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) September 30, 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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ITEM 5. OTHER EVENTS.
On November 2, 1999, 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, executive vice president and chief operating
officer, and David E. Bosher, vice president, treasurer and chief financial
officer, 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 key employees and managers 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 November 2, 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
FOR IMMEDIATE RELEASE CONTACT: Teri Schrettenbrunner
Corporate Communications Director
(804) 287-6260
CADMUS COMMUNICATIONS ANNOUNCES FIRST QUARTER RESULTS
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EARNINGS OF $0.17 PER SHARE RECORDED BEFORE RESTRUCTURING CHARGES
RICHMOND, VA (Nov. 2, 1999) - Cadmus Communications Corporation (Nasdaq/NM:
CDMS) today announced earnings before restructuring charges of $1.5 million, or
$0.17 per share, for the first quarter of its fiscal 2000 year. Financial
highlights for the three months ended September 30, 1999, were as follows:
o net sales increased 25% to $124.8 million compared with $99.8 million
last year;
o net income, before restructuring charges, totaled $1.5 million, or
$0.17 per share;
o after-tax charges of $14.1 million, or $1.56 per share, were recorded
for the quarter as part of the restructuring plan announced last month;
o EBITDA, adjusted for the restructuring charges, rose 40% to $15.5
million compared with $11.1 million; and,
o strong cash flows resulted in a $16 million debt reduction.
"The results for the first fiscal quarter were in line with our earlier
announcements," remarked C. Stephenson Gillispie, Jr., Cadmus' chairman,
president, and chief executive officer. "Excluding the effect of the
restructuring charges, first quarter earnings were adversely impacted by a net
operating loss of $1.9 million from our point of purchase (POP) business unit,
which we recently decided to close. The major portion of the charges recorded in
the first quarter relates to the closure of this business, which we expect to
complete next month. As anticipated, we will be recording an additional
restructuring charge in the second quarter related to the completion of the POP
closure and the other actions we are taking to focus our resources on the
professional communications and specialty packaging markets. We continue to
expect that these steps will be substantially complete by the end of fiscal 2000
and that the annual savings from these changes will total at least $6 million."
Gillispie continued, "One of our key goals for fiscal 2000 has been to reduce
our financial leverage. EBITDA, excluding restructuring charges, rose 40% in the
first quarter to $15.5 million. We were able to use our cash flow from
operations to reduce debt by over $16 million during the quarter. We are
committed to making the appropriate investments in our business units to support
our future growth, but expect to generate sufficient funds in excess of our
operating and capital investment needs to continue to reduce our total debt."
Bruce V. Thomas, executive vice president and chief operating officer,
commented, "The gain in sales for the first quarter relates to continued strong
internal growth from our specialty packaging business and the incremental
contribution from the Mack Printing Group that we acquired in April of 1999. We
are pleased with the benefits to-date of this acquisition and expect its
positive impact to continue over the balance of this fiscal year. The sales
force within our professional communications group has now been integrated; and
as we effect the planned consolidation of redundant facilities and operations,
we expect not only increased operating efficiencies but also renewed growth in
net sales. In addition, our specialty packaging, technology solutions, and
graphic solutions businesses recorded excellent year-to-year gains in net sales
for the first quarter, extending the favorable momentum they achieved during
fiscal 1999."
FISCAL FIRST QUARTER OPERATING RESULTS - DETAILED REVIEW
Net sales for the first quarter rose 25% to $124.8 million. Adjusted for the
contribution from Mack and for divested operations, net sales increased 3% for
the first quarter from $85.4 million to $87.7 million. The company
<PAGE>
continued to experience strong internal sales growth from its specialty
packaging, technology solutions, and graphic solutions businesses. Professional
communications sales were down slightly due to lower paper prices, changes in
sales mix, and a lull in new business development activities as the Mack-CJS
sales force was being integrated.
Operating income before restructuring charges increased 37% to $8.4 million from
$6.1 million last year and adjusted operating margins improved to 6.7% of sales
from 6.1% last year. EBITDA, adjusted for restructuring charges, totaled $15.5
million, up 40% from $11.1 million a year ago. Strong cash flow from operations
(approximately $13 million), combined with proceeds from the sale of the
Company's direct marketing operation, resulted in a reduction in total debt of
$16 million for the quarter, leaving total debt at $259.5 million at the close
of the quarter.
Net income for the first quarter, excluding restructuring charges, totaled $1.5
million, or $0.17 per share, compared with $2.5 million, or $0.31 per share last
year. After restructuring charges, the Company recorded a net loss in the first
quarter of $12.6 million, or $1.39 per share, compared to net income of $2.5
million, or $.31 per share, in the same period last year.
Restructuring charges recorded in the first quarter include the write-off of
intangible assets related to the Company's POP business, the write-off of
redundant manufacturing software resulting from the integration of Mack, and a
net gain on the closure and divestiture of two marketing agencies. These charges
totaled $16.6 million before taxes and $14.1 million after taxes. The Company
expects an additional pre-tax charge in the second quarter of approximately $16
million to $21 million, related to the integration of Mack, the elimination of
certain corporate and marketing communications sector administrative costs, and
the completion of the POP business closure. Of the total pre-tax restructuring
charges of $33 million to $37 million, cash charges will comprise approximately
$4 million to $5 million.
Cadmus Communications Corporation provides customers with integrated, end-to-end
communications solutions. The Company is organized around two primary markets:
Professional Communications, serving customers who publish information, and
Marketing Communications, serving customers who convey marketing messages.
Additional information about Cadmus is available at the Company's web site -
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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.
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CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended
September 30,
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1999 1998
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Net sales $ 124,757 $ 99,784
Operating expenses:
Cost of sales 98,915 79,035
Selling and administrative 17,451 14,624
Restructuring charges 16,590 --
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132,956 93,659
Operating income (loss) (8,199) 6,125
Interest and other expenses:
Interest 6,167 2,143
Other, net (428) (134)
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5,739 2,009
Income (loss) before income taxes (13,938) 4,116
Income tax expense (benefit) (1,305) 1,585
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Net income (loss) $ (12,633) $ 2,531
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Net income (loss) per share, assuming dilution $ (1.39) $ .31
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Weighted-average common shares outstanding 9,080 8,206
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SELECTED HIGHLIGHTS
(In thousands, except per share data and percents)
(Unaudited)
Three Months Ended
September 30,
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1999 1998
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OPERATING DATA, BEFORE RESTRUCTURING CHARGES*:
Operating income $ 8,391 $ 6,125
Income 1,512 2,531
EBITDA 15,540 11,132
Depreciation & amortization expense 6,721 4,873
Percent to net sales
Gross profit 20.7% 20.8%
Selling, general and administrative expenses 14.0% 14.7%
Operating income 6.7% 6.1%
EBITDA 12.5% 11.2%
Earnings per share, assuming dilution $ .17 $ .31
* Before restructuring charges of $16.6 million ($14.1 million net of tax) in
fiscal 2000.
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
September 30, June 30,
1999 1999
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(Unaudited)
ASSETS:
Cash and cash equivalents $ 7,070 $ 5,068
Other current assets 128,595 135,190
Property, plant and equipment, net 163,730 173,085
Other assets 194,817 210,503
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TOTAL ASSETS $494,212 $523,846
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LIABILITIES AND SHAREHOLDERS' EQUITY:
Current liabilities, excluding current debt 72,188 73,292
Total debt 259,543 275,879
Other long-term liabilities 38,997 38,142
Shareholders'equity 123,484 136,533
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $494,212 $523,846
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PREPARED REMARKS FROM CONFERENCE CALL EXHIBIT 99-2
FIRST QUARTER FY 2000 EARNINGS RELEASE
CONFERENCE CALL SCRIPT
INTRODUCTION - STEVE GILLISPIE
Good morning and thank you for participating in this call. This morning, Bruce
Thomas, our executive vice president and chief operating officer, and David
Bosher, our chief financial officer, will join me in reviewing the results for
our first fiscal quarter. Each of you should have received a copy of the news
release that we issued this morning on Cadmus' financial performance for the
three months ended September 30, 1999.
As we indicated in our call several weeks ago, we recorded restructuring charges
in the first quarter of $16.6 million before taxes and $14.1 million after
taxes, resulting in a net loss for our fiscal first quarter. The total charge is
expected to amount to $33-$37 million before taxes, with the remainder to be
recorded in the second quarter.
We will be glad to go into more detail about the status of the restructuring
plan, but there is not much new to report that has happened since we announced
it three weeks ago. Everything is proceeding well and on schedule. We have not
encountered any meaningful surprises, issues or obstacles as we have begun to
implement our restructuring plan. Reaction from our associates and customers has
been positive, and we still believe that annualized savings will be in the $6-7
million range.
Also as I indicated in our call last month, I understand the frustration that
investors have with the Company's recent performance. The first quarter's
results only highlight the need to immediately address the POP situation - which
we have done. We are confident that results for the balance of this year will
show a positive track for Cadmus, and we are committed to delivering that
improved financial performance.
With that, I will turn the call over to David Bosher who will go over the
financial results and help you separate the results of the ongoing operations
from those that have been sold or closed. Dave.
FINANCIAL REVIEW - DAVID BOSHER
Thank you, Steve.
First Quarter Operating Results. I am not going to reiterate the numbers from
our news release, but let me highlight a couple of year-to-year comparisons that
will help you understand the true pace of the ongoing business.
Mack added $37.0 million to our sales in the first quarter. Excluding that
contribution and the sales from operations we have divested since a year ago,
our pro forma sales rose 3% for the quarter, from $85.5 million to $87.7
million.
Professional communications net sales, adjusted for the acquisition of Mack,
were down 3% for the quarter due primarily to lower paper prices, as well as a
lull in new business acquisition as we integrated the Mack and CJS sales forces.
Based on current booked volume and backlogs in our plants, we are confident that
we will show renewed sales growth from this group in our fiscal second quarter
and ensuing quarters as the successful integration of the sales forces begins to
yield benefits.
<PAGE>
Marketing communications net sales, adjusted for acquisitions and divestitures,
were up 9% in the first quarter, driven by continued growth in our specialty
packaging business and graphic solutions operations, which offset a significant
decline in point of purchase net sales. Our specialty packaging business
recorded a particularly strong gain in sales of 41% due to both increased sales
to existing customers as well as to new ones. This continuation of double-digit
growth is especially encouraging, since it will help absorb the capacity in our
Charlotte manufacturing operations, which should add to operating earnings and
margins over the balance of this year. We expect this internal growth to
continue in the second quarter and we are encouraged that this business is on
track to return to its historical levels of profitability.
Before restructuring charges, operating income rose 37% for the quarter from
$6.1 million last year to $8.4 million, and operating margins improved to 6.7%
in the quarter. First quarter EBITDA rose 40% to $15.5 million. Included in
these first quarter operating results was an operating loss from our point of
purchase business of $1.9 million. Adjusted for this loss, EBITDA would have
been $17.4 million in the first quarter.
Now, let's take a look at our balance sheet. We exceeded our cash flow targets
and reduced debt by $16.3 million during the first quarter, bringing total debt
at September 30 down to $259.5 million compared to $275.9 million at June 30.
Cash flow in the quarter totaled $18.8 million. Free cash flow from operations
provided $12.8 million, and proceeds from the sale of our direct marketing
business provided the remaining $6.0 million. Capital expenditures in the first
quarter totaled $5.1 million, keeping us on-target for our full-year fiscal 2000
capital spending plan of $20 million. This capital spending plan, coupled with
continued improvements in working capital management, should result in free cash
flow of at least $20 million for the fiscal year. As we have stated, our plan
remains to use free cash flow to repay debt.
Finally, I'd like to provide you a brief update on the restructuring plan. As
Steve said, we estimate the charge will still be in the range of $33-37 million
before taxes. The savings are still estimated at $6 to $7 million before taxes,
with another $1 million in reduced interest expense from net cash generated by
the plan. The pre-tax cash cost component of the plan is estimated at $5-6
million currently, yielding us a cash savings return of less than one year.
Several of the restructuring actions have already been initiated and will begin
to have a positive impact on our fiscal third quarter results.
With that, I will turn it back over to Steve.
Steve
CLOSING - STEVE GILLISPIE
Thank you again for your participation this morning. We had not expected this
call to run too long since the important script for Cadmus is going to be
written in subsequent periods this year. Bruce, Dave, and I are available to
answer any individual questions you may have, and we look forward to reporting
to you again at mid-year about the progress of the changes we are making in our
organization and the outlook for our second half.
Operator, we are now ready for questions.