SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) August 1, 1996
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 0-12954 54-1274108
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification
Number)
6620 West Broad Street, Suite 240, Richmond, Virginia 23230
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 287-5680
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6620 West Broad Street, Suite 500, Richmond, VA 23230
(Former name or former address, if changed since last report)
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Item 5. Other Events.
On August 1, 1996, Cadmus Communications Corporation (the "Company") issued the
press release attached hereto as Exhibit 99.1 with respect to fourth quarter and
year-end financial results and read the prepared remarks attached hereto as
Exhibit 99.2 on a conference call with analysts. Information in these documents
relating to Cadmus' future prospects and performance are "forward-looking
statements," as defined by the Private Securities Litigation Reform Act of 1995,
and, as such, are subject to certain risks and uncertainties that could cause
actual results to differ materially. Potential risks and uncertainties include
but are not limited to: (1) continuing competitive pricing in the markets in
which the Company competes, (2) the gain or loss of significant customers or the
decrease in demand from existing customers, (3) the timing of significant orders
received from customers, (4) seasonal changes in the demand for the Company's
products, and (5) changes in the Company's product sales mix.
Item 7. Exhibits.
Exhibit 99.1 Press Release
Exhibit 99.2 Prepared Remarks from Conference Call
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on August 1, 1996.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
C. Stephenson Gillispie, Jr.
Chairman, President,
and Chief Executive Officer
<PAGE>
Exhibit Index
Exhibit
99.1 Press Release
99.2 Prepared Remarks from Conference Call
Exhibit 99.1
NEWS RELEASE
CONTACT
David E. Bosher
Vice President & Treasurer
(804) 287-5685
CADMUS COMMUNICATIONS CORPORATION ANNOUNCES
FOURTH QUARTER AND YEAR-END RESULTS
RICHMOND, VA, August 1, 1996 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) today reported net income of $1.5 million, or $.19 per share, for its
fourth quarter ended June 30, 1996. Net income for the same quarter of fiscal
1995 amounted to $2.7 million, or $.43 per share. There were 8,027,000 average
outstanding shares for the fourth quarter of fiscal 1996, compared to 6,235,000
average outstanding shares for the same period of last year. The increase in
shares outstanding reflects the shares issued in the Company's secondary
offering completed on November 7, 1995.
Sales for the fourth quarter of fiscal 1996 were $91.8 million, up 19% from
sales of $77.2 million for the same period of fiscal 1995. This increase was
attributable to both internal growth and acquisitions. While publishing revenues
were flat, printing and marketing revenues increased significantly. Printing
sales increased 15%, driven by the recent acquisition of Lancaster Information
Group and continued growth in the Company's financial communications, specialty
packaging and magazine product lines. Marketing sales rose 24% as a result of
the inclusion of sales from the acquisitions of The Software Factory and two
direct marketing agencies as well as from increased revenues from interactive
products. These increases were partially offset by declines in point-of-purchase
and catalog design revenues.
The Company attributed the weakness in fourth quarter 1996 earnings, as compared
to the same period of 1995, to several factors. First, profitability continued
to be adversely affected by gross margin pressure related to inefficiencies and
excess capacity at certain of its manufacturing facilities. Second, its
publishing business group earnings were impacted by continued softness in the
hobby and trading card collectibles markets. Third, direct marketing operating
earnings declined from 1995 levels due to a business-mix transition from
project-based sales to more stable, client-based relationships. Finally,
profitability in the fourth quarter was further adversely impacted as a result
of certain expenses associated with the Company's "unification" efforts and
other related initiatives.
Income before extraordinary item for the fiscal year ended June 30, 1996 was
$6.5 million, or $.87 per share, down from $7.5 million, or $1.21 per share, for
fiscal 1995. After the extraordinary loss, net income for fiscal 1996 was $5.7
million, or $.76 per share. Average shares outstanding were 7,495,000 and
6,195,000 for 1996 and 1995, respectively. Sales for fiscal 1996 totaled $336.7
million, representing a 20% increase over the $279.6 million recorded last year.
-more-
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Page 2
C. Stephenson Gillispie, Jr., president and chief executive officer, stated,
"While we are clearly not satisfied with our fourth quarter and full-year
results, the actions we have taken and the organizational changes we have made
are beginning to have a positive impact. We are returning toward higher levels
of profitability. Our earnings did improve compared to our third quarter and
we've seen consistent improvement in operating performance month over month
during our fourth quarter. We expect this improvement to continue into our first
quarter and throughout fiscal 1997."
Mr. Gillispie continued, "Cadmus has now completed a dramatic organizational
transformation and is today positioned to provide customers with a
distinctive array of graphic communications and marketing solutions.
We are strategically well-positioned and operationally sound. We look
forward to fiscal 1997 with enthusiasm and cautious optimism."
Cadmus Communications Corporation is a graphic communications company offering
comprehensive, specialized products and services in three broad areas: printing,
marketing, and publishing. Headquartered in Richmond, Virginia, Cadmus is one of
the largest graphic communications companies in North America.
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"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of
1995:
Information in this release relating to Cadmus' future prospects and performance
are "forward-looking statements" and, as such, are subject to certain risks and
uncertainties that could cause actual results to differ materially. Potential
risks and uncertainties include but are not limited to: (1) continuing
competitive pricing in the markets in which the Company competes, (2) the gain
or loss of significant customers or the decrease in demand from existing
customers, (3) the timing of significant orders received from customers, (4)
seasonal changes in the demand for the Company's products, and (5) changes in
the Company's product sales mix.
**(See attached financial highlights)**
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Years Ended
June 30, June 30,
1996 1995 1996 1995
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<S> <C>
Net sales $91,785 $77,175 $336,655 $279,641
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Operating expenses
Cost of sales 70,617 56,932 259,086 209,415
Selling and administrative 16,793 14,664 61,204 52,172
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87,410 71,596 320,290 261,587
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Operating income 4,375 5,579 16,365 18,054
Interest and other (income) expenses
Interest 1,372 1,288 5,144 5,351
Other, net 672 59 813 21
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2,044 1,347 5,957 5,372
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Income before income taxes and
extraordinary item 2,331 4,232 10,408 12,682
Income taxes 833 1,579 3,904 5,203
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Income before extraordinary item 1,498 2,653 6,504 7,479
Extraordinary loss on early
extinguishment of debt,
(net of income taxes of $487) - - (795) -
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Net income $ 1,498 $ 2,653 $ 5,709 $ 7,479
======= ======= ========= ==========
Earnings per share:
Income before
extraordinary item $ .19 $ .43 $ .87 $ 1.21
Extraordinary loss on
early extinguishment of
debt, net of taxes - - (.11) -
----------- ----------- ---------- ------------
Net income $ .19 $ .43 $ .76 $ 1.21
========= ========= =========== ===========
Weighted average number of common
shares outstanding 8,027 6,235 7,495 6,195
======= ======= ========= =========
Cash dividends per common share $ .05 $ .05 $ .20 $ .20
========= ========= =========== ===========
</TABLE>
Exhibit 99.2
Prepared Remarks from Conference Call
Good morning, ladies and gentlemen.
This is Dave Bosher, vice president and treasurer of Cadmus. I want to welcome
you to our conference call today and to thank you for taking time to join us for
a review of Cadmus' financial results for the fourth quarter and fiscal year
ended June 30, 1996. I am joined on today's conference call by Bruce Thomas,
vice president and chief financial officer of Cadmus. I will begin this call
with a brief review of the fourth quarter results, and will then turn the
session open to any questions that you may have.
We announced this morning that Cadmus recorded net income of $1.5 million or
$0.19 per share, for the fourth quarter of fiscal 1996 compared to $0.43
recorded in the same period of fiscal 1995. Average shares outstanding were
8,027,000 in the fourth quarter, up from 6,235,000 in the fourth quarter of
1996. For the year, net income before extraordinary item was $6.5 million, or
$0.87 per share, compared to $7.5 million, or $1.21 per share in fiscal 1995.
Clearly we are not satisfied with these results. This morning, however, we want
to spend a little more time than normal to make three key points. First,
although overall results are not what we want or need them to be, there are
aspects of Cadmus that are performing quite well and have significant
opportunity for further growth and improvement. Second, the costs control and
profitability improvement steps we took in April began to take effect during the
quarter and we have seen consistent improvement in our operating performance
month over month throughout the quarter. Finally, we believe that these
improvements will continue into our first quarter and throughout fiscal 1997 and
that Cadmus is in the process of returning to higher and acceptable levels of
profitability.
Let me now discuss in some additional detail our fourth quarter and fiscal 1996
results. First, let's look at sales. Cadmus consolidated sales advanced 19% in
the fourth quarter. Adjusted for acquisitions in 1996, fourth quarter sales grew
3.4%. The relatively low sales growth was primarily attributable to continued
softness in our marketing group, particularly direct marketing, in our
promotional printing product line, and in our publishing group. Direct marketing
sales advanced 18% in the quarter due to the inclusion of two direct marketing
operations acquired during the year. Exclusive of acquisitions, however, direct
marketing sales declined 8% as the business experienced reduced revenues from
existing accounts and slower than anticipated new business acquisition as it
continued to transition from a project-based sales strategy to more stable
account-based relationships. Promotional printing sales continued to come under
pressure in all of our markets, declining 8% from 1995 levels. Finally,
publishing revenues declined by 1% in the fourth quarter as a result of
continued softness in the hobby and trading card collectibles markets.
On a positive note, our high-margin financial communications and specialty
packaging product lines both registered continued strong gains in the fourth
quarter. Financial communications sales rose 33% in the fourth quarter, driven
by strong growth in mutual fund related business and full-service contracts with
financial institutions. Specialty packaging sales surged 25% in the quarter
driven by new contracts with UPS and increased business with SaraLee/Hanes and
Lotus. Point-of-sale revenues rebounded to $10 million for the fourth quarter
from only $7 million in the third quarter. This was due to solid gains in a
number of existing accounts, such as Hardees, Delta Airlines, Holiday Inn, and
Guinness., as well as sales from Coldwell Banker. Finally, Cadmus Technology
Solutions, formerly known as the Software Factory, which we acquired last
November, continued to grow nicely and profitably, registering sales of just
over $3.6 million. This equated to a $14.5 million annual pace, well above the
$11.8 million they recorded in the year prior to our acquisition.
We had some customer losses and some customer gains in the quarter. We have been
notified by HFS that they will be terminating our relationship with Coldwell
Banker in mid-October of this year. We also terminated our relationship with
Adams Trade Press, a relatively recent addition to our magazine customer base.
On the other hand, we have obtained new relationships with several very
attractive clients, including Denny's restaurants, ITT/Hilton, American Power
Conversion, Advance Auto Parts, Chick-Fil-A, and First Union National Bank. We
believe the net effect of these gains and losses will not materially affect our
projected 1997 results.
Next, gross margins. Gross margins rebounded in the fourth quarter from
depressed levels of the third quarter. Fourth quarter gross margins were 22.9%
versus 21.1% in our third quarter, but still well below the 26.1% recorded last
year. Gross margins continued to be adversely impacted by inefficiencies and
excess capacity at our Byrd, Richmond Airport and Baltimore manufacturing
plants. In addition , gross margins were further negatively affected by declines
in direct marketing revenues and changes in its product mix. Again, however,
there is good news. Our Charlotte and Easton manufacturing facilities continue
to operate very efficiently and profitably. In addition, our point of sale
product line rebounded nicely to more normal operating margins and Cadmus
Technology Solutions continued to perform at excellent margin levels. Finally,
we saw efficiency and gross margin improvement each month during the quarter, as
May was improved from April, and June showed good improvement over May's
results.
Finally, SG&A expenses continued to decline as a percent of sales, falling to
18.2% of sales compared to 18.9% last year. This decline was achieved despite
continued expenditures related to our unification process and related
initiatives such as Cadmus Way Training and ISO 9000 certification. These
expenses should abate in the coming quarters and we look for this ratio to
continue to decline further throughout fiscal 1997.
For the 41 days we have owned them, The Lancaster Information Group added $6.9
million in sales in the quarter, in-line with our expectations. The business was
marginally accretive to fourth quarter EPS and is expected to contribute
materially to Cadmus' 1997 results.
As I indicated earlier, we are far from satisfied with these results. However,
we believe the results indicate several tangible reasons for optimism. First,
these results represent a significant improvement over third quarter EPS of
$0.09 per share. Second, as we noted in our press release, we saw steady
improvement in profitability each month during the quarter, with June being our
strongest month in calendar 1996. Third, the cost and profitability improvement
actions that we took in late April had a tangible and material impact on our
operating results for May and June, a trend which we expect will continue into
throughout fiscal 1997. Fourth, we have completed an organizational realignment,
creating a Periodical Group to further leverage our journal business and improve
journal-related manufacturing efficiencies, and a Graphic Communications Group,
to bring together all of the businesses and resources required to effect and
deliver the full service offerings our customers increasingly are demanding.
Finally, we have added Steve Isaac, a nationally-recognized marketing executive,
to lead our Marketing Group. Steve already has had an impact on our marketing
businesses and we believe that he will accelerate the growth and enhance the
profitability of this strategically vital business group.
We believe that Cadmus is, as we said in our press release, "strategically
well-positioned and operationally sound." Perhaps more importantly, we believe
that we have taken the actions required to put us back on track and to return to
acceptable levels of profitability. We expect to see our trend toward improved
operating performance continue into 1997. Throughout this period of earnings
disappointment, we have "stayed the course." We have completed a highly
strategic organizational transformation. We have repositioned and redirected our
business. We have brought in the leaders and created the infrastructure to take
Cadmus to the next level. And now, perhaps most importantly, we are beginning to
see signs that these investments are translating into restored and improved
profitability and operating performance.
We are not entirely back on track and moving forward at full speed. We have,
however, begun to see signs that we are building momentum and moving toward a
complete recovery.
One small public service announcement, before we turn it over to Q&A. For the
first time in a good while, we are making some forward looking statements
regarding Cadmus and our operating performance. These statements, under the
Private Securities Litigation Reform Act of 1995, are subject to the risks and
uncertainties set forth in the cautionary statement contained in our press
release.
Thank you for your patience during these somewhat longer than customary remarks.
At this point, I'd like to open it up to your questions.
