SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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Form 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 23, 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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<PAGE>
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
<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 May 1, 1998.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
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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 RECORDS 63% INCREASE IN NET INCOME
SALES AND EARNINGS SET RECORDS FOR THIRD QUARTER
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.
<PAGE>
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
journals.
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"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 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)**
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<TABLE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
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1998 1997 1998 1997
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<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)
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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
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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
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Net income $ 3,275 $ 2,014 $ 8,229 $ 5,890
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Diluted net income per share $ .40 $ .25 $ 1.01 $ .73
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Weighted average common shares
outstanding 8,176 8,050 8,140 8,045
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</TABLE>
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
questions.
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
sector.
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
share.
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
services.
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
comments.
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.
