8-K, 1998-01-23
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                             WASHINGTON, D.C. 20549


                                    Form 8-K


                      THE SECURITIES EXCHANGE ACT OF 1934

       Date of Report (Date of earliest event reported) January 22, 1998

             (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 January 22, 1998, Cadmus Communications Corporation (the "Company") issued
the press release attached hereto as Exhibit 99.1 with respect to second quarter
financial results. David E. Bosher, vice president and treasurer, and Steven R.
Isaac, executive vice president for the Marketing Communications sector, 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



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 22, 1998.


                    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


RICHMOND, VA, January 22, 1998 - Cadmus Communications Corporation (NASDAQ
NMS:CDMS) today reported a 34% increase in net income to $2.9 million, or $.36
per share, for its second quarter ended December 31, 1997, compared to net
income of $2.2 million, or $.27 per share in the second quarter of fiscal 1997.
There were 8,135,000 weighted average outstanding shares for the second quarter
of fiscal 1998, compared to 8,061,000 weighted average outstanding shares for
the same period of last year.

Sales for the second quarter of fiscal 1998 were $96.0 million, compared to
$97.2 million recorded in the second quarter of fiscal 1997. The decline in
sales for fiscal 1998 was due to the closing of several businesses related to
restructuring actions taken by the Company in the fourth quarter of fiscal 1997.
Adjusted for the discontinued businesses, sales rose 4%. Professional
Communications sales declined 4% due to a 5% reduction in magazine sales and
lower paper prices. Research journal sales for the second quarter were flat with
last year, adjusted for the impact of lower paper prices. Sales for the
Company's Marketing Communications sector, adjusted for the discontinued
businesses, rose 14% in the second quarter of fiscal 1998. This increase was
driven by a 25% increase in tactical marketing revenues and continued growth
from Cadmus' packaging/promotional and financial communications product lines.
Sales for the discontinued businesses totaled $4.5 million in the second quarter
of fiscal 1997.

Cadmus' gross profit margin improved to 23% of sales in the second quarter of
fiscal 1998 from 22% last year due to cost reductions and the closing of
unprofitable operations in connection with our fiscal 1997 restructuring. In
addition, gross profit margins benefited from increased sales of higher margin
packaging and financial communications services in the second quarter of fiscal
1998. Selling, general and administrative expenses continued to decline as a
percent of sales, falling to 15.5% in the second quarter, compared to 15.6% last
year and 16.1% in the first quarter of fiscal 1998.

Operating income rose 15% in the second quarter to $6.8 million from $5.9
million in the same period of fiscal 1997. Cadmus' operating margin also
continued its improvement trend, rising to 7% of sales, compared to 6% in both
the second quarter of fiscal 1997 and the first quarter of fiscal 1998. The
fiscal 1998 operating margin represented the highest second quarter operating
margin achieved by the Company in over a decade.



Page 2

C. Stephenson Gillispie, Jr., president and chief executive officer, stated, "We
are proud to report another good quarter of improved performance. The positive
impact of our restructuring actions is evident in our second quarter results.
Operating margins showed improvement in both of our business sectors, including
our already highly profitable Professional Communications sector. We are
particularly pleased with the significant rebound in the profitability of our
Marketing Communications sector, driven by 14% internal growth in sales and a
significant improvement in operating margins. With anticipated continued growth
from Marketing Communications, the positive impact on costs resulting from the
restructuring actions, and newly-won volume in Professional Communications, we
are increasingly confident that we will continue to see improvement in financial
performance from Cadmus and that we will achieve our fiscal 1998 financial

Mr. Gillispie added, "With this improvement in our operating and financial
performance, we will continue the aggressive implementation of our strategy to
become a unique end-to-end, integrated communications provider. We will continue
to drive for improved shareholder value through further internal growth as well
as through consolidation opportunities in selected niche markets."

Net income for the six-month period ended December 31, 1997 was $5.0 million, or
$.61 per share compared to $3.9 million, or $.48 per share recorded in the same
period of last year. Weighted average shares outstanding were 8,122,000 and
8,045,000 for the first six months of fiscal years 1998 and 1997, respectively.
Sales for the six months ended December 31, 1997 totaled $188.4 million,
compared to $191.2 million recorded in the same period last year.

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.


"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, (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)**


                      (In thousands, except per share data)


                                                         Three Months Ended                  Six Months Ended
                                                            December 31,                       December 31,
                                                    ------------------------------      ----------------------------

                                                      1997               1996              1997             1996
                                                    ----------        ------------      -----------       ----------
<S> <C>

Net sales                                          $   96,048        $     97,232      $   188,410       $  191,154

Operating expenses:
    Cost of sales                                      74,381              76,167          146,195          148,874
    Selling and administrative                         14,867              15,175           29,725           31,276
     Restructuring gain                                   ---                 ---              ---             (250)
                                                    ----------         ----------      -----------       ----------
                                                       89,248              91,342          175,920          179,900

Operating income                                        6,800               5,890           12,490           11,254

Interest and other expenses:
    Interest                                            1,861               2,093            3,794            4,169
    Other, net                                            248                 272              640              783
                                                    ----------         ----------       ----------       ----------
                                                        2,109               2,365            4,434            4,952

Income before income taxes                              4,691               3,525            8,056            6,302

Income taxes                                            1,772               1,343            3,101            2,426
                                                    ----------         ----------       ----------       ----------
Net income                                         $    2,919       $       2,182      $     4,955       $    3,876
                                                    ==========         ==========       ==========       ==========

Net income per share                               $      .36        $        .27      $       .61       $      .48
                                                    ==========         ==========       ==========       ==========
Weighted average common shares
    outstanding                                         8,135               8,061            8,122            8,045
                                                    ==========         ==========       ==========       ==========


                                                             Exhibit 99.2

Prepared Remarks from Conference Call

                             CONFERENCE CALL SCRIPT

Introduction - Dave Bosher
Good morning. This is Dave Bosher, vice president and treasurer for Cadmus. I
want to thank you for joining us this morning to review our results for the
second quarter of fiscal 1998. Joining me for today's conference call are Steve
Isaac, executive vice president for the Marketing Communications sector and
Bruce Thomas, senior vice president and chief financial officer. We will begin
this call with my review of the quarter's results, followed by brief comments
from Steve Isaac. We will then be pleased to answer any questions that you may

Second Quarter Review - Dave Bosher
Before I go through my customary review of our quarterly results, I'd like to
give you something of an "executive summary" of the highlights of our strong
second quarter performance:

               o first, net income increased 34% to $.36 per share, up from $.27
                 in last year's second quarter,

               o second, operating margins were 7.1% of sales, up from 6.1% in
                 the prior year,

               o third, net of restructuring cash outlays and over $9 million in
                 CAPEX, we generated free cash flow in the second quarter of
                 $4.4 million, and

               o fourth, total debt fell to less than $94 million and
                 debt-to-capital improved further to 47.4%.

Those are the highlights. Now let me give you a little more detailed review of
the quarter. As I indicated,  Cadmus'  second  quarter net income rose 34% to
$2.9  million, or $.36 per share from net income of $2.2 million, or $.27 per
share, in the same period last year.

As was the case in our first quarter, second quarter sales declined marginally,
from $97.2 million last year to $96 million. This decline was entirely the
result of the closing of several operations in connection with our restructuring
actions in fiscal 1997. Adjusted for the closed operations, sales actually rose
4%. Lower year-over-year paper prices also had a negative impact on reported
sales. Adjusted for discontinued businesses and lower paper prices, second
quarter sales advanced over 5%.

Gross margins improved in the second quarter to 22.6%, up from 21.7% in the same
period last year, and up 40 basis points over first quarter results. In
addition, selling and administrative expenses declined to 15.5% of sales in this
year's second quarter, down slightly from 15.6% last year and 16.1% in our first
quarter. Operating income rose 15% to a record $6.8 million and our operating
margin improved to 7.1% of sales, up from 6.1% last year. The 7.1% operating
margin was our highest second quarter operating margin in over a decade.

Interest expense continued to decline, falling to $1.9 million this quarter from
$2.1 million last year. The reduction in interest expense has been due to lower
debt levels resulting from our strong cash flow performance over the last twelve
months. Just a little data on that point - over the trailing twelve months, free
cash flow has totaled $9 million.


I'd like now to spend just a few minutes describing the operating performance of
several of our key businesses.

Our Professional Communications sector had another good quarter. This group,
which is comprised of our research journal services and magazine product lines,
recorded a sales decline of just under 4% in the second quarter. The decline in
sales was primarily attributable to lower average paper prices, which produced
one-half of the 4% decline, and to the continued downsizing of our magazine
product line.

Operating margins in this sector continued to register steady improvement,
rising over 60 basis points to 13.5% in the second quarter compared to last
year's 12.9%. This increase was attributable to restructuring savings, a
continued shift towards a higher margin product mix, and productivity
improvements at our manufacturing facilities. In addition, the successful
downsizing and refocusing of our magazine product line continued to improve
margins in this product line.

Shifting now to the Marketing Communications sector, sales grew a healthy 14% in
the second quarter, excluding the closed operations. Our financial
communications, packaging and promotional, direct marketing, and custom
publishing businesses each recorded double-digit sales increases. However, our
point-of-purchase business continued to experience softness in revenues.

I will now discuss each of these operations in more detail. For the quarter,
financial communications sales increased 50%, driven by growth in mutual fund
services and full service banking relationships combined with continued robust
capital markets activity. Our packaging group recorded a 10% increase in sales
this quarter after a slight decline in the move-disrupted first quarter. Our
direct marketing operations enjoyed another strong quarter, with agency fees
rising 47% over last year. This increase came on the heels of a 38% increase in
the first quarter. And, the significant profit turn-around in our custom
publishing operations continued into the second quarter, with fee income rising
72%. This strong top-line growth generated more than acceptable profitability
this quarter compared to a sizable loss last year. Finally, as mentioned
earlier, our point-of-purchase business continued to post disappointing results.
Revenues in this business declined 17%, due primarily to the loss of the
Coldwell Banker account in the second quarter of fiscal 1997.

As I mentioned earlier, our capital position improved significantly in the
second quarter. Free cash flow was positive by $4.4 million in the second
quarter, giving us a year-to-date positive cash flow of $3.4 million. We were
very pleased with this year-to-date positive cash flow, especially since it was
net of $3.2 million in cash outlays against the restructuring program. CAPEX
totaled a relatively high $9.3 million in the second quarter, as we closed on
the purchase of our new Charlotte manufacturing facility. However, we made major
inroads on our working capital reduction initiatives. Accounts receivable fell
$6.7 million in the quarter as our days sales outstanding fell by 6 days.
Inventory levels remained relatively high due to high work-in-process levels and
seasonal increases in paper inventories. We ended the second quarter with total
debt of $93.8 million, which represented a decrease of $3.2 million from
September 30. As a result of the debt reduction, our debt-to-capital ratio
improved marginally to 47.4% at December 31, compared to 48.9% at September 30,

Fiscal 1998 Outlook - Dave Bosher
Finally, let me update you on our view of the remainder of FY98. Due to our
strong first half results, positive operating trends at several of our key
businesses, and the successful execution of our restructuring actions, we are
increasingly confident that Cadmus will continue to achieve improved financial
performance throughout the remainder of fiscal 1998. We remain comfortable with
earnings estimates in the range of $1.40 per share. With regard to the third
quarter, we believe that published estimates in the range of $.37 to $.40 per
share are reasonable.

I'd like now to turn the call over to Steve  Isaac for a brief  update on the
Marketing  Communications  sector.  Steve . . .


Marketing Communications Update - Steve Isaac
As Dave noted, top line growth for the Marketing Communications Sector in the
second quarter was up 14% over the same period last year. Looking forward, we
expect to maintain growth in this 10-15% range. I'd like to talk for just a
moment about some of the new clients and some of the new initiatives that will
help us sustain this growth.

We have been very successful with our new relationship with Radio Shack. As you
know, Radio Shack named Cadmus their direct marketing agency of record during
the first quarter. This relationship has developed nicely and will generate in
excess of $1 million in fee revenues for the fiscal year.

Most recently, our Packaging and Promotional Group was named sole source vendor
for Federal Express' on-line package tracking program. This contractual,
five-year commitment calls for Cadmus to provide package engineering, printing,
diskette duplication, assemblage, customer service, fulfillment and data
management services. Opportunities for our tactical marketing operations in
creative work are also under discussion. An important point regarding this
account is that we won it as a result of our fully integrated service offering,
which as you know is the cornerstone of our strategy.

Other recent full service wins include Intelos, a telecommunications provider,
for whom we will do advertising, point of sale, packaging, consulting, printing
and fulfillment services; a telephone equipment manufacturer, the name of which
we are restricted from disclosing, has retained Cadmus to provide printing,
brand consulting and advertising services; and Trigon, a Virginia-based health
care provider, for whom we will provide consulting, printing, and fulfillment

In order to accelerate acquisition of these sort of full-service clients, we
have created a new business development function under a seasoned executive with
experience in direct marketing, advertising, and print production, Ken Lindenau.
Ken is implementing a highly focused lead generation effort - targeted at
organizations who match our profile of multi-service needs based on their
demonstrated spending patterns in our critical areas - creative, printing,
direct mail, packaging, point of sale, and similar services. This effort already
has resulted in improved new business opportunity flow. In addition, we are
mounting a cross-Cadmus branding initiative which will be launched with
in-market advertising and promotion in April of this year. We expect these
efforts and related initiatives to begin paying benefits in our fourth quarter
and really begin to "move the needle" in fiscal 1999.

In summary,  I am pleased with the progress  the  Marketing  Communications
Sector has made during  fiscal 1998.  We have grown our top line and
significantly  enhanced our  operating  margins.  While we remain far from where
we want to be, we are clearly headed in the right direction.   Dave . . .

Conclusion - Dave Bosher
Thanks, Steve. Before beginning our Q&A session, please note that certain of our
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 shortly with the SEC to
which you should refer for additional details.

We 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 us.

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