8-K, 1997-10-23
Next: U S GLOBAL INVESTORS INC, 10-K/A, 1997-10-23

                             WASHINGTON, D.C. 20549


                                    Form 8-K


                       THE SECURITIES EXCHANGE ACT OF 1934

        Date of Report (Date of earliest event reported) October 23, 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 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



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.


                        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

                          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

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.



Page 2

"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)
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)**


                                CONSOLIDATED STATEMENTS OF INCOME
                              (In thousands, except per share data)

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

Net sales                                                        $      92,362        $      93,922
                                                                    ----------           ----------

Operating expenses:
      Cost of sales                                                     71,814               72,707
      Selling and administrative                                        14,858               16,101
      Restructuring gain                                                     -                 (250)
                                                                    ----------           ----------
                                                                        86,672               88,558
                                                                    ----------           ----------

Operating income                                                         5,690                5,364

Interest and other expenses:
      Interest                                                           1,933                2,076
      Other, net                                                           392                  511
                                                                    ----------           ----------
                                                                         2,325                2,587
                                                                    ----------           ----------

Income before income taxes                                               3,365                2,777

Income taxes                                                             1,329                1,083
                                                                    ----------           ----------

Net income                                                       $       2,036        $       1,694
                                                                    ==========           ==========

Net income per share                                             $         .25        $         .21
                                                                    ==========           ==========

Weighted average common shares outstanding                               8,109                8,024
                                                                    ==========           ==========

                                                                    Exhibit 99.2

Prepared Remarks from Conference Call

- ------------
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.


Thanks, Steve. Good morning everyone.

First Quarter Results
- ---------------------
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.


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

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
- --------------------
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

Fiscal 1998 Outlook
- -------------------
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.

- ----------
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.

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