,356 16,539 18,738 18,927
Property, plant, and equipment 161,359 147,890 129,097 122,540 112,578
Accumulated depreciation 76,789 70,818 63,114 57,668 51,835
Goodwill and intangibles, net 8,281 7,617 7,717 9,082 8,273
Total assets 171,570 160,129 134,189 123,054 115,106
Short-term borrowings 3,775 4,000 1,000 2,404
Long-term debt, including current maturities 56,342 58,440 46,483 44,916 42,881
Shareholders' equity 61,882 54,929 50,693 47,571 44,865
Total capital (3) 121,999 113,369 101,176 93,487 90,150
SELECTED RATIOS
Gross profit margin 25.1% 25.7% 26.3% 24.2% 23.7%
Operating income margin (2) 6.5% 5.2% 5.7% 5.5% 5.0%
Effective tax rate 41.0% 39.4% 39.4% 39.5% 40.4%
Sales to average total capital 2.4 2.3 2.0 2.0 2.0
Current ratio 1.7 1.6 1.5 1.7 1.8
Debt as a percent of total capital 49.3% 51.5% 49.9% 49.1% 50.2%
Operating income return on average total capital (2) 15.3% 12.0% 11.7% 11.3% 10.2%
Net income return on average shareholders' equity (2) 12.8% 9.9% 9.2% 8.4% 6.7%
(1) Certain reclassifications were made to prior years' amounts to conform with
the current year.
(2) After restructuring charge in fiscal 1994 of $1.9 million pretax, $1.1
million after tax.
(3) Total debt plus shareholders' equity.
10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
COMPANY HIGHLIGHTS
Fiscal 1995 financial highlights include:
(Bullet) Sales increased 12.9% to $279.6 million.
(Bullet) Operating income rose to $18.1 million, a 39.8% increase.
(Bullet) Net income climbed 43.6% to $7.5 million ($1.21 per share).
(Bullet) The operating income return on average total capital improved from
12.0% in fiscal 1994 to 15.3% in fiscal 1995.
In the fourth quarter of fiscal 1995, Cadmus was named by General Electric
as a preferred nationwide supplier of printing related services. To better serve
General Electric, the Company formed a new division dedicated to managing its
relationship with General Electric and to matching General Electric's business
needs with the appropriate Cadmus solutions. The formation of Cadmus
Interactive, an Atlanta-based multimedia company, in the first quarter of fiscal
1995, positioned the Company to offer its customers state-of-the-art interactive
multimedia products and services. In the fourth quarter of fiscal 1995, the
acquisition of Ronald James Direct expanded the Company's direct marketing
agency capabilities into Los Angeles and Denver. During the third quarter of
fiscal 1995, the Company sold its fifty percent joint venture interest in
Central Florida Press, L. C. ("CFP") to The Lanman Companies, Inc. ("Lanman") to
redirect its capital to those markets and products which offer the best
opportunities for growth and profitability.
In the second quarter of fiscal 1994, Cadmus acquired the net assets of the
Waverly Press printing division ("Waverly Press") from Waverly, Inc. Waverly
Press, a leading printer of scientific, technical, medical, and scholarly
journals, was renamed Cadmus Journal Services, Inc. ("Cadmus Journal Services")
following the acquisition. By combining the strengths and assets of Waverly
Press with the Company's existing research journal operations, the Company was
able to significantly improve the level of service, as well as the nature of the
products offered, to journal publishers. As part of the transaction, Waverly,
Inc. entered into a long-term printing agreement with Cadmus Journal Services,
which ensures important continuity of business.
RESULTS OF OPERATIONS
The following table presents the major components from the Consolidated
Statements of Income as a percentage of net sales:
YEARS ENDED JUNE 30,
1995 1994 1993
Net sales 100.0% 100.0% 100.0%
Cost of sales 74.9 74.3 73.7
Gross profit 25.1 25.7 26.3
Selling and administrative expenses 18.6 19.7 20.6
Restructuring charge 0.8
Operating income 6.5 5.2 5.7
Interest expense 1.9 1.9 1.6
Other expenses, net 0.0 0.1 0.3
Income before income taxes 4.6 3.2 3.8
Income taxes 1.9 1.3 1.5
Income before cumulative effect of changes in accounting principles 2.7 1.9 2.3
Cumulative effect of changes in accounting principles 0.2
Net income 2.7% 2.1% 2.3%
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 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
11
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.
Increased 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 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 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 cards 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.
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.
Operating income improved to 6.5% of sales for fiscal 1995 from 5.2% in
fiscal 1994. This improvement reflects the impact of sales growth and
restructuring savings. Operating income as a percent of sales before the
restructuring charge was 6.0% in fiscal 1994. Other expenses declined $0.2
million in fiscal 1995 due primarily to a gain on sale of assets.
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.
COMPARISON OF FISCAL 1994 WITH FISCAL 1993
Net sales in fiscal 1994 were $247.7 million compared to $198.1 million for
fiscal 1993 and included increases in each business group. The 22.9% increase in
printing sales for fiscal 1994 was due to growth of 92.5% in journal services
sales due primarily to the fiscal 1994 acquisition of Waverly Press, 30.8%
growth in specialty packaging sales, and a 55.2% increase in annual report
sales. Promotional printing sales were down 16.2% as a result of the
deconsolidation of Vaughan sales through the CFP joint venture in the third
quarter of fiscal 1993. Adjusted for the acquisition of Warerly Press and the
CFP joint venture, printing sales increased 4.9% over fiscal 1993.
The 11.8% increase in marketing sales for fiscal 1994 resulted from growth
of 43.2% in direct marketing sales and growth of 13.5% in point-of-purchase
revenues. The increase in direct marketing revenues was attributable to growth
in sales to existing clients and the restructuring of the business into an
agency organization. Point-of-purchase revenues grew as a result of
relationships developed with new clients, coupled with growth in existing
accounts.
The 76.3% increase in publishing sales for fiscal 1994 was the result of
the acquisition of Marblehead Communications, Inc. ("Marblehead"), a custom
publisher of newsletters and magazines, coupled with continued sales growth of
17.0% of its consumer magazines. Expansion at Marblehead resulted in an increase
of 78.4% over prior year annualized sales due to both additions of new accounts
and increased sales to existing clients.
12
In fiscal 1994, gross profit was 25.7% of sales compared with 26.3% in
fiscal 1993. Gross profit declined slightly in fiscal 1994 as a result of a
change in the sales mix due to the addition of Waverly Press, which had a
relatively lower gross margin. Excluding Waverly Press, the gross margin
improved to 26.8%.
The decrease in selling and administrative expenses as a percent of sales
was primarily driven by the inclusion in fiscal 1994 of Waverly Press, which had
a lower selling and administrative expense ratio of 11.6%.
Operating income before the restructuring charge improved to 6.0% of sales
for fiscal 1994 from 5.7% in fiscal 1993. Operating income as a percent of sales
after the restructuring charge was 5.2% in fiscal 1994.
Interest expense increased slightly from 1.6% of sales in fiscal 1993 to
1.9% of sales in fiscal 1994 due to increased average debt levels associated
with the purchase of Waverly Press in fiscal 1994. Other expenses declined $0.5
million in fiscal 1994 due to the full year inclusion of earnings from the CFP
joint venture.
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 full year impact of cost savings are estimated to be $3.2 million
for fiscal 1996.
Following is a schedule of the costs included in and the amounts charged
against the restructuring reserve to date:
ORIGINAL CHARGES AS OF
RESERVE JUNE 30, 1995
DESCRIPTION (IN THOUSANDS)
Employee separations $1,630 $ 1,585
Equipment write-down 75 93
Other direct costs 195 102
$1,900 $ 1,780
The employee separation costs relate to termination benefits of
approximately 100 employees: twenty percent management and eighty percent
production. During fiscal 1995, all of these employees left the Company as a
result of this plan. Cash expenditures of approximately $0.1 million will occur
in the first and second quarter of fiscal 1996 due to the election by many of
the terminated employees to receive a stream of separation benefits, rather than
a lump sum payment.
CHANGES IN ACCOUNTING PRINCIPLES
Effective July 1, 1993, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 106, "Employers' Accounting for Postretirement
Benefits Other than Pensions." The Company elected to immediately recognize the
liability for prior years' service as the cumulative effect of a change in
accounting principle. Accordingly, the Company recorded an accumulated
postretirement benefit obligation 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 in the first quarter of fiscal
1994.
The Company also adopted SFAS No. 109, "Accounting for Income Taxes,"
effective July 1, 1993, which requires the liability method of accounting for
deferred income taxes, whereby enacted statutory tax rates are applied to the
differences between financial reporting and tax bases of assets and liabilities.
The cumulative effect of the change was a reduction in the deferred income tax
liability and a corresponding increase in net income of $0.9 million in the
first quarter of fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company's major capital requirements are for investments in property,
plant, and equipment, working capital, and acquisitions. Management believes
that the Company has the financial resources and access to capital necessary to
fund internal growth and acquisitions.
13
COMPARISON OF FISCAL 1995 WITH FISCAL 1994
Net cash provided by operating activities in fiscal 1995 declined to $5.4
million from $26.0 million in fiscal 1994 due to a significant increase in
working capital investment. The increase in the Company's working capital
investment resulted from a $12.0 million increase in accounts receivable,
resulting from higher sales and a slowdown in collection cycles, and a $4.9
million increase in inventories, primarily attributable to higher paper
inventory balances. Slowdown in collections occurred primarily in Fortune 500
companies and does not reflect a deterioration of the quality of the Company's
receivables portfolio. The Company is undertaking efforts to enhance its billing
processes, which are expected to improve its collections.
Net cash used in investing activities totaled $9.9 million in fiscal 1995,
down from $31.0 million in fiscal 1994. Capital expenditures totaled $21.0
million in fiscal 1995 but were partially offset by a $3.6 million sale of real
estate, $6.8 million in proceeds received from the sale of the Company's
interest in CFP, and proceeds from loans on Company-owned life insurance of $2.9
million. Acquisition-related payments required funding of $1.5 million in fiscal
1995.
Cadmus reinvests in its business to remain current with technology in order
to improve productivity and quality, and to develop new products and markets.
The Company is concentrating its expenditures in its higher growth and higher
margin product lines. During fiscal 1995, the Company invested $21.0 million in
property, plant, and equipment. These investments included the purchase of a new
manufacturing facility to consolidate the Company's Richmond promotional and
financial printing operations, a second ultraviolet six-unit sheetfed press and
a four-unit digital press for the point-of-purchase product line, a six-unit CD
sheetfed press for specialty packaging, and the relocation of the Company's
Baltimore journal composition operations. The Company projects that capital
spending in fiscal 1996 will be approximately $21.0 million.
During fiscal 1995, the Company entered into two interest rate swap
agreements with banks to convert debt with an aggregate notional value of $8.7
million from floating-rate to fixed-rate debt. Both of these swap agreements
have a term of four years and were initiated to moderate exposure to interest
rate changes. 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. These swaps are hedged against the $35.0 million
fixed-to-floating rate swap. These hedging activities increased interest expense
by $0.7 million in fiscal 1995 and by $0.5 million in fiscal 1994 and 1993. The
net interest paid or received is included in interest expense.
Total debt at June 30, 1995 was $60.1 million, representing an increase of
$1.7 million from the $58.4 million at June 30, 1994. Despite the increase in
debt levels, the Company's debt-to-capital ratio improved from 51.5% at June 30,
1994, to 49.3% at June 30, 1995. The higher debt levels were required to fund
operations. At June 30, 1995, borrowings under the Company's $25.0 million
revolving credit agreements totaled $3.8 million, leaving an unused balance of
$21.2 million.
COMPARISON OF FISCAL 1994 WITH FISCAL 1993
During fiscal 1994, the Company experienced significant improvement in cash
flow performance. Net cash provided by operating activities rose to $26.0
million from $10.4 million in fiscal 1993. This gain was primarily attributable
to a 40.0% increase in income before the restructuring charge, higher
depreciation and amortization expense, and an $11.7 million reduction in
operating assets and liabilities. The $1.8 million increase in depreciation and
amortization expense was due to additions of property, plant, and equipment,
both through the acquisition of Waverly Press and through capital investments
made for strategic expansion and reinvestment. The reduction in operating assets
and liabilities was credited to improved receivables and paper inventory
management, and more aggressive utilization of trade credit.
The increase in fiscal 1994 in net cash used in investing activities of
$17.6 million, and the increase in net cash provided by financing activities of
$3.5 million were both primarily a result of transactions related to the
acquisition of Waverly Press. Cash paid or placed in escrow for this acquisition
of $19.7 million and capital investments of $11.7 million account for the
majority of the investing activities. In fiscal 1993, cash used in investing
activities included $2.2 million related to the investment in the CFP joint
venture, as well as $10.7 million in capital investments. The financing
activities in fiscal 1994 include proceeds from the placement of $40.0 million
in senior notes and the repayment of $32.0 million in term loans and long-term
debt. In fiscal 1993, cash provided by financing activities of $3.2 million
resulted from increased borrowings under bank lines of credit of $7.0 million
and the repayment of long-term debt of $2.4 million.
Capital investment in property, plant, and equipment totaled $11.7 million
during fiscal 1994. Significant projects included in this amount were the
purchase of new composition software to integrate text and graphics for research
journals and the rebuilding of a six-unit web press. Other significant capital
investments included the purchase of a six-unit sheetfed press and the
installation of a financial network. In addition, the Company entered into two
long-term operating leases during the year, one for a new six-unit sheetfed
press and one for an eight-unit half-web press.
14
Total debt at June 30, 1994, was $58.4 million, representing an increase of
$7.9 million from the $50.5 million at June 30, 1993. The Company's
debt-to-capital ratio at June 30, 1994 was 51.5% compared with 49.9% at June 30,
1993. This increase was primarily due to additional debt incurred to purchase
the net assets of Waverly Press. On December 23, 1993, the Company placed $40.0
million of senior notes with two insurance companies. The proceeds from these
notes were used to repay short-term bridge loans incurred to finance the asset
purchase of Waverly Press, short-term revolving bank lines of credit, and a bank
term loan. These senior notes, which have an average life of 8.1 years with a
final maturity of 10 years, carry a fixed interest rate of 6.74%. Concurrent
with the placement of the senior notes, the Company entered into an interest
rate swap agreement to effectively convert $35.0 million of the senior notes to
floating-rate debt. The company also entered into agreements, with four banks on
February 14, 1994, for a $25.0 million revolving credit facility. There were no
outstanding borrowings against these revolving credit lines at June 30, 1994.
SELECTED QUARTERLY DATA (unaudited)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1995 QUARTERS ENDED SEP. 30 DEC. 31 MAR. 31 JUN. 30 TOTAL
Net sales $60,383 $67,237 $74,846 $77,175 $279,641
Gross profit 13,752 16,793 19,438 20,243 70,226
Operating income 2,755 4,238 5,482 5,579 18,054
Net income 974 1,784 2,068 2,653 7,479
Net income per share $ .16 $ .29 $ .33 $ .43 $ 1.21
Cash dividends per share .05 .05 .05 .05 .20
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
1994 QUARTERS ENDED SEP. 30 DEC. 31 MAR. 31 JUN. 30 TOTAL
Net sales $49,126 $61,448 $67,413 $69,743 $247,730
Gross profit 12,409 15,475 17,278 18,480 63,642
Operating income 2,381 3,666 4,097 2,774(a) 12,918
Income before cumulative effect of changes
in accounting principles 836 1,510 1,682 779(a) 4,807
Net income 1,237 1,510 1,682 779(a) 5,208
Earnings per share:
Income before cumulative effect of changes
in accounting principles $ .14 $ .25 $ .28 $ .12(a) $ .79
Net income .21 .25 .28 .12(a) .86
Cash dividends per share .05 .05 .05 .05 .20
Stock market price data:
High $ 10 1/4 $ 14 1/2 $ 15 1/4 $ 19 1/2
Low 8 1/2 9 1/2 13 1/2 13 3/4
Close 10 1/4 14 14 1/4 17 3/4
(a) After restructuring charge of $1.9 million pretax, $1.1 million after tax.
15
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
[CAPTION]
(In thousands, except per share data) YEARS ENDED JUNE 30,
1995 1994 1993
Net sales $279,641 $247,730 $198,126
Operating expenses
Cost of sales 209,415 184,088 146,031
Selling and administrative 52,172 48,824 40,753
Restructuring charge 1,900
261,587 234,812 186,784
Operating income 18,054 12,918 11,342
Interest and other expenses
Interest 5,351 4,813 3,233
Other expenses, net 21 172 629
5,372 4,985 3,862
Income before income taxes 12,682 7,933 7,480
Income taxes 5,203 3,126 2,947
Income before cumulative effect of changes in accounting principles 7,479 4,807 4,533
Cumulative effect of changes in accounting for:
Postretirement benefits (net of income tax benefit of $355) (532)
Income taxes 933
Net income $ 7,479 $ 5,208 $ 4,533
Earnings per share:
Income before cumulative effect of changes in accounting principles $ 1.21 $ .79 $ .76
Cumulative effect of changes in accounting for postretirement benefits
and income taxes .07
Net income $ 1.21 $ .86 $ .76
Average common shares outstanding 6,195 6,085 5,972
See accompanying Notes to Consolidated Financial Statements.
16
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
[CAPTION]
(In thousands, except per share data) AT JUNE 30,
ASSETS 1995 1994
Current assets
Cash and cash equivalents $ 226 $ 3,855
Accounts receivable, less allowance for doubtful accounts
($1,153 in 1995 and $1,514 in 1994) 57,204 44,747
Inventories 16,308 11,219
Deferred income taxes 1,092 1,227
Prepaid expenses and other 1,489 889
Total current assets 76,319 61,937
Property, plant, and equipment, net 84,570 77,072
Investment in unconsolidated joint venture 6,831
Other assets 2,400 6,672
Goodwill and intangibles, net 8,281 7,617
TOTAL ASSETS $171,570 $160,129
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term borrowings $ 3,775
Current maturities of long-term debt 2,381 $ 2,318
Accounts payable 18,818 17,312
Accrued expenses
Compensation 10,905 10,612
Restructuring charge 120 1,900
Other 7,907 6,439
Total current liabilities 43,906 38,581
Long-term debt 53,961 56,122
Other long-term liabilities 7,180 7,575
Deferred income taxes 4,641 2,922
Commitments and contingencies
Shareholders' equity
Common stock ($.50 par value; authorized-16,000 shares;
issued and outstanding shares-6,030 at June 30, 1995;
and 5,984 at June 30, 1994) 3,015 2,992
Capital in excess of par value 12,448 11,796
Retained earnings 46,419 40,141
Total shareholders' equity 61,882 54,929
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $171,570 $160,129
See accompanying Notes to Consolidated Financial Statements.
17
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
[CAPTION]
(In thousands) Years Ended June 30,
1995 1994 1993
OPERATING ACTIVITIES
Net income $ 7,479 $ 5,208 $ 4,533
Adjustments to reconcile net income to net cash provided by operating activities
Cumulative effect of changes in accounting for:
Postretirement benefits 532
Income taxes (933)
Depreciation and amortization 12,132 11,474 9,626
Restructuring charge 1,900
Deferred income taxes 2,080 284 352
Other, net 1,010 657 738
22,701 19,122 15,249
Changes in working capital sources (requirements), excluding debt and effects of
acquisitions
Accounts receivable, net (11,999) (2,515) (6,398)
Inventories (4,897) 2,780 (481)
Accounts payable, accrued expenses, and income taxes 624 6,959 1,683
Other, net (1,069) (353) 327
(17,341) 6,871 (4,869)
Net cash provided by operating activities 5,360 25,993 10,380
INVESTING ACTIVITIES
Purchases of property, plant, and equipment (20,959) (11,742) (10,842)
Proceeds from sale of property and equipment 3,610 502 173
Sale of unconsolidated joint venture 6,800
Proceeds from life insurance loans 2,940 159 86
Payments for businesses acquired (1,519) (19,740)
Investment in unconsolidated joint venture 248 (254) (2,150)
Other, net (988) 73 (670)
Net cash used in investing activities (9,868) (31,002) (13,403)
FINANCING ACTIVITIES
Proceeds from short-term borrowings 79,825 43,709 34,002
Repayment of short-term borrowings (76,050) (47,709) (27,000)
Proceeds from long-term borrowings 111 40,069
Repayment of long-term borrowings (2,250) (28,112) (2,435)
Dividends paid (1,201) (1,192) (1,196)
Repurchase of common stock (215)
Proceeds from exercise of stock options 449 220
Other, net (5) (327) 51
Net cash provided by financing activities 879 6,658 3,207
Increase (decrease) in cash and cash equivalents (3,629) 1,649 184
Cash and cash equivalents at beginning of year 3,855 2,206 2,022
Cash and cash equivalents at end of year $ 226 $ 3,855 $ 2,206
See accompanying Notes to Consolidated Financial Statements.
18
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars and shares in thousands, except per share data)
1. SIGNIFICANT ACCOUNTING POLICIES
BASIS OF CONSOLIDATION. The consolidated financial statements include the
accounts and operations of Cadmus Communications Corporation and Subsidiaries
("Company"), including its unconsolidated fifty percent owned equity investment
(see Note 7). All significant intercompany accounts and transactions have been
eliminated in consolidation.
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, principally
using the last-in, first-out (LIFO) method (70% in 1995 and 73% in 1994). The
first-in, first-out (FIFO) method is used to value the remaining inventories.
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 principally by the straight-line
method based on useful lives of thirty years for buildings and three to ten
years for machinery and equipment.
GOODWILL AND INTANGIBLES. Goodwill and intangibles include the costs in excess
of the purchase price over the net assets of businesses acquired and other
valued intangibles and are being amortized by the straight-line method over
twenty years. The carrying value of goodwill and intangible assets is
periodically reviewed and if there were evidence these values are impaired, the
Company's carrying value of the intangible assets would be reduced to its
estimated fair value. Accumulated amortization was $3,842 and $3,278 at June 30,
1995 and 1994, respectively.
INCOME TAXES. Effective July 1, 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 10). The
Company had previously accounted for income taxes in accordance with the method
prescribed by Accounting Principles Board Opinion No. 11.
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 the 1995 presentation.
2. 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 pretax 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 year ended June 30,
1995, were $1.8 million.
3. ACQUISITION OF WAVERLY PRESS
On November 1, 1993, the Company acquired the net assets of the Waverly Press
printing division ("Waverly Press") from Waverly, Inc. ("Waverly") for
approximately $20.0 million, which was funded through the placement of senior
notes with two insurance companies (see Note 9). Waverly Press, a leading
printer of scientific, technical, medical, and scholarly 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 operating
results since the date of acquisition.
19
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
4. ACQUISITION OF TUFF STUFF PUBLICATIONS MINORITY INTEREST
During the first quarter of fiscal 1995, the Company purchased the remaining
twenty percent equity interest in Tuff Stuff Publications, Inc. ("Tuff Stuff")
under the original repurchase agreement for approximately $0.6 million to bring
the Company's equity interest in Tuff Stuff to one hundred percent. The Company
purchased the initial eighty percent equity interest in April 1992, at which
time the acquisition was accounted for using the purchase method. Accordingly,
the assets and liabilities were recorded at their estimated fair value with the
excess of the purchase price over the fair value of the identifiable net assets
acquired recorded as goodwill. The additional $0.6 million equity interest was
recorded first as a reduction of the existing minority interest ownership and
then as an addition to goodwill which is being amortized on a straight-line
basis over the remaining life of the original goodwill (approximately seventeen
years).
5. INVENTORIES
Inventories as of June 30, 1995 and 1994 consist of the following:
1995 1994
Raw materials and supplies $ 6,044 $ 3,997
Work in process:
Materials 3,270 2,219
Other manufacturing costs 5,315 3,623
Finished goods 1,679 1,380
Inventories $16,308 $11,219
The current cost of inventories exceeded the LIFO value of inventories by $1,844
and $1,578 at June 30, 1995 and 1994, respectively.
During fiscal 1994, inventory quantities were reduced resulting in liquidations
of LIFO inventory quantities carried at lower costs which prevailed in prior
years as compared with the cost of current purchases. The effect of the
inventory reduction increased net income by $0.2 million. There were no
significant reductions of inventories in fiscal 1995 and 1993.
6. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment as of June 30, 1995 and 1994 consist of the
following:
1995 1994
Land $ 2,866 $ 3,071
Buildings and improvements 39,844 34,496
Machinery, equipment, and fixtures 118,471 110,145
Transportation equipment 178 178
Total property, plant, and equipment 161,359 147,890
Less: accumulated depreciation 76,789 70,818
Property, plant, and equipment, net $ 84,570 $ 77,072
Commitments outstanding for the purchase of machinery, equipment, and fixtures
at June 30, 1995 totaled $3.3 million.
The Company leases office, production and storage space, and equipment under
various noncancellable 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 noncancellable lease terms in excess of one year as of June 30,
1995, are as follows: 1996 -- $3.4 million; 1997 -- $3.4 million; 1998 -- $3.3
million; 1999 -- $3.1 million; 2000 -- $2.1 million; and thereafter -- $7.3
million.
20
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Total rental expense charged to operations was $4.1 million, $3.0 million, and
$2.0 million in fiscal 1995, 1994, and 1993, respectively. Substantially all
such rental expense represented the minimum rental payments under operating
leases.
On September 29, 1994, the Company sold the land, building, and building
improvements ("property") 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
fifteen year lease term at projected future fair market values under the lease.
Average annual rental payments on the lease are $0.3 million.
7. INVESTMENT IN JOINT VENTURE
On February 28, 1995, the Company sold its fifty percent joint venture interest
in Central Florida Press, L.C. ("CFP") to The Lanman Companies, Inc. ("Lanman"),
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.
The Company completed the joint venture with Lanman to form CFP in March 1993
whereby the Company invested $6.5 million for a fifty percent interest in CFP
and Lanman contributed net assets of its subsidiary, Central Florida Press, for
its fifty percent interest. This investment was accounted for on the equity
basis. Equity income from unconsolidated joint venture totaled $0.3 million for
fiscal 1995 and 1994, and $0.1 million for fiscal 1993.
8. OTHER BALANCE SHEET INFORMATION
Other accrued expenses include $5,174 and $3,467 of deferred revenue at June 30,
1995 and 1994, respectively. 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 11 and 12).
9. DEBT
Debt at June 30, 1995 and 1994 consists of the following:
1995 1994
Long-term debt:
Senior unsecured notes, 9.76%, due 2000 $ 11,200 $ 13,400
Senior unsecured notes, 6.74%, due 2003 40,000 40,000
Tax-exempt variable rate industrial development bonds, weighted
average interest rate of 3.7% to 5.0%, due serially through 2011 4,482 4,532
Various mortgage and other notes 660 508
Total long-term debt 56,342 58,440
Less: current maturities 2,381 2,318
Long-term debt $ 53,961 $ 56,122
21
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company completed placement of $40.0 million in senior notes with two
insurance companies on December 23, 1993. The placement has a fixed interest
rate of 6.74% with an average life of 8.1 years and is 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.
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 new unsecured, committed lines of credit have a
three-year term expiring in February 1997, at which time any loans outstanding
under the facility convert to term loans with a two-year maturity. The Company
has the following interest rate options: (i) adjusted CD rate or (ii) adjusted
LIBOR. These agreements also require commitment fees of 1/4 to 1/2 percent per
annum on any unused portion of the lines of credit. At June 30, 1995 borrowings
under these revolving credit facilities totaled $3.8 million leaving an unused
balance of $21.2 million. At June 30, 1994 there were no outstanding borrowings
under these agreements.
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. The notional values and applicable rates are as follows:
PAID FIXED, PAID FLOATING,
RECEIVED FLOATING RECEIVED FIXED
Notional value: 1995 1994 1993 1995 1994 1993
Beginning balance $ 9,125 $10,000 $10,000 $35,000 $ 0 $0
New contracts 10,000 35,000
Expired contracts (1,750) (875)
Ending balance $17,375 $ 9,125 $10,000 $35,000 $35,000 $0
WEIGHTED AVERAGE
AGGREGATE NOTIONAL VALUE INTEREST RATES
Type of swap: 1995 1996 1997 1998 1999 PAID RECEIVED
Paid fixed, received floating $ 17,375 $ 17,400 $ 17,900 $ 18,700 $ 0 8.342 % 5.843%
Paid floating, received fixed 35,000 35,000 35,000 35,000 35,000 6.125 % 5.265%
Hedging activities increased interest expense by $0.7 million, $0.5 million, and
$0.5 million in fiscal 1995, 1994, and 1993, respectively.
During fiscal 1995, the Company entered into two interest rate swap agreements
with two banks to convert debt with an aggregate notional value of $8.7 million
from floating-rate to fixed-rate debt. These swaps have a term of four years.
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 fixed-to-floating rate swap
described below. At June 30, 1995, the fair value of these contracts was
negative $0.9 million.
The Company also entered into a fixed-to-floating interest rate swap agreement
with a bank having a notional value of $35.0 million to convert that amount of
the 2003 senior notes 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. The variable rate at June 30, 1995 was 5.9063% and the fair
value of this contract was negative $1.2 million.
During fiscal 1990, the Company entered into two interest rate swap agreements
with a notional value of $10.0 million which expire 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 makes payments at a fixed interest rate of 8.34% and receives payments
at variable rates, which are based on LIBOR. The net interest paid or received
is included in interest expense. In fiscal 1994, the Company repaid the balance
of these term loans and utilized these swap agreements as a
22
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
hedge against the $35.0 million fixed-to-floating rate swap mentioned above. At
June 30, 1995, the fair value of this contract was negative $0.1 million.
The notional value 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 rating 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, 1995 was $53.9 million based on
the market value of debt with similar maturities and covenants.
Under the terms of the various debt instruments, approximately $46.3 million of
retained earnings at June 30, 1995, is not available for payment of cash
dividends.
Maturities of long-term debt for the five years ending June 30, 2000 are as
follows: 1996 -- $2.4 million; 1997 -- $2.3 million; 1998 -- $3.6 million;
1999 -- $5.2 million; 2000 -- $6.9 million; and $33.6 million thereafter. The
book value of all encumbered properties as of June 30, 1995, totaled $0.7
million.
The Company incurred interest expense of $5.4 million, $4.8 million, and $3.7
million for fiscal 1995, 1994, and 1993, respectively, of which $0.1 million for
fiscal 1995, and $0.5 million for fiscal 1993 were capitalized. Interest paid,
net of amounts capitalized, totaled $5.3 million, $4.8 million, and $3.2 million
for fiscal 1995, 1994, and 1993 respectively.
10. INCOME TAXES
Effective July 1, 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 $933
in the first quarter of fiscal 1994. Under the provisions of SFAS No. 109, the
Company elected not to restate prior years' consolidated financial statements.
Income taxes for the years ended June 30, 1995, 1994, and 1993, consist of the
following:
1995 1994 1993
Current
Federal $3,052 $2,313 $2,365
State 297 360 230
3,349 2,673 2,595
Deferred
Federal 1,743 133 288
State 111 320 64
1,854 453 352
Income taxes $5,203 $3,126 $2,947
Cash paid for income taxes totaled $3.3 million, $3.0 million, and $2.3 million
for fiscal 1995, 1994, and 1993, respectively.
23
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The amounts of income tax expense differ from the amounts obtained by
application of the statutory U.S. rates to income before income taxes for the
reasons shown in the following table:
1995 1994 1993
Computed at statutory U.S. rate $4,312 $2,697 $2,542
State income taxes, net of Federal tax benefit 269 449 194
Goodwill amortization 221 242 227
Charitable contribution (127)
Sale of joint venture 295
Other 106 (135) (16)
Income taxes $5,203 $3,126 $2,947
The net current and noncurrent components of deferred income taxes recognized in
the balance sheet at June 30, 1995 and 1994, are as follows:
1995 1994
Net current assets $ 1,092 $ 1,227
Net noncurrent liabilities 4,641 2,992
Net liability $ 3,549 $ 1,695
The Company has state net operating loss carryforwards aggregating approximately
$15.3 million which expire during fiscal years 2004 to 2010. A valuation
allowance of $0.3 million has been established for state net operating loss
benefits that are not expected to be realized. There was no significant change
in the valuation allowance during fiscal 1995 and there was a $0.1 million
decrease in the valuation allowance during fiscal 1994.
The tax effects of the significant temporary differences which comprise the
deferred tax assets and liabilities at
June 30, 1995 and 1994 are as follows:
1995 1994
Assets:
Allowance for doubtful accounts $ 368 $ 512
Inventory 135 137
Employee benefits 3,056 2,604
Restructuring reserve 45 760
State net operating loss carryforwards 501 465
Charitable contribution carryover 32 219
Gross deferred tax assets 4,137 4,697
Liabilities:
Property, plant, and equipment 7,230 5,908
Intangible assets 158 179
Other 24 68
Gross deferred tax liabilities 7,412 6,155
Less: Valuation allowance 274 237
Net liability $3,549 $1,695
11. 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 is a defined benefit plan and benefits are
based on the plan
24
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
provisions relating to employees' compensation and years of service. Assets
under the plans consist of marketable securities 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 being 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 follow:
CORE PLAN SUPPLEMENTAL PLAN
1995 1994 1993 1995 1994 1993
Present value of benefits earned $ 1,685 $ 1,056 $ 1,129 $ 78 $ 80 $116
Interest cost on plan liabilities 1,647 1,419 1,480 299 237 272
Return on plan assets:
Actual (2,257) (14) (1,578)
Deferred 371 (1,921) (464)
Amortization of transition (asset) obligation (180) (215) (188) 68 37 53
Net pension costs $ 1,266 $ 325 $ 379 $445 $354 $441
The actuarial assumptions used in determining net pension cost and the related
benefit obligations for the Core Plan were as follows:
1995 1994 1993
Discount rate for liabilities 8.5% 8.5% 8.0 %
Discount rate for expenses 8.5% 8.5% 9.0 %
Rate of increase in compensation 4.5% 4.5% 6.0 %
Long-term rate of return on plan assets 9.0% 9.0% 10.0%
A summary of the funded status of the pension plans at June 30, 1995 and 1994
follows:
SUPPLEMENTAL
CORE PLAN PLAN
1995 1994 1995 1994
Plan assets at market value $24,192 $21,318 $ * $ *
Plan liabilities:
Present value of benefit obligation:
Vested 18,896 16,078 2,886 2,384
Nonvested 637 420 411 525
Accrued benefit obligation 19,533 16,498 3,297 2,909
Adjustment for future salary increases 4,154 3,240 637 695
Projected benefit obligation 23,687 19,738 3,934 3,604
(Excess) deficiency of plan assets over plan liabilities (505) (1,580) 3,934 3,604
Unrecognized transition asset (obligation) 2,449 2,629 (838) (903)
Adjustment required to reflect minimum liability 219 134
Unrecognized gains (losses) (79) 917 (65) 33
Accrued pension costs $ 1,865 $ 1,966 $3,250 $2,868
* The Supplemental Plan is technically a nonfunded plan; however, the Company
has acquired life insurance contracts ($14.5 million and $13.9 million face
amount at June 30, 1995 and 1994, respectively) intended to be adequate to
fund future benefits. The cash surrender value of these contracts, net of
policy loans, was $1.1 million and $3.6 million at June 30, 1995 and 1994,
respectively, and is included in other assets in the Consolidated Balance
Sheets.
25
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company's contribution to the Core Plan was $1.4 million in fiscal 1995. Due
to the overfunded status, no contributions were made in fiscal 1994 and fiscal
1993.
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 $1.5 million, $1.1 million, and $1.0
million for 1995, 1994, and 1993, respectively.
12. 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 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 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 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 65, coverage under the
Company's plan ceases and the retiree becomes covered by Medicare.
Effective July 1, 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 fiscal 1994, the Company recorded an accumulated
postretirement benefit obligation and a corresponding charge to net income of
$887 and a noncurrent deferred income tax benefit of $355, resulting in an
after-tax charge of $532. This is an unfunded plan.
The accumulated postretirement benefit obligation ("APBO") existing at July 1,
1995 was $388. The discount rate used in determining the APBO was 8%. An 11%
rate of increase in the per capita cost of covered health care benefits was
assumed for fiscal 1995, 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 increase the APBO approximately 0.8%
or $3.
26
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
13. SHAREHOLDERS' EQUITY
Shareholders' equity consists of the following:
COMMON STOCK
($.50 PAR VALUE;
16,000
SHARES AUTHORIZED)
CAPITAL IN EXCESS RETAINED
SHARES AMOUNT OF PAR VALUE EARNINGS
Balance -- June 30, 1992 5,975 $2,987 $11,796 $ 32,788
Net income 4,533
Cash dividends -- $.20 per share (1,196)
Shares repurchased (27) (13) (202)
Balance -- June 30, 1993 5,948 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 18 202
Balance -- June 30, 1994 5,984 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 23 652
Balance -- June 30, 1995 6,030 $3,015 $12,448 $ 46,419
On February 1, 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, subject to adjustment. The rights will become
exercisable initially only 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 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, 1995, 133 shares had been repurchased under this authorization.
In addition to its common stock, the Company authorized capital includes 1,000
shares of preferred stock ($1.00 par value), issuable in series, of which 100
shares are designated as Series A Preferred.
14. STOCK OPTIONS
Under the Company's stock option plans, selected employees 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.
27
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following is a summary of changes in options outstanding:
NUMBER OF OPTION PRICE OPTION PRICE
SHARES PER SHARE TOTAL
Outstanding and exercisable at June 30, 1992 434 $ 4.60 to $28.00 $5,226
Granted 133 $ 9.00 to $10.63 1,210
Lapsed or canceled (97) $ 9.00 to $27.63 (1,847)
Outstanding and exercisable at June 30, 1993 470 $ 4.60 to $28.00 4,589
Exercised (43) $ 4.60 to $ 9.75 (301)
Granted 117 $ 9.45 to $14.13 1,144
Lapsed or canceled (91) $ 9.50 to $12.38 (1,067)
Outstanding and exercisable at June 30, 1994 453 $ 6.38 to $28.00 4,365
Exercised (50) $ 9.00 to $10.63 (486)
Granted 204 $16.75 to $19.19 3,846
Outstanding and exercisable at June 30, 1995 607 $ 6.38 to $28.00 $7,725
At June 30, 1995, 1,099 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.
15. 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, 1995 and 1994, the
Company had no significant concentrations of credit risk.
16. SUPPLEMENTAL CASH FLOW INFORMATION
Excluded from the consolidated statements of cash flows was the effect of
certain noncash activities. The Company assumed $0.2 million and $1.5 million of
obligations in conjunction with acquisitions for fiscal years ended June 30,
1995, and 1993 respectively. The Company also received in fiscal 1993 a $0.4
million note receivable in exchange for certain assets. There were no noncash
investing or financing activities in fiscal 1994.
17. ROYALTY COMMITMENTS
In March, 1994, the Company entered into an agreement with National Football
League Properties, Inc. ("NFLP"), whereby the Company was granted a license to
manufacture, publish, and distribute a sports publication. Royalty expense under
the agreement was $0.5 million for the year ended 1995. There was no royalty
expense for the years ended 1994 or 1993.
18. 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.
28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of
Cadmus Communications Corporation:
We have audited the accompanying consolidated balance sheet of Cadmus
Communications Corporation and Subsidiaries as of June 30, 1995, and the related
consolidated statements of income and cash flows for the year 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 audit.
We conducted our audit 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 audit provides 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 Communications
Corporation and Subsidiaries as of June 30, 1995, and the results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Notes 12 and 10 to the consolidated financial statements,
effective as of July 1, 1994, the Company changed its method of accounting for
postretirement benefits other than pensions to conform with Statement of
Financial Accounting Standards No. 106 and its method of accounting for income
taxes to conform with Statement of Financial Accounting Standards No. 109.
ARTHUR ANDERSEN LLP
Richmond, Virginia,
August 1, 1995
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
Cadmus Communications Corporation:
We have audited the consolidated financial statements of Cadmus
Communications Corporation and Subsidiaries as of June 30, 1994, and for each of
the two years in the period ended June 30, 1994. We have also audited the 1994
and 1993 financial statement schedules listed in the Index to Financial
Statements and schedules of this Form 10-K. These financial statements and
financial statement schedules 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 audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cadmus
Communications Corporation and Subsidiaries as of June 30, 1994, and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended June 30, 1994 in conformity with generally
accepted accounting principles. In addition, in our opinion, the 1994 and 1993
financial statement schedules 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 10 and 12 to the consolidated financial statements,
effective as of the beginning of 1994, Cadmus 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
29
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
Previously reported in the Company's Form 8-K and Form 8-K/A filed with the
Securities and Exchange Commission on August 23, 1994 and September 20, 1994,
respectively.
30
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
DIRECTORS
The Board is divided into three classes (I, II, and III), with one class
being elected every year for a term of three years. Of the five persons named
immediately below, the first four currently serve as Class III directors of
Cadmus and will be nominated to serve as Class III directors for terms of three
years expiring at the 1998 annual meeting. The fifth listed individual was
appointed by the Board to serve until the 1995 annual meeting of shareholders to
be held November 8, 1995 ("1995 Annual Meeting") as a Class III director but
will be nominated to serve as a Class I director for a term of one year expiring
at the 1996 annual meeting.
Certain information concerning the nominees for election at the 1995 Annual
Meeting as Class III and Class I directors is set forth below, as well as
certain information about the other Class I and Class II directors, who will
continue in office after the 1995 Annual Meeting until the 1996 and 1997 annual
meeting of shareholders, respectively.
NOMINEES FOR ELECTION AS CLASS III DIRECTORS
(TO SERVE UNTIL 1998 ANNUAL MEETING)
PRINCIPAL OCCUPATION DURING
DIRECTOR PAST FIVE YEARS AND DIRECTORSHIPS
NAME AND (AGE) SINCE (1) IN OTHER PUBLIC COMPANIES
Price H. Gwynn, III (72) 1984 Chairman, Presbyterian Publishing Corporation,
formerly Vice President Lance, Inc., Charlotte,
North Carolina.
John C. Purnell, Jr. (54) 1979 Executive Director, Friends Association For
Children, Richmond, Virginia, a non-profit child
welfare organization.
Russell M. Robinson, II (63) 1984 Attorney-at-Law, President, Director, and
shareholder of Robinson, Bradshaw & Hinson, P.A.,
Charlotte, North Carolina. Director, Caraustar
Industries, Inc. and Duke Power Company
John W. Rosenblum (51) 1988 Tayloe Murphy Professor, the Darden Graduate School
of Business Administration, University of
Virginia. Formerly Dean, the Darden School.
Director, Chesapeake Corporation, Comdial
Corporation, Cone Mills Corporation, and T. Rowe
Price Associates.
NOMINEE FOR ELECTION AS A CLASS I DIRECTOR
(TO SERVE UNTIL 1996 ANNUAL MEETING)
PRINCIPAL OCCUPATION DURING
DIRECTOR PAST FIVE YEARS AND DIRECTORSHIPS
NAME AND (AGE) SINCE (1) IN OTHER PUBLIC COMPANIES
Jeanne M. Liedtka (40) 1995 Associate Professor at the Darden Graduate School
of Business Administration, University of
Virginia; Associate Professor at Rutgers
University and Simmons College.
31
CLASS I DIRECTORS
(SERVING UNTIL 1996 ANNUAL MEETING)
PRINCIPAL OCCUPATION DURING
DIRECTOR PAST FIVE YEARS AND DIRECTORSHIPS
NAME AND (AGE) SINCE (1) IN OTHER PUBLIC COMPANIES
Robert I. Dalton, Jr. (74) 1977 President, Tech-Tex, Inc., a Charlotte, North
Carolina business brokerage firm. Formerly,
Partner, Dalton-Briley and Company, a Charlotte,
North Carolina business brokerage firm.
Lee P. Dudley (62) 1974 Vice President -- Investments and Branch Manager,
Richmond, Virginia office of A.G. Edwards & Sons,
Inc., a broker-dealer organization. Formerly
Chairman and Chief Executive Officer of Financial
Corporation of Virginia, a Richmond, Virginia
investment banking and broker-dealer
organization.
Frank G. Louthan, Jr. (75) 1968 Retired, formerly Chairman and Chief Executive
Officer, RECO Industries, Inc., a privately-owned
engineering company headquartered in Richmond,
Virginia.
Wallace Stettinius (62) 1967 Retired, formerly Chairman of the Board, Cadmus.
Formerly President and Chief Executive Officer,
Cadmus. Director, American Filtrona Corporation
and Chesapeake Corporation.
CLASS II DIRECTORS
(SERVING UNTIL 1997 ANNUAL MEETING)
PRINCIPAL OCCUPATION DURING
DIRECTOR PAST FIVE YEARS AND DIRECTORSHIPS
NAME AND (AGE) SINCE (1) IN OTHER PUBLIC COMPANIES
Frank Daniels, III (39) 1994 Publisher, Nando.net; Vice President of The News
and Observer Publishing Company, Raleigh, North
Carolina. Formerly, Executive Editor and Director
of Operations of The News and Observer Publishing
Company.
C. Stephenson Gillispie, Jr. (53) 1991 Chairman of the Board, President, and Chief
Executive Officer, Cadmus. Formerly, Chief
Operating Officer, Cadmus, and President and
Chief Executive Officer, The William Byrd Press,
Incorporated.
John D. Munford, II (67) 1965 Retired, formerly Vice Chairman, Executive Vice
President, Union Camp Corporation, Franklin,
Virginia. Director, Pulaski Furniture
Corporation, Universal Corporation, Mohawk
Papermill, Inc. and Caraustar Industries, Inc.
Bruce A. Walker (61) 1977 President, Valco Graphics, Inc., a Seattle,
Washington publication and tabloid printing firm.
Formerly, Marketing Representative, Pacific
Northwest, Anderson Lithograph Company, Los
Angeles, California.
(1) All service by Cadmus directors prior to June 30, 1984 refers to service as
directors of Cadmus' subsidiaries, Byrd or Washburn. At the Board's February
7, 1995 meeting, Ms. Liedtka was elected to serve on the Board as a Class
III director to serve until the 1995 Annual Meeting; however, in accordance
with Cadmus' Articles of Incorporation, in order to maintain the classes as
nearly equal in number as possible, Ms. Liedtka has been redesignated as a
Class I director nominee to serve until the 1996 annual meeting of
shareholders.
32
EXECUTIVE OFFICERS
For information regarding the executive officers of Cadmus, see "Executive
Officers of the Registrant" at the end of Part I of this report.
COMPLIANCE WITH SECTION 16 OF THE SECURITIES EXCHANGE ACT OF 1934
Based on a review of the reports of changes in beneficial ownership of
Common Stock and written representations furnished to Cadmus, Cadmus believes
that its officers and directors filed on a timely basis the reports required to
be filed under Section 16(a) of the Securities Exchange Act of 1934 during the
fiscal year ended June 30, 1995, except that inadvertently a Form 3 was filed
late for Ms. Liedtka and a Form 5 was filed late for each of Messrs. Munford and
Fernstrom.
FAMILY RELATIONSHIPS
Mr. Dalton is the brother-in-law of Mr. Robinson. Mr. Dudley is the
stepbrother of Mr. Stettinius.
33
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table shows, for the fiscal years ended June 30, 1995, 1994,
and 1993, all compensation paid or accrued by Cadmus to the Company's Chief
Executive Officer and its four other most highly compensated executive officers
whose salary and bonus for fiscal year 1995 exceed $100,000.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION (1) LONG-TERM COMPENSATION
OTHER SECURITIES ALL OTHER
ANNUAL UNDERLYING COMPEN-
NAME AND COMPEN- OPTIONS/ SATION
PRINCIPAL POSITION YEAR SALARY ($)(2) BONUS ($)(3) SATION($) SARS(#S) ($)(4)
C. Stephenson Gillispie, Jr. 1995 $ 297,500 $160,000 -- 42,200 $ 4,500
Chairman of the Board, 1994 290,200 150,000 -- 25,000 4,497
President, and Chief 1993 279,200 63,000 -- 25,000 4,364
Executive Officer
Michael Dinkins 1995 182,000 90,000 -- 20,800 0
Vice President and 1994 179,200 75,000 $115,922(5) 10,000 0
Chief Financial Officer 1993 0 0 -- 0 0
Gregory Moyer 1995 175,000 70,000 154,177(6) 30,800 0
Vice President -- Human 1994 0 0 -- 0 0
Resources and Quality 1993 0 0 -- 0 0
John H. Phillips 1995 165,000 83,000 -- 10,800 4,500
Vice President and Regional 1994 163,840 83,000 -- 13,500 4,497
Manufacturing Officer 1993 157,700 60,000 -- 7,500 4,267
Bruce V. Thomas 1995 156,000 82,000 -- 10,800 4,500
Vice President -- Law 1994 154,200 80,000 -- 12,000 1,875
and Development 1993 134,200 80,000 -- 8,000 0
(1) Except as reported for Messrs. Dinkins and Moyer under "Other Annual
Compensation," non-cash perquisites or personal benefits are not included as
such amounts did not exceed the lesser of 10% of the respective named
executive officer's individual salary and bonus or $25,000.
(2) Reflects salary before pretax contribution under the Cadmus Thrift Savings
Plan (the "Thrift Savings Plan").
(3) Reflects short-term incentive awards accrued for each of the three fiscal
years ended June 30, 1995 under the Cadmus Executive Incentive Plan.
(4) Reflects amounts contributed or matched by Cadmus for the fiscal year ended
June 30, 1995 under the Cadmus Thrift Savings Plan.
(5) Of the total amount reported as "Other Annual Compensation" for Mr. Dinkins
in fiscal year 1994, $50,000 was paid as a reimbursement for the value of
stock options forfeited by Mr. Dinkins when he left his previous employer to
join Cadmus during fiscal year 1994, with the balance of the amount so
reported attributable in the aggregate to other relocation expenses,
including tax payments on moving expenses, settlement and closing costs,
temporary living and travel expenses and moving expenses, each of which
individually amounts to less than 25% of the total amount reported.
(6) Of the total amount reported as "Other Annual Compensation" for Mr. Moyer in
fiscal year 1995, $43,311 was paid for closing costs, $65,486 for mortgage
and bridge loan payments, $40,000 for discretionary expenses and $5,379 was
attributable to other relocation expenses, including temporary living and
travel expenses, which individually amount to less than 25% of the total
amount reported.
34
STOCK OPTIONS
The following table reflects grants of stock options made during the year
ended June 30, 1995 to each of the named executive officers.
OPTIONS GRANTED IN LAST FISCAL YEAR
POTENTIAL
REALIZABLE
VALUE AT
NUMBER OF ASSUMED ANNUAL
SECURITIES PERCENTAGE OF RATES OF STOCK
UNDERLYING TOTAL OPTIONS/ EXERCISE PRICE APPRECIATION
OPTIONS SARS GRANTED OR BASE FOR OPTION
GRANTED TO EMPLOYEES PRICE EXPIRATION TERM (2)
NAME (#) (1) IN FISCAL YEAR ($/SH) DATE 5% 10%
C. Stephenson Gillispie, Jr. 42,200 21% $19.19 05/09/05 $509,290 $1,290,641
Michael Dinkins 10,000 5% 16.75 11/09/04 105,340 266,952
10,800 5% 19.19 05/09/05 130,340 330,306
Gregory Moyer 20,000 10% 17.00 08/15/04 213,824 541,872
10,800 5% 19.19 05/09/05 130,340 330,306
John H. Phillips 6,400 3% 19.19 05/09/05 77,238 195,737
4,400 2% 19.01 06/12/05 52,603 133,307
Bruce V. Thomas 10,800 5% 19.19 05/09/05 130,340 330,306
(1) All grants were made under the Company's 1990 Incentive Stock Plan, as
amended, and are exercisable no earlier than six months from date of grant,
nor later than five years from date of grant, depending upon whether the
Company's performance exceeds specific standards adopted by the Compensation
Committee.
(2) The dollar amounts under these columns are the result of calculations at
assumed annual rates of stock price appreciation set by the Securities and
Exchange Commission. The dollar amounts shown are not intended to forecast
possible future appreciation, if any, of the price of the Common Stock.
The following table reflects certain information regarding the exercise of
stock options during the year ended June 30, 1995, as well as information with
respect to unexercised options held at such date by each of the named executive
officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT "IN THE MONEY"
FISCAL OPTIONS AT FISCAL
NUMBER OF YEAR END (#) YEAR END ($)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
C. Stephenson Gillispie, Jr. 0 $0 107,000/42,000 $1,550,750/187,157
Michael Dinkins 0 0 20,000/10,800 206,690/47,898
Gregory Moyer 0 0 20,000/10,800 132,500/47,898
John H. Phillips 0 0 51,500/10,800 761,436/47,898
Bruce V. Thomas 0 0 20,000/10,800 286,500/47,898
DEFERRED COMPENSATION PLAN
Effective July 1, 1995, the Board approved and established a Deferred
Compensation Plan ("Deferred Compensation Plan"). The purpose of the Deferred
Compensation Plan is to provide eligible employees the option of deferring
current taxation on their incentive compensation awards.
This plan provides that any employee of the Company who is covered by the
Company's executive compensation plan may elect to defer receipt of all or any
portion of his or her incentive compensation awards. A participating employee
may elect to have amounts deferred under the plan invested in any combination of
six designated T. Rowe Price investment funds;
35
and his or her deferred account balance is credited on a quarterly basis with
earnings or loss. The Company may establish a trust to hold amounts deferred and
which accumulate under the plan, but has not done so yet.
A participating employee's account balance is fully vested at all times and
normally is payable in a lump sum at a time designated by the employee. However,
an employee will automatically receive payment after termination of employment
for reasons other than retirement or disability; and an employee may receive an
in-service withdrawal for financial hardship.
NON-QUALIFIED THRIFT PLAN
Effective July 1, 1995, the Board approved and established a Non-Qualified
Thrift Plan ("Non-Qualified Thrift Plan"). The purpose of the Non-Qualified
Thrift Plan is to provide deferred compensation opportunities for eligible
employees on a basis similar to that of the Thrift Savings Plan after the
arbitrary limits imposed under the Thrift Savings Plan on the Company's and the
employee's contributions by the Internal Revenue Code are reached.
This plan provides that any employee of the Company who is covered by the
Company's executive compensation plan may elect to defer receipt of all or any
portion of his or her compensation (as defined for purposes of the Thrift
Savings Plan) which could have been contributed to the Thrift Savings Plan but
for certain tax law restrictions on contributions (generally, the $150,000 limit
on covered compensation and the $9,240 limit on employee contributions). It
provides for a Company matching contribution on an employee's contributions to
the Non-Qualified Thrift Plan to the extent the employee's contributions would
have received a matching contribution under the Thrift Savings Plan (currently
at the rate of 50% on the first 6% of compensation contributed) but for certain
tax law restrictions on contributions. It also provides for a Company profit
sharing contribution to the extent any Company profit sharing contribution for
the employee under the Thrift Savings Plan is limited by certain tax law
restrictions on contributions.
A participating employee may elect to have amounts deferred under the plan
invested in any combination of six designated T. Rowe Price investment funds;
and his or her deferred account balance is credited on a quarterly basis with
earnings or loss. The Company may establish a trust to hold amounts deferred and
which accumulate under the plan, but has not done so yet.
A participating employee's account balance attributable to his or her
contributions is fully vested at all times. A participating employee's account
balance attributable to Company contributions is vested at the same time and in
the same manner as provided in the Thrift Savings Plan (at age 65 or otherwise
under a 2-to-6 year graduated vesting schedule). A participating employee's
vested account balance normally is payable in a lump sum after termination of
employment for any reason. However, an employee may receive an in-service
withdrawal for financial hardship.
CHANGE-IN-CONTROL AGREEMENT
Cadmus has entered into agreements with Messrs. Gillispie, Dinkins, Moyer,
Phillips, Thomas, Bosher, Fernstrom, and six other managers that provide for
severance payments and certain other benefits if their employment terminates
after "a change in control" (as defined) of Cadmus. Payments and benefits will
be paid under these agreements only if, within three years following a change in
control (or such shorter period from the date of any change in control to normal
retirement), the employee (i) is terminated involuntarily without "cause" (as
defined) and not as a result of death, disability or normal retirement, or (ii)
terminates his employment voluntarily for "good reason" (as defined). "Change in
control" is defined generally to include (i) an acquisition of 20% of Cadmus'
voting stock, (ii) certain changes in the composition of the Cadmus Board of
Directors, (iii) shareholder approval of certain business combinations or asset
sales in which Cadmus' historic shareholders hold less than 60% of the resulting
or purchasing company or (iv) shareholder approval of the liquidation or
dissolution of Cadmus.
In the event of such termination following a change in control, the
employee will be entitled to receive a lump sum severance payment, certain other
payments and a continuation of employee welfare benefits. Severance payments
under these agreements are determined by a formula that takes into account base
salary, annual bonus and years of employment. Under this formula, Mr. Gillispie
will be entitled to the maximum severance payment, which will be an amount equal
to three times the sum of the employee's base salary and annual bonus for the
year in which termination occurs, or for the year ended June 30, 1992, whichever
is higher. The total amount payable to the employee may not exceed the maximum
amount that may be paid without the imposition of a federal excise tax on the
employee and denial of a tax deduction to the payer.
RETIREMENT BENEFITS
PENSION PLAN. Substantially all employees of Cadmus and its participating
subsidiaries who are 21 years of age or older and who are credited with at least
one year of service are covered by the Cadmus Pension Plan ("Pension Plan"). The
Pension
36
Plan is a non-contributory defined benefit pension plan under which retirement
benefits are generally based on periods of active participation. For the period
July 1, 1979 through June 30, 1985 a participant earned a retirement benefit
expressed as an annuity for life equal to 2% of his base compensation (exclusive
of non-guaranteed commissions, bonuses, overtime pay and similar payments) for
each year of service. For periods after June 30, 1985, a participant earns a
retirement benefit generally equal to 1.6% of his base compensation each year
(limited to the inflation adjusted compensation cap each year starting July 1,
1989). Under a special rule, employees who were participants on June 30, 1985
generally accrued further benefits after June 30, 1985 and before January 1,
1992 at no less than the amount of accrual for the fiscal year ended June 30,
1985. This special rule ceased to apply effective for accruals after December
31, 1991. Prior to July 1, 1979, several different benefit formulas applied, and
employees who were participants before July 1, 1979 will retain their accrued
past service benefit for service before July 1, 1979 based on the benefit
formulas then in effect.
Because retirement benefits under the Pension Plan are based on career
average compensation, a table showing annual retirement benefits based upon
final average compensation and years of service is inappropriate and has been
omitted. Based on the benefit formula in effect on and after July 1, 1985, and
on the assumption that the individuals named will continue to receive, until
normal retirement age, covered compensation in the same amounts paid for the
fiscal year ended June 30, 1995, the estimated annual benefits which are not
subject to any deduction for Social Security or other offset amount payable for
the named executive officers are $62,810 for Mr. Gillispie, $58,200 for Mr.
Dinkins, $61,740 for Mr. Phillips, and $66,163 for Mr. Thomas. Mr. Moyer will be
eligible for participation in the plan on January 1, 1996.
CADMUS SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. Cadmus maintains the Cadmus
Supplemental Executive Retirement Plan ("SERP") to provide supplemental
retirement benefits for certain key employees of Cadmus and its participating
subsidiaries who are credited with at least five years of service as a group 1
employee and who are selected by the Board for participation in the SERP. The
Board may waive all or any part of the five year service requirement. The SERP
is a non-qualified unfunded plan which covers 17 active key employees of Cadmus
and its participating subsidiaries. The retirement or death benefit payable
under the SERP is a 15 year term certain annuity equal to 30% of the
participant's final average (high three years out of last ten) base compensation
(exclusive of non-guaranteed commissions, bonuses, overtime pay or similar
payments) generally commencing at the participant's normal retirement age (which
is age 65 for employees last hired prior to age 60 or otherwise is the fifth
anniversary of commencement of participation). Benefits are not subject to any
reduction for Social Security or other offset amount.
The following table shows the estimated annual retirement benefits payable
to SERP participants in the following average final compensation and years of
service classifications assuming retirement at age 65. Average compensation
under the SERP includes only the amounts set forth under "Salary" in the Summary
Compensation Table.
PENSION PLAN TABLE
HIGHEST 3-YEAR YEARS OF SERVICE
AVERAGE COMPENSATION 5 10 15 20 AND OVER
$100,000 $ 7,500 $15,000 $22,500 $ 30,000
125,000 9,375 18,750 28,125 37,500
150,000 11,250 22,500 33,750 45,000
175,000 13,125 26,250 39,375 52,500
200,000 15,000 30,000 45,000 60,000
225,000 16,875 33,750 50,625 67,500
250,000 18,750 37,500 56,250 75,000
300,000 22,500 45,000 67,500 90,000
350,000 26,250 52,500 78,750 105,000
Credited years of service under the SERP for table as of the fiscal year
ended June 30, 1995 are: Mr. Gillispie -- 18; Mr. Dinkins -- 1; Mr. Moyer -- 0;
Mr. Phillips -- 20; and Mr. Thomas -- 3.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Members of the Executive Compensation and Organization Committee ("ECOC")
are Messrs. Dudley, Gwynn, Munford, Robinson (Chairman), Rosenblum, and Walker.
No member of the ECOC is or has been an employee of Cadmus. Furthermore, none of
Cadmus' executive officers has served on the board of directors of any company
of which an ECOC member is an employee except for John H. Phillips, Vice
President and Regional Manufacturing Officer of Cadmus, who
37
serves as a director of Valco Industries, Inc., a privately-held Seattle
publication and tabloid printing firm, of which Bruce A. Walker, an ECOC member,
is President.
The firm of Robinson, Bradshaw & Hinson, P.A. of which Russell M. Robinson,
II, a Class III director, is President, a Director, and a Shareholder, was
retained to perform legal services for Cadmus during fiscal year 1995. It is
anticipated that the firm will continue to provide legal services to Cadmus
during fiscal year 1996.
COMPENSATION OF DIRECTORS
CASH COMPENSATION
Each director of Cadmus who is not also an executive officer of Cadmus
receives: (a) an annual retainer of $10,000; (b) $1,000 for attendance at each
Board meeting; (c) $750 for attendance at each committee meeting; and (d) $300
for each conference call Board meeting in which he participates. The Chairmen of
the Audit, the Executive Compensation and Organization, and the Benefits and
Investment Committees each receive an additional $2,000 annually. Each director
also is reimbursed for usual and ordinary expenses of meeting attendance. A
director who also is an employee of Cadmus receives no additional compensation
for serving as a director.
Cadmus has in effect a plan under which directors may elect to defer their
annual retainers and attendance fees generally until after the termination of
their service on the Board.
NON-EMPLOYEE DIRECTOR STOCK COMPENSATION PLAN
Under the 1992 Non-Employee Director Stock Compensation Plan, a portion of
the anticipated future increases in the annual retainer will be paid in stock
options. Each Director who is not an employee of Cadmus will receive an option
grant covering 1,000 shares of Common Stock on August 15 of each year during the
term of the Plan, with the third grant made under the Plan on August 15, 1995 at
a per share exercise price of $24.0531. The options granted under the Director
Plan are not exercisable for six months from date of grant except in the case of
death or disability. Options that are not exercisable at the time a director's
services on the Board terminates for reasons other than death, disability or
retirement in accordance with Cadmus' policy will be forfeited.
38
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of July 31, 1995, the number and
percentage of shares of Common Stock held by persons known by Cadmus to be the
owners of more than five percent of the Company's issued and outstanding Common
Stock, each of the Cadmus directors and nominees for director, the executive
officers named in the Summary Compensation Table, and all directors and
executive officers as a group:
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP COMMON STOCK ISSUED
OF BENEFICIAL OWNER OF COMMON STOCK (1) AND OUTSTANDING
FMR Corp. (Fidelity Investments) 472,000(2) 7.8%
Boston, Massachusetts
Robert I. Dalton, Jr. 8,738(3) *
Charlotte, North Carolina
Frank Daniels, III 500 *
Charlotte, North Carolina
Michael Dinkins 20,650(4) *
Richmond, Virginia
Lee P. Dudley 11,319(5) *
Richmond, Virginia
C. Stephenson Gillispie, Jr. 135,302(6) 2.2%
Richmond, Virginia
Price H. Gwynn, III 14,466 *
Charlotte, North Carolina
Jeanne M. Liedtka 0 *
Charlottesville, Virginia
Frank G. Louthan, Jr. 150,771(7) 2.5%
Richmond, Virginia
Gregory Moyer 20,000(8) *
Richmond, Virginia
John D. Munford, II 48,003 *
Franklin, Virginia
John H. Phillips 81,811(9) 1.3%
Richmond, Virginia
John C. Purnell, Jr. 6,807 *
Richmond, Virginia
Russell M. Robinson, II 17,272 *
Charlotte, North Carolina
John W. Rosenblum 3,000 *
Charlottesville, Virginia
Wallace Stettinius 221,195(10) 3.6%
Richmond, Virginia
Bruce V. Thomas 21,288(11) *
Richmond, Virginia
39
AMOUNT AND NATURE OF PERCENT OF
NAME AND ADDRESS BENEFICIAL OWNERSHIP COMMON STOCK ISSUED
OF BENEFICIAL OWNER OF COMMON STOCK (1) AND OUTSTANDING
Bruce A. Walker 2,800 *
Seattle, Washington
All Directors and
Executive Officers as
a Group (18 persons) 1,240,543(12) 12.4%
* Indicates that percent of class does not exceed one percent.
(1) Except as otherwise indicated, each nominee, director or executive officer
has sole voting and investment power with respect to the shares shown.
Beneficial ownership for each non-employee director includes 2,000 shares
as to which each such director holds presently exercisable options under
the Non-Employee Director Stock Option Plan.
(2) The information contained herein with respect to FMR Corp. ("Fidelity
Investments") is based on a Schedule 13G filed by such corporation with the
Securities and Exchange Commission, a copy of which was sent to the Company
on February 13, 1995. The Schedule 13G certifies that the acquisition of
such shares was in the ordinary course of business and not in connection
with, or as a participant in, any transaction having the purpose or effect
of changing or influencing the control of the Company.
(3) Also includes 300 shares held by Mr. Dalton's wife as to which shares Mr.
Dalton disclaims beneficial ownership.
(4) Includes 20,000 shares as to which Mr. Dinkins holds presently exercisable
options.
(5) Also includes 516 shares held by a corporation of which Mr. Dudley is
chairman, director, and majority shareholder and 8,803 shares held by a
corporation of which Mr. Dudley is president and a majority shareholder.
(6) Includes 107,000 shares as to which Mr. Gillispie holds presently
exercisable options and 571 shares held for his account in the Cadmus ESOP
account under the Thrift Savings Plan.
(7) Also includes 14,298 shares held by Mr. Louthan's wife, as to which shares
Mr. Louthan disclaims beneficial ownership.
(8) Mr. Moyer holds all his shares in the form of presently exercisable
options.
(9) Includes 51,500 shares as to which Mr. Phillips holds presently exercisable
options and 479 shares held for his account in the Cadmus ESOP account
under the Thrift Savings Plan.
(10) Includes: (a) 185,306 shares held in an agency account by NationsBank of
Virginia, N.A., as to all of which shares Mr. Stettinius is the beneficial
owner; (b) 2,222 shares, also held in an agency account by NationsBank of
Virginia, N.A., for Mr. Stettinius' wife, as to which shares Mr. Stettinius
disclaims beneficial ownership; (c) 33,000 shares as to which Mr.
Stettinius holds presently exercisable options; and (d) 667 shares held for
his account in the Cadmus ESOP account under the Thrift Savings Plan.
(11) Includes 20,000 shares as to which Mr. Thomas holds presently exercisable
options and 67 shares held indirectly for his account in the Cadmus ESOP
account under the Thrift Savings Plan.
(12) In addition to the executive officers named in the Summary Compensation
Table, the beneficial ownership shown for executive officers of Cadmus
reflects shares beneficially owned by David E. Bosher, Vice President and
Treasurer, and Edward B. Fernstrom, Vice President -- Information
Technologies.
40
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
See "Compensation Committee Interlocks and Insider Participation in
Compensation Decisions" presented in Item 11 of this report for information
relating to Mr. Robinson's relationship to the Company.
From time to time, Cadmus may purchase products from, or utilize services
of, other corporations of which a Cadmus director is a director, officer or
employee. Such transactions occur in the ordinary course of business and are not
deemed material.
41
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
AND REPORTS ON FORM 8-K
(A) FINANCIAL STATEMENTS AND SCHEDULES
The financial statements presented in Item 8 of this report and the
financial statement schedules filed as part of this report are listed in the
Index to Financial Statements and Schedules on page 46 hereof.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the registrant during the last quarter
of the period covered by this report.
(C) EXHIBITS
The exhibits listed in the accompanying "Index of Exhibits" on pages 49 and
50 hereof are filed as a part of this report.
MANAGEMENT CONTRACTS OF COMPENSATORY PLANS AND ARRANGEMENTS
Set forth below are the management contracts or compensatory plans and
arrangements required to be filed as exhibits to this report pursuant to Item
14(c) hereof including their location:
Cadmus Executive Incentive Plan dated July 30, 1985 -- Form 10-K for the fiscal
year ended June 30, 1985, Exhibit 10.1.
Cadmus Supplemental Executive Retirement Plan, as restated effective July 1,
1992 -- Form 10-K for the fiscal year ended June 30, 1992, Exhibit 10.2 filed on
Form SE dated September 25, 1992.
Cadmus 1984 Stock Option Plan -- Form 10-K for the fiscal year ended June 30,
1985, Exhibit 10.3.
Byrd 1983 Stock Option Plan -- Registration Statement No. 2-90742, Exhibit 10.9.
Cadmus 1992 Non-Employee Director Stock Compensation Plan -- Form 10-K for the
fiscal year ended June 30, 1992, Exhibit 10.5 filed on Form SE dated September
25, 1992.
Cadmus 1990 Long-Term Incentive Stock Plan, as amended effective August 10,
1994 -- Form 10-K for the fiscal year ended June 30, 1994, Exhibit 10.6.
Cadmus Deferred Compensation Plan, effective July 1, 1995 -- Exhibit 10.7.
Cadmus Non-Qualified Thrift Plan, effective July 1, 1995 -- Exhibit 10.8.
Employee Retention Agreement dated as of September 1, 1991, between Cadmus
Communications Corporation and C. Stephenson Gillispie, Jr. -- Form 10-K for the
fiscal year ended June 30, 1991, Exhibit 10.9 filed on Form SE dated September
23, 1991.
Employee Retention Agreement dated as of September 1, 1991, between Cadmus
Communications Corporation and David E. Bosher -- Form 10-K for the fiscal year
ended June 30, 1991, Exhibit 10.10 filed on Form SE dated September 23, 1991.
Employee Retention Agreement dated as of May 1, 1992, between Cadmus
Communications Corporation and Bruce V. Thomas -- Form 10-K for the fiscal year
ended June 30, 1992, Exhibit 10.11 filed on Form SE dated September 25, 1992.
Employee Retention Agreement dated as of September 1, 1991, between Cadmus
Communications Corporation and John H. Phillips -- Form 10-K for the fiscal year
ended June 30, 1993, Exhibit 10.12.
Employee Retention Agreement dated as of September 21, 1993, between Cadmus
Communications Corporation and Michael Dinkins -- Form 10-K for the fiscal year
ended June 30, 1994, Exhibit 10.12.
Employee Retention Agreement dated as of August 1, 1994, between Cadmus
Communications and Gregory Moyer -- Exhibit 10.14.
Employee Retention Agreement dated as of April 12, 1995, between Cadmus
Communications Corporation and Edward B. Fernstrom -- Exhibit 10.15.
42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, as of the 14th day of
September, 1995.
CADMUS COMMUNICATIONS CORPORATION
/s/ C. STEPHENSON GILLISPIE, JR.
C. STEPHENSON GILLISPIE, JR.
CHAIRMAN OF THE BOARD, PRESIDENT,
AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated, as of the 14th day of September,
1995.
SIGNATURE TITLE
/s/ C. Stephenson Gillispie, Jr. Chairman of the Board, President, and Chief
Executive Officer (Principal Executive
C. STEPHENSON GILLISPIE, JR. Officer)
/s/ Michael Dinkins Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
MICHAEL DINKINS
*/s/ Robert I. Dalton, Jr. Director
ROBERT I. DALTON, JR.
*/s/ Frank Daniels, III Director
FRANK DANIELS, III
*/s/ Lee P. Dudley Director
LEE P. DUDLEY
*/s/ Price H. Gwynn, III Director
PRICE H. GWYNN, III
*/s/ Jeanne M. Liedtka Director
JEANNE M. LIEDTKA
*/s/ Frank G. Louthan, Jr. Director
FRANK G. LOUTHAN, JR.
*/s/ John D. Munford, II Director
JOHN D. MUNFORD, II
*/s/ John C. Purnell, Jr. Director
JOHN C. PURNELL, JR.
43
*/s/ Russell M. Robinson, II Director
RUSSELL M. ROBINSON, II
*/s/ John W. Rosenblum Director
JOHN W. ROSENBLUM
*/s/ Wallace Stettinius Director
WALLACE STETTINIUS
*/s/ Bruce A. Walker Director
BRUCE A. WALKER
*By /s/ C. Stephenson Gillispie, Jr.
C. STEPHENSON GILLISPIE, JR.
*ATTORNEY-IN-FACT
44
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Balance Sheets of Cadmus Communications Corporation and
Subsidiaries as of June 30, 1995 and 1994, and the related Consolidated
Statements of Income and Cash Flows for each of the three years in the period
ended June 30, 1995, including the notes thereto, are presented in Item 8 of
this report. The following additional financial data should be read in
conjunction with these consolidated financial statements.
Page
Reports of Independent Public Accountants 29
Report of Independent Public Accountants on Schedules
Financial Statement Schedules: *
VIII -- Valuation and Qualifying Accounts
* All other schedules have been omitted since the required information is
not present in amounts sufficient to require submission of the schedules,
or because the information required is included in the consolidated
financial statements, including the notes thereto.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Shareholders and Board of Directors
Cadmus Communications Corporation:
We have audited in accordance with generally accepted auditing standards,
the 1995 financial statements of Cadmus Communications Corporation included in
this Form 10-K and have issued our report thereon dated August 1, 1995. Our
report on the financial statements includes an explanatory paragraph with
respect to the change in the method of accounting for postretirement benefits
and the change in the method of accounting for income taxes as discussed in
Notes 12 and 10 to the financial statements. Our audit was made for the purpose
of forming an opinion on the 1995 financial statements taken as a whole. The
schedule listed in the index under Item 14 is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a part of the basic
financial statements. This 1995 schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states 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, 1995
SCHEDULE VIII
CADMUS COMMUNICATIONS CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
RESERVES AND ALLOWANCES
DEDUCTED FROM ASSET CHARGED TO CHARGED TO
ACCOUNTS: ALLOWANCE BALANCE AT COST AND OTHER ACCOUNTS -- DEDUCTIONS -- BALANCE AT
FOR DOUBTFUL ACCOUNTS BEGINNING OF PERIOD OTHER EXPENSES DESCRIBE DESCRIBE(A) END OF PERIOD
Years Ended:
June 30, 1993 $ 1,898 $275 $ 59(B) $ 320 $ 1,912
June 30, 1994 1,912 535 225(C) 1,158 1,514
June 30, 1995 1,514 860 55(D) 1,276 1,153
(A) Uncollectible accounts charged off, net of recoveries.
(B) Allowance for doubtful accounts of Marblehead Communications, Inc. acquired
in December 1993.
(C) Adjustments resulting from acquisition of Waverly Press in November 1993.
(D) Allowance for doubtful accounts of Cadmus Interactive acquired in September
1994, and Ronald James Direct acquired in May 1995.
INDEX OF EXHIBITS
3.1 Restated Articles of Incorporation of Cadmus Communications Corporation, as amended -- incorporated herein by reference
from Exhibit 3.1 of the Form 10-K for the fiscal year ended June 30, 1993.
3.2 Bylaws of Cadmus Communications Corporation, as amended -- incorporated herein by reference from Exhibit 3.2, of the
Form 10-Q for the fiscal quarter ended March 31, 1995.
4.1 Cadmus agrees to furnish to the Commission upon request any instrument with respect to long-term debt as to which the
total amount of securities authorized thereunder does not exceed 10% of Cadmus total consolidated assets.
4.2 Note Agreement dated as of June 15, 1988 providing for the issuance of Cadmus' $20,000,000 9.76% Senior Notes due June
30, 2000 -- incorporated herein by reference from Form SE dated September 27, 1988.
4.3 Note Purchase Agreement dated as of December 15, 1993 providing for the issuance of Cadmus' $40,000,000 6.74% Guaranteed
Senior Notes due 2003 -- incorporated by reference from Exhibit 4.3 of the Form 10-K for the fiscal year ended June 30,
1994.
10.1 Cadmus Executive Incentive Plan dated July 30, 1985 -- incorporated herein by reference from Exhibit 10.1 of the Form
10-K for the fiscal year ended June 30, 1985 (Commission File No. 0-12954).
10.2 Cadmus Supplemental Executive Retirement Plan, as restated effective July 1, 1992 -- incorporated herein by reference
from Exhibit 10.2 of the Form SE dated September 25, 1992.
10.3 Cadmus 1984 Stock Option Plan -- incorporated herein by reference from Exhibit 10.3 of the Form 10-K for the fiscal year
ended June 30, 1985 (Commission File No. 0-12954).
10.4 Byrd 1983 Stock Option Plan -- incorporated herein by reference from Exhibit 10.9 to the Registration Statement on Form
S-14 (Registration No. 2-90742).
10.5 Cadmus 1992 Non-Employee Director Stock Compensation Plan -- incorporated herein by reference from Exhibit 10.5 of the
Form SE dated September 25, 1992.
10.6 Cadmus 1990 Long-Term Stock Incentive Plan, as amended effective August 10, 1994 -- incorporated by reference from
Exhibit 10.6 of the Form 10-K for the fiscal year ended June 30, 1994.
10.7 Cadmus Deferred Compensation Plan, effective July 1, 1995 -- filed herewith.
10.8 Cadmus Non-Qualified Thrift Plan, effective July 1, 1995 -- filed herewith.
10.9 Employee Retention Agreement dated as of September 1, 1991, between Cadmus Communications Corporation and C. Stephenson
Gillispie, Jr. -- incorporated by reference from Exhibit 10.9 of the Form SE dated September 23, 1991.
10.10 Employee Retention Agreement dated as of September 1, 1991, between Cadmus Communications Corporation and David E.
Bosher -- incorporated herein by reference from Exhibit 10.10 of the Form SE dated September 23, 1991.
10.11 Employee Retention Agreement dated as of May 1, 1992, between Cadmus Communications Corporation and Bruce V.
Thomas -- incorporated herein by reference from Exhibit 10.11 of the Form SE dated September 25, 1992.
10.12 Employee Retention Agreement dated as of September 1, 1991 between Cadmus Communications Corporation and John H.
Phillips -- incorporated herein by reference from Exhibit 10.12 of the Form 10-K for the fiscal year ended June 30,
1993.
10.13 Employee Retention Agreement dated as of September 21, 1993, between Cadmus Communications Corporation and Michael
Dinkins -- incorporated by reference from Exhibit 10.12 of the Form 10-K for the fiscal year ended June 30, 1994.
10.14 Employee Retention Agreement dated as of August 1, 1994, between Cadmus Communications Corporation and Gregory
Moyer -- filed herewith.
10.15 Employee Retention Agreement dated as of April 12, 1995, between Cadmus Communications Corporation and Edward B.
Fernstrom -- filed herewith.
11. Statement Regarding Computation of Net Income Per Share -- filed herewith.
21. Subsidiaries of the Registrant -- filed herewith.
23.1 Consent of Arthur Andersen LLP -- filed herewith.
23.2 Consent of Coopers & Lybrand L.L.P. -- filed herewith.
24. Powers of Attorney -- filed herewith.
27. Financial Data Schedules -- filed herewith.