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) October 23, 1997
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
<PAGE>
Item 5. Other Events.
On October 23, 1997, Cadmus Communications Corporation (the "Company") issued
the press release attached hereto as Exhibit 99.1 with respect to first quarter
financial results. Steve Gillispie, chairman and chief executive officer, and
David E. Bosher, vice president and treasurer, 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
represents "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, (5) changes in the
Company's product sales mix, and (6) continued success in the integration of
recently acquired businesses.
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 October 23, 1997.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
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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
RECORD FIRST QUARTER RESULTS
RICHMOND, VA, October 23, 1997 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) today reported record first quarter net income of $2.0 million, or $.25
per share, for the period ended September 30, 1997. Net income for the same
quarter of fiscal 1997 amounted to $1.7 million, or $.21 per share, and included
a gain of $0.3 million, or $.02 per share, from the sale of the Company's
consumer publishing business. There were 8,109,000 average outstanding shares
for the first quarter of fiscal 1998, compared to 8,024,000 average outstanding
shares for the same period of last year.
Sales for the first quarter of fiscal 1998 were $92.4 million compared to sales
of $93.9 million in the first quarter of fiscal 1997. The lower sales were due
to the closing of several facilities in connection with restructuring actions
taken in the fourth quarter of fiscal 1997 and the sale of the consumer
publishing operation in the first quarter of fiscal 1997. Adjusted for these
closings and the divestiture, sales rose 5% in the first quarter of fiscal 1998.
The Company's Professional Communications sector sales increased 1% as continued
growth from journal operations (up 5% for the quarter) was offset by lower
magazine sales and decreases in paper prices. In the Company's Marketing
Communications sector, sales from continuing operations rose 13%, led by strong
growth from financial communications, direct marketing, custom publishing, and
catalog design operations.
Operating income rose 6% in the first quarter to $5.7 million compared to $5.4
million last year and improved as a percent of sales to 6.2% from 5.7% last
year. Adjusted for the gain from the sale of the publishing division, operating
income increased 11% from fiscal 1997.
C. Stephenson Gillispie, Jr., president and chief executive officer, stated, "We
are pleased by our record first quarter performance and by the continued
improvement in our operations. The recent restructuring actions we have taken
had a positive impact on this quarter's performance. Perhaps most importantly,
we experienced strong sales growth and margin expansion in several of our key
operations, including journal services, financial communications, custom
publishing, and direct marketing. Our successful execution of the restructuring
actions, as well as these positive operating results, gives us increased
confidence in our ability to achieve our fiscal 1998 operating and financial
goals."
Cadmus Communications Corporation is an integrated communications company
offering products and services in two broad areas: marketing communications and
professional communications. Headquartered in Richmond, Virginia, Cadmus is one
of the largest graphic communications companies in North America.
-more-
<PAGE>
Page 2
"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, (5) changes in the
Company's product sales mix, and (6) continued success in the integration of
recently acquired businesses.
**(See attached financial highlights)**
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<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
<S> <C>
Three Months Ended
September 30,
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1997 1996
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Net sales $ 92,362 $ 93,922
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Operating expenses:
Cost of sales 71,814 72,707
Selling and administrative 14,858 16,101
Restructuring gain - (250)
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86,672 88,558
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Operating income 5,690 5,364
Interest and other expenses:
Interest 1,933 2,076
Other, net 392 511
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2,325 2,587
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Income before income taxes 3,365 2,777
Income taxes 1,329 1,083
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Net income $ 2,036 $ 1,694
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Net income per share $ .25 $ .21
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Weighted average common shares outstanding 8,109 8,024
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</TABLE>
Exhibit 99.2
Prepared Remarks from Conference Call
Introduction
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Good morning. This is Steve Gillispie, chairman and chief executive officer. I
want to thank you for joining us this morning to review our results for the
first quarter of fiscal 1998. Joining me today are Bruce Thomas, senior vice
president and chief financial officer, and Dave Bosher, vice president and
treasurer. We will begin this call with the customary summary by Dave Bosher,
after which Bruce, Dave and I will be pleased to answer any questions that you
may have.
Dave...
Thanks, Steve. Good morning everyone.
First Quarter Results
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We are pleased to report this morning that Cadmus earned record first quarter
net income of $2.0 million, or $.25 per share. This represented an increase of
20% over net income of $1.7 million, or $.21 per share, earned in the same
period last year. Last year's first quarter EPS included a $0.3 million or $.02
per share gain resulting from the restructuring of our publishing business. So,
"operating" net income was $.25 per share versus $.19 for the first quarter of
last year.
Sales in the first quarter declined marginally, from $93.9 to $92.4 million.
This decline was solely the result of the sale of our consumer publishing
business and the closing of several operations in connection with our
restructuring actions in fiscal 1997. Adjusting for these divestitures and
closings, sales actually rose 5%. Taking it further, if you adjusted for
discontinued businesses and lower paper prices, sales advanced nearly 8%.
Gross margins declined to 22.2% from 22.6% last year. However, SG&A expenses
improved to 16.1% of sales in this year's first quarter, down from 16.9% last
year. As a result, operating income rose 6% to $5.7 million and our operating
margin improved to 6.2% of sales, up from 5.7% last year. Interest expense
declined to $1.9 million this quarter from just over $2.0 million last year due
to lower debt levels resulting from our strong cash flow performance over the
last year.
We experienced good top-line growth and margin improvement in several of our key
businesses. In addition, first quarter results were positively influenced by the
impact of restructuring actions that began in the fourth quarter of fiscal 1997.
So, in short, the base business improved year over-year and we achieved the
restructuring savings we anticipated.
I'd like now to spend just a few minutes describing the operating performance in
several of our key businesses.
Our Professional Communications sector had another great quarter. As you know,
this group is comprised of our research journal services and magazine product
lines. While this group's total sales rose just 1%, those results are a bit
misleading. Journal sales actually rose 5%, while magazine sales declined 14%,
as we continued to right-size the magazine product line. Lower paper sales also
depressed reported sales. In fact, adjusting for the estimated impact of lower
paper prices, journal sales actually rose 8%.
Operating margins in this group continued to improve, rising over 150 basis
points in the first quarter as compared to last year. This increase was
attributable to restructuring savings, product mix improvements, and cost and
efficiency gains at each of our manufacturing facilities. In addition, the
successful downsizing and refocusing of our magazine product line continued to
improve margins in this product line.
<PAGE>
In our Marketing Communications sector, first quarter operating results also
showed improvement over last year. We enjoyed excellent internal growth in
financial communications, in direct marketing, in custom publishing, and in our
catalog business. At the same time, we had somewhat disappointing results in our
point-of-purchase and packaging and promotional businesses.
I will now discuss each of these operations in more detail. For the quarter,
financial communications sales increased 46% due to continued growth in mutual
fund services and full service banking relationships, combined with robust
capital markets activity. Our direct marketing operations continued their
improvement trend with an increase in agency fees of over 38%. This increase is
related to significant new-account development over the last few quarters. And,
a significant profit turn-around was accomplished in our custom publishing
operation, a result of good top-line growth and restructuring benefits. Finally,
catalog design and photography agency fees grew 21% in the quarter, driven by
increased billings to existing clients. At the same time, our packaging and
promotional group experienced a 2% decline in sales due to lower media
duplication revenues and to the expected disruption related to its relocation to
our new 180,000 square-foot facility in Charlotte. While that move went as well
as we could have expected, we did experience a short-term disruption in
operations and a profit margin squeeze. Finally, our point-of-purchase business
continued to post disappointing results, despite a significantly lower cost
structure resulting from the restructuring. Revenues here declined 28% due to
business lost in the first half of last year and to lower sales to fast-food
clients.
Now let's take a look at cash flow and our capital position at September 30.
Free cash flow was a ($1.1) million in the first quarter. The deficit was
attributable to cash outlays against the restructuring program, which totaled
approximately $1.8 million. Working capital demands rose slightly due to a
seasonal increase in inventory levels, while CAPEX totaled approximately $4.1
million. We ended the first quarter with total debt of $97.0 million, which
represented a slight increase of $0.9 million from June 30.
Our debt-to-capital ratio improved marginally to 48.9% at September 30, compared
to 49.0% at June 30, 1997.
Restructuring Update
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Before I go to our fiscal 1998 outlook, let me give you a brief update on our
restructuring. I mentioned earlier that in the first quarter we obtained the
restructuring savings that we had anticipated. We are increasingly confident of
our ability to realize annual cost savings of at least $.50 per share. We
continued to make good progress in the quarter toward executing the remaining
restructuring actions. All actions scheduled for completion by September 30 were
completed. The remaining actions, primarily reductions in work force, are all on
schedule.
Fiscal 1998 Outlook
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Finally, let me update you on our view of FY98. Due to the positive operating
trends at several of our key businesses and the successful execution of our
restructuring actions to-date, we are increasingly optimistic that Cadmus will
continue to achieve improved financial performance throughout the remainder of
fiscal 1998. We remain comfortable with earnings estimates of up to $1.40 per
share. Nearer term, we believe that published estimates for our second quarter
in the range of $.33 to $.35 per share are reasonable.
Conclusion
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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 for Steve, Bruce or me.