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) July 31, 1998
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 0-12954 54-1274108
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(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification
incorporation or Number)
organization)
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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<PAGE>
ITEM 5. OTHER EVENTS.
On July 30, 1998, Cadmus Communications Corporation (the "Company") issued the
press release attached hereto as Exhibit 99.1 with respect to fourth quarter and
year end financial results. C. Stephenson Gillispie, Jr., chairman, president
and chief executive officer, Bruce V. Thomas, senior vice president and chief
financial officer, and David E. Bosher, vice president and treasurer, read the
prepared remarks attached hereto as Exhibit 99.2 on a conference call with
analysts, shareholders, prospective investors, and other interested parties.
Information in these documents relating to Cadmus' future prospects and
performance 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 99.1 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 July 31, 1998.
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
EXHIBIT 99.1
NEWS RELEASE
Contact: David E. Bosher, Vice President and Treasurer (analysts)
(804) 287-5685
Teri Schrettenbrunner, Director of Public Relations (media)
(804) 287-6260
CADMUS COMMUNICATIONS CORPORATION REPORTS RECORD SALES FOR FOURTH
QUARTER AND YEAR; PROFITS INCREASE 65%
RICHMOND, VA, July 30, 1998 - Cadmus Communications Corporation (NASDAQ
NMS:CDMS) today reported record results for the fourth quarter and fiscal year
ended June 30, 1998. Financial highlights were as follows:
o Income before restructuring charges increased 65% to $3.3
million, or $.40 per share, in the fourth quarter. Full year
income before restructuring rose 49% to a record $11.5 million, or
$1.41 per share.
o Sales for the fourth quarter of fiscal 1998 reached record levels
for any quarter in the Company's history, rising 8% to $104.2
million from $96.8 million in the fourth quarter of fiscal 1997.
o Gross profit margins improved to 22.9% of sales from 22.2% in
the fourth quarter of fiscal 1997.
o SG&A expenses in the fourth quarter declined as a percent of
sales to 15.6% from 16.5% in fiscal 1997.
o Operating margins before restructuring charges rose to 7.4% of
sales in the fourth quarter from 5.7% in fiscal 1997. This was the
sixth consecutive quarter of year-over-year improvement.
C. Stephenson Gillispie, Jr., chairman, president and chief executive officer,
stated, "We again recorded impressive growth in sales and earnings in the fourth
quarter, and exceeded our expectations for both the quarter and our fiscal year.
This performance is the result of the successful execution of our restructuring
program and improvement in several key businesses. Profitability in our
Marketing Communications sector was much improved, led by double-digit sales
growth from our packaging/promotional, point-of-purchase, graphic solutions and
direct marketing product lines. In addition, our highly-profitable Professional
Communications sector posted record operating profits and margins for the
quarter and for the year."
Gillispie added, "The improvement we saw in fiscal 1998 places Cadmus truly back
on track. This operating and financial strength allows us to pursue more
aggressive growth and consolidation opportunities in our niche markets. These
opportunities, together with continued solid operating performance from our
market-leading Professional Communications sector, should permit Cadmus to
achieve further gains in profitability and shareholder value in the coming
year."
FISCAL FOURTH QUARTER OPERATING RESULTS - DETAILED REVIEW
Income before restructuring charges increased 65% in the fourth quarter to $3.3
million, or $.40 per share, compared to income of $2.0 million, or $.25 per
share, in the fourth quarter of fiscal 1997. Fourth quarter 1998 results include
a restructuring charge of $3.95 million pre-tax, or $.30 per share, related to
integration costs associated with the Company's acquisition of Germersheim, Inc.
and fourth quarter 1997 results include a restructuring charge of $19.9 million
pre-tax, or $1.61 per share, related to the closure of certain under-performing
operations and an overall reduction of operating costs. Net income in the fourth
quarter was $0.9 million, or $.10 per share, compared to a net loss of $10.9
million, or $1.36 per share, in the fourth quarter of 1997. There were 8,285,000
weighted average shares outstanding for the fourth quarter of 1998, compared to
8,027,000 weighted average shares outstanding for the same period last year.
Sales for the fourth quarter of 1998 rose 8% to a record $104.2 million.
Adjusted for businesses discontinued in connection with the 1997 restructuring,
sales growth was 11% in the fourth quarter. Marketing Communications sales,
adjusted for these discontinued businesses, rose 25% in the fourth quarter. This
increase was driven by double-digit sales growth from the Company's
packaging/promotional, point-of-purchase, graphic solutions and direct marketing
product lines.
Cadmus' gross profit margin continued its improvement trend, rising to 22.9% of
sales in the fourth quarter of 1998 from 22.2% last year, due primarily to a
favorable change in product mix and the impact of the 1997 restructuring
actions. Selling, general and administrative expenses also continued to decline
as a percent of sales, falling to 15.6% in the fourth quarter of 1998 compared
to 16.5% last year. As a result, operating income before restructuring charges
rose 38% in the fourth quarter to a record $7.7 million from $5.6 million in the
same period of 1997. In addition, Cadmus' operating margin before restructuring
charges also continued to improve, rising to 7.4% of sales, compared to 5.7% in
the fourth quarter of 1997.
FISCAL FULL-YEAR OPERATING RESULTS - DETAILED REVIEW
Net income for the fiscal year ended June 30, 1998 was $9.1 million, or $1.11
per share, compared to a loss of $5.0 million, or $.63 per share, for the same
period last year. Income before restructuring charges in 1998 was $11.5 million,
or $1.41 per share, representing a 49% increase over the $7.7 million, or $.96
per share, earned in 1997. Weighted average shares outstanding were 8,176,000
and 8,035,000 for years 1998 and 1997, respectively.
Sales for fiscal 1998 rose 2% to a record $393.8 million. Adjusted for
businesses discontinued in connection with the 1997 restructuring, sales growth
was 7%. For the year, Marketing Communications sales, adjusted for these
discontinued businesses, rose a robust 19%. Gross profit improved year over
year, rising to 22.8% of sales from 22.2% last year, again due primarily to a
favorable change in product mix and the impact of the 1997 restructuring
actions. Selling, general and administrative expenses fell to 15.8% of sales
compared to 16.4% last year. As a result, operating income before restructuring
charges rose 24% for the year to a record $27.7 million and operating margins
before restructuring charges improved to 7.0% of sales, compared to 5.8% in
fiscal 1997.
<PAGE>
COMPANY DESCRIPTION
Cadmus Communications Corporation provides customers with integrated, end-to-end
information and communications solutions. The Company is organized around two
primary business sectors: Professional Communications serving customers who
publish information, and Marketing Communications serving customers who convey
marketing messages. Cadmus' services include commercial printing, advertising,
custom publishing, direct marketing, financial communication, journal
production, point-of-purchase, specialty packaging, software duplication,
catalog production, and magazine production. Headquartered in Richmond,
Virginia, Cadmus is the 22nd largest graphic communications company 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 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.
**(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 Twelve Months Ended
June 30, June 30,
---------------------------------------- ----------------------------------------
As As
As Adjusted Adjusted
Reported (Note 1) As Reported (Note 1)
---------- ----------- ------------ -----------
1998 1997 1997 1998 1997 1997
---------- ---------- ----------- ---------- ------------ -----------
<S> <C>
Net sales $ 104,179 $ 96,770 $ 96,770 $ 393,823 $ 384,942 $ 384,942
Operating expenses:
Cost of sales 80,308 75,301 75,348 304,014 299,525 299,840
Selling and administrative 16,208 15,919 15,919 62,141 63,123 63,123
Restructuring charge 3,950 19,949 19,949 3,950 19,699 19,699
---------- ---------- ----------- ---------- ------------ -----------
100,466 111,169 111,216 370,105 382,347 382,662
Operating income 3,713 (14,399) (14,446) 23,718 2,595 2,280
Interest and other expenses:
Interest 2,031 1,798 1,798 7,595 7,788 7,788
Other, net 283 501 501 1,343 1,928 1,928
---------- ---------- ----------- ---------- ------------ -----------
2,314 2,299 2,299 8,938 9,716 9,716
Income before income taxes 1,399 (16,698) (16,745) 14,780 (7,121) (7,436)
Income tax expense (benefit) 539 (5,785) (5,803) 5,690 (2,098) (2,219)
---------- ---------- ----------- ---------- ------------ -----------
Net income (loss) $ 860 $ (10,913) $ (10,942) $ 9,090 $ (5,023) $ (5,217)
========== ========== =========== ========== ============ ===========
Net income (loss) per share,
assuming dilution $ .10 $ (1.36) $ (1.36) $ 1.11 $ (0.63) $ (0.65)
========== ========== =========== ========== ============ ===========
Weighted average common shares 8,285 8,027 8,027 8,176 8,035 8,035
========== ========== =========== ========== ============ ===========
</TABLE>
(1) During the fourth quarter of fiscal 1998, the Company changed its method of
accounting for certain of its inventories from the Last-In-First-Out (LIFO)
method to the First-In-First-Out (FIFO) method. As required by generally
accepted accounting principles, the Company has retroactively adjusted
prior year financial statements for the change. This column reflects the
retroactively adjusted financial statements. The restatement had no effect
on net income in fiscal 1998 and increased the net loss in fiscal 1997 by
$194,000, or $0.02 per share. The impact on the fourth quarter of fiscal
1997 was not material.
<PAGE>
SELECTED HIGHLIGHTS (NOTE 2)
(In thousands, except per share data and percents)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Twelve Months Ended
June 30, June 30,
--------------------------------------- ---------------------------------------
As As
As Adjusted As Adjusted
Reported (Note 1) Reported (Note 1)
---------- ----------- ----------- ----------
1998 1997 1997 1998 1997 1997
---------- ---------- ----------- ---------- ----------- ----------
<S> <C>
Operating income 7,663 5,550 5,503 27,668 22,294 21,979
Net income 3,311 2,011 1,982 11,541 7,750 7,556
Depreciation & amortization
expense 4,836 4,426 4,426 18,444 18,188 18,188
Percent to net sales:
Gross profit 22.9% 22.2% 22.1% 22.8% 22.2% 22.1%
Selling, general and
administrative expenses 15.6% 16.5% 16.5% 15.8% 16.4% 16.4%
Operating income 7.4% 5.7% 5.7% 7.0% 5.8% 5.7%
Earnings per share .40 .25 .25 1.41 .96 .94
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
June 30,
-------------------------------------------------------
As
As Adjusted
Reported (Note 1)
------------ -------------
1998 1997 1997
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<S> <C>
ASSETS:
Cash and cash equivalents $ -- $ 184 $ 184
Other current assets 104,120 100,758 101,524
Property plant and equipment, net 133,836 118,621 118,621
Goodwill and other intangibles (net), and other assets 53,796 46,587 46,587
------------- ------------ -------------
TOTAL ASSETS $ 291,752 $ 266,150 $ 266,916
============= ============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term borrowings and current
maturities of long-term debt $ 8,531 $ 6,667 $ 6,667
Other current liabilities 64,652 52,879 52,879
Long-term debt 93,224 89,452 89,452
Other long-term liabilities 15,529 17,275 17,275
Shareholders'equity 109,816 99,877 100,643
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 291,752 $ 266,150 $ 266,916
============= ============ =============
</TABLE>
(1) See Note 1 following Consolidated Statements of Income.
(2) Selected highlights exclude the effects of restructuring charges of
$3.95 million ($2.5 million after tax) in fiscal 1998 and $19.7 million
($12.7 million after tax) in fiscal 1997.
EXHIBIT 99.2
PREPARED REMARKS FROM CONFERENCE CALL
FOURTH QUARTER FY98 EARNINGS RELEASE
CONFERENCE CALL SCRIPT
INTRODUCTION - STEVE GILLISPIE
Good morning. This is Steve Gillispie, chairman, president and chief executive
officer of Cadmus. I want to thank each of you for joining us this morning to
review our results for the fourth quarter of fiscal 1998. Joining me for today's
conference call are Bruce Thomas, senior vice president and chief financial
officer, and Dave Bosher, vice president and treasurer. As is customary, we will
begin this call with a review of the quarter's results by Dave, followed by our
regular Q&A session. I will make a few remarks at the conclusion of today's
presentation. Dave .....
FOURTH QUARTER REVIEW - DAVE BOSHER
Thank you, Steve. Before I go through a more detailed review of our quarterly
results, I'd like to provide you an "executive summary" of our RECORD fourth
quarter and fiscal year performance. Please note that ALL of the numbers you
will hear are BEFORE restructuring charges recorded in the fourth quarters of
both fiscal 1997 and 1998. You should refer to our press release and attachments
for more complete financial information.
Now, back to the highlights:
o first, income before restructuring charges increased 65% to $3.3
million, or $.40 per share, up from $.25 per share in last year's
fourth quarter. This was record operating income for ANY quarter
in Cadmus history, exceeding our previous record set in the third
quarter of this year.
o second, internal sales growth was a solid 7% again in the fourth
quarter, driven by several exceptional performances from units in
our Marketing Communications sector.
o third, operating margins came in at 7.4% of sales, up 170 bps from
the 5.7% margin of the prior year, and
o finally, free cash flow, after restructuring spending, was a
strong $4.7 million in the fourth quarter, reflecting our
continued focus on aggressive capital management.
For the full year, the highlights are equally impressive:
o first, income before restructuring charges increased 49% to
$11.5 million, or $1.41 per share, up from $.96 per share last
year.
o secondly, internal sales growth was 7%, driven again by a 17%
increase in the Marketing Communications sector, and
o finally, operating margins were 7% of sales, up 120 bps from the
5.8% margin of the prior year.
Those are the highlights. Now let me give you a little more detailed review.
As I mentioned, Cadmus' fourth quarter income rose 65% to $3.3 million, or $.40
per share. Fourth quarter sales rose 8% to a record $104.2 million, compared to
$96.8 million last year. Adjusted for the operations discontinued in the fiscal
1997 restructuring AND for the acquisition of Germersheim, sales actually rose
7%.
Gross margins improved in the fourth quarter to 22.9% of sales, up from 22.2% in
the same period last year. At the same time, selling and administrative expenses
declined to just 15.6% of sales in this year's fourth quarter, down nearly a
whole percentage point from the 16.5% rate of last year. As a result, operating
income rose 38% to a record $7.7 million and our operating margin improved
further to 7.4% of sales, up from 5.7% last year. The 7.4% operating margin was
our highest fourth quarter operating margin in over a decade.
Free cash flow for the fourth quarter was $4.7 million. This performance was
right-on target and reflected continued success in working capital management
and also reflected the higher levels of operating income. For the year, free
cash flow was similarly strong, as we generated $7.9 million despite outlays of
$4.7 million related to the 1997 restructuring.
I'd like now to spend just a few minutes describing the operating performances
of our two business sectors.
First, in our Professional Communications sector, operating income rose 11% in
the fourth quarter. Operating margins also continued to improve, rising 160
basis points to a record 16.2% in the fourth quarter, compared to last year's
14.6% margin. In fact, this marked THE NINTH CONSECUTIVE QUARTER in which
Professional Communications has recorded a year-over-year improvement in
operating margins. This increase was attributable primarily to the restructuring
savings, a continued shift towards a higher margin product mix, and continued
productivity improvements at our manufacturing facilities.
In our Marketing Communications sector, INTERNAL SALES GROWTH WAS 16% IN THE
QUARTER, adjusted for the closed operations and the acquisition of Germersheim.
This impressive sales increase was led by (i) our packaging and promotional
group, which recorded a 30% increase in sales (ii) our point-of-purchase group,
where we recorded a 23% increase in sales this quarter, pre-Germersheim, (iii)
our graphic solutions group, which recorded a 17% increase in sales, and (iv)
our direct marketing operation, where agency fees rose 24% over last year.
Marketing Communications operating margins improved over 200 bps in the fourth
quarter compared to the prior year.
GERMERSHEIM UPDATE - DAVE BOSHER
Now, let me briefly update you on the status of the integration of our recent
acquisition, Germersheim, Inc. As you know, we purchased Germersheim, an
Atlanta-based point-of-purchase, or "POP", provider on April 1, 1998.
Germersheim had annual sales of approximately $24 million and operating margins
in excess of 10%. Together with our existing POP business, we have created a $50
million operation, making us a dominant POP business in the southeast and one of
the largest in the nation.
We have identified significant cost reduction opportunities available to us
related to the duplicate overhead costs and facilities of the combined
businesses. Accordingly, we took a one-time charge in our fourth quarter of
$3.95 million, pretax, to integrate the two operations and to consolidate their
facilities. We have indicated that we would move aggressively to integrate these
businesses and we have done so. As of this date, we have effected most of the
personnel reductions and are also moving quickly to convert the combined
operation to Cadmus' successful procurement programs. We also have completed
plans for the consolidation of all administrative, manufacturing and fulfillment
facilities. In addition to the costs savings which should accrue to us in this
combination, we also believe that cross-selling and vertical integration will
provide additional opportunities for profitability improvement going forward.
FISCAL 1999 GOALS - DAVE BOSHER
With regard to fiscal 1999, we are comfortable with published EPS estimates for
Cadmus in the range of the low to mid-$1.70s. Given the potential benefits of
the Germersheim acquisition, the full-year impact from other restructuring
actions taken in fiscal 1998, and continued strong performance from CJS, we
believe that this range is reasonable and achievable. We should note also that
our first quarter expectations are in the $.30-.32 per share range. These first
quarter and full-year FY99 targets each represent an increase in EPS of 24% over
fiscal 1998 results.
I'll now turn it back over to Steve.
Steve....
CONCLUSION - STEVE GILLISPIE
Thanks, Dave. Before beginning our Q&A session, I want to make a few closing
comments.
Last year we expressed our determination to make Cadmus once again an enterprise
that delivered consistent financial performance. We are pleased that we have
delivered on that commitment in every respect in 1998. We achieved record income
for our fourth quarter and we met, and slightly exceeded, our earnings
commitment for the year. Perhaps most importantly, however, we achieved those
results at the same time we were setting a firm foundation for future growth. In
fact, we recorded record CAPEX this year with the addition of a new, modernized
manufacturing facility in Charlotte, state-of-the-art press and finishing
equipment, and updated and enhanced technology. In addition, we successfully
restructured and reorganized our businesses and invested in the expansion and
enhancement of our market position in our market-focused business sectors.
Finally, we made strategic acquisitions and investments to make our
"Create-Produce-Distribute" model ever more a reality.
As we look ahead to 1999, we will build on this strength and continue to look
for opportunities to further enhance and extend our service offerings and to
strengthen our market position in selected niche businesses. We remain excited
with our strategy and more convinced than ever that we are the right path and
picking up our pace.
ORGANIZATIONAL ANNOUNCEMENTS - STEVE GILLISPIE
Before concluding, I'd like to talk about an organizational change which we
announced this morning. I am pleased to announce that Dave Wilson will assume a
new role as chairman of our Professional Communications sector and will be
nominated to stand for election to the Cadmus Board of Directors this November.
Under Dave's leadership and direction, CJS has grown to become the world leader
in Scientific Technical and Medical journals. As chairman of this sector, Dave
will devote more of his efforts and attention to exploring new markets, pursuing
potential acquisitions, both domestic and international, and focusing on
strengthening important customer relationships.
At the same time, Joe Ward will be leaving his current position on the Cadmus
board to assume Dave's former role as executive vice president of Professional
Communications, with responsibility for all day-to-day operations. Joe's
background and experience makes him uniquely suited for this new assignment.
Prior to joining Cadmus, he was president of Bertlesmann's direct response book
group, president of Meredith Corp.'s book group, and founder of Meredith's new
media division. In addition, he was publisher and senior vice president of
Time-Life's book division and launched that business into new media.
These moves are a major step forward for us in terms of growing our Professional
Communications sector and improving the depth of management in that sector. I
have the utmost confidence in their abilities to move Cadmus and the
Professional Communications sectors to new levels of growth and performance.
Please note that certain of our comments here 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.
