8-K, 1997-07-31
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                             WASHINGTON, D.C. 20549


                                    Form 8-K


                       THE SECURITIES EXCHANGE ACT OF 1934

         Date of Report (Date of earliest event reported) July 31, 1997

             (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

Item 5.       Other Events.

On July 31, 1997, Cadmus  Communications  Corporation (the "Company") issued the
press  release  attached  hereto as Exhibit 99.1 with  respect to first  quarter
financial  results and David E.  Bosher,  Vice  President  and  Treasurer of the
Company  read  the  prepared  remarks  attached  hereto  as  Exhibit  99.2  on a
conference call with analysts,  shareholders,  prospective investors,  and other
interested  parties.  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) a successful relocation of the Company's Charlotte manufacturing
facilities,  (5) seasonal changes in the demand for the Company's products,  (6)
continued  success in the  implementation of the restructuring and re-alignment,
and (7) changes in the Company's product sales mix.

Item 7.       Exhibits.

         Exhibit 99.1               Press Release
         Exhibit 99.2               Prepared Remarks from Conference Call



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 July 31, 1997.


                       By:        /s/ C. Stephenson Gillispie, Jr.
                                C. Stephenson Gillispie, Jr.
                                Chairman, President, and Chief Executive Officer


                                  Exhibit Index


99.1     Press Release
99.2     Prepared Remarks from Conference Call

                                                                    Exhibit 99.1

                                                                 David E. Bosher
                                                      Vice President & Treasurer
                                                                  (804) 287-5685


RICHMOND,  VA, July 31, 1997 -- Cadmus  Communications  Corporation (NASDAQ NMS:
CDMS) today  reported net sales of $96.8  million for the quarter ended June 30,
1997,  an increase of 5% over net sales of $91.8  million for the quarter  ended
June 30, 1996. As expected,  fourth  quarter  operating  results were  adversely
impacted by a one-time  restructuring charge,  previously announced on April 23,
1997,  of $12.9  million  ($19.9  million  pre-tax)  or $1.61 per share.  Fourth
quarter profits before the restructuring  charge were $2.0 million,  or $.25 per
share,  up 33% from last year's fourth  quarter net income of $1.5  million,  or
$.19 per share. After the restructuring  charge,  the Company  experienced a net
loss of  $10.9  million,  or $1.36  per  share.  There  were  8,027,000  average
outstanding shares for the fourth quarters of fiscal 1997 and fiscal 1996.

For the fourth quarter,  the Company's two business groups performed as follows:
Periodicals Group sales rose 15% due to the inclusion of Lancaster Press,  Inc.,
acquired in May, 1996, and continued growth in base journal  services  revenues.
Periodicals Group operating margins improved significantly due to the successful
integration  of  Lancaster,   continued  margin  expansion  from  other  journal
facilities, and continued operating margin improvement from magazine operations.
In the Marketing  Communications  Group,  sales were flat compared to the fourth
quarter of fiscal 1996. Financial communications, packaging and promotional, and
direct  marketing  operations each  registered  strong gains in sales along with
improvement  in  operating  income.  However,  these  gains were  offset by weak
results from the Company's  point-of-purchase,  technology solutions, and custom
publishing operations, along with continued losses from the recently closed Long
Beach-based direct marketing and Atlanta-based interactive businesses.

Cash flow  (before  debt  activities)  continued  its strong trend in the fourth
quarter as the Company  generated  positive cash flow of $3.1 million  excluding
cash payments related to the restructuring and share  repurchases.  As a result,
the Company  reduced its total debt to $96.1 million from $99.4 million at March
31, 1997. For the year,  cash flow totaled $14.5 million and total debt declined
$14.0 million from $110.1 million at June 30, 1996.

C. Stephenson Gillispie,  Jr., chairman,  president and chief executive officer,
stated, "We are pleased with our fourth quarter results, which were in-line with
our  expectations.  In  addition,  we are pleased with the progress we have made
effecting our  restructuring.  These  restructuring  actions have  substantially
reduced our cost structure and have eliminated under-performing businesses which
have adversely affected our financial  results.  The superb performance from our
journal  services,  financial  communications,  and  packaging  and  promotional
businesses,  combined  with an  improved  cost  structure,  position  Cadmus for
improvement in profitability throughout fiscal 1998."



Page 2

In  connection  with its  previously  announced  restructuring,  the Company has
closed its Baltimore promotional printing facility,  closed its Long Beach-based
direct  marketing  agency,   closed  its  Atlanta-based   interactive  division,
consolidated  certain  journal  fulfillment  and  distribution  operations,  and
reduced  personnel  and costs in its  magazine,  point-of-sale,  and  technology
solutions businesses. Cash payments associated with the restructuring will total
approximately  $6.4 million and will be incurred primarily in calendar 1997. The
remainder of the restructuring  charge relates to non-cash items,  including the
write-down of certain operating assets,  investments in non-core  businesses and
other intangible assets.

For the fiscal year ended June 30, 1997,  sales rose 14% to $384.9  million from
$336.7 million in fiscal 1996.  Cadmus profits before the  restructuring  charge
were $7.9  million,  or $.98 per share,  representing  a 22% increase  over 1996
income before  extraordinary item of $6.5 million,  or $.87 per share. After the
restructuring charge, the net loss for fiscal 1997 was $5.0 million, or $.63 per
share,  compared to net income of $5.7 million, or $.76 for fiscal 1996. Average
outstanding shares were 8,035,000 and 7,495,000 for 1997 and 1996, respectively.

Cadmus  Communications  Corporation  is  an  integrated  communications  company
offering a broad range of  periodicals,  marketing  and  graphic  communications
solutions.  Headquartered  in Richmond,  Virginia,  Cadmus is one of the largest
graphic communications companies in North America.


"Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 

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) a
successful relocation of the Company's Charlotte manufacturing  facilities,  (5)
seasonal changes in the demand for the Company's products, (6) continued success
in the implementation of the restructuring and re-alignment,  and (7) changes in
the Company's product sales mix.

                     **(See attached financial highlights)**

                      (In thousands, except per share data)

<S> <C>
                                                            Three Months Ended                    Years Ended
                                                                 June 30,                           June 30,
                                                        ---------------------------        ---------------------------
                                                           1997            1996               1997           1996
                                                         ----------      -----------        ----------     -----------

Net sales                                               $   96,770      $   91,785         $  384,942     $  336,655
                                                         ----------      -----------        ----------     -----------

Operating expenses:
    Cost of sales                                           75,301          70,617            299,525        259,086
    Selling and administrative                              15,919          16,793             63,123         61,204
    Restructuring charge                                    19,949             ---             19,699            ---
                                                         ----------      -----------        ----------     -----------
                                                           111,169          87,410            382,347        320,290
                                                         ----------      -----------        ----------     -----------

Operating income (loss)                                    (14,399)          4,375              2,595         16,365

Interest and other expenses:
    Interest                                                 1,798           1,372              7,788          5,144
    Other, net                                                 501             672              1,928            813
                                                         ----------      -----------        ----------     -----------
                                                             2,299           2,044              9,716          5,957
                                                         ----------      -----------        ----------     -----------
Income (loss) before income taxes and
   extraordinary item                                      (16,698)          2,331             (7,121)        10,408

Income tax expense (benefit)                                (5,785)            833             (2,098)         3,904
                                                         ----------      -----------        ----------     -----------

Income (loss) before extraordinary item                    (10,913)          1,498             (5,023)         6,504

Extraordinary loss on early extinguishment
   of debt (net of income tax benefit of $487)                 ---             ---                ---           (795)
                                                         ----------      -----------        ----------     -----------

Net income (loss)                                       $  (10,913)     $    1,498         $   (5,023)    $    5,709
                                                         ==========      ===========        ==========     ===========

Earnings per share:

    Income (loss) before extraordinary item             $    (1.36)     $    .19           $     (.63)    $      .87

    Extraordinary loss on early
      extinguishment of debt, net of taxes                     ---             ---                ---           (.11)
                                                         ----------      -----------        ----------     -----------

    Net income per share                                $    (1.36)     $    .19           $     (.63)    $      .76
                                                         ==========      ===========        ==========     ===========

Weighted average common shares
    outstanding                                              8,027           8,027              8,035          7,495
                                                         ==========      ===========        ==========

Cash dividends per common share                         $      .05      $      .05         $      .20     $      .20
                                                         ==========      ===========        ==========     ===========

                                                                    Exhibit 99.2

Prepared Remarks from Conference Call

This is Dave Bosher,  Cadmus vice president and  treasurer.  I want to thank you
for joining us for this morning's  conference call to review our results for the
fourth  quarter of fiscal 1997,  provide you with an update on the status of our
restructuring  activities,  and share with you our outlook for fiscal 1998. I am
joined in today's call by Bruce Thomas,  Cadmus' senior vice president and chief
financial officer. I will make some summary remarks after which Bruce and I will
be pleased to answer any questions that you may have.

First, let's review our fourth quarter results.

Fourth Quarter Results
- ----------------------
Cadmus fourth quarter income,  before the restructuring charge, rose 33% to $2.0
million or $.25 per share,  compared to net income of $1.5 million,  or $.19 per
share,  in the same period last year.  Sales  increased 5% to $96.8 million from
$91.8 million last year.  While gross margins  declined to 22.2% from 23.1% last
year,  SG&A expenses  improved to 16.5% of sales in this year's fourth  quarter,
down from 18.3% last year. As a result,  our operating  margin was 5.7% of sales
in the fourth quarter,  up from last year's 4.8% rate. Interest expense declined
to just under $1.8 million this quarter as good cash flow performance allowed us
to  continue  to  repay  debt.  Fourth  quarter  results  were  impacted  by our
previously  announced  restructuring.  The  restructuring  charge reduced fourth
quarter income by $12.9 million,  or $1.61 per share,  bringing the net loss for
the fourth quarter to $10.9 million, or $1.36 per share.

This quarter's  results  benefited  from the  continuation  of several  positive
trends in our business.

First,  our  Periodicals  Group had another great quarter.  Fourth quarter sales
rose 15% and operating income increased by 89%.  Operating margins in this group
continued their year-long improvement trend, rising over 500 basis points in the
fourth quarter as compared to last year's margin. The improvement was across the
board in this  group.  Lancaster  continued  to perform  very  well,  and we are
continuing to obtain  synergies from the integration of that business.  Our base
journal  services  business showed solid growth and  significant  improvement in
operating margins.  Adjusted for the impact of paper price changes, base journal
revenues  grew at a 10%  rate in the  fourth  quarter.  In  addition,  operating
margins expanded further as we obtained  continued  improvement in manufacturing
performance and efficiency gains,  especially at our Byrd periodical facility in
Richmond.  Finally, our magazine product line recorded another quarter of higher
operating income and saw a continued improvement in margins.

In our Marketing  Communications  Group,  fourth quarter  operating results were
mixed. We continued to enjoy good growth and  profitability in our packaging and
promotional, and financial communications operations.  Packaging and promotional
sales rose 20% and financial  communications  sales  increased 40%. In addition,
our  Charlotte-based  direct  marketing  operations  continued  their  year long
improvement in profitability  driven by a fourth quarter increase in agency fees
of 19%.  However,  several of our businesses  continued to drag our consolidated
performance.  Our  point-of-purchase  business,  historically  one of our better
performing businesses,  continued to post disappointing results on a 37% decline
in revenues.  Our technology services business also continued to experience soft
comparisons  to  prior  year's  results.  And  finally,  we  also  continued  to
experience losses in the quarter from our marketing businesses, partially due to
losses from the  discontinued  West Coast  direct  marketing  and  Atlanta-based
interactive businesses.

On a positive note, cash flow was $3.1 million in the fourth quarter, before the
negative impact of cash restructuring and share repurchases.  We ended this year
with total debt of $96.1  million,  representing a reduction of $3.3 million for
the  quarter  and  over  $14.0   million  for  the  year.   As  a  result,   our
debt-to-capital ratio, before the effects of the restructuring, fell to 46.0% at
June 30, 1997,  compared to 50.6% at June 30, 1996.  Free cash flow  amounted to
$14.5  million for the year. We achieved this  significant  improvement  in cash
flow through better  management of working  capital - DSO's declined in 1997 and
paper   inventories   fell  over  $3  million  -  through  the   divestiture  of
non-strategic assets, and through effective CAPEX control.

Restructuring Update
- --------------------
Next, I would like to update you on the  restructuring  charge and the status of
our  restructuring   actions.  As  we  mentioned  earlier,  the  fourth  quarter
restructuring  charge totaled $19.9 million pre-tax, or $12.9 million after-tax.
This amounted to $1.61 per share. Importantly,  we estimate that the annual cost
savings  from the  restructuring  will  exceed  $.50 per share.  The cash outlay
portion on the  charge  will  amount to $6.4  million,  which we expect  will be
incurred  and paid back within 12 months.  We made good  progress in the quarter
toward  executing the  restructuring  actions.  The businesses we designated for
closure have all been closed.  All actions  scheduled for  completion by June 30
have been effected.  The other actions,  primarily reductions in work force, are
all on schedule.

With the restructuring announcement on April 23, we announced a stock repurchase
program  for up to  750,000  shares of Cadmus  common  stock.  To-date,  we have
purchased 96,000 shares at an average price of $13.50 per share.

Fiscal 1998 Outlook
- -------------------
Now, allow me to make a few comments regarding our FY98 expectations. Due to the
successful  execution of our restructuring  actions and the trends at several of
our  key  businesses,  we are  optimistic  that  Cadmus  will  achieve  improved
financial performance  throughout fiscal 1998. At this point, we are comfortable
with earnings  estimates of up to $1.40 per share.  While our strongest quarters
will be our third and fourth quarters, we expect to see continued improvement in
profitability  through the year.  Nearer term,  we believe that our fiscal first
quarter, which should begin to show some benefit from the restructuring actions,
should show good year-over-year  improvement.  We are comfortable with published
estimates in the $.23 - $.25 per share range.  This performance  would represent
approximately  a 25  percent  increase  over last  year's  $.19 per share  first
quarter operating results.

- ----------
Before I conclude my remarks,  please note that certain of my comments represent
"forward looking statements" and are subject to certain risks and uncertainties.
Those risks and uncertainties are set forth in our press release and included in
a Form 8-K which will be filed today with the SEC to which you should  refer for
additional details.

I thank you again for joining us for this  morning's call and for your continued
interest and support in Cadmus.  I would now like to open up the session for any
questions you may have.

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