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) April 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
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<PAGE>
Item 5. Other Events.
On April 23, 1997, Cadmus Communications Corporation (the "Company") issued the
press release attached hereto as Exhibit 99.1 with respect to third quarter
financial results, restructuring and share repurchase program and C. Stephenson
Gillispie, Jr., Chairman, President and Chief Executive Officer of the Company
read the prepared remarks attached hereto as Exhibit 99.2 on a conference call
with analysts and other interested parties. Information in these documents
relating to the future impact of the restructuring and realignment 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) success in integrating the
marketing and graphic communications groups, (2) successful completion of the
restructuring, (3) ability to improve performance of the point-of-purchase and
custom publishing product lines, (4) more rapid than expected adoption of
digital technology, (5) ability to sustain margins in the Periodicals Group, (6)
continuing competitive pricing in the markets in which the Company competes, (7)
the gain or loss of significant customers or the decrease in demand from
existing customers, (8) the timing of significant orders received from
customers, (9) seasonal changes in the demand for the Company's products, (10)
changes in the Company's product sales mix, (11) continued success in the
integration of Lancaster, and (12) the performance of 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 April 23, 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
THIRD QUARTER RESULTS, RESTRUCTURING,
AND SHARE REPURCHASE PROGRAM
RICHMOND, VA, April 23, 1997 - Cadmus Communications Corporation (NASDAQ
NMS:CDMS) today announced fiscal third quarter results and the adoption of a
company-wide restructuring designed to improve overall financial performance and
to enhance the delivery of the Company's marketing and graphic communications
solutions.
Third Quarter Results. Cadmus today reported net income of $2.0 million, or
$0.25 per share, for its third quarter ended March 31, 1997. Net income for the
same quarter of fiscal 1996 amounted to $0.8 million, or $0.09 per share. Sales
for the third quarter of fiscal 1997 were $97.0 million, up 15% from sales of
$84.4 million recorded in the third quarter of fiscal 1996. There were 8,050,000
average outstanding shares for the third quarter of fiscal 1997, compared to
8,169,000 average outstanding shares for the same period of last year.
The Company's three business groups performed as follows: Periodicals Group
sales rose 28% due to the inclusion of Lancaster Press, Inc., acquired in May
1996, and continued internal growth in journal services, which offset lower
sales of magazines. Periodicals Group operating margins improved significantly
over the prior year due to the successful integration of Lancaster, continued
improvement from other journal operations and substantial margin improvement
from magazine operations. In the Graphic Communications Group, promotional
printing, financial communications and specialty packaging continued to register
strong sales growth along with improvement in operating margins. However, these
gains were partially offset by a decline in point-of-purchase sales and
operating income. The Marketing Group continued to experience operating losses
in the third quarter, with particular weakness from interactive, custom
publishing, and Long Beach direct marketing operations. Cash flow performance
was strong in the third quarter as the Company's long-term debt balance declined
to $99.0 million from $102.6 million at December 31, 1996.
Net income for the nine-month period ended March 31, 1997 was $5.9 million, or
$0.73 per share, compared to $4.2 million, or $0.58 per share, recorded in the
same period of last year. Income before extraordinary item was $5.0 million, or
$.69 per share for the nine-month period ended March 31, 1996. Sales for the
nine months ended March 31, 1997 totaled $288.2 million, representing an 18%
increase over the $244.9 million recorded in the same period last year. Average
outstanding shares were 8,045,000 and 7,299,000 for the first nine months of
fiscal years 1997 and 1996, respectively.
--more--
Page 2
Restructuring. The Company also announced that it will take a pre-tax
restructuring charge in the range of $17.5 million to $19.5 million in its
fourth quarter ending June 30, 1997, for actions directed toward improving the
Company's overall financial performance and enhancing the development and
delivery of the Company's marketing and graphic communications solutions. The
Company said it will restructure its marketing and magazine businesses, close
certain facilities, and write-down certain equipment, investments in non-core
businesses, and intangible assets. As part of this action, the Company will
close its Baltimore promotional printing facility, close its Long Beach-based
direct marketing agency, consolidate its Atlanta and Richmond-based interactive
divisions, consolidate certain journal fulfillment and distribution operations,
and substantially reduce personnel through the consolidation of the journal and
magazine product lines.
"We believe that the actions we are announcing today should significantly
improve Cadmus' overall financial performance and enhance the value of Cadmus to
our shareholders," said Cadmus Chairman and Chief Executive Officer C.
Stephenson Gillispie, Jr. "Although we have made significant progress,
particularly with respect to the creation and the operating performance of
Cadmus Journal Services as the world's largest producer of scientific,
technical, and medical journals and with respect to the development and delivery
of marketing and graphic communications solutions, we obviously are not
satisfied with the current financial results. In taking these actions, we have
substantially reduced our cost structure, addressed problems in strategic but
underperforming businesses, and eliminated non-core businesses that have slowed
our strategic development and adversely affected our financial performance."
The Company said that its actions will result in a one-time pre-tax charge in
the range of $17.5 million to $19.5 million, or $1.35 to $1.50 per share after
tax, which will be recorded in the fourth quarter ending June 30, 1997. The
Company estimates that cash outlays associated with the restructuring and
realignment charge will total approximately $6 million, which will be incurred
in calendar 1997. The remainder of the restructuring charge relates to non-cash
items, mainly the write-down of certain operating assets, goodwill and other
intangibles.
Executive Realignment. The Company announced it will combine its former Graphic
Communications and Marketing Groups into a new group, Cadmus Marketing and
Communications Solutions. In a related announcement, the Company said that David
G. Wilson, Jr. and Stephen R. Isaac have been promoted to executive vice
presidents of Cadmus and that Isaac's operating responsibilities have been
expanded. Wilson will retain day-to-day operating responsibility for the
Periodicals Group. Isaac will assume day-to-day operating responsibility for the
Marketing and Communications Solutions Group. Michael Dinkins, formerly
president of the Graphic Communications Group, will leave the Company to pursue
other business opportunities.
"This combination of the Graphic Communications Group and the Marketing Group is
a logical continuation of our strategy to transform Cadmus from a collection of
regional printing and marketing companies to a single integrated provider of
marketing and graphic communications
--more--
Page 3
solutions," Gillispie explained. "The market place is responding both to our
`solutions' approach and to our strategy of combining traditional graphic
communications services with marketing, creative, and similar tactical
communications capabilities. By integrating our marketing and graphic
communications capabilities, we believe that we can deliver those solutions more
efficiently and more effectively, thereby permitting us to better satisfy client
needs while achieving more robust growth and improved profitability. We have
experienced unprecedented growth and profitability in our Periodicals Group
under Dave Wilson's leadership and we expect those trends to continue. We intend
to take full advantage of our new strengths and improved focus to achieve our
vision to become the best single source for 21st century marketing and graphic
communications solutions."
Share Repurchase Program. Finally, the Company announced that its Board of
Directors has authorized the repurchase of up to 750,000 shares of the Company's
common stock, or about 9% of shares outstanding. Shares will be repurchased from
time to time in open market or privately negotiated transactions over the next
year.
"We believe that the Company's stock represents an attractive investment
opportunity at current market prices," Gillispie said. "This stock repurchase
program, which should increase earnings per share, reflects the confidence of
our Board of Directors, along with that of management, in the strategy of and
prospects for Cadmus."
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:
Statements in this release and the attached fact sheet relating to the future
impact of the restructuring and realignment 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) success in integrating the marketing and graphic
communications groups, (2) successful completion of the restructuring, (3)
ability to improve performance of the point-of-purchase and custom publishing
product lines, (4) more rapid than expected adoption of digital technology, (5)
ability to sustain margins in the Periodicals Group, (6) continuing competitive
pricing in the markets in which the Company competes, (7) the gain or loss of
significant customers or the decrease in demand from existing customers, (8) the
timing of significant orders received from customers, (9) seasonal changes in
the demand for the Company's products, (10) changes in the Company's product
sales mix, (11) continued success in the integration of Lancaster, and (12) the
performance of 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 Nine Months Ended
March 31, March 31,
--------------------------- ---------------------------
1997 1996 1997 1996
---------- ---------- ---------- ----------
<S> <C>
Net sales $ 97,018 $ 84,361 $ 288,172 $ 244,870
Operating expenses:
Cost of sales 75,350 66,576 224,224 188,469
Selling and administrative 15,928 15,505 47,204 44,411
Restructuring gain --- --- (250) ---
---------- ---------- ---------- ----------
91,278 82,081 271,178 232,880
Operating income 5,740 2,280 16,994 11,990
Interest and other expenses:
Interest 1,822 955 5,991 3,772
Other, net 644 106 1,427 141
---------- ---------- ---------- ----------
2,466 1,061 7,418 3,913
Income before income taxes and
extraordinary item 3,274 1,219 9,576 8,077
Income taxes 1,260 465 3,686 3,071
---------- ---------- ---------- ----------
Income before extraordinary item 2,014 754 5,890 5,006
Extraordinary loss on early extinguishment
of debt (net of income tax benefit of $487) --- --- --- (795)
---------- ---------- ---------- ----------
Net income $ 2,014 $ 754 $ 5,890 $ 4,211
========== ========== ========== ==========
Earnings per share:
Income before extraordinary item $ .25 $ .09 $ .73 $ .69
Extraordinary loss on early
extinguishment of debt --- --- --- (.11)
---------- ---------- ---------- ----------
Net income per share $ .25 $ .09 $ .73 $ .58
========== ========== ========== ==========
Weighted average common shares
outstanding 8,050 8,169 8,045 7,299
========== ========== ========== ==========
</TABLE>
<PAGE>
Cadmus Communications Corporation
Restructuring Fact Sheet
April 23, 1997
<TABLE>
<S> <C>
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Facilities Closed 3 Baltimore Manufacturing (Garamond)
Cadmus Direct-West (Long Beach, CA)
Richmond Magazine Sales Offices
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Facilities Affected by Consolidations 5 Three Lancaster, PA-based journal distribution facilities
consolidated into one location
Atlanta Interactive division consolidated into Richmond
Interactive division
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Associates to be Separated 200-225 Represents approximately 6.5% of the company-wide workforce.
Principal reductions at Baltimore Manufacturing, Cadmus
Direct-West, Cadmus Interactive (Atlanta), and the Cadmus
Periodicals Group
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
One-time Restructuring Costs
Out-of-pocket (cash) costs $6-7 million Severance pay for associates and lease termination costs
Non-cash costs $11.5-12.5 million Write down of fixed assets and certain intangible assets
-------------------
Total costs $17.5-19.5 million
Per share $1.35 to $1.50
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Significant Non-cash Costs
Fixed assets $2-3 million Write off of assets associated with Baltimore Manufacturing,
Cadmus Direct-West, Cadmus Interactive, and Magazine
printing product line
Goodwill and intangibles $8-9 million Write off of the value of the goodwill associated with
Baltimore Manufacturing, Cadmus Direct-West, and Cadmus
Interactive (Atlanta), and a portion of the goodwill
associated with Cadmus Technology Solutions
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Financial Impact to Shareholders
Annual expense reduction impact approximately
$.50- $.60 per share The impact on earnings per share will depend upon specific
annually actions taken and specific charges incurred
Cash "payback" on charge less than one year
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Timing of Activities
Restructuring activities 4Q 1997/1Q 1998 Restructuring actions will occur throughout 4th quarter of
FY97 (ending 6-30-97) and 1st quarter of FY98.
Financial reporting 4th Qtr. 1997 Restructuring charges will be included in 4th quarter
operating results
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
- ------------------------------------------ ----------------------- --------------------------------------------------------------
Post-Restructuring Profile
Production facilities 10 Major facilities located in Lancaster, PA (3), Easton, MD,
Baltimore, Richmond (3), Charlotte, and Atlanta
Marketing facilities 5 Major facilities located in Boston, Charlotte, Richmond (2),
and Atlanta
Associates employed Approx. 2,800
- ------------------------------------------ ----------------------- --------------------------------------------------------------
</TABLE>
<PAGE>
Exhibit 99.2
Introduction
Good afternoon, ladies and gentlemen. This is Steve Gillispie, Chairman and
Chief Executive Officer of Cadmus. I want to thank you for joining us for this
discussion. As you know, we reported lower earnings than you expected and we had
hoped to achieve for this quarter. We know this is unacceptable to you and it
certainly is to us.
Today, I want to describe to you personally the actions we are taking to put our
earnings improvement on a more rapid track and to enhance shareholder value. I
am joined in today's call by Bruce Thomas, our Senior Vice President and Chief
Financial Officer, and by David Bosher, our Vice President and Treasurer. I will
make some summary remarks after which Bruce, Dave, and I will be pleased to
answer any questions that you may have.
In my remarks, I want to make three key points. First, Cadmus has significant
underlying financial strength and most of Cadmus has been performing very well.
Second, the actions we are taking today not only significantly improve financial
performance but also are the logical next steps in the execution of our
strategy. We are on the right track, we are not changing course. Third,
particularly with these tough actions having been taken, Cadmus is stronger,
more efficient, and more focused. We have a very bright future.
First, let's review our 3rd quarter results.
Third Quarter Results
Cadmus' net income was $2.0 million or $.25 per share for the 3rd quarter of
Fiscal 1997, compared to net income of $.8 million or $.09 per share in the same
period last year. Sales increased 15% to $97 million. Gross margins improved to
22.3%, compared to 21.1% last year. SG&A was 16.4% of sales in the 3rd quarter,
down from 18.4% last year. Operating margin continued in line with our
performance for the first half of fiscal 1997. Finally, interest expense fell to
$1.8 million primarily due to lower debt levels.
The continuation in this quarter of some very strong and positive trends has
reinforced the underlying strength of our business.
First, we had good cash flow performance. We ended the quarter with $99 million
in long-term debt, down from $103 million at December 31 and $105 million at
September 30. As a result, long-term debt to total capital fell to 47% at March
31. Free cash flow, before acquisitions and divestitures, was approximately $5
million year-to-date and $2 million for the quarter. We have achieved these
results though better management of working capital, tighter capital expenditure
controls, and more effective credit management.
The performance of our Periodicals Group is the second positive trend. 3rd
quarter periodicals sales rose 28% and operating income increased by an
impressive 171%. Operating margins improved significantly to almost double the
operating margin rate achieved in last year's 3rd quarter. Lancaster continues
to perform very well. These results, however, also represent good improvement in
our base journal business. In addition, we saw our second consecutive quarter of
improved performance at our Byrd manufacturing facility. We believe we have
achieved sustainable improvement in this operation.
Finally, in our Graphic Communications Group we experienced strong growth in our
promotional printing, financial communications, and specialty packaging product
lines. We had a very good quarter in our Charlotte operations, where we achieved
record volume levels for the quarter and for the month of March. We also saw
improvement in our Richmond operation, where we have experienced both excess
capacity and operating efficiency issues for some time.
However, several of our businesses have continued to perform poorly. In the
Graphic Communications Group, our point-of-purchase business, historically one
of our highest margin businesses, failed to improve over a disappointing 2nd
quarter as the selling cycle for several significant new accounts has proven
longer than anticipated. In our Marketing Group we continued to incur sizable
operating losses as we have been unable to restore profitability at our
Atlanta-based Interactive operation and at our Long Beach direct marketing
agency.
Restructuring
These results do represent significant improvement over last year's 3rd quarter,
and they show that most of Cadmus is quite healthy. However, we are not
satisfied with this performance and we know that you are not either.
We have been engaged for some time in an extensive analysis of the best course
to restore Cadmus to historic earnings levels and at the same time move forward
even more aggressively to advance our strategy. The restructuring we have
announced today is designed to accomplish two purposes. First, exit or reshape
dramatically those businesses which are not performing or are not core to our
strategy. Second, create a more efficient and less costly organizational
structure to permit us to direct more resources to those businesses which have
shown the greatest potential for sales growth and higher margins.
Regarding the first objective--addressing non-performing, non-core businesses--
we will take a restructuring charge in our 4th quarter ending June 30, 1997.
This charge reflects the following planned actions: First -- we will close our
Baltimore printing facility, known to some of you as Garamond. Second -- we will
close our Long Beach-based direct marketing agency. Third -- we will consolidate
our Atlanta Interactive Division with the Interactive capability we acquired
with Cadmus O'Keefe and we will close the Atlanta office. Fourth -- we will
consolidate certain fulfillment and distribution operations in our Periodicals
Group. Fifth -- we will substantially reduce personnel in our magazine product
line by consolidating that business with our journal product line. In total this
will represent a reduction of approximately 225 employees or nearly 7% of the
total Cadmus work force.
Purpose number two--creating a leaner and more effective organizational
structure -- we have merged our Graphic Communications Group and Marketing Group
under the leadership of Steve Isaac. We have made some additional leadership
changes in the businesses under Steve Isaac, which will result in improved
performance. The Periodicals Group will continue to be led by Dave Wilson, under
whose leadership we have successfully integrated our Lancaster acquisition and
substantially enhanced operating performance of that half of our business. In
connection with these changes, Michael Dinkins, formerly President of the
Graphic Communications Group, will leave the company to pursue other business
opportunities.
These actions will result in a one-time pre-tax charge in the range of $17.5 to
$19.5 million, or $1.35 to $1.50 per share after tax. This charge will be
recorded in our 4th quarter ending June 30, 1997. Cash outlays associated with
this charge will total approximately $6 million, which will be incurred in
calendar 1997 and which we expect to be recovered within 12 months. The
remainder of our restructuring charge relates to non-cash items, including the
write-off of goodwill associated with the closed facilities and the write-down
of goodwill associated with our Cadmus Technology Solutions division.
Our restructuring should dramatically affect Cadmus performance. It will reduce
our cost structure by at least $.50 per share annually, address problems in
businesses that are key to our strategy but have been under-performing, and
eliminate non-core businesses that have hampered our financial performance.
Share Repurchase
Finally, I would like to highlight the fact that our Board of Directors has
authorized the company to repurchase up to 750,000 shares of our common stock.
This represents approximately 9% of our shares outstanding. At current market
prices, we believe our stock represents an attractive investment opportunity.
This program reflects our confidence, and the Board's confidence, in the
strategy and the prospects for Cadmus.
Conclusion
These are the boldest actions in the history of this company. They have the
complete support of all in management. We believe they are more than just
cost-cutting. They are a logical continuation of our strategy to transform
Cadmus from a conventional printing company to a provider of integrated
marketing and communications solutions. Several of you have urged one or more of
these actions. I hope that we have demonstrated here today that we are committed
to managing this company to enhance shareholder value. We know that we now need
to capitalize on this leaner and more focused organization to improve our
operating and sales effectiveness, and our management is dedicated to that end.
Before I conclude, 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 filed today with the SEC to which you should refer for additional
details.
I thank you for your patience and for your continued support, and I would like
to now open the session up to any questions you may have.
<PAGE>
