UNITED STATES
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) November 12, 1998
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CADMUS COMMUNICATIONS CORPORATION
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(Exact name of registrant as specified in its charter)
Virginia 0-12954 54-1274108
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(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
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 287-5680
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Item 5. Other Events.
On November 12, 1998, C. Stephenson Gillispie, Jr., Chairman, President, and
Chief Executive Officer, and Bruce V. Thomas, Senior Vice President and Chief
Financial Officer of Cadmus Communications Corporation (the "Company"), made the
prepared remarks attached hereto as Exhibit 99 at the Company's 1998 Annual
Meeting of Shareholders. Information in these remarks 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 ability of the Company to continue to obtain
improved efficiencies and lower overall production costs, (4) changes in the
Company's product sales mix, (5) the effective integration of recent
acquisitions, (6) the performance of new management and leadership teams in the
Company and its divisions, (7) the impact of industry consolidation among key
customers, and (8) continued strength in the U.S. capital markets.
Item 7. Exhibits.
Exhibit 99 Prepared Remarks from Annual Meeting
2
<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 November 25, 1998.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
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C. Stephenson Gillispie, Jr.
Chairman, President, and Chief
Executive Officer
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Exhibit Index
Exhibit
99 Prepared Remarks from Annual Meeting
4
Exhibit 99
ANNUAL MEETING OF SHAREHOLDERS
November 12, 1998
Prepared Remarks of C. Stephenson Gillispie, Jr.:
Fiscal 1998 was an outstanding year for Cadmus. The company generated record
earnings and virtually all the Cadmus businesses showed marked improvement. We
are very pleased with those results. But we take even greater pride in the fact
that Cadmus accomplished this strong performance while simultaneously investing
heavily in our businesses. Cadmus has never been stronger or better positioned
to take on the challenges of the future. We do not think the road in front of us
is an easy one. But we believe firmly that, with these investments and an
ever-sharpening strategy, Cadmus is steadily becoming a formidable
communications company.
In a few minutes, Bruce Thomas, our Chief Financial Officer and Senior Vice
President of Finance and Administration, will present our financial results for
fiscal 1998 and provide some guidance to the financial performance you can
expect from Cadmus going forward.
Before that, in my remarks this morning, I want to do three things. First, I
want to describe the highlights of our investments of Fiscal 1998. Second, I
will outline some of the key challenges we see in our future. And finally, I
want to review the strategy we are pursuing for outstanding corporate
performance and tell you something of what you might expect from Cadmus in
Fiscal 1999 and beyond.
Let me begin with some highlights of our important investments in plant,
equipment, infrastructure, systems, and people in Fiscal 1998--
CadmusCom
Our creative marketing divisions made great strides with their collective
decision to present their competencies to their markets as a broad-band
integrated agency called CadmusCom. With ever-growing collaboration we now are
providing integrated combinations of advertising, photography, custom
publishing, direct marketing, creative, print, fulfillment, and distribution.
Cadmus Technology Solutions
CTS significantly enhanced its inventory management and shipping controls with
innovative electronic service technology. This business also completed the
rigorous work necessary to become the second Cadmus business to register to the
ISO 9002 standard.
Cadmus Graphic Solutions
CGS completely reformed itself into a business focused on total print outsource
and catalog solutions. It reorganized its sales force and created a unique
partnership with CadmusCom Atlanta to form Catalog Services, a division devoted
to full-service catalog production. Most significant, Graphic Solutions
positioned itself to absorb Media General's Beacon Press which will bring
important web technology and a much broader range of services to the customers
of this business.
Cadmus Financial Services Communications
Cadmus Financial Communications enhanced Cadmus' position in the transactional
markets with a 10,000 square-foot, state-of-the-art facility in downtown
Charlotte. This group also vastly enhanced its pre-press and production services
with the conversion of all typesetting from Datalogics to the much more advanced
Xyvision system.
On the marketing side, Cadmus Financial made significant progress in
diversifying our product mix into the mutual fund and insurance industries.
Finally, this group created new opportunities for customers by expanding
internationally with a strategic alliance with Europe's #1 financial
communications printer, FPC Greenaway. Cadmus now can offer financial printing
services to customers in over 70 capital markets around the world.
Cadmus Point of Purchase
Cadmus Point of Purchase group dramatically strengthened its position in the
Point of Purchase market with the merger of Germersheim, Inc. and the former
Cadmus Marketing Solutions business. As well as one of the most prestigious
clients in the industry, Germersheim brought important new point of purchase
products and capabilities--particularly product engineering, product modeling,
screen printing, and large format printing. This acquisition has created one of
the largest point of purchase businesses in this $13 billion POP industry.
Cadmus Specialty Packaging & Promotional Printing
The Cadmus Packaging Group accomplished flawlessly one of the most difficult
feats in our industry. It designed, constructed, and relocated to a new and
significantly larger plant--without service interruption, while growing revenues
and profits. Simultaneously with this move, in a "textbook-perfect"
installation, the Packaging business brought up a new M600 web press--the most
modern and technologically advanced machine of its type in the world.
Not stopping with these extraordinary accomplishments, this group also
introduced high-speed blanking in its die-cutting line, enhanced its electronic
pre-press with direct-to-plate technologies, and went on to register to the ISO
9002 certification. Now regarded as one of the most modern and best-designed in
the industry, the Charlotte packaging plant has become a powerful marketing tool
in itself.
Cadmus Journal Services
CJS also invested heavily in service improvements. Strengthening its "total
digital pathway" offerings to all customers, the group converted its
Pennsylvania Tapsco plant from an obsolete system to Xyvision, and made dramatic
business-wide enhancements to its network and digital path capabilities.
On the print production side, CJS introduced a state-of-the-art web press into
its Easton facility, greatly expanding the capacity there while offering
significant improvements both in graphic quality and lead time reduction.
Finally, CJS added great strength and experience to its management group with
the addition of two senior leaders. Tony Ferraro, formerly Production Manager
with a large journal publisher, is directing the sales effort and Joe Ward,
formerly President of Bertelsman's Direct Response Group and formerly a Cadmus
director, joined as Executive Vice President of Professional Communications and
Group President of Cadmus Journal Services. We already have seen the impact of
the formidable global publishing experience of both men.
This sampling of Fiscal 1998's investments contains some impressive achievements
throughout Cadmus. In total, it represents nearly $30 million of capital
expenditures. This is why I can say so strongly that while achieving the highest
earnings in our history Cadmus built aggressively for the future.
So now, let me speak for a few minutes about that future. We are preparing
Cadmus to prosper in the aftermath of one of the biggest socio-economic
hurricanes in the history of mankind. We think the hurricane is the right
metaphor because the great hurricanes of history have literally wiped away land
forms, created new shorelines, carried homes and communities away in mud and
water, and left a very different world.
The changes we are a part of today will have the same effect on our
geo-political and socio-economic world. Whole industries are disappearing while
radically new ones take their place. Old ways of buying are disappearing and new
ones are emerging. For examples, look at banking, telephony, and even mail.
Electronic commerce is expanding at astonishing rates. Across America small
businesses are closing their storefronts and opening "web" shops where they are
experiencing dramatically better sales. New patterns of work, employment,
commerce and communications are appearing at astonishing rates as the
digitization of the world removes former boundaries of time, space and distance.
The key elements of this storm--the wind and rain, so to speak--are digitization
and globalization, instant multi-modality communications and soaring
aspirations. These phenomena are destroying traditional boundaries in every
segment of society, from countries and governments to industries and
corporations.
For some local examples, here in Richmond our leading grocer is installing banks
in its markets. WalMart has just about everything but a bank in its new
superstores. Richmond-based tourists traveling to Europe are choosing their
specific concert seats in Stockholm via the Internet after they have sought,
found, and purchased the cheapest tickets on "the Web." In our industry
producers are routinely working with companies in Eastern Europe, India, the
Philippines and Asia for programming and production services.
Behind all these changes, we find the same driving forces--the need for greater
speed and more economy, more predictability, and better results. As individuals
we all face increasing demands on our time, our minds, and our wallets--whether
we are buying for our companies or buying for our families. As private or
commercial and public consumers, we want the same things.
We want to buy from people who are expert in what they are selling--(we don't
have the time to be expert in others' businesses).
We want to buy from sellers who are so expert in what we want that they can spec
it better than we can--(we don't have time to teach others our business and want
to work with those who know it).
We want to buy from sellers who can meet our needs faster and with less hassle
from original order to final payment--(the fastest and the most convenient will
get our business).
We want to buy from sellers who give us great value--(we can't afford to and we
don't want to pay for someone else's mediocrity, inefficiency or bad quality).
We want to buy from sellers who give us an edge in this product-crowded world
because their products and services are better.
At Cadmus, we are building an organization to be this kind of seller to our
markets and clients. To become more expert at what we are selling, we have
organized our businesses around product configurations such as...
o Specialty Packaging Products and Services
o Financial Communications Products and Services
o Point of Purchase Products and Services
o Scientific, Technical and Medical Research Products and Services
To become more expert in our customer's businesses we have focused our product
configurations on specific markets and customer groups. For example,
o Our Specialty Packaging and Promotional Printing group is targeting
Software, Retail Apparel and Pharmaceuticals,
o Our Financial Communications group is specializing in Banking,
Insurance and Mutual Funds,
o Our Point of Purchase group is expert in Quick Service Restaurants,
Convenience Stores, Beverage Bottling & Distributing,
o And our Journal Services group is focused on Commercial and not-for-profit
journal publishers.
To give our clients better, higher-impact and more economical services faster
than anyone else, we are working to reengineer the processes in which our
products have historically been created, produced and distributed.
At Cadmus, we know that our clients need more than incremental progress and
improvement. They need quantum improvements. More specifically, our Scientific,
Technical and Medical customers need the lead times for the publication of
peer-reviewed research reduced from the present 6-to-9 months to
24-hours-or-less from the approval to publication and dissemination.
Our marketing customers need their messages conceived, produced and disseminated
in days, hours and even real-time, not in ten, twelve, and fifteen months which
is today's practice. Most important, they need them to be more effective. In
tomorrow's product and message-cluttered world, our clients must have tactical
communications that work in differentiating and distinguishing their companies'
products.
We are going to give our customers this kind of improvement. However, as the old
saying goes "if you keep doing what you have been doing, you will keep getting
what you've been getting." In other words, we know that we will deliver this
magnitude of change and improvement only by approaching the conception,
production, and delivery of our services in very different ways. We have
borrowed some of our concepts from the example of the automobile industry. As
companies like Honda did in that industry, we are working to deliver quantum
improvements to our clients by recombining the create, produce, and distribute
functions into more seamless streams that reduce hand-offs, reduce
intermediaries, reduce proof points and delays, reduce time, improve the
coordination and effectiveness of messages, and improve accountability.
These are ambitious goals. But Cadmus has demonstrated that it knows how to
achieve them. We have made good strides in Financial Services. In that business,
we have created the fourth largest financial printing company in the country by
unifying three formerly unconnected financial businesses in Baltimore, Richmond
and Charlotte. With an increasingly robust East Coast network, this group now
provides coordinated end-to-end solutions throughout the East Coast. Offering a
complete range of content-management, production and distribution solutions,
this group can accept work in any location and seamlessly deliver it through any
other Cadmus location.
Cadmus Journal Services is our most mature example of the competitive power of a
reengineered value chain. In the mid-eighties as other printers abandoned
composition and front-end services, Cadmus invested heavily in creating today's
ability to receive information from any source, digitize, edit, repurpose, and
produce it anywhere in an all-digital, automated, seamless stream. Cadmus then
went to work to use that capability to develop today's competitive position--the
ability to provide Cadmus customers with speed, accuracy, economy, and
flexibility unmatched by any other vendor anywhere.
With this competitive superiority established, Cadmus then built the "critical
mass" necessary to expand, improve, and grow. With Byrd Journal
Services--formerly a small division of The William Byrd Press--as a platform
company, Cadmus added Waverly Press in 1993 and Lancaster Press in 1995.
From its humble beginnings just five years ago as a $30 million division of Byrd
Press, Cadmus Journal Services has become a $200 million "powerhouse." It has
better than 25% of the market, enjoys "best in class" margins and returns, and
is poised for solid and predictable growth in the future.
Notably, as one of the largest producers of digital information in the world,
the largest reprints provider, and a formidable provider of world-wide mail and
distribution services, Cadmus today derives less than half of its revenues from
traditional print. At the core of its success is the fact that it has
"engineered" a value chain of all the elements of research creation, production,
and distribution at less total cost, with absolute accuracy, and at least 50%
faster from end-to-end than any other supplier.
Going forward, this is what you can expect from each of our businesses. For each
key business there is at least one fulcrum for leverage to competitive
superiority. When mastered, this leverage point facilitates dramatic improvement
in the overall conception, production and delivery of services. For CJS, it was
front end competence. For Packaging and Point of Purchase it appears to be
construction engineering and fulfillment and distribution. For Financial
Communications, it will be content management. Each business will master and
exploit this fulcrum. Then, in the same way an oyster builds its pearl, each
business--with a combination of acquisitions and internal growth--will add
competencies and size to enable it to offer its markets and customers an
unmatched end-to-end solution.
Before I close today, I'd like to acknowledge that we could not have come this
far, nor could we strategize so boldly, without the continuing support of our
shareholders and clients. For this we are very grateful. I'd also like to say a
heartfelt thanks to all the Cadmus associates who have worked tirelessly this
year and in previous years, to get us closer to our goals. And I want to
acknowledge our fine Board of Directors for its valuable oversight and guidance
during this challenging journey.
Finally, I'd like to extend my deep appreciation to Price Gwynn who is retiring
from our Board of Directors this month. Price has contributed his expertise and
guidance to Cadmus since its inception in 1983. He has provided valuable insight
and has been instrumental in helping our company achieve success. In addition to
his outstanding business acumen, he also is one of the finest human beings I've
ever met. Price, thank you for your commitment to Cadmus. On behalf of myself
and our management team, you will be missed. We wish you the best of luck.
I'll now turn this meeting over to Bruce Thomas, Chief Financial Officer and
Senior Vice President of Finance and Administration. Bruce will discuss our
financial performance for fiscal 1998 and the first quarter of fiscal 1999.
Prepared remarks of Bruce V. Thomas:
Thank you Steve, and good morning everyone.
On Tuesday of this week, I participated in that great American institution - the
parent-teacher conference. My wife and I met with our daughter's teacher for
about 30 minutes. We shared what we hoped Maggie would accomplish during her 3rd
grade year, we reviewed what the teacher was expecting of her, and we heard how
she had done so far this year.
It occurred to me, as I was preparing these remarks, that this meeting is in
many ways a similar event. We get together at regular intervals. We review
expectations that have been set. And we discuss how well we have done in meeting
those expectations. In essence, we receive and discuss at this meeting Cadmus'
"report card" for the recently completed fiscal year.
Last year, I shared with you this slide and walked you through what you could
expect from Cadmus and from this management team in fiscal 1998. It is against
this commitment that our fiscal 1998 performance should be compared and should
be graded.
We said that fiscal 1998 sales growth would be modest - in the range of 4
percent - as we absorbed the impact of operations discontinued in our fiscal
1997 restructuring. But, we said, operating margins would dramatically expand -
to over 7%. All of which would lead to earnings of $1.40 per share - more than a
40% improvement over the prior year and a record for Cadmus. Finally, we said we
would sustain positive free cash flow - in the range of 9 million dollars. This
slide represents our commitment to you, our shareholders. Time for our report
card . . . how did we do?
At the revenue line, we exceeded our target by nearly 9 million dollars. Perhaps
more importantly, internal growth - net of discontinued operations - was a
strong 8% and was a very robust 17% in Steve Isaac's Marketing Communications
Sector.
In operating income and operating margins, we didn't quite hit the target we set
- -- as we came in at 7.0%. However, we did produce record operating income, we
did increase operating margins by 120 basis points, and we did post our 3rd
consecutive year of operating margin improvement - actually increasing the grade
on the margin slope we started in 1996.
In net income and EPS, we not only hit the targets we had set, we established
new records for Cadmus. Net income was $11.5 million and EPS was $1.41 - better
than a 40 percent improvement over fiscal 1997, and a penny better than our plan
and our commitment to our shareholders.
Finally, regarding free cash flow, we also hit our mark. We generated cash from
operations of 35 million dollars - another record for Cadmus -- and free cash
flow of nearly 8 million dollars. And this was after nearly 5 million dollars in
restructuring-related spending and, as Steve said, over 25 million dollars in
capital investment in our facilities and our businesses.
So, as a result of this nearly "straight A" performance, we entered fiscal 1999
with the business operating at record levels of profitability . . . , generating
very solid cash flow . . . , and - one of our long-standing shareholders and
former directors, Frank Louthan, always likes this part -- with debt levels down
and our balance sheet strong.
The question now is - how well have we sustained this momentum? How have we
started off in fiscal 1999?
At the top line, we've done quite well. Sales for the 1st quarter were a record
99.8 million dollars, an 8% increase over last year. And, again this quarter, we
had very solid 18% growth in the Marketing Communications Sector - despite the
challenges of very weak capital markets and the challenging integration of our
point-of-purchase businesses.
Margins, meanwhile, continue to expand - up another 40 basis points to 6.6%.
This represented our highest first quarter operating margin in more than a
decade and our 7th consecutive quarter of year-over-year operating margin
improvement. Again, these results were achieved in spite of softness in two of
our larger businesses.
Finally, with regard to net income and EPS, we also hit the mark. Net income was
a record 2.5 million dollars and our EPS of 31 cents, also a record, represented
a 24% increase over fiscal 1998.
So, in summary, for fiscal 1998, we met our commitments and delivered the sort
of performance you can and should expect from Cadmus. For fiscal 1999, we are
off to a good start. We appreciate the challenges that we face in changing
industry and economic conditions, and we - this management team and all of our
associates at Cadmus -- are working hard to sustain the momentum we've
established.
With that, I will close, and turn it back over to Steve. Thank you very much.
