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) January 26, 1999
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 January 26, 1999, Cadmus Communications Corporation (the "Company") issued
the press release attached hereto as Exhibit 99.1 with respect to second quarter
financial results. C. Stephenson Gillispie, Jr., chairman, president and chief
executive officer, Bruce V. Thomas, senior vice president and chief financial
officer, and David E. Bosher, vice president and treasurer, read the prepared
remarks attached hereto as Exhibit 99.2 on a conference call with analysts,
shareholders, prospective investors, and other interested parties. Information
in these documents relating to Cadmus' future prospects and performance are
"forward-looking statements," as defined by the Private Securities Litigation
Reform Act of 1995, and, as such, are subject to certain risks and uncertainties
that could cause actual results to differ materially. Potential risks and
uncertainties include but are not limited to: (1) continuing competitive pricing
in the markets in which the Company competes, (2) the ability of the Company to
retain management and employees in light of lower than planned incentives, (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 effective integration of recent
acquisitions, (7) the performance of new management and leadership teams in the
Company and its divisions, (8) the impact of industry consolidation among key
customers, and (9) a rebound in the U.S. capital markets.
Item 7. Exhibits.
Exhibit 99.1 Press Release
Exhibit 99.2 Prepared Remarks from Conference Call
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on January 26, 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
NEWS RELEASE
Contact: David E. Bosher, Vice President and Treasurer
(analysts)
(804) 287-5685
Teri Schrettenbrunner, Director of Public
Relations (media)
(804) 287-6260
CADMUS COMMUNICATIONS CORPORATION REPORTS
FISCAL 1999 SECOND QUARTER RESULTS
RICHMOND, VA, January 26, 1999 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) today announced results for its fiscal second quarter ended December 31,
1998. Financial highlights were as follows:
o Net income rose 7% to $3.1 million, or $.39 per diluted share.
o Sales rose 13% to $108.8 million.
o Operating income rose 10% to $7.4 million and earnings before interest,
taxes, depreciation, and amortization (EBITDA) rose 8% to $12.0
million.
o Free cash flow (cash flow before financing activities and acquisitions)
totaled $7.1 million in the second quarter of 1999 compared to $4.7
million in 1998.
o Operating performance was affected by continued softness in financial
communications and gross margin pressure in the point of purchase
group.
C. Stephenson Gillispie, Jr., chairman, president and chief executive officer,
stated, "For our second quarter, we achieved strong revenue growth, particularly
in our Marketing Communications sector, and we experienced continued earnings
improvement and margin expansion in our Professional Communications sector. In
addition, we generated strong free cash flow and produced another quarter of
growth in EBITDA. However, as we expected, these solid performances were
partially offset by continued profitability issues in our financial
communications and point of purchase groups. Financial communications was
impacted again this quarter by the downturn and volatility in capital markets
activity, while our point of purchase group continued to experience gross margin
pressure associated with the integration of Germersheim, Inc., which we acquired
in fiscal 1998."
Gillispie added, "We are committed to resolving these challenges and achieving
improved profitability in the second half of our fiscal year. We are determined
to build on our strong fiscal 1998 performance. To that end, we are working very
aggressively to address the difficulties in our POP unit. In addition, assuming
the U.S. capital markets continue their recovery, we would anticipate that our
financial communications group will become more profitable in the second half of
fiscal 1999. In the interim, however, we have implemented a number of steps
aimed at controlling costs in each of our businesses, reduced expenses related
to incentive compensation and related benefits to reflect our softer than
planned year-to-date performance, and focused our management team even more
squarely on achieving improved performance and profitability in our fiscal third
and fourth quarters."
<PAGE>
Fiscal Second Quarter Operating Results - Detailed Review
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Net income for the second quarter rose 7% to $3.1 million, or $.39 per diluted
share, for the period ended December 31, 1998, compared to net income of $2.9
million, or $.36 per diluted share last year. There were 8,046,000
weighted-average shares outstanding for the second quarter of fiscal 1999,
compared to 8,135,000 weighted-average shares outstanding for the same period of
last year.
Second quarter sales were a record $108.8 million, up 13% from sales of $96.0
million posted in the second quarter of fiscal 1998. Sales for the Professional
Communications sector rose 3% due to continued growth in journal services. In
the Marketing Communications sector, sales rose 25%, as the acquisition of
Germersheim and strong growth from the Company's packaging and promotional,
graphic solutions, and technology solutions groups offset lower financial
communications and tactical marketing sales.
Despite reduced profitability from the Company's financial communications and
point of purchase groups, operating income rose 10% in the second quarter to
$7.4 million from $6.8 million last year. The Company's operating margin
declined as a percent of sales to 6.8% from 7.1% last year.
Fiscal Year-to-Date Operating Results
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Net income for the six months ended December 31, 1998 was $5.7 million, or $.70
per diluted share, compared to $5.0 million, or $.61 per diluted share, for the
same period last year. Weighted average shares outstanding were 8,126,000 and
8,122,000 for years 1999 and 1998, respectively.
Sales for the first six months of fiscal 1999 rose 11% to $208.6 million from
$188.4 million in fiscal 1998. Professional Communications sales rose 2% while
Marketing Communications sales registered a 22% increase. Operating income for
the first six months of fiscal 1999 rose 12% to $14.0 million from $12.5 million
in fiscal 1998.
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Company Description
Cadmus Communications Corporation provides customers with integrated, end-to-end
information and communications solutions. The Company is organized around two
primary business sectors: Professional Communications serving customers who
publish information, and Marketing Communications serving customers who convey
marketing messages. Cadmus' services include advertising, catalog services,
commercial printing, custom publishing, direct marketing, financial
communications, journal and magazine services, point of purchase, specialty
packaging, and software duplication. Headquartered in Richmond, Virginia, Cadmus
is the 22nd largest graphic communications company in North America.
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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) continuing
competitive pricing in the markets in which the Company competes, (2) the
ability of the Company to retain management and employees in light of lower than
planned incentives, (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 effective integration of
recent acquisitions, (7) the performance of new management and leadership teams
in the Company and its divisions, (8) the impact of industry consolidation among
key customers, and (9) a rebound in the U.S. capital markets.
**(See attached financial highlights)**
<PAGE>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
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1998 1997 1998 1997
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Net sales $108,811 $ 96,048 $208,595 $188,410
Operating expenses:
Cost of sales 87,280 74,381 166,399 146,195
Selling and administrative 14,085 14,867 28,148 29,725
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101,365 89,248 194,547 175,920
Operating income 7,446 6,800 14,048 12,490
Interest and other expenses:
Interest 2,064 1,861 4,207 3,794
Other, net 307 248 650 640
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2,371 2,109 4,857 4,434
Income before income taxes 5,075 4,691 9,191 8,056
Income taxes 1,954 1,772 3,539 3,101
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Net income $ 3,121 $ 2,919 $ 5,652 $ 4,955
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Net income per share, assuming $ .39 $ .36 $ .70 $ .61
dilution ====== ======== ======== ========
Weighted-average common shares 8,046 8,135 8,126 8,122
outstanding ====== ======== ======== =======
<PAGE>
<TABLE>
<CAPTION>
SELECTED HIGHLIGHTS
(In thousands, except per share data and percents)
(Unaudited)
Three Months Ended Six Months Ended
December 31, December 31,
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1998 1997 1998 1997
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<S> <C> <C> <C> <C>
Operating income $ 7,446 $ 6,800 $ 14,048 $ 12,490
Net income 3,121 2,919 5,652 4,955
Depreciation & amortization expense 4,838 4,573 9,711 9,053
EBITDA 11,977 11,125 23,109 20,903
Percent to net sales:
Gross profit 19.8% 22.6% 20.2% 22.4%
Selling, general and 12.9% 15.5% 13.5% 15.8%
administrative expenses
Operating income 6.8% 7.1% 6.7% 6.6%
EBITDA 11.0% 11.6% 11.1% 11.1%
Earnings per share, assuming dilution $ .39 $ .36 $ .70 $ .61
</TABLE>
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
December 31, June 30,
(unaudited) 1998
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Assets:
Cash and cash equivalents $ 287 $ --
Accounts receivable, net 78,209 70,571
Inventories 30,277 25,610
Other current assets 8,225 7,939
Property plant and equipment, net 132,658 133,836
Goodwill and other intangibles (net), and 53,491 53,796
other assets
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Total assets $ 303,147 $ 291,752
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Liabilities and shareholders' equity:
Short-term borrowings and current
maturities of long-term debt $ 9,615 $ 8,531
Other current liabilities 59,030 64,652
Long-term debt, less current maturities 102,375 93,224
Other long-term liabilities 19,327 15,529
Shareholders'equity 112,800 109,816
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Total liabilities and shareholders' equity $ 303,147 $ 291,752
=========== ==========
<PAGE>
Exhibit 99.2
Prepared Remarks from Conference Call
SECOND QUARTER FY1999 EARNINGS RELEASE
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CONFERENCE CALL SCRIPT
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Introduction - Steve Gillispie
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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 second quarter of fiscal 1999. Joining me for
today's conference call are Bruce Thomas, senior vice president and chief
financial officer, and Dave Bosher, vice president and treasurer. As is
customary, we will begin this call with a review of the quarter's results by
Dave Bosher, followed by our regular question and answer session. Dave .....
Second Quarter Review - Dave Bosher
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Thank you, Steve. Good morning everyone. Before I go through a more detailed
review of our quarterly results, I'd like first to provide you an "executive
summary" of our second quarter performance.
o first, net income rose 7% to $3.1 million, or $.39 per share, compared
to $.36 per share in the same period last year;
o second, sales grew 13% in the second quarter to a record $108.8
million, driven by double-digit sales growth from our
packaging/promotional and graphic solutions businesses, higher research
journal sales and the inclusion of Germersheim's point-of-purchase
operations;
o third, while operating margins declined slightly in the second quarter
of fiscal 1999 to 6.8% of sales, operating income rose 10% to $7.4
million and EBITDA rose 8% to $12.0 million;
o fourth, we achieved free cash flow of $7.1 million in the second
quarter compared to $4.7 million last year;
o finally, as we anticipated, operating performance was impacted by
softness in our financial communications and point of purchase
businesses.
Those are the major highlights. Now let me give you a little more detailed
review at the consolidated level.
As I stated, Cadmus' second quarter net income rose 7% to $3.1 million, or $.39
per share. Second quarter sales rose 13% to a record $108.8 million, compared to
$96.0 million last year. Adjusted for the acquisition of Germersheim, internal
sales growth was over 5% in the second quarter.
<PAGE>
Gross margins declined to 19.8% of sales in the second quarter from 22.6% in the
same period last year. This decline was primarily attributable to the two
factors that we discussed in connection with our fiscal first quarter and that
we said would impact our second quarter as well, namely: (i) the negative impact
of lower financial transactional volume this year and (ii) higher costs and
certain production inefficiencies associated with the integration of our POP
businesses. As in our first quarter, this gross margin decline was offset by
lower selling and administrative expenses, which declined to 12.9% of sales in
this year's second quarter, down from 15.5% of sales last year. This decline was
attributable to better leverage from our steady top-line growth, lower selling
costs in our financial communications group, 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
to reflect our somewhat softer than expected first half performance.
In summary, despite gross margin pressure in the second quarter, operating
income rose 10% to $7.4 million while our operating margin dipped slightly to
6.8% of sales from 7.1% last year.
I would like now like to spend just a few minutes detailing the operating
performances of our two business sectors.
First, in our Professional Communications sector, operating income rose sharply
in the second quarter on a 3% growth in total sales. Operating margins also
expanded nicely, the fourteenth consecutive quarter in which Professional
Communications has recorded a year-over-year improvement in operating margins.
This increase was attributable primarily to restructuring-related savings, solid
internal growth in research journals, and continued productivity improvements
from our production facilities. Journal services sales showed good growth of
4.0% in the quarter, while magazine sales were flat with last year.
In our Marketing Communications sector, internal sales growth was 9% in the
quarter, despite the volume drag of continued weakness in the U.S. financial
printing market. These higher sales resulted from impressive gains in (i) our
packaging and promotional group, which recorded a 41% increase in sales, and
(ii) our graphic solutions group, which also recorded 37% sales growth. This
sector's performance also was positively affected by continued improvement in
the operating margins in our tactical marketing group. Despite lower gross
billings, operating margins in the tactical marketing group improved
dramatically in the second quarter compared to last year due to an improved
business mix and lower operating and SG&A costs. Offsetting these improvements,
as mentioned before, were significantly lower operating profits from our
financial communications group, as a result of soft capital markets activity,
and from our POP business, as a result of higher costs and production
inefficiencies resulting from integration-related activities.
Fiscal 1999 Outlook - Dave Bosher
- ---------------------------------
Looking ahead to the third quarter and to the remainder of fiscal 1999, the
story remains the same as before. We should be able to count on continued strong
performances from our Professional Communications sector and from our
packaging/promotional and graphic solutions groups. However, our earnings will
be under continued pressure until there is a material rebound in transactional
financial printing sales and until we complete the effective integration of our
POP operations. In response to these earnings pressures, we have instituted
aggressive and comprehensive cost containment programs across our businesses -
programs that we believe will positively affect profitability throughout the
second half of fiscal 1999.
<PAGE>
I'd like now to turn the call back over to Steve for some final comments.
Steve....
Conclusion - Steve Gillispie
- ----------------------------
Thank you, Dave.
Like the rest of my colleagues, I am pleased at the results we have been able to
achieve in spite of weak performance in two business units. We are particularly
encouraged by the steady upward trend in operating income and margins from our
Professional Communications sector, the strong volume gains in our
promotional/packaging business, and the profitability improvement from our
tactical marketing businesses.
However, as Dave has said, while we expect consistent quarterly improvement in
our Financial and POP businesses, we believe we still have a few more months of
work before they are fully back on track. Nevertheless, we are committed to
resolving these challenges and achieving improved profitability in the second
half of our fiscal year. In the meantime, we have taken aggressive action
throughout Cadmus to reduce costs and to preserve and grow shareholder value.
As we demonstrated again this quarter, Cadmus is a strong company with a stable
and diverse revenue base. In summary, we remain optimistic about the prospects
and markets of our core strategic businesses and will continue to do what is
required to sustain our momentum, to build on our strengths, and to exploit
opportunities to strengthen our market position in selected niche businesses.
Please note that certain of our comments here represent "forward looking
statements" and are subject to certain risks and uncertainties. Those risks and
uncertainties are set forth in our press release and included in a Form 8-K
which will be filed shortly with the SEC to which you should refer for
additional details.
We thank you again for joining us for this morning's call and for your continued
interest and support in Cadmus. I would now like to open up the session for any
questions you may have for us.
