CADMUS COMMUNICATIONS CORP/NEW
8-K, 1997-01-24
COMMERCIAL PRINTING
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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

                                    Form 8-K

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


               CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934


      Date of Report (Date of earliest event reported)    January 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 January 23, 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) seasonal changes in the demand for the Company's products, (5)
changes in the Company's product sales mix, (6) continued success in the
integration of recently acquired businesses, and (7) the performance of new
management and leadership teams in the Company and its divisions.


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 January 24, 1997.


                        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

<PAGE>




                                                                   Exhibit 99.1
NEWS RELEASE

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


                  CADMUS COMMUNICATIONS CORPORATION ANNOUNCES
                             SECOND QUARTER RESULTS

RICHMOND, VA, January 23, 1997 - Cadmus Communications Corporation (NASDAQ
NMS:CDMS) today reported net income of $2.2 million, or $.27 per share, for its
second quarter ended December 31, 1996. Net income for the same quarter of
fiscal 1996 amounted to $1.9 million, or $.26 per share. Income before
extraordinary item was $2.7 million, or $.38 per share in the second quarter of
1996. There were 8,061,000 average outstanding shares for the second quarter of
fiscal 1997, compared to 7,458,000 average outstanding shares for the same
period of last year.

Sales for the second quarter of fiscal 1997 were $97.2 million, up 13% from
sales of $85.8 million recorded in the second quarter of fiscal 1996. This
increase was primarily attributable to acquisitions and internal growth from the
Company's Periodicals and Graphic Communications Groups. Periodicals Group sales
increased 33% due to the inclusion of Lancaster Information Group, acquired in
May 1996, and continued internal growth in the Company's research journal
business. Offsetting these gains was a 27% decline in magazine sales. Graphic
Communications Group sales rose 8% due to the inclusion this year of Cadmus
Technology Solutions, acquired in November 1995, and continued strong growth
from the Company's specialty packaging and financial communications product
lines. Marketing Group sales declined 13% in the second quarter due to lower
revenues from custom publishing and interactive. Last year's second quarter
results included $2.4 million of sales from the Company's consumer publishing
business, which was divested in the first quarter of fiscal 1997.

Gross margins declined to 21.7% of sales in the second quarter of fiscal 1997
from 24.2% last year due to lower sales and higher production costs in the
Marketing Group and excess manufacturing capacity in the Graphic Communications
Group. Partially offsetting these negative factors were gross margin
improvements in the Company's periodicals business and continued favorable
impact from the integration of Lancaster Information Group.

Operating income rose 2% in the second quarter to $5.9 million, but declined as
a percent of sales to 6.1% from 6.7% last year. However, the second quarter
operating margin represented improvement from the 5.7% operating margin of the
first quarter of fiscal 1997.


                                     -more-

<PAGE>

Page 2


C. Stephenson Gillispie, Jr., Cadmus president and chief executive officer,
stated, "We are pleased with the continued improvement in our operations this
quarter. Our second quarter results are in line with our expectations and
represent consistent progress compared to our first quarter of fiscal 1997 and
fourth quarter of fiscal 1996."

Gillispie added, "We are particularly pleased with the continued growth in the
profitability of our Periodicals Group. Influenced by positive gross margin
trends, lower SG&A costs, and growth in the base research journal business,
Periodicals Group operating margins improved further in the second quarter. In
addition, financial performance from Lancaster continues to exceed our
expectations. However, we continued to experience softness in our
point-of-purchase product line and from several of our marketing businesses.
Improvement in these businesses is critical to achieving our financial targets
for the remainder of fiscal 1997. We believe that with new management in place
at custom publishing and interactive, solid business development activities with
prospective full-service clients, and continued aggressive actions to
rationalize our costs to existing revenues levels, we will see improving
performance from these businesses in the second half of fiscal 1997."

Net income for the six-month period ended December 31, 1996 was $3.9 million, or
$.48 per share compared to $3.5 million, or $.50 per share, recorded in the same
period of last year. Income before extraordinary item was $4.3 million, or $.62
per share, for the six-month period ended December 31, 1995. Average shares
outstanding were 8,045,000 and 6,886,000 for the first six months of fiscal 1997
and 1996, respectively. Sales for the six months ended December 31, 1996 totaled
$191.2 million, representing a 19% increase over the $160.5 million recorded in
the same period last year.

Cadmus Communications  Corporation is an integrated  communications company
offering products and services in three broad areas: periodicals,  graphic
communications,  and marketing.  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
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, (6) continued success in the integration of
recently acquired businesses, and (7) the performance of new management and
leadership teams in the Company and its divisions.

                     **(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                  Six Months Ended
                                                             December 31,                       December 31,
                                                    -------------------------------      ---------------------------
                                                      1996                 1995             1996            1995
                                                    ----------          -----------      -----------      ----------
<S>     <C>
Net sales                                           $  97,232             $ 85,835       $  191,154       $ 160,508

Operating expenses:
    Cost of sales                                      76,167               65,090          148,874         121,893
    Selling and administrative                         15,175               14,988           31,276          28,906
     Restructuring gain                                   ---                  ---             (250)            ---
                                                    ---------             --------       ----------       ---------
                                                       91,342               80,078          179,900         150,799

Operating income                                        5,890                5,757           11,254           9,709

Interest and other expenses:
    Interest                                            2,093                1,395            4,169           2,817
    Other, net                                            272                  (23)             783              34
                                                    ---------             --------       ----------       ---------
                                                        2,365                1,372            4,952           2,851
Income before income taxes and extraordinary
  item                                                  3,525                4,385            6,302           6,858

Income taxes                                            1,343                1,649            2,426           2,606
                                                    ---------             --------       ----------       ---------
Income before extraordinary item                        2,182                2,736            3,876           4,252

Extraordinary loss on early  extinguishment
of debt (net of income tax benefit of $487)               ---                  795              ---             795
                                                    ---------             --------       ----------       ---------
Net income                                          $   2,182             $  1,941       $    3,876       $   3,457
                                                    =========             ========       ==========       =========

Earnings per share:

    Income before extraordinary item                $     .27             $    .38       $      .48       $     .62

    Extraordinary loss on early
        extinguishment of debt                            ---                  .12              ---             .12
                                                    ---------             --------       ----------       ---------
    Net income per share                            $     .27             $    .26       $      .48       $     .50
                                                    =========             ========       ==========       =========
Weighted average common shares
    outstanding                                         8,061                7,458            8,045           6,886
                                                    =========             ========       ==========       =========
</TABLE>

<PAGE>



                                                                  Exhibit 99.2

Prepared Remarks from Conference Call

This is Dave Bosher, vice president and treasurer of Cadmus. I want to welcome
you and thank you for taking time from your busy schedules to join us for a
review of Cadmus' financial results for the second quarter of fiscal 1997. I am
joined on today's call by Bruce Thomas, Cadmus vice president and chief
financial officer. As is the custom, I will begin this call with an in-depth
review of our second quarter results, after which Bruce and I would be pleased
to answer any questions you may have.

We announced earlier this morning that Cadmus' net income was $2.2 million, or
$.27 per share, for the second quarter of fiscal 1997 compared to net income of
$1.9 million or $.26 per share in the same period of last year. Last year's
second quarter results included a $.8 million, or $.12 per share, extraordinary
loss related to a prepayment penalty on the early extinguishment of debt.
Average shares were 8,061,000 in this year's second quarter compared to
7,458,000 in the second quarter of fiscal 1996.

We are pleased with these results, which were in-line with our expectations. Our
earnings per share and operating margins improved over those of our previous
three quarters and represent continuing evidence of our financial recovery. The
trend in EPS has improved consistently from $.09 in the third quarter of 1996 to
$.19 in the fourth quarter to $.21 in the first quarter of 1997 and now to $.27
this quarter.

 In today's call we would like to focus primarily on three topics. First, it is
important to note that several key businesses of Cadmus continued to perform
very well in the second quarter and we will review these operations in more
detail in a few minutes. Second, we saw marked improvement in the second quarter
from several of our businesses which have been under-performing for the last
several quarters. We will discuss where we saw this improvement and the actions
which produced these results. Finally, there are areas of Cadmus which continue
to experience soft operating results and we will talk about our plans and
expectations for these businesses as we head into the second half of fiscal
1997.

But first, let's review briefly consolidated results for the quarter. Second
quarter sales were a record $97.2 million, which presents a 13% increase over
the $85.8 million recorded in the second quarter of fiscal 1996. This increase
was primarily attributable to the inclusion of sales for Lancaster Information
Group and a full quarter's sales from Cadmus Technology Solutions. Absent from
this quarter's numbers were sales of Consumer Publishing, as that operation was
divested in the first quarter. Adjusted for acquisitions and divestitures and
the impact of lower paper prices, base business revenues rose 1.2% as continued
sales growth in our journal services, financial communications and specialty
packaging product lines was offset by declines in our magazines,
point-of-purchase, and marketing businesses. I will discuss these sales results
in more detail in a few minutes.

Cadmus consolidated gross margins declined to 21.7% of sales from 24.2% last
year. This deterioration is also a mixed story, as rather significant gross

<PAGE>

margin improvement from our periodicals and direct marketing businesses were
offset by weak performances from our point-of-purchase, interactive and custom
publishing businesses.

We have been working hard to control SG&A costs, both in real dollar terms as
well as a percent of sales. These efforts have paid off as SG&A expenses, as a
percent of sales, fell to 15.6% of sales in this year's second quarter compared
to 17.5% last year. In fact, exclusive of acquisitions, SG&A expenses fell
nearly $1 million in actual dollar terms. Operating income rose 2% in the second
quarter to $5.9 million, compared to $5.8 million last year. Operating income as
a percent of sales was 6.1% this year compared to 6.7% last year, but up from
our 5.4% (adjusted for restructuring gain) rate in the first quarter and 4.8% in
the fourth quarter. The trend continues to improve.

Interest expense increased to $2.1 million from $1.4 million last year as a
result of the debt incurred to purchase Lancaster. Other expenses also rose to
$.3 million compared to an income of $.02 million last year due primarily to
additional amortization expense related to the acquisitions in fiscal 1996.

Before we get into business group results, let's focus on the balance sheet at
December 31. Our debt-to-capital ratio improved at December 31 to 48.3% from
49.2% at September 30. Total debt was $103.2 million, down from $105.5 million
at September 30 and $110.1 million at June 30. Again an improving trend. Free
cash flow was $1.4 million, with reduced working capital investment more than
offsetting CAPEX spending of nearly $7.0 million. Depreciation in the quarter
was $4.1 million.

I would now like to focus in more detail on the performances of our individual
businesses in the second quarter. I will talk first about those areas that
continued to show strong performance, those businesses that have shown
improvement, and those that continued to experience weakness.

First, let's look at our strong performers. I'll start with our periodicals
group. Their second quarter performance was just as strong as their first. Sales
were up 33% in the second quarter due to the inclusion of Lancaster and a 4%
increase in base research journal volume. Adjusted for the impact of lower paper
prices, journal sales actually increased nearly 10% in the second quarter. The
integration of Lancaster into Cadmus Journal Services has continued to work
smoothly and we are beginning to realize synergies, with opportunities to add
yet more to the operating line. Elsewhere, specialty packaging sales continued
to register strong sales growth with an increase of 34% in the quarter.
Financial communications rose 11% due to increased mutual fund business and from
growth in full-service contracts with financial institutions.

As I mentioned earlier, several of our businesses that had been under-performing
showed marked improvement in the second quarter. Our Direct Marketing businesses
showed improving trends and profitability as a better sales mix and cost
controls improved its operating margins to 9% of sales. At our Byrd
manufacturing facility, we saw steady operating efficiency improvements
throughout the quarter. These improvements contributed to a 100 basis points
improvement in periodicals group operating margins over our first quarter rate
and a 500 basis points improvement over last year's second quarter.

Finally, several of our businesses - particularly interactive, custom publishing

<PAGE>

and point-of-purchase continued to experience weak operating results. At
interactive and custom publishing, each of these operations experienced
operating losses due to the combination of lower revenues and significantly
higher costs. Our point-of-purchase product line also had a disappointing second
quarter due to the loss of the Coldwell Banker account and delays in promotional
campaigns and programs for quick service restaurant and beverage clients.

We remain cautiously optimistic about our prospects for the remainder of fiscal
1997. We are seeing a steady stream of full-service or vendor consolidation
opportunities across Cadmus. These opportunities support our internal sales
targets and further validate the attractiveness of the "Cadmus sell" to our
clients. However, to achieve our targets for the second half of the year, we
must accomplish four things : First, the areas that are working well now must
continue their trends. We must retain the momentum in research journals and at
Lancaster. Second, we will require further growth from our high-margin specialty
packaging and financial communications product lines. Third, direct marketing
and Byrd must continue their improved performance. And fourth, we need to see
improved performance from interactive, custom publishing, and point-of-purchase
businesses which have under-performed year-to-date.

 We believe we will see improved results from these businesses. We have new
leadership in-place at interactive and custom publishing. At Cadmus Interactive,
Matt Thornhill has joined us as president of that business. Matt was recruited
by Steve Isaac from the Martin Agency where Matt was President of Martin
Interactive. Diana Pohly also joined us in December as president of Cadmus
Custom Publishing. Diana was formerly with KHJ in Boston, a large marketing
firm, and has extensive experience in marketing and business development. Both
of these leaders have demonstrated business development skills and will enhance
revenue acquisition activities in each of these businesses. At the same time, we
have taken aggressive actions to rationalize the cost structures of these
businesses to existing revenue levels to maximize profitability and to leverage
revenue growth. And in our point-of-purchase product line, the issue remains
revenue. We have several significant new business opportunities, any one of
which is significant enough in volume to address the volume issue and eliminate
excess capacity in that operation.

In summary, we are pleased with our results for the quarter and for our
year-to-date. We have delivered consistently improving operating and balance
sheet trends and we have successfully integrated our largest acquisition.
However, we are not satisfied with our current levels of profitability or
internal growth and we continue to pursue opportunities to effect additional
improvements in operating income, margins and return-on-capital.

Before I conclude, I must make the standard "public service announcement." A
portion 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 to which you should refer for additional details.

I thank you for your patience and would like to now open the session up to any
questions you may have.



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