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) October 14, 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 October 14, 1999, Cadmus Communications Corporation (the "Company") issued
the press release attached hereto as Exhibit 99.1 to announce organizational
changes and a restructuring plan intended to effect additional, planned
synergies in connection with its April 1999 acquisition of the Mack Printing
Group and to focus the Company's resources on the professional communications
and specialty packaging markets. C. Stephenson Gillispie, Jr., chairman,
president and chief executive officer and Bruce V. Thomas, executive vice
president and chief operating 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
<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 15, 1999.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
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C. Stephenson Gillispie, Jr.
Chairman, President, and Chief Executive
Officer
<PAGE>
Exhibit Index
Exhibit
99.1 Press Release
99.2 Prepared Remarks from Conference Call
Exhibit 99.1
FOR IMMEDIATE RELEASE Contact: Teri Schrettenbrunner
Director, Corporate Communications
(804) 287-6260
CADMUS COMMUNICATIONS ANNOUNCES RESTRUCTURING PLAN
AND RELATED ORGANIZATIONAL CHANGES
SAVINGS OF APPROXIMATELY $6 MILLION ANNUALLY EXPECTED FROM
RESTRUCTURING ACTIONS
RICHMOND, Va. (Oct. 14, 1999) - Cadmus Communications Corporation (Nasdaq/NM:
CDMS) today announced organizational changes and a restructuring plan intended
to effect additional, planned synergies in connection with the April 1999
acquisition of the Mack Printing Group (Mack) and to focus the Company's
resources on the professional communications and specialty packaging markets.
Cadmus expects to record charges in the range of $33 to $37 million ($6 - $7
million in cash charges) before taxes as a result of these actions. A portion of
these charges will be reflected in the results for the Company's first fiscal
quarter that ended September 30, but the majority will be included in results
for the current fiscal quarter that closes in December. The non-cash portion of
the charges, which includes the write-off of assets, goodwill and other
intangibles, is primarily associated with the point of purchase (POP) business
that the company is closing.
"We are taking these actions to enhance Cadmus' future profitability and to
capitalize on the opportunities we have for consistent growth," remarked C.
Stephenson Gillispie, Jr., Cadmus' chairman, president and chief executive
officer. "The restructuring plan continues our strategy to increase our
concentration of personnel, facilities, and capital on markets where we have a
leadership position. Our revised organizational structure will provide a more
heightened focus on execution and performance."
Gillispie continued, "With the closing of POP and the elimination of its
operating losses, the factors that will drive value going forward are the
further successful integration of Mack, continued strong cash flow generation,
and improved top-line growth from our well-established positions in journals,
specialty magazines, and specialty packaging. The actions we are announcing
today will reduce our operating scope, allowing us to focus on these key
elements of our future growth."
Key Components of Restructuring Plan and Organizational Changes
Cadmus indicated that the major components of the restructuring plan and changes
to the Company's organizational structure are:
o closing the Atlanta-based Cadmus POP business unit;
o implementing additional, planned synergies associated with the
integration of Mack;
o consolidating certain corporate functions and related overhead
rationalization; and
o implementing a revised management structure effective immediately with
Bruce V. Thomas promoted into the new position of executive vice
president and chief operating officer of the Company.
Restructuring Plan
The Company believes that the annual pre-tax savings from the implementation of
these changes will total approximately $6 million. This figure includes the
elimination of operating losses from areas that Cadmus is exiting, as well as
cost savings from the consolidation of certain ongoing operations. In addition,
the Company expects to realize net proceeds from the closures and divestitures
that will be sufficient to reduce interest expense by approximately $1 million
annually. Net sales from closed or divested businesses represented $57.6 million
of the Company's total pro forma fiscal 1999 net sales of $526.7 million.
Bruce V. Thomas, Cadmus' chief operating officer, noted that the majority of the
anticipated restructuring charge will consist of non-cash items. Thomas said,
"Although the recognition of these charges will lead to reported net losses in
both the first and second quarters, we expect these actions to have a very
positive impact on our financial condition. In fact, we believe that as the
tangible benefits of the cost savings associated with the restructuring become
evident in the second half of fiscal 2000, our overall financial condition will
be significantly strengthened."
Commenting on the POP closure, Thomas said, "Although we have dedicated
considerable managerial and other resources to this business unit, it continues
to generate sizeable operating losses. We do not believe that it remains in the
best interests of the organization as a whole to sustain additional losses and
further managerial disruption in an attempt to return this business to
profitability. Therefore, we will be exiting the POP business as quickly as
possible. We intend to work closely with customers to minimize the disruption
our decision will have on their marketing programs."
The actions related to the Mack integration involve the planned consolidation of
various redundant operations and facilities. David G. Wilson, president of
Cadmus' Professional Communications group, noted, "Similar to other acquisitions
we have made in the past, we are integrating Mack in several phases to ensure a
continuing high level of service to customers. Our initial step was to realize
costs savings by using our increased purchasing leverage. We have accomplished
most of these economies and are now prepared to move into the next phase of our
integration plan. This phase will involve consolidating several departments,
principally associated with our composition, warehousing, and fulfillment
activities. We expect to have completed virtually all of these actions by the
close of fiscal 2000. The integration of Mack is proceeding smoothly, and we
remain on schedule and on target in terms of the synergies we had anticipated
from the transaction."
Organizational Changes
Cadmus also announced a new management structure. In this new structure, Bruce
V. Thomas, who has been chief financial officer, will serve in the new position
of executive vice president and chief operating officer with operating
responsibility for all of the Company's business units. David G. Wilson, Jr.
will assume the new position of vice chairman of the board and will continue to
serve as president of the Cadmus Professional Communications group. David E.
Bosher, previously vice president and treasurer, will serve as chief financial
officer. Steven R. Isaac, executive vice president of the former Marketing
Communications sector, will leave Cadmus to return to the advertising/marketing
services industry.
Gillispie said, "The organizational changes that are effective immediately will
reduce our executive staff and overhead expenses. More importantly, they are
designed to provide improved operating focus and performance to what has become
a much larger company in the past six months. During this time, Bruce Thomas has
had increasing operating responsibility and has demonstrated that he will bring
enthusiasm, focus, and urgency to enhanced operating effectiveness."
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 -
www.cadmus.com
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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.
<PAGE>
FACTS IN BRIEF
Cadmus Communications Corporation Restructuring
STRATEGIC OVERVIEW
o The focus of this restructuring plan is to further focus the Company's
resources on the Professional Communications and Specialty Packaging niche
markets, each of which is providing a solid return on investment. The
principal components of this plan will be to discontinue the POP business
unit which has been operating at a significant loss and to effect the next
phase of planned rationalization of the Company's professional operations
that were substantially expanded through the April 1999 Mack Printing Group
acquisition.
o The new managerial organization has been effected to sharpen Cadmus'
business focus on execution and performance. The new responsibilities
announced today are intended to reduce costs and establish a structure able
to focus more directly on Cadmus key value drivers:
- The successful integration of Mack
- Continued strong cash flow performance
- Improved top-line growth from strong positions in journals, specialty
magazines, and specialty packaging
o Further actions are anticipated to realize additional overhead savings and
achieve a clear operating focus on the niche markets where the Company's
core competencies can be most effectively employed.
FINANCIAL OVERVIEW
o Restructuring charges are expected as follows:
Non-cash items - $27-$30 million, pre-tax
Cash items - $6-$7 million, pre-tax
Total restructuring charge - $33-$37 million, pre-tax ($2.40 - $2.75 per
share, after-taxes)
o Annual pre-tax savings of approximately $6 million are expected from the
implementation of the restructuring plan. This figure includes the
elimination of losses from areas that the Company is exiting, as well as
cost savings from the consolidation of certain ongoing operations.
o Approximately $17 million of charges will be recognized in the first fiscal
quarter that ended in September 1999. This amount will include the charge
associated with the previously announced consolidation of the Company's
advertising agency operations. The remainder of the charges will be
accounted for in the second fiscal quarter.
o Net proceeds from the restructuring actions are expected to total
approximately $14 - 15 million. This will be used to reduce debt, resulting
in an annualized savings of at least $1 million in interest expense.
o The units divested or closed contributed $57.6 million of the Company's pro
forma net sales in fiscal 1999 of $526.7 million
o The restructuring charge will reduce shareholders' equity by approximately
$23 million, or $2.55 per share. However, in addition to the $16 million
reduction in total debt recorded in the first quarter of fiscal 2000, the
net proceeds from the restructuring actions will reduce proforma debt by
approximately $12 - $14 million over the remainder of fiscal 2000.
Therefore, the Company does not expect the restructuring actions to
materially impact its financial condition.
RESTRUCTURING SUMMARY
o The restructuring plan encompasses the following major actions:
- Closing the Atlanta-based Cadmus Point of Purchase (POP) business unit
- Implementing planned, additional synergies associated with the
integration of the Mack Printing Group, acquired in April 1999
- Consolidating certain corporate functions and related overhead
rationalization
o The decision to close the POP business unit reflects Cadmus' desire to
avoid continuing to operate this business at a considerable loss. Closure
is expected by December 1999 under a plan intended to minimize the
disruption on customers' marketing programs.
o The additional synergies related to the Mack Printing Group are the planned
synergies involving the rationalization of certain functions and
departments across the Professional Communications business. The timing of
this action follows the original plan that was set at the time of the
acquisition. The initial step was to realize cost savings by using our
increased purchasing leverage. Most of these economies have now been
realized, leading to the next phase that will unify the combined resources
of the Professional Communications division. This will involve
consolidating several departments, principally associated with various
composition functions and warehousing. All of these actions are expected to
be completed by the close of fiscal 2000.
o As a result of the Mack acquisition, the Company gained control of an
advanced information system that has been fully installed and tested. After
evaluating this system, the decision was made to integrate this proven
process and cease the development effort that was underway by Cadmus for a
comprehensive information system for the Company's manufacturing
operations.
o The restructuring plan includes a comprehensive program to reduce corporate
overhead and the size of other operating units. This reflects not only the
new actions that are announced today but also planned changes in the
Company's advertising agency business. The Company also plans to combine
its specialty packaging and fulfillment/distribution operations to provide
a more integrated service for designing, printing and distributing mailers
and other marketing material.
ORGANIZATION SUMMARY
o The changes in executive management that are effective immediately include:
- Bruce V. Thomas, who has been chief financial officer, will serve in
the new position of executive vice president and chief operating
officer.
- David G. Wilson, Jr., will assume the new position of vice chairman of
Cadmus' Board. He will continue to serve as president of the Cadmus
Professional Communications group.
- David E. Bosher, previously vice president and treasurer, will serve as
chief financial officer.
- Steven R. Isaac, previously the head of Cadmus' former Marketing
Communications sector, will leave Cadmus to return to the
advertising/marketing services industry.
BUSINESS PROFILE
o Cadmus is North America's fourth largest publications printer, and the
world's largest producer of scientific, technical, and medical journals.
o Cadmus 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.
o The Company's Professional Communications services include the production
and distribution of printed and electronic journals, specialty magazines,
soft cover books and directories. Its Marketing Communications services
include the creation, production, distribution and fulfillment of specialty
packaging, promotional printing, software duplication, and catalogs.
o Cadmus is active in the architecture and maintenance of web sites through
its Dynamic Diagrams operating unit.
o Cadmus' production facilities are located in Georgia, Maryland, North
Carolina, Pennsylvania, and Virginia.
o The Company has approximately 3, 900 employees.
Exhibit 99.2
Prepared Remarks from Conference Call
Thursday, October 14, 1999
Introduction - Steve Gillispie
Good morning. I want to thank you for joining us on what we realize is short
notice. Each of you should have received a copy of our news release that we
issued this morning regarding two key developments for Cadmus. One is a major
change in our organizational structure, and the other is a restructuring plan
that we believe will have material, near-term impact on our earnings model.
Let me preface all of our comments with the note that we are confident that
these collective actions are going to yield meaningful improvement in our
financial performance not only in fiscal 2000, but also over the next several
years. Our intent today, however, is to be very fact based -- to give you (1) a
clear picture of why we are making these changes, (2) the benchmarks you can use
to monitor our progress in completing this plan, and (3) most importantly, the
resulting returns that we expect.
I want to take a few minutes to highlight the organizational changes that we
have made. Then, Bruce Thomas will walk you through the restructuring plan and
the specific actions we will be taking over the next several months.
Finally, Dave Bosher will join us in addressing any questions you may have.
First, our organizational changes. As explained in the release, Bruce Thomas
will be serving in the new position of Executive Vice President and Chief
Operating Officer, with day-to-day operating responsibility for all of our
business units. Dave Bosher will replace Bruce as Chief Financial Officer. Steve
Isaac, who has served as Executive Vice President of the Marketing
Communications Sector, will be leaving the Company to return to the marketing
and advertising industry.
Our new organizational structure represents more than just an evolutionary
change in the way we are going to manage Cadmus. I believe that the returns from
this managerial realignment are going to be very real and very significant.
Since 1995, we have been pursuing a plan to focus our business on those markets
where we have core strengths and can establish market leadership positions. At
the same time, we have been working to streamline and make our governance and
decision-making structure more effective. The path has not been straight or
without bumps along the way. Our announcements today, however, mark a true
milestone in this process.
As a result of these changes, we will be able to move more quickly to capitalize
on business opportunities and meet competitive threats. Our focus going forward
is going to be on execution, and it also will be proactive. In my view, and in
our Board's view, this structure absolutely represents the right approach to
drive better execution, as well as a forward-looking process at each of our
business units.
My personal goal is to complement Bruce's day-to-day oversight of our operations
with the execution of the strategic steps and other broad initiatives that will
allow us to maximize the return on our capital and shareholder value.
The markets in which we compete are growing, but they also are changing and
consolidating at an increasing pace. We have a solid competitive stance and
strong end-to-end capabilities in each of these markets.
In this environment, there are opportunities for Cadmus to expand our
relationships with existing customers; to add significant new customers seeking
our market-focused, end-to-end capabilities; and to enhance our business profile
through acquisitions and/or alliances. I will focus my energies on ensuring that
we can translate these strong market positions into above average top-line
growth.
At this point, I'll turn the call over to Bruce for a more detailed description
of our restructuring plan.
Restructuring Plan - Bruce Thomas
Thank you, Steve.
The restructuring plan we are announcing today is large, and it is
comprehensive. It is designed to take all of the steps necessary to concentrate
our resources on those markets where we have strong competitive positions, and
to significantly improve our financial performance both near-term and going
forward. In my remarks, I want to give you a brief "thumbnail" of the plan, and
then I'll walk you through some of the details of each of its major components.
First, however, let me frame for you the broad financial impacts of this
restructuring plan. We estimate that the charge, that we will be taking in our
1st and 2nd fiscal quarters, will be in the range of $33 to $37 million pre-tax.
Of that amount, only $6-8 million will require cash outlays. The balance, which
represents the bulk of the charge, will be non-cash primarily associated with
the write-off of assets, goodwill, and intangibles associated with the point of
purchase business.
We estimate that annual savings from this restructuring plan will be
approximately $6 million before taxes. A portion of these savings will be
realized in this fiscal year with the full impact accruing in fiscal 2001. In
addition, we expect to realize approximately $15 million in net after-tax cash
proceeds, all of which will be used to repay debt and generate lower interest
expense.
The restructuring plan consists of four broad components:
1. closing our Atlanta-based point of purchase business;
2. implementing additional, planned synergies in connection with our
continued integration of Mack;
3. divesting our Richmond- and Charlotte-based marketing agencies; and
4. consolidating and rationalizing certain corporate functions and
overhead.
I'd like to briefly discuss these components, highlighting the specific actions
being taken, the timing of each action, and the financial impact we expect from
each action going forward.
First, the closure of our point of purchase business. Obviously, this has been a
very difficult decision for us. We have devoted significant managerial time,
attention, and energy in an attempt to restore this unit to profitability.
However, we continue to sustain sizeable operating losses. We have concluded
that it is no longer in the best interests of the organization as a whole to
continue to absorb these losses and to further distract and disrupt the rest of
the organization in an attempt to turn this business around. Therefore, our POP
operations will be closed. Some customers have already been notified and others
will be notified today. We will be working with them to transition their work to
other Cadmus units or to alternative suppliers. We believe that this transition
can be accomplished over the next 30 to 45 days, and that we will completely
cease operations at POP on or about December 1.
Second, the planned additional synergies related to the ongoing integration of
Mack. As we have previously told you, we are following the same integration
model that produced the highly successful integrations of Waverly Press and
Lancaster. Our initial step was to obtain the savings from procurement-related
activities. Most of this procurement integration has been accomplished, and we
are on track to hit our annual savings target.
In the next phase of our integration, we will be consolidating several redundant
departments and operations and rationalizing our overhead structure.
Specifically, we will be consolidating our two composition facilities in the
Lancaster, Pennsylvania area. These facilities are only five miles apart, use
identical composition systems, and share several major customers. We will be
consolidating these operations into Mack's Science Press facility, which will
result in a reduction in force and efficiency improvements, and also will free
up a building for sale.
In addition to this consolidation, we will be consolidating our warehousing and
fulfillment operations, where we store and distribute non-current issues of
journals and magazines. This consolidation will result in a significant
reduction in lease expense, as well as improved operating efficiencies.
Finally, we will be consolidating reprint operations, where we actually receive
author requests for additional copies of their articles and reproduce those
reprints. Currently, we have two centers where we receive these requests and 5
facilities where these reprints are produced. The savings here will largely be
the result of equipment consolidation and liquidation, as well as efficiency
improvement.
These integration-related actions were identified during our due diligence
process related to Mack. Their implementation is occurring right on schedule,
and our anticipated savings of at least $3 to $3.5 million annually is also
right on target with the amounts that we originally sized at the time of the
Mack acquisition. We expect that all of these actions will be completed in the
second half of this fiscal year and that we will realize the full savings from
this integration during fiscal 2001.
Third, the divestiture and closure of our marketing agencies. These actions have
been completed. As you know, we closed the Richmond-based agency in July, and on
September 30, we sold our Charlotte-based Direct Marketing agency.
Finally, we are consolidating certain corporate functions and reducing
overheads. In particular, and most significantly, we are eliminating all
overhead formerly associated with the Marketing Communications sector. In
addition, we will effect some integration of the Finance, IT, and HR functions
across our Professional Communications sector and at our corporate office. This
consolidation should be accomplished during the second quarter, and we would
expect to begin realizing the benefits from these actions in the second half of
this fiscal year.
Let me just conclude by saying that we are firmly convinced that this plan
significantly enhances the outlook for Cadmus' future profitability, and
positions us to capitalize on opportunities for growth in the markets we have
targeted. Perhaps most importantly, we are well on our way to effectively
executing this plan. We have been working on these actions for several months
and have very well developed plans and processes to ensure that we can manage
and execute in timely fashion. We will stay on schedule and we will get it done.
With that, let me turn this call back over to Steve for his concluding remarks.
Conclusion - Steve Gillispie
Thanks, Bruce. We hope this detailed review of our plan has been helpful.
Obviously, some of the actions, such as the Mack integration actions, were
planned and expected. Others, such as the POP closing, are difficult, but
absolutely necessary decisions. Our focus is on consistent, above-average growth
in earnings per share. We are confident that this goal is attainable and believe
that our performance in the second half will provide you with evidence that we
are on the right course.
At this point, we'd like to turn this discussion over to you for questions that
you may have for Bruce, Dave or me.
