8-K, 1998-05-05
Previous: COMMERCIAL FEDERAL CORP, S-4/A, 1998-05-05
Next: ST CLAIR FUNDS INC, 497, 1998-05-05

                             WASHINGTON, D.C. 20549


                                    Form 8-K


                       THE SECURITIES EXCHANGE ACT OF 1934

         Date of Report (Date of earliest event reported) April 23, 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 April 23, 1998, Cadmus Communications  Corporation (the "Company") issued the
press  release  attached  hereto as Exhibit 99.1 with  respect to third  quarter
financial results. C. Stephenson  Gillispie,  Jr, chairman,  president and chief
executive officer,  David E. Bosher, vice president and treasurer,  and David G.
Wilson,  Jr.,  executive  vice  president  for the  Professional  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) 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


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 May 1, 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


            Contact: David E. Bosher, Vice President and Treasurer (analysts)
                     (804) 287-5685
                     Teri Schrettenbrunner, Director of Public Relations (media)
                     (804) 287-6260


RICHMOND,  VA,  April  23,  1998 -  Cadmus  Communications  Corporation  (NASDAQ
NMS:CDMS)  today reported a 63% increase in net income to $3.3 million,  or $.40
per share, for its third quarter ended March 31, 1998, compared to net income of
$2.0  million,  or $.25 per  share in the third  quarter  of  fiscal  1997.  The
quarter's  results also represented the highest third quarter sales and earnings
in the  Company's  history,  exceeding  the previous  high  recorded in the same
quarter of fiscal 1995. There were 8,176,000 weighted average outstanding shares
for the third  quarter of fiscal 1998,  compared to 8,050,000  weighted  average
outstanding shares for the same period of last year.

Sales for the third quarter of fiscal 1998 rose 4% to $101.2  million from $97.0
million in the third quarter of fiscal 1997.  Fiscal 1997 third quarter  results
included sales from several businesses discontinued in the restructuring actions
taken by the  Company in the fourth  quarter of fiscal  1997.  Adjusted  for the
discontinued  businesses,  sales growth was 10% in the third quarter.  Marketing
Communications sales, adjusted for the discontinued  businesses,  rose 23%. This
increase  was  driven  by   double-digit   sales   growth  from  the   Company's
packaging/promotional,  financial communications, and tactical marketing product
lines.  Professional  Communications  sales rose 1% due to higher sales of trade
association/educational institution magazines.

Cadmus' gross profit  margin  improved to 23.4% of sales in the third quarter of
fiscal 1998 from 22.3% last year due to the favorable  impact of cost reductions
and  the  closing  of  unprofitable   operations  related  to  the  fiscal  1997
restructuring program.  Selling, general and administrative expenses declined as
a percent of sales to 16.0%, compared to 16.4% last year.

Operating  income rose 31% in the third  quarter to a record $7.5  million  from
$5.7 million in the same period of fiscal 1997.  Cadmus'  operating  margin also
continued  to  improve,  rising to 7.4% of sales,  compared to 5.9% in the third
quarter of fiscal 1997 and 7.1% in the second quarter of fiscal 1998.


Cadmus Communications Corporation
Page 2

C. Stephenson Gillispie,  Jr., chairman,  president and chief executive officer,
stated,  "We are  extremely  proud of our record  earnings  this  quarter.  This
performance  is the  result of  continued  improvement  in both of our  business
sectors.  In our Marketing  Communications  sector,  operating  margins expanded
nicely, driven by strong internal sales growth, an improved product mix, and the
positive  impact  of  our  restructuring   actions.  In  our  highly  profitable
Professional  Communications  sector, we recorded  improvement in year-over-year
operating  margins  for the  eighth  consecutive  quarter.  Based on our  strong
year-to-date  performance,  a continuation  of positive trends in several of our
key  businesses,  the successful  execution of our  restructuring  actions,  and
expected profitability improvement in our point-of-purchase business as a result
of the Germersheim acquisition, we are confident we will achieve our fiscal 1998
financial goals and see further improvement for fiscal 1999."

Net income for the nine-month  period ended March 31, 1998 was $8.2 million,  or
$1.01 per share compared to $5.9 million, or $.73 per share recorded in the same
period of last year.  Weighted  average  shares  outstanding  were 8,140,000 and
8,045,000 for the first nine months of fiscal years 1998 and 1997, respectively.
Sales for the nine months ended March 31, 1998 totaled $289.6 million,  compared
to $288.2 million recorded in the same period last year.

Headquartered in Richmond,  Virginia, Cadmus Communications Corporation provides
customers with integrated information and communications solutions. Its services
include corporate identity  marketing,  advertising,  custom publishing,  direct
marketing,  financial  communication,  interactive media,  point-of-purchase and
promotional  marketing,  specialty  packaging,  software  duplication,   catalog
production,  magazine production and general commercial  printing.  In addition,
Cadmus is the world's  largest  producer of  scientific,  technical  and medical

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

"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)
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)**


                      (In thousands, except per share data)

                                                         Three Months Ended                  Nine Months Ended
                                                              March 31,                          March 31,
                                                    ------------------------------      ----------------------------

                                                      1998               1997              1998             1997
                                                    ----------        ------------      -----------       ----------

<S>                                                <C>               <C>               <C>               <C>       
Net sales                                          $  101,234        $     97,018      $   289,644       $  288,172

Operating expenses:
    Cost of sales                                      77,512              75,350          223,706          224,224
    Selling and administrative                         16,207              15,928           45,933           47,204
     Restructuring gain                                   ---                 ---              ---             (250)
                                                   ----------        ------------      -----------       ----------
                                                       93,719              91,278          269,639          271,178

Operating income                                        7,515               5,740           20,005           16,994

Interest and other expenses:
    Interest                                            1,771               1,822            5,564            5,991
    Other, net                                            419                 644            1,060            1,427
                                                   ----------        ------------      -----------       ----------
                                                        2,190               2,466            6,624            7,418

Income before income taxes                              5,325               3,274           13,381            9,576

Income taxes                                            2,050               1,260            5,152            3,686
                                                   ----------        ------------      -----------       ----------

Net income                                         $    3,275        $      2,014      $     8,229       $    5,890
                                                   ==========        ============      ===========       ==========

Diluted net income per share                       $      .40        $        .25      $      1.01       $      .73
                                                   ==========        ============      ===========       ==========

Weighted average common shares
    outstanding                                         8,176               8,050            8,140            8,045
                                                   ==========        ============      ===========       ==========

                                                                    Exhibit 99.2

Prepared Remarks from Conference Call

                       THIRD 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 you for joining us this morning to review our
results for the third 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.  Also with us today is Dave Wilson,
executive vice president of our Professional  Communications  sector.  Dave will
share a few  remarks  regarding  his  business  and then be  available  for your

We will begin this call with a review of the  quarter's  results by Dave Bosher,
followed by comments  from Dave Wilson.  And then,  we will be pleased to answer
any questions that you may have. Dave .....

Third Quarter Review - Dave Bosher

Thanks,  Steve.  Before I go  through a more  detailed  review of our  quarterly
results, I'd like to provide you an "executive summary" of the highlights of our
record third quarter performance:

       o      first, net income increased 63% to $3.3 million or $.40 per share,
              up from  $.25 per share in last  year's  third  quarter.  This was
              record net income for any quarter in Cadmus history.

       o      second, internal sales growth was 10% in the third quarter, driven
              by  exceptional  performance  from  our  Marketing  Communications

       o      third, operating margins came in at 7.4% of sales, up from 5.9% in
              the prior year and 7.1% in our fiscal 1998 second quarter.

       o      fourth, despite continuing  restructuring cash outlays, a seasonal
              increase in working capital, and over $10 million in net CAPEX, we
              saw further improvement in our  debt-to-capital  ratio, as it fell
              to 46.6% from 47.4% last quarter.

Those are the  highlights.  Now let me give you a little more detailed review of
the quarter.

As I mentioned,  Cadmus' third  quarter net income rose 63% to $3.3 million,  or
$.40 per share from net income of $2.0 million,  or $.25 per share,  in the same
period last year.

Third  quarter  sales  rose 4% to a record  $101.2  million,  compared  to $97.0
million last year.  Fiscal  1997's third  quarter  results  included  sales from
several operations which were closed as a result of our restructuring actions in
fiscal 1997. Adjusted for the closed operations, sales actually rose 10%.

Gross margins  improved in the third quarter to 23.4%, up from 22.3% in the same
period last year,  and up 80 basis points over our second  quarter  results.  In
addition, selling and administrative expenses declined to 16.0% of sales in this
year's third quarter, down slightly from 16.4% last year. As a result, operating
income  rose  31% to a new  record  of $7.5  million  and our  operating  margin
improved  further to 7.4% of sales,  up from 5.9% last year.  The 7.4% operating
margin was our highest third quarter operating margin in over a decade.

Cash flow was a slight  deficit in the third  quarter due to  increased  working
demands from very strong sales results in March. Nevertheless, year-to-date free
cash flow was positive by $2.5 million,  despite outlays of $3.6 million related
to the restructuring program.

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

Dave  Wilson is going  speak with you in a few  moments  about our  Professional
Communications  sector;  therefore,  I will just give you some highlights of his
sector's solid third quarter performance. Professional Communications recorded a
1% increase in sales in the third  quarter,  reversing  the sales decline in the
second  quarter.  While sales were a bit soft,  operating  margins  continued to
register  improvement,  rising 30 basis  points  to 14.3% in the  third  quarter
compared  to  last  year's  14.0%  margin.  In  fact,  this  marked  the  eighth
consecutive  quarter in which we have recorded a  year-over-year  improvement in
operating  margins.  This increase was  attributable  primarily to restructuring
savings, a continued shift towards a higher margin product mix, and productivity
improvements at our manufacturing facilities.

In our Marketing  Communications  sector,  internal  sales growth was 23% in the
third quarter,  adjusted for the closed operations.  This sales increase was led
by (i) our financial  communications product line, where sales increased 31% due
to growth in mutual fund  services and full service  banking  relationships  and
continued strength in transactional  volume,  (ii) our packaging group, where we
recorded a 38%  increase in sales this  quarter  and (iii) our direct  marketing
operation, where agency fees rose 52% over last year.

As I mentioned  earlier,  our  capital  position  improved  further in the third
quarter.  Free cash flow was  slightly  negative  in the third  quarter due to a
seasonal  run-up in working  capital.  Year-to-date,  free cash flow has totaled
approximately  $2.5  million.  We are  pleased  with this  positive  cash  flow,
especially  since it was net of $3.6 million in restructuring  cash outlays.  We
ended  the  third  quarter  with  total  debt of  $93.6  million,  bringing  our
debt-to-capital  ratio down slightly to 46.6% at March 31,  compared to 47.4% at
December 31, 1997.

Germersheim Update - Dave Bosher

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  (POP) provider, on April 1, 1998.  Germersheim
has annual sales of approximately $24 million and operating margins in excess of
10%.  While we did not  disclose  details of the  transaction,  the  acquisition
should be accretive to Cadmus EPS, exclusive of synergies.

Together  with  our  existing  POP  business,  we  now  have a $50  million  POP
operation,  making us the largest POP business in the  southeast  and one of the
largest in the nation. The U.S. POP market is estimated at $12 billion in sales,
has an extremely fragmented competitor base, and has grown at rates in excess of
the U.S. printing market.

The Germersheim acquisition clearly materially strengthens our base business. In
addition,  it adds an important "creative" competence to our existing production
and     distribution      capabilities,      rounding     out     a     complete
"create-produce-distribute"   offering  to  this  huge  market.   Finally,   the
acquisition positions us to further enhance our market position both by internal
growth and by further consolidating acquisitions.

As a result of this  acquisition,  there are  numerous  opportunities  for us to
rationalize the overhead and facilities  investment of the combined  businesses.
Accordingly,  we announced our intention to take a one-time charge in our fourth
quarter in the  neighborhood  of $2.75  million  to $3.25  million,  pretax,  to
integrate the two operations and to consolidate  facilities.  Annualized  pretax
savings from these actions should exceed $2.0 million.

Fiscal 1998/1999 Update - Dave Bosher

With this in mind,  let me update you on our view of the remainder of FY98.  Due
to our strong year-to-date results,  positive operating trends at several of our
key businesses,  and the successful completion of our restructuring  actions, we
are confident  that Cadmus will achieve its financial  goals for fiscal 1998. We
remain  comfortable with earnings  estimates in the range of $1.40 per share for
fiscal 1998 and with fourth quarter published estimates in the range of $.40 per

In addition,  at this point we are comfortable  with published EPS estimates for
fiscal  1999 in the range of  mid-$1.70,  given the  potential  benefits  of the
Germersheim  acquisition,  full-year  impact  from  restructuring  savings,  and
continued strong performance from CJS.

I'd like now to turn the call  over to Dave  Wilson  for a brief  update  on the
Professional Communications sector. Dave...

Professional Communications Update - Dave Wilson

Thanks, Dave. As Dave noted, despite modest top-line growth for the Professional
Communications  sector in the third quarter,  operating  income  advanced 4%. We
were pleased with this performance during what was for us a challenging  quarter
and we have  positioned  our business  for  continued  growth and  profitability
throughout the remainder of this and next fiscal year.

In the third  quarter,  we began  assimilating  the newly won American  Chemical
Society business into our CJS-Lancaster operation. This was no small task, since
ACS,  with 40 titles and $5.5  million  of annual  value-added,  represents  the
largest new account in our  history.  Importantly,  during this  transition,  we
managed to improve our already strong operating margins.

As I indicated,  we believe we are  positioned  to grow our business and sustain
our strong operating  margins.  Let me elaborate a little more on our plans. Our
growth strategy has three basic components.

First - to grow traditional STM products and services. The primary opportunities
here are in a more aggressive  development and marketing of electronic  products
and services  and through  entry into the faster  growth area of  short-run  STM
journals.  These market sectors are both achieving growth rates in excess of the
industry and we plan to exploit both more in the coming months.

Second - to extend our  product  offerings  to include  new  services to our STM
market and customers,  including services designed to assist our association and
society customers in attracting and sustaining  membership  growth.  Examples of
these new services include subscription management,  marketing consultation, and
administration  and  back-office  support.  We have recently  hired an executive
experienced in developing and  delivering  these sort of association  management

Third - to enter new markets  where we can  leverage  our current  competencies.
Examples of new markets  include  legal,  governmental,  and other  professional
markets and segments.

To drive these  growth  initiatives,  we have just brought on a new sales leader
for CJS. Tony Ferraro,  formerly  Publications Staff Executive for The Institute
for  Electronics  and  Electrical  Engineering,  recently  joined  us as  senior
vice-president of sales and business development. Tony will bring new energy and
a fresh approach to the marketing and positioning of CJS,  helping to facilitate
our growth objectives.

On the margin side of the equation,  we believe the margin  improvement trend we
have  enjoyed is  sustainable  going  forward.  In  addition,  continued  margin
expansion  can  be  achieved  through   efficiency  gains,   investment  in  new
technology, process improvement initiatives, and targeted cost reductions.

There  is one  final  comment  I'd  like to  make.  We  believe  there  are also
opportunities  to extend the CJS franchise on a global basis.  Our customer base
is  international  in scope,  and a presence in Europe  would  provide  improved
customer service and further differentiate CJS from our competitors.

In summary,  I am pleased  with the  progress  the  Professional  Communications
Sector has made during fiscal 1998.  We have  registered  year-over-year  margin
expansion for eight  consecutive  quarters and  operating  margins have expanded
from  6.5% of sales  in  fiscal  1994 to over 14%  projected  for  fiscal  1998.
Importantly,  we believe the foundation has been laid for improved  growth going
forward. Steve . . .

Conclusion - Steve Gillispie

Thanks,  Dave.  Before  beginning our Q&A session,  I want to make a few closing

We achieved  record  earnings for our third  quarter and we are tracking  toward
record  earnings for the year.  However,  we have not  harvested the business to
achieve these  results.  In fact, we will have record CAPEX this year as we have
built and  modernized  facilities  and updated and enhanced our  technology.  In
addition,  we have successfully  restructured and reorganized our businesses and
invested  to expand  and  enhance  the  market  position  of our  market-focused
business sectors. Finally, we have made acquisitions and investments to make our
"Create-Produce-Distribute" model a reality.

As we pursue our strategy, we will continue to combat pricing pressures,  excess
capacity,  and other  competitive and industry forces that will work to suppress
growth and  profitability.  Our strategy  will provide us more secure niches and
greater  strength to offset these  forces.  However,  we remain fully aware that
achieving our strategy  presents  continuing  challenges  in both  resources and
execution  and that we may not  have  passed  all of the  "speed  bumps"  in the
execution  of the  strategy.  This year is a testament  to the fact that we can,
though,  avoid and maneuver around these "speed bumps" and I can assure you that
our team is doing  everything  possible to ensure that our path remains clear to
financial and strategic success.

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.

© 2022 IncJournal is not affiliated with or endorsed by the U.S. Securities and Exchange Commission