CADMUS COMMUNICATIONS CORP/NEW
8-K, 1998-10-22
COMMERCIAL PRINTING
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                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

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


                                    Form 8-K

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


               CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                       THE SECURITIES EXCHANGE ACT OF 1934


   Date of Report (Date of earliest event reported)    October 22, 1998      
                                                    ---------------------

                        CADMUS COMMUNICATIONS CORPORATION
                        ---------------------------------
             (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
                                                             --------------
<PAGE>

Item 5.       Other Events.

On October 22, 1998, Cadmus Communications Corporation (the "Company") issued
the press release attached hereto as Exhibit 99.1 with respect to first quarter
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 October 22, 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 ANNOUNCES
                          RECORD FIRST QUARTER RESULTS

RICHMOND, VA, October 22, 1998 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) today reported record results for the fiscal first quarter ended September
30, 1998. Financial highlights were as follows:

o         Net income rose 24% to $2.5 million, or $.31 per share.

o         Sales rose 8% to $99.8 million, led by an 18% increase from the
          Marketing Communications sector.

o         Operating income rose 16% to $6.6 million and operating margins
          improved to 6.6% of sales from 6.2% in fiscal 1998.

C. Stephenson Gillispie, Jr., chairman, president and chief executive officer,
stated, "We are pleased with our first quarter performance - our seventh
consecutive quarter of year-over-year improvement in operating earnings before
restructuring charges. Our Professional Communications sector again demonstrated
the strength of its market position and the non-cyclical nature of its business,
posting impressive earnings growth and continued margin expansion. In our
Marketing Communications sector, earnings rebounded in our tactical marketing
businesses and we achieved double-digit sales growth from our packaging and
promotional printing, and graphic solutions groups. These performances helped to
offset the negative impact on our financial communications group of the downturn
in capital markets activity as well as higher costs associated with the
integration of our point of purchase businesses."

Gillispie added, "Despite these near-term challenges, which we believe will
continue into our fiscal second quarter, we remain confident that Cadmus will
continue to produce solid earnings growth and improved profitability throughout
fiscal 1999."

Fiscal First Quarter Operating Results - Detailed Review

Net income for the first quarter rose 24% to $2.5 million, or $.31 per share,
for the period ended September 30, 1998, compared to net income of $2.0 million
or $.25 per share last year. There were 8,206,000 weighted-average shares
outstanding for the first quarter of fiscal 1999, compared to 8,109,000
weighted-average shares outstanding for the same period of last year.


<PAGE>

First quarter sales were a record $99.8 million, up 8% from sales of $92.4
million in the first quarter of fiscal 1998. Sales for the Professional
Communications sector increased 1% as continued growth in journal services was
offset by the impact of lower average paper prices. In the Marketing
Communications sector, sales rose 18% due to the acquisition of Germersheim and
strong growth from the Company's packaging and promotional printing and graphic
solutions businesses.

Operating income rose 16% in the first quarter to $6.6 million compared to $5.7
million last year as the Company's operating margin improved as a percent of
sales to 6.6% from 6.2% last year.

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 advertising, catalog services,
commercial printing, custom publishing, direct marketing, financial
communications, journal and magazine services, point-of-purchase, specialty
packaging, and software duplication. 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)


                                                  Three Months Ended
                                                      September 30,
                                             ------------------------------
                                                1998              1997
                                             ------------      ------------

Net sales                                   $      99,784    $       92,362

Operating expenses:
     Cost of sales                                 79,119            71,814
     Selling and administrative                    14,063            14,858
                                             ------------      ------------
                                                   93,182            86,672

Operating income                                    6,602             5,690

Interest and other expenses:
     Interest                                       2,143             1,933
     Other, net                                       343               392
                                             ------------      ------------
                                                    2,486             2,325


Income before income taxes                          4,116             3,365

Income tax expense                                  1,585             1,329
                                             ------------      ------------

Net income                                 $        2,531    $        2,036
                                             ============      ============


Net income per share, assuming dilution    $          .31    $          .25
                                             ============      ============

Weighted-average common shares outstanding          8,206             8,109
                                             ============      ============

<PAGE>
<TABLE>
                                            SELECTED HIGHLIGHTS
                             (In thousands, except per share data and percents)
                                                (Unaudited)

<CAPTION>

                                                                                Three Months Ended
                                                                                    September 30,
                                                                         ---------------------------------
                                                                                1998               1997
                                                                         ----------------    -------------
<S>                                                                   <C>                 <C>           
Operating income                                                      $         6,602     $        5,690
Net income                                                                      2,531              2,036
Depreciation & amortization expense                                             4,873              4,477
Percent to net sales:
     Gross profit                                                                20.7%              22.2%
     Selling, general and administrative expenses                                14.1%              16.1%
     Operating income                                                             6.6%               6.2%
Earnings per share, assuming dilution                                             .31                .25





                                    CONDENSED CONSOLIDATED BALANCE SHEET
                                               (In thousands)
<CAPTION>

                                                                           September 30,              June 30,
                                                                               1998                     1998
                                                                            (unaudited)
                                                                         ------------------       -----------------
Assets:
    Cash and cash equivalents                                         $               895       $             --
    Other current assets                                                          109,505                 104,120
    Property plant and equipment, net                                             129,858                 133,836
    Goodwill and other intangibles (net), and other assets                         53,439                  53,796
                                                                         -----------------        ---------------

Total assets                                                          $           293,697       $         291,752
                                                                         =================        ===============

Liabilities and shareholders' equity:
    Short-term borrowings and current
        maturities of long-term debt                                  $             7,090       $           8,531
    Other current liabilities                                                      51,566                  64,652
    Long-term debt, less current maturities                                       106,962                  93,224
    Other long-term liabilities                                                    16,261                  15,529
    Shareholders'equity                                                           111,818                 109,816
                                                                         -----------------        ---------------

Total liabilities and shareholders' equity                            $           293,697       $         291,752
                                                                         =================        ===============

</TABLE>




                                                                    Exhibit 99.2
Prepared Remarks from Conference Call

                      FIRST QUARTER FY1999 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 for a
review of our results for the first quarter of fiscal 1999. 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 Bosher, followed by our regular question and answer session. Dave .....

FIRST QUARTER REVIEW - DAVE BOSHER
- ----------------------------------

Thank you, Steve. Good morning. Before I go through a more detailed review of
our quarterly results, I'd like first to provide you an "executive summary" of
our record first quarter performance.

o         first, we achieved record first quarter net income. Net income rose
          24% to $2.5 million, or $.31 per share, compared to $.25 per share in
          the same period last year.

o         second, sales grew 8% in the first quarter to a record $99.8 million,
          as double-digit sales growth from our packaging/promotional and
          graphic solutions businesses and the inclusion of Germersheim
          point-of-purchase sales this year offset weak financial communications
          sales.

o         finally, our operating margin continued to register year-over-year
          expansion, rising this quarter to 6.6% of sales, up 40 basis points
          from the 6.2% margin of the prior year.

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

As I stated, Cadmus' first quarter net income rose 24% to $2.5 million, or $.31
per share. First quarter sales rose 8% to a record $99.8 million, compared to
$92.4 million last year. Adjusted for the acquisition of Germersheim, internal
sales growth was approximately 4% in the first quarter.

Gross margins declined 150 basis points in the first quarter to 20.7% of sales
from 22.2% in the same period last year. This decline was primarily attributable
to two factors: (i) the negative impact of lower financial transactional volume
this year and (ii) added costs and certain production inefficiencies associated
with the integration of our POP businesses. This gross margin decline was offset
by lower selling and administrative expenses, which declined to just 14.1% of
sales in this year's first quarter, down two whole percentage points from the
16.1% rate of last year. This decline was attributable to better overall cost
management, lower selling costs in our financial communications group, and lower
SG&A costs to sales in our point-of-purchase operation as a result of the
integration of those businesses. 


<PAGE>

In summary, despite lower gross margins, operating income rose 16% to a first
quarter record $6.6 million and our operating margin improved further to 6.6% of
sales, up from 6.2% last year. The 6.6% operating margin was the highest first
quarter operating margin in over a decade. In addition, this marked the seventh
consecutive quarter of year-over-year operating margin expansion for Cadmus.

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 8% in
the first quarter. Operating margins also continued on an upward trend. In fact,
this marked the tenth consecutive quarter in which Professional Communications
has recorded a year-over-year improvement in operating margins. This increase
was attributable primarily to restructuring-related savings, better product mix,
and continued productivity improvements from our production facilities. Journal
services sales, adjusted for paper price changes, rose 3.4% in the quarter,
while magazine sales were essentially flat.

In our Marketing Communications sector, internal sales growth was 10% in the
quarter, despite the drag of a weak financial printing market. These higher
sales resulted from impressive gains in (i) our packaging and promotional group,
which recorded a 15% increase in sales, and (ii) our graphic solutions group,
which also recorded a 15% sales growth. This sector's performance also was
positively affected by improved operating margins in our tactical marketing
group. Despite lower gross billings, operating margins in this group improved to
5% of sales in the first quarter due to an improved business mix and lower SG&A
costs. Offsetting these improvements, as I mentioned earlier, were (i)
significantly lower operating margins from our financial communications group as
a result of soft capital markets activity, and (ii) higher costs and production
inefficiencies resulting from the integration of our POP businesses.

FISCAL 1999 OUTLOOK - DAVE BOSHER
- ---------------------------------

Looking ahead to the second quarter and to the remainder of fiscal 1999, we
believe that we will continue to experience softness in transactional financial
printing sales due to lower activity levels in the U.S. capital markets. We also
expect to experience somewhat higher costs and some production inefficiencies as
we complete the integration of our POP operations. However, with some
improvement in capital markets activity, with continued strong performance from
our Professional Communications sector, and with sustained momentum from our
packaging/promotional and our tactical marketing groups, we believe that we can
achieve performance for fiscal 1999 consistent with the approximately 20%
earnings growth we have planned for fiscal 1999.

I'd like now to turn the call back over to Steve for some final comments.

Steve....

CONCLUSION - STEVE GILLISPIE
- ----------------------------

Thank you, Dave.

Like the rest of my colleagues, I am very pleased with our results again this
quarter. This quarter represents the 7th consecutive quarter of higher
year-over-year operating performance for Cadmus. We are particularly encouraged
by the continued steady growth in profitability from our Professional

<PAGE>

Communications sector, the strong volume growth from our promotional/packaging
business (a clear payoff for the investment we made in that operation with a new
plant over the last year), and the continued improvement from our tactical
marketing businesses. These record first quarter results were accomplished
despite the negative impact of weak capital markets activity - clear evidence of
the underlying strength of Cadmus.

As we look ahead to the remainder of fiscal 1999, we understand that we face the
continued challenge posed by soft capital markets activity. However, as we have
demonstrated over the last several years, we are a strong company with a stable
and diverse revenue base. We will work hard to sustain our momentum, to build on
our many strengths, and we `continue to look for opportunities to strengthen our
market position in selected niche businesses.

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.


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