UNITED STATES
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) November 18, 1999
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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 November 18, 1999, C. Stephenson Gillispie, Jr., Chairman, President, and
Chief Executive Officer, and Bruce V. Thomas, Executive Vice President and Chief
Operating Officer of Cadmus Communications Corporation (the "Company"), made the
prepared remarks attached hereto as Exhibit 99 at the Company's 1999 Annual
Meeting of Shareholders.
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 key employees and managers in
light of lower-than-planned incentives and benefits.
Item 7. Exhibits.
Exhibit 99 Prepared Remarks from Annual Meeting
2
<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 November 19, 1999.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
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C. Stephenson Gillispie, Jr.
Chairman, President, and Chief Executive
Officer
3
<PAGE>
Exhibit Index
Exhibit
99 Prepared Remarks from Annual Meeting
4
Exhibit 99
ANNUAL MEETING OF SHAREHOLDERS
Prepared Remarks
November 18, 1999
Good morning ladies and gentlemen and welcome to the Cadmus Communications 1999
Annual Meeting. I will now call the meeting to order.
I am C. Stephenson Gillispie, Jr., Chairman of the Board, President, and Chief
Executive Officer of Cadmus Communications Corporation. On the stage with me
today is Bruce V. Thomas, Cadmus' Chief Operating Officer. We'd like to welcome
each of you to the 1999 annual meeting of our shareholders.
In accordance with our Bylaws, as Chairman of the Board, I will act as Chairman
of the meeting and Bruce Thomas, in his capacity as Corporate Secretary, will
act as Secretary of this meeting.
The polls for casting ballots or submitting proxies are now open. For purposes
of determining the presence of a quorum and for all matters on which
shareholders will vote at this meeting, the polls will close today at such time
as the inspector has collected all ballots on all matters voted on at the
meeting.
Holly Drummond of the Corporate Trust Department of First Union National Bank
has been appointed inspector to conduct the voting at this meeting. Ms. Drummond
is present and has taken the oath of office. Among her duties, the inspector is
to determine whether a quorum is present, to ascertain the validity of proxies
and ballots, to tabulate the votes, and to certify the count of all proxies and
ballots.
Ms. Drummond has advised me that in excess of 51% of our shares are present in
person or by proxy, and, accordingly, I declare that a quorum is present.
We also have with us the minutes of the 1998 meeting of shareholders and those
minutes are here for inspection after the meeting by any shareholder who would
like to see them.
Also, I should note that in accordance with Virginia law our list of
shareholders is on the table outside, and is available for inspection during the
meeting by any shareholder who desires to do so in connection with the business
of this meeting.
Is there anyone present who has not submitted a proxy who wishes to vote, or has
submitted a proxy and wishes to revoke it and vote in person? If so, would you
raise your hand and identify yourself to our inspector who has extra ballots.
Before we move on to our business agenda, I would like to note as a procedural
matter that the two items to be voted on at today's meeting are affirmative
recommendations of management that have been set forth in the Proxy Statement.
As such, in accordance with our Bylaws, these two matters are deemed to be
properly before the meeting for shareholder vote without the necessity of a
motion or second from the floor.
The first item of business is the election of directors. The Proxy Statement
sent to you contains the names and biographical information on the three persons
to be nominated as Class I directors for a term of three years until the 2002
Annual Meeting. When I call your name, please stand. The nominees for Class I
directors are:
o Nathu R. Puri
o Jerry I. Reitman
o Wallace Stettinius
The Class II and III directors previously elected by shareholders will continue
to serve until the expiration of their respective terms in 2000 and 2001. Most
of our nominees and continuing directors are with us this morning, and I would
like to introduce them. When I call your name, please stand.
Joining me on our Board are:
o Frank Daniels, III
o G. Waddy Garrett
o John C. Purnell, Jr.
o Nathu R. Puri
o Jerry I. Reitman
o Russell M. Robinson, II
o John W. Rosenblum
o Wallace Stettinius
o Bruce A. Walker
o David G. Wilson, Jr.
As there have been no nominations made by any shareholders pursuant to Article
I, Section 9 of our Bylaws, I will declare the nominations closed. Accordingly,
the election of the three nominees named in the Proxy Statement to serve for
terms of three years until their successors are duly elected and qualified is
now before you for a vote.
If all entitled to vote and who wish to do so have voted, we will proceed to the
next item of business.
Our second and final item of business is ratification of the Board of Directors'
selection of the firm of Arthur Andersen LLP as independent public accountants
for the Corporation and its subsidiaries for the year ending June 30, 2000.
I should add that we have representatives of Arthur Andersen present with us who
would be glad to answer any questions you may have about their duties.
Ratification of the selection of Arthur Andersen LLP, as the independent public
accountants for Cadmus Communications Corporation and its subsidiaries for the
year ending June 30, 2000 is now before you for a vote.
If all entitled to vote and who wish to do so have voted, I will ask Ms.
Drummond to collect any ballots. As soon as all the ballots have been collected,
the polls will be closed.
The inspector has completed her report, and I will ask Mr. Thomas to give us the
results at this time. The report is complete.
Mr. Chairman, each nominee for Class I director as named in the Proxy Statement
has received the affirmative vote of a plurality of the shares voted at this
meeting. Regarding the ratification of Arthur Andersen LLP as auditors for the
current fiscal year, more than a majority of the shares voted on this matter
have approved this motion.
You have heard the report. I declare the three persons nominated as Class I
directors duly elected and the selection of Arthur Andersen LLP as independent
public accountants duly ratified.
The inspector's report will be filed with the minutes of this meeting. There are
no other items of business on the agenda.
We will now proceed with management's presentation. I know that the question of
stock prices is on everyone's minds and we will address those questions during
our question and answer period.
In the 12 months since we were last in this room, we have reshaped Cadmus
dramatically into a stronger and more focused company. This morning provides a
welcome opportunity for me to review these accomplishments with you. In a few
minutes, I'll turn the podium over to Bruce Thomas, our Chief Operating Officer,
who will discuss the recent restructuring initiatives we have undertaken and the
impact these measures will have on returns.
A year ago, we operated 10 businesses with total net sales of $394 million.
They included:
o Cadmus Journal Services
o CadmusCom Atlanta
o Graphic Solutions
o Financial Communications
o CadmusCom Richmond
o Custom Publishing
o Direct Marketing
o Point of Purchase
o Specialty Packaging & Promotional Printing
o and Technology Solutions
Excluding Cadmus Journal Services, the annual net sales of the other nine units
averaged only $21 million. Their relatively small size carried intrinsic
bottom-line risks that were compounded in some cases by a reliance on major
customers and uncertain marketplace dynamics. In other words, they contained
characteristics increasingly out of sync with the dynamic requirements of
today's public markets. At the same time, our immediate and tangible successes
in the Professional Communications group created increasingly compelling
arguments to focus our resources on these markets.
For these reasons we have restructured Cadmus and today are composed of three
primary business units with a current run rate of $470 million. We have, in
effect, put our money where our results and greatest immediate opportunities
are. Very importantly, we have at the same time created a more compact and we
believe more manageable organization.
When the industry around you is consolidating -- as is certainly the case in
printing -- your first focus must be on revenue growth. When your industry is
commodotizing -- and there are few industries commodotizing as the printing
industry is doing -- your next focus must be on market concentration.
Consequently, as you can see from this picture, we have placed great emphasis on
both revenue growth and market concentration with a very substantial leap
forward in fiscal 1999. Over the past five years, Cadmus' net sales have grown
at a compounded rate of 12.3%. I believe Cadmus is stronger today because it is
bigger, and has good -- even commanding -- concentration in two large, key
markets. We are the world's #1 producer of scientific, technical, and medical
journals with 33% of the STM market. And, Cadmus is now the 4th largest
publications printer, and among the top producers of special interest magazines
in the U.S.
In addition, we are making great progress in building a similar position in our
Specialty Packaging and Promotional Printing business. In fiscal 1999, this
business grew 30% in net sales, with a compounded annual growth since 1996 of
26%. In the current fiscal year, we have sustained this pace with a 35% gain in
net sales for the first quarter. Importantly, this growth has all been internal
growth, truly outstanding performance in our industry.
Over the years, however, a good portion of Cadmus' growth has come from
acquisitions. And we have funded these transactions primarily through borrowing,
which we have been able to do because of our stable and consistent cash flow.
As you know, EBITDA (earnings before interest, taxes, depreciation, and
amortization) is a common measure of cash flow, one of the most important
components of corporate financial strength. As this chart shows, Cadmus does
have a long history of strong and growing cash flow. More importantly, Cadmus
has consistently increased EBITDA margins over the past five years. Mack added
very positively to that picture. This chart supports our belief that Cadmus can
service and repay our debt. In fact, looking forward, with our restructuring
plans fully in place, we believe annual EBITDA will increase further from
today's run rate of $71 million.
I should note that figures contained in our slides have been adjusted to exclude
restructuring charges and other one-time items to better reflect results from
operations.
This year, and for the immediate future, we will be placing tremendous
importance and focus on moving our much larger base of sales and operating
income to the bottom line. The formula for this is very clear. We must grow
sales, we must increase margins, and we must reduce debt.
Cadmus has already made significant strides in that direction. For the first
quarter, we have reduced our debt levels by over $16 million, well ahead of our
public commitments and expectations. These results put us on pace to reach and
possibly exceed our debt reduction goal for fiscal 2000 of $20 million.
Margins are also a key factor in financial success. We are working hard to
increase our margins, and, again, have already made progress in this fiscal year
toward achieving that objective. Excluding problem and divested businesses which
are no longer a part of our financial profile, our proforma 1999 operating
margin has improved to 9.4%. This is up from 5.6% just five years ago.
Importantly, the new Cadmus proforma margins are right in line with other
industry leaders.
To drive and pick up the pace in internally-generated sales, we have
successfully completed a total integration of both the Mack and Cadmus Journal
Services sales professionals and we are now well into the implementation of the
most aggressive sales management, training, and sales execution program in our
history.
And although our earnings for fiscal 1999 were down from the prior year, which
was a record year, we have publicly indicated our expectation that fiscal 2000
results will be sequentially stronger than 1999- even before the full benefit of
the current restructuring plan synergies is realized.
In short, Cadmus today is larger, stronger, leaner, and more focused. We have
created a platform from which we now can work toward new levels of earnings and
financial performance. Those new levels began with the integration of Mack. We
are now well into the second phase of this plan and we have already announced
savings or future annual contributions to earnings of $6 million once this phase
is completed later this fiscal year.
As I am sure you know well, the path to this point has been difficult and in
some cases less linear or less direct than certainly you or I would have liked.
Any corporation engaged in consolidation will confirm that meshing acquired
operations into a cohesive structure is an extremely difficult task. But there
is always a point when tough choices about resource allocation have to be made
and existing boundaries must be removed.
That is what we have done.
During fiscal 1999, we became convinced that there was a growing disparity
between the prospects of our various businesses. We concluded that our most
responsible course was to move very aggressively to place our financial and
managerial resources where we had the best short-and long-term opportunities and
potential pay-offs. Accordingly, we embarked on a path to divest those units
that did not fit with a strategy of market leadership or niche based end-to-end
services.
First, this past February, we sold our financial communications operation, where
we were a distant # 5 domestically to R. R. Donnelley. We divested our custom
publishing and direct marketing operations, and closed our CadmusCom Richmond
agency, once we concluded that the resources required to successfully implement
their strategies would diminish our ability to support our other winning and
successful businesses. And, of course, we recently closed our POP operation
because it was detracting value from our overall organization.
So, let me say a few words about the businesses that form the core of Cadmus
today.
We created our Professional Communications group by acquiring and successfully
integrating three large journal producers into an industry powerhouse -- namely
Cadmus Journal Services, Waverly Press in fiscal 1994, and Lancaster Press in
fiscal 1996.
Our Professional Communications leadership did an outstanding job of integrating
these acquisitions. This chart is the hard proof of that success. It shows the
payoff for successful integration, improved synergies, and economies of scale.
Over this period Professional Communications net sales grew at a compounded rate
of 20% and EBITDA rose 30%. But I want to call your attention to the margin line
that expanded from 11% of net sales in 1993 to 18% in 1999. This margin
improvement was largely the product of integration synergies.
These past successes and the attractive aspects of this market are the reasons
why we took advantage seven months ago of the opportunity to acquire The Mack
Printing Group. This transaction locked in our worldwide leadership position in
the scientific, technical, and medical journal market.
But it did more than that. It tripled our share in the special interest segment
of the magazine market, making Cadmus a significant national player in this
important market. In addition to increasing our total magazine revenues to more
than $120 million, Mack's Northeast locations and its technology and resources
devoted to magazines greatly enhances our competitive strength and position in
this important and growing market. Finally, through its unique Port City Press
operation, Mack brought vital short-run book and directory printing capabilities
to Cadmus. This capability strongly complements our existing product/service
offerings and provides the potential for strong internal sales growth.
In the Marketing Communications arena, our world-class Charlotte-based
manufacturing facility -- backed by an ISO9002-certified fulfillment and
distribution facility in Atlanta -- is one of the top specialty packaging
businesses nationally. The market attributes of specialty packaging are similar
to our journal business in that specialty packaging customers also seek turnkey
outside solutions. They value service and creativity, and they are seeking to
build true working partnerships. For our specialty packaging clients, we can do
everything from the initial design to the actual fulfillment or distribution of
the materials they require.
With annual shipments of $10 billion, the high quality folding carton industry
is very large and extremely fragmented such that the breadth of our resources is
an extremely valuable asset. Our net sales in specialty packaging have grown 26%
compounded annually for the past three years, and as I indicated, this strong
momentum is carrying over into fiscal 2000.
This strong internal growth is being driven by an aggressive sales and marketing
program. Having an integrated "create-produce-distribute" solution under one
roof continues to be a strong card for us to play with prospective accounts. For
future growth we are now looking hard at new packaging markets such as
pharmaceuticals and cosmetics where our experience, size, and demonstrated
state-of-the-art manufacturing capabilities are vital assets in responding to
our current and prospective customers' needs.
Our Richmond-based Graphic Solutions business is still in the early stages of
its strategy to build focused relationships with large corporations. In addition
to servicing the mid-Atlantic commercial market, this unit continues to show
progress in establishing a solid niche in business-to-business catalog
production.
In order to continue to improve the day-to-day implementation of our objectives
within Cadmus, we have initiated some key personnel moves. Dave Wilson, who
provides valuable leadership as President of our Professional Communications
Group, has been appointed Vice Chairman of our Board of Directors. Dave Bosher,
who has functioned as Cadmus' Treasurer for the past ten years, has assumed the
role of Chief Financial Officer. And Bruce Thomas, formerly our Chief Financial
Officer, has assumed the new position of Chief Operating Officer with day-to-day
responsibility for overseeing the operations of all Cadmus businesses.
Personally, I believe this is a change that will have very positive results for
Cadmus. With over 8 years of proven experience in increasingly responsible roles
in senior management, Bruce profoundly understands the company, the people, and
the strategy. He has already begun to help create the highest possible sense of
urgency and focus to improved operational and organizational performance.
Looking forward, I recognize that Bruce and I face some formidable challenges.
We are more leveraged and must keep a sharp eye on debt reduction. The
restructuring required to complete the integration of Mack will bring further
changes to Cadmus, always a concern for associates. Also, some of our plants and
departments are not performing at the levels of quality, efficiency, and service
which is increasingly mandatory in this competitive market. Finally, the changes
we have made have been so swift and so dramatic that we know many of our own
associates are looking for guidance about where we are now headed. During the
coming months, Bruce, the leadership throughout Cadmus, and I will be working
with great intensity and energy to address these issues, and to bring Cadmus to
new levels of strategic and operational focus and clarity.
Now, I'd like to turn the meeting over to Bruce Thomas, our Chief Operating
Officer. Bruce...
Thank you Steve, and good morning everyone.
My focus this morning is going to be on three points. First, I want to discuss
the restructuring plan we are implementing and highlight the role these actions
will play in executing the strategy that Steve has just described. Second, I
want to review our recent results and review the progress we have made on our
key value drivers. Finally, I want to share with you my personal perspective on
where Cadmus stands today and what Cadmus can achieve over the next several
quarters and the next several years.
Last month, we announced a major restructuring plan to focus the Company's
resources on the primary markets that Steve described. The restructuring plan
consists of the following components:
o first, closing the Atlanta-based Point of Purchase business unit;
o second, divesting our Charlotte and Richmond-based marketing agencies;
o third, consolidating certain redundant operations in connection with
our continued integration of Mack and Cadmus Journal Services;
o and fourth, consolidating and rationalizing certain sector and
corporate overhead functions.
Charges associated with this restructuring will be in the range of $33-$37
million. Of the total, non-cash items resulting from the write-off of assets,
goodwill, and other intangibles are expected to comprise $27 to $30 million of
the charges. So as you can see, the charge is largely non-cash in nature.
We believe that the annual pre-tax savings from the implementation of these
changes will total at least $6 million. In addition, we expect to realize net
proceeds from the closures and divestitures that will be sufficient to reduce
interest expense by approximately $1 million annually.
We have been working hard to complete these restructuring tasks, and we have
made good progress in the past several months. We have divested the marketing
agencies. The POP unit will be completely closed next month. The
integration-related actions at Mack -- such as the consolidation of our Tapsco
and Science Press composition operations -- are well underway and will be
completed during the third and fourth quarters. To date, all of these actions
are proceeding smoothly, they are on schedule in terms of timing, and we are on
track in terms of projected savings.
Let me now review briefly our first quarter results.
As you can see from the slide, we earned $0.17 per share for the quarter before
the one-time charges. Those results included a $0.12 loss for the quarter from
our POP unit that was still in operation during that period. You can also see
here the impact of the Mack acquisition -- significantly increasing our
revenues, our operating income, and our operating margins despite the sizeable
POP losses.
As Steve said, our plan has been to focus on those markets and those businesses
where we can achieve leadership positions and deliver consistent financial
performance.
So let's look at what those businesses - our "continuing" businesses --
delivered in the first quarter. My point in this slide is to highlight the
ongoing profitability of Cadmus. And, I'd also like to point out the stability
of our earnings. As you can see, proforma for divested and closed operations,
our operating margin was 8.5% compared to the 6.7% we reported.
Our professional communications group is a very stable source of business for
Cadmus. Since this area accounts for well over 80% of our cash flow, we have a
distinct advantage as we support a more leveraged capital structure. And, I'd
like to repeat, we were able to reduce debt in the first quarter by over $16
million and are well on our way to the $20 million debt reduction target we had
planned for this year.
I'd like to close with just a couple of personal observations. I have been in
the role of COO for exactly 5 weeks today. I have spent much of that time in the
plants, talking with our associates - the people who make the products and
interact with our customers all day and every day. It has been a difficult 12
months or so for these people. There have been lots of changes in the company
that they have had to deal with. Our financial performance has not been what we
had hoped for, and bonuses and other benefits have been lower than in years
past. And, our company and its leadership have been subjected to an
unprecedented amount of public criticism.
And yet, meeting with our associates you cannot help but feel optimistic about
this company. Our associates are deeply committed to their work and feel that
their work is important - that they are an important part, for example, in the
dissemination of information that advances science and may, ultimately, help
save lives. Our associates want to be part of a winning team, and are constantly
asking to do more, to make a bigger contribution, and thinking of ways we can be
more competitive or add more value for our customers. And, finally, our
associates are proud of where they work -- they are proud of Cadmus.
We have talked today about strategy, market positions, cash flow, and improving
financial performance. Cadmus is now a sound and profitable business with
steadily increasing cash flow. But it is the 4,000 associates of Cadmus -- in
places such as Easton and Baltimore, Maryland; Easton, East Stroudsburg,
Lancaster, and Ephrata, Pennsylvania; Richmond; Charlotte; and Atlanta -- that
will enable Cadmus to capitalize on the opportunities we have and to realize our
full potential. Based on what I've seen and whom I've met, I am more optimistic
than ever about our company's future. And, I am also more committed than ever to
do everything I can to help Cadmus be successful.
With that, I will turn it back over to Steve. Thank you for your attendance and
your support. Steve ...
Cadmus today, like most businesses, is wrestling with a really mind-boggling
acceleration in the pace and the extent of change in its markets, competitors,
and its technologies. During the past year, we recognized that we had to move
much more dramatically and aggressively to keep Cadmus in the game. We made
wrenching changes with extraordinary speed.
Clearly, some inside and some outside of Cadmus are still struggling to
understand and evaluate these actions. However, I believe we have built the
foundation for what we know to be a strong, customer-focused, and
growth-oriented organization, peopled by 4,000 very capable and dedicated
associates.
Our immediate future course is very clear. We will link the fullest possible
spectrum of services to sell better, service better, produce more efficiently,
and deliver more reliably than anyone else.
We are delivering on that promise today throughout Cadmus' remaining businesses
and we will be improving on that performance over the ensuing months and years.
Our executive team and site leaders are committed to a diligent course of action
that will yield a record of which our shareholders and associates can be proud.
In closing, I am obligated by our attorneys in today's environment to say that
certain of our comments represent "forward-looking statements" subject to
certain risks and uncertainties that could cause actual results to differ
materially from those projected. Those risks and uncertainties are set forth in
our 8-K that includes this script, which will be filed shortly with the SEC and
to which you should refer for additional details.
Before we conclude today's meeting, I would like to open the floor to any
questions from shareholders of record.
There are no other items of business on our agenda.
I therefore declare the meeting adjourned. We appreciate your attendance today,
and look forward to seeing you again next year.
