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 29, 1999
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
Virginia 0-12954 54-1274108
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
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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
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Item 5. Other Events.
On April 29, 1999, 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, 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) the effective integration of
recent acquisitions, (2) continuing competitive pricing in the markets in which
the Company competes, (3) the gain or loss of significant customers or the
decrease in demand from existing customers, (4) the ability of the Company to
continue to obtain improved efficiencies and lower overall production costs, (5)
changes in the Company's product sales mix, (6) the performance of new
management and leadership teams in the Company and its divisions, (7) the impact
of industry consolidation among key customers, (8) the ability of the Company to
operate profitably and effectively with higher levels of indebtedness and (9)
the ability to retain management and employees in light of lower than planned
incentives and benefits.
Item 7. Exhibits.
Exhibit 99.1 Press Release
Exhibit 99.2 Prepared Remarks from Conference Call
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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 April 29, 1999.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
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C. Stephenson Gillispie, Jr.
Chairman, President, and Chief
Executive Officer
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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 REPORTS HIGHER EARNINGS
FROM CONTINUED OPERATIONS
RICHMOND, VA, April 29, 1999 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) today reported results for the fiscal third quarter ended March 31, 1999.
Financial highlights were as follows:
o Net income was $7.5 million, or $.94 per diluted share.
o Adjusted for the impact of a one-time gain and the results of operations
from divested businesses, earnings per diluted share totaled $.35, an
increase of 25% from the same period last year.
o Operating income, adjusted for the results of operations from divested
businesses, increased 23% to $6.8 million and operating margins rose 80
basis points to 7.3% of sales.
o Net sales, adjusted for acquisitions and divestitures, rose 4%, led by a
7% increase from scientific, technical and medical (STM) journal
services and double-digit growth from packaging and promotional, and
graphic solutions operations.
C. Stephenson Gillispie, Jr., chairman, president and chief executive officer,
stated, "During this third quarter, we successfully repositioned and
strengthened Cadmus. We sold our financial communications and custom publishing
operations. We acquired Dynamic Diagrams, further enhancing Cadmus Journal
Services' Internet and digital product offerings. And, on April 1, 1999, we
acquired the Mack Printing Group, our largest competitor in the STM journal
market and one of the largest special interest magazine printers in the country.
As a result, Cadmus is much more focused, better positioned strategically, and
strengthened both operationally and financially. We have fewer, but stronger,
businesses and we are much larger, more profitable, and more predictable."
Gillispie added, "These transactions have positioned Cadmus to compete more
effectively going forward. At the same time, our continuing operations showed
solid improvement in the third quarter. Adjusted for the acquisitions and
divestitures, operating income increased 23% to $6.8 million and operating
margins rose nicely to 7.3% of sales. This strong performance by our base
business positions Cadmus for improved profitability and continued earnings
growth for fiscal 2000, especially when combined with Mack, which has
historically generated consistent and strong operating results."
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Fiscal Third Quarter Operating Results - Detailed Review
Net income for the third quarter was $7.5 million, or $.94 per diluted share,
compared to net income of $3.3 million or $.40 per diluted share last year.
There were 7,968,000 weighted-average shares outstanding for the third quarter
of fiscal 1999, compared to 8,176,000 weighted-average shares outstanding for
the same period of last year. Included in this year's third quarter results was
a net pre-tax gain of $9.5 million related to the divestitures of the Company's
financial communications and custom publishing operations during the third
quarter. Adjusted for this gain and the impact of the operating losses incurred
by the divested businesses in the third quarter, earnings from continued
operations totaled $.35 in the third quarter of fiscal 1999.
Third quarter sales totaled $100.0 million, down 1% from sales of $101.2 million
in the third quarter of fiscal 1998. Adjusted for acquisitions and divestitures,
consolidated sales rose 4%. Professional Communications sector sales increased
3% in the third quarter and, adjusted for lower paper prices, rose approximately
5%. The growth in this sector was driven by a 7% increase in STM journal
revenues, which offset lower magazine revenues. In the Marketing Communications
sector, sales declined by 6%. Adjusted for the acquisitions and divestitures,
Marketing Communications revenues rose 4% in the third quarter. This increase
was attributable to continued double-digit strong growth from the Company's
packaging and promotional printing, and graphic solutions businesses.
Operating income totaled $14.9 million in the third quarter, including a net
pre-tax gain of $9.5 million related to the sale of financial communications and
custom publishing. Adjusted for this gain and the results of the divested
businesses, operating income rose 23% in the third quarter to $6.8 million
compared to an adjusted $5.5 million last year.
Fiscal Nine-Month Operating Results
Sales for the nine-month period ended March 31, 1999 were $308.6 million,
compared to $289.6 million in the same period last year.
Net income for the nine-month period was $13.2 million, or $1.63 per diluted
share, compared to $8.2 million, or $1.01 per diluted share recorded in the same
period last year. Weighted average shares outstanding were 8,073,000 and
8,140,000 for the first nine months of fiscal years 1999 and 1998, respectively.
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Company Description
Headquartered in Richmond, Virginia, 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, direct marketing,
Internet-based information services, journal and magazine services,
point-of-purchase, specialty packaging, and software duplication.
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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) the effective
integration of recent acquisitions, (2) continuing competitive pricing in the
markets in which the Company competes, (3) the gain or loss of significant
customers or the decrease in demand from existing customers, (4) the ability of
the Company to continue to obtain improved efficiencies and lower overall
production costs, (5) changes in the Company's product sales mix, (6) the
performance of new management and leadership teams in the Company and its
divisions, (7) the impact of industry consolidation among key customers, (8) the
ability of the Company to operate profitably and effectively with higher levels
of indebtedness, and (9) the ability to retain key employees and managers in
light of lower than planned incentives and benefits.
**(See attached financial highlights)**
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CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Nine Months Ended
March 31, March 31,
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1999 1998 1999 1998
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Net sales $ 100,001 $ 101,234 $ 308,596 $ 289,644
Operating expenses:
Cost of sales 80,595 77,512 246,994 223,706
Selling and administrative 14,073
16,207 42,221 45,933
Net gain on divestitures (9,521) -- (9,521) --
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85,147 93,719 279,694 269,639
Operating income 14,854 7,515 28,902 20,005
Interest and other expenses:
Interest 1,878 1,771 6,085 5,564
Other, net 737 419 1,387 1,060
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2,615 2,190 7,472 6,624
Income before income taxes 12,239 5,325 21,430 13,381
Income taxes 4,712 2,050 8,251 5,152
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Net income $ 7,527 $ 3,275 $ 13,179 $ 8,229
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Net income per share, assuming dilution $ .94 $ .40 $ 1.63 $ 1.01
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Weighted-average common shares
outstanding 7,968 8,176 8,073 8,140
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SELECTED HIGHLIGHTS
(In thousands, except per share data and percents)
(Unaudited)
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Three Months Ended Nine Months Ended
March 31, March 31,
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1999 1998 1999 1998
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Operating income $ 14,854 $ 7,515 $ 28,902 $ 20,005
Net income 7,527 3,275 13,179 8,229
Depreciation & amortization expense 4,616 4,553 14,327 13,606
EBITDA 18,733 11,649 41,842 32,551
Percent to net sales:
Gross profit 19.4% 23.4% 20.0% 22.8%
Selling, general and administrative 14.1% 16.0% 13.7% 15.9%
expenses
Operating income 14.9% 7.4% 9.4% 6.9%
EBITDA 18.7% 11.5% 13.6% 11.2%
Earnings per share, assuming dilution $ .94 $ .40 $ 1.63 $ 1.01
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CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
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March 31, June 30,
1999 1998
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(unaudited)
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Assets:
Cash and cash equivalents $ 281 $ --
Accounts receivable, net 65,454 70,571
Inventories 27,978 25,610
Other current assets 9,102 7,939
Property plant and equipment, net 126,907 133,836
Goodwill and other intangibles (net), and other 55,507 53,796
assets
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Total assets $ 285,229 $ 291,752
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Liabilities and shareholders' equity:
Short-term borrowings and current
maturities of long-term debt $ 18,259 $ 8,531
Other current liabilities 56,915 64,652
Long-term debt, less current maturities 65,214 93,224
Other long-term liabilities 24,298 15,529
Shareholders' equity 120,543 109,816
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Total liabilities and shareholders' equity $ 285,229 $ 291,752
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Exhibit 99.2
THIRD 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 third 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. I am going to
make a few introductory remarks regarding our third quarter, then I will turn it
over to Dave Bosher for the customary review of the numbers. Afterwards, we will
be happy to respond to whatever remaining questions that you may have.
As you know, this was a quarter marked by many accomplishments. First, as we
previously announced, we divested two non-strategic businesses--our financial
communications and custom publishing operations. Second, on April 1, 1999, we
purchased Mack Printing Group, our largest competitor in the STM journal market
and one of the largest special interest magazine printers in the country. The
Mack acquisition increased our sales base by 40%, solidified our position in the
highly attractive STM journal market, and substantially strengthened our
existing magazine business. Third, we completed our acquisition of Dynamic
Diagrams, adding considerable marketing and technical strength to CJS's Internet
and digital product offerings. Finally, to fund the Mack acquisition and to
support our on-going business, we recently entered into a new $200 million
revolving credit/term facility.
We have taken these important actions to sharpen our focus to fewer, larger
businesses in specialized markets where we can achieve leadership positions.
Because of these moves, Cadmus is now better positioned strategically and much
stronger financially. We have enhanced our dominant position in the STM market
and are well poised to exploit the exciting opportunities before us in the STM,
POP, and Specialty Packaging markets. From a financial perspective, we expect
these moves to result in substantially increased cash flows and much more stable
and predictable earnings performance. It has been a very busy and challenging
quarter for acquisitions and divestitures. But in addition, as you will hear
from David Bosher, we have posted solid accomplishments and improvements from
current operations. With that, let me turn the call over to David for more
detail on the actual financial results.
Dave .....
Third Quarter Review - Dave Bosher
Thank you, Steve.
Good morning everyone. Before reviewing results in detail, I'd like to begin
with our "executive summary" of what we think is solid third quarter
performance.
Here are some of the operating highlights; these are adjusted for the gain as
well as the operating earnings impact of the two divested businesses:
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First, base business earnings were up 25%--in other words earnings per
share from the remaining "base" businesses totaled $.35 per share
versus $.28 per share for the same period last year;
Second, net sales from the base businesses grew a respectable 4% with a
strong 7% improvement coming from Cadmus Journal Services and double
digit increases from the Packaging and Graphic Solutions businesses;
Third, base business operating income rose 23% to $6.8 million and the
corresponding operating margin rose 80 basis points to 7.3% of sales.
Finally, EBITDA from continued operations rose 11% from the same period
last year to $10.5 million.
Those are the major highlights. Now let me give you a little more detailed
review.
On a consolidated basis, Cadmus' third quarter net income totaled $ 7.5 million,
or $.94 per share. This result included a one-time net gain on the sale of our
financial communications and custom publishing businesses. Excluding this gain
and the impact of operations of the divested businesses, third quarter earnings
totaled $.35 per share, in line with our expectations. Net sales, adjusted for
the acquisition of Germersheim and for the divested businesses, rose 4%. Lower
paper prices reduced the internal growth rate in sales by approximately 1% in
the third quarter.
Consolidated gross margins declined to 19.4% of sales in the third quarter from
23.4% in the same period last year. This decline was primarily attributable to
significantly lower gross margins from our financial communications and custom
publishing businesses. Adjusted for these divested operations, gross margins
were 20.4% of sales in the third quarter, compared to 21.8% in the prior year.
This quarter, we partially offset the gross margin pressure through SG&A cost
containment measures, as SG&A expenses from continuing businesses declined to
13.0% of sales in this year's third quarter, comparable to the second quarter
adjusted rate. This decline was primarily attributable to reduced corporate
overhead costs, lower SG&A costs in our point-of-purchase operation resulting
from the integration of those businesses, and lower expenses related to
incentive compensation and discretionary benefits.
Finally, consolidated operating income, again adjusted for the divested
businesses, rose 23% to $6.8 million; and our operating margin rose 80 basis
points to 7.3% of sales from 6.5% last year.
I would like now like to spend just a few minutes detailing the operating
performances of our two business sectors.
In our Professional Communications sector, we reported another quarter of growth
and sustained profitability. Net sales in this sector rose 3.3% in the third
quarter. Adjusted for lower paper prices, sales actually increased by
approximately 5%. STM journal sales registered a strong 7% growth in sales (over
8% when adjusted for lower paper prices), while special interest magazine sales
declined due to a shift of work by customers into our fourth quarter.
Professional Communications operating margins remained strong again this
quarter.
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In our Marketing Communications sector, adjusted internal sales growth was 4% in
the quarter. This increase in sales resulted from continued double-digit gains
from our packaging and promotional printing group and our graphic solutions
group. Importantly, our point-of-purchase business showed good improvement in
the third quarter, as the interventions we have taken over the last several
months have begun to show improved results. Gross margins at POP rose
substantially in the third quarter from the second quarter, and we anticipate
that this business will contribute to earnings in our fourth quarter. Our
tactical marketing group continued to operate profitability again this quarter.
Despite lower gross billings, operating margins in the tactical marketing group
improved again this quarter compared to last year due to an improved business
mix and lower operating and SG&A costs.
1999 Fiscal Fourth Quarter Outlook - Dave Bosher
Looking ahead to the fourth quarter, our financial "footprint" will be
dramatically different. Nevertheless, we expect some things to be very much the
same as before. Specifically, we believe we can count on continued growth from
our Professional Communications sector and from our packaging and promotional
printing and graphic solutions groups. Other things, though, should be quite
different. For example, we expect that our recent divestitures, particularly of
our financial communications business, should reduce the volatility of our
earnings and eliminate the drag we experienced this year on operating income and
margins from that business. In addition, we believe that we will see our
point-of-purchase operation return to profitability in the fourth quarter, an
important step in returning Cadmus to a trend of improving earnings and margins.
Finally, our fourth quarter results will include the Mack operations for the
first time. While we expect to see improvement in consolidated operating margins
and EBITDA, we do expect that the acquisition will be modestly dilutive to
earnings in the fourth quarter until we have completed our long-term financing
and until we begin to realize expected procurement-related synergies.
I would also like to highlight for you a non-recurring item that will hit our
P&L in the 4th quarter. In connection with the new financing package we put in
place to finance the Mack acquisition and the resulting extinguishment of our
former credit facility along with the write-off of up-front costs associated
with our bridge financing notes , we will record a one-time pre-tax charge of
approximately $3.0 million, or $.20 per share. Again, that loss will be
reflected in our 4th quarter numbers.
I'd like now to turn the call back over to Steve for some final comments.
Steve....
Conclusion - Steve Gillispie
Thank you, Dave.
As you have heard from David's report, we have made great progress this fiscal
year and particularly this past quarter. The transactions we have effected in
the last several months have made us more focused and better positioned
strategically than at any time in our history. The good trends Dave has
described to you in our base businesses, combined with the historically
consistent and profitable performance of Mack, provide an excellent platform for
continuing improvements in profitability and earnings growth. We are excited
about what we have accomplished over the past several months and we have never
been more optimistic about our prospects.
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 and 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 of Cadmus. I would now like to open up the session for any
questions you may have for us.
