SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
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CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) April 1, 1999
CADMUS COMMUNICATIONS CORPORATION
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
VIRGINIA 0-12954 54-1274108
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification Number)
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6620 WEST BROAD STREET, SUITE 240, RICHMOND, VIRGINIA 23230
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (804) 287-5680
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ITEM 5. OTHER EVENTS.
On April 1, 1999, Cadmus Communications Corporation (the "Company") issued the
press release attached hereto as Exhibit 99.1 to announce that the Company has
acquired The Mack Printing Group and its subsidiaries ("Mack"). On that same
day, the Company issued the press release attached hereto as Exhibit 99.2 to
announce that in conjunction with its acquisition of The Mack Printing Group, it
has entered into a new $200 million revolving credit/term facility. C.
Stephenson Gillispie, Jr., chairman, president and chief executive officer read
the prepared remarks attached hereto as Exhibit 99.3 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 of the Company to retain key employees and
managers in light of lower than planned incentives and benefits.
ITEM 7. EXHIBITS.
Exhibit 99.1 Press Release - Acquisition of The Mack Printing Group
Exhibit 99.2 Press Release - Revolving Credit/Term Facility
Exhibit 99.3 Prepared Remarks from Conference Call
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized on April 6, 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 - Acquisition of The Mack Printing Group
99.2 Press Release - Revolving Credit/Term Facility
99.3 Prepared Remarks from Conference Call
EXHIBIT 99.1
FOR IMMEDIATE RELEASE CONTACT: Investor:
Dave Bosher 804-287-5685
Vice President and Treasurer
Media:
Teri Schrettenbrunner 804-287-6260
Director of Public Relations
CADMUS COMMUNICATIONS CORPORATION ACQUIRES
THE MACK PRINTING GROUP
EXPANDS LEADERSHIP POSITION IN SCIENTIFIC, TECHNICAL, MEDICAL NICHE
RICHMOND, VA -- April 1, 1999 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) today announced that it has acquired The Mack Printing Group and its
subsidiaries ("Mack"). Mack is a leading national producer of journals,
magazines and periodicals, with annual revenues of approximately $165 million.
The purchase price, consisting of cash, seller-provided subordinated debt, and
Cadmus common stock, was approximately $200 million. Cadmus anticipates that the
transaction will be accretive to net income in fiscal 2000.
This acquisition continues Cadmus' strategy of creating leadership positions in
select niche markets. The addition of Mack increases Cadmus' annual revenues by
over 40% and solidifies its position as the world's leading producer of
scientific, technical and medical (STM) journals. The acquisition brings to
Cadmus new capabilities to better serve the faster-growing "short-run" segment
of the STM market, and significantly strengthens Cadmus' magazine business by
adding new production and distribution capabilities.
C. Stephenson Gillispie, Jr., Cadmus' chairman, president and chief executive
officer, noted, "This acquisition is a giant step forward both operationally and
financially. Cadmus is now one of North America's five largest periodical
printers. With our increased size, we will capture operating benefits from
enhanced synergies and economies of scale. Financially, we are strengthening
Cadmus by adding a business with a solid track record of consistent growth,
double-digit operating margins, and strong cash flows. We will increase cash
flow per share, significantly expand our operating margins and, coupled with
other recent organizational changes, further stabilize the earnings performance
of our business. We are excited about the short and long-term opportunities this
acquisition creates."
Joseph J. Ward, executive vice president of Cadmus' Professional Communications
sector, added, "Mack's strengths in "short-run" printing and directory
production add vital new competencies to our Professional Communications sector.
Coupled with our recently announced acquisition of Dynamic Diagrams -- a
Web-based architecture firm -- we can now provide an unmatched spectrum of
end-to-end solutions to our customers."
-- more --
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CADMUS COMMUNICATIONS CORPORATION
MACK ACQUISITION
PAGE 2
Commenting on the transaction, Paul Mack, Mack's chairman, stated, "We are
delighted to be joining forces with a market leader that has a well-established
reputation for offering world-class, digital solutions to journal and specialty
magazine publishers. Based on its successful acquisitions of Waverly Press and
Lancaster, Cadmus has an outstanding track record of acquiring and integrating
periodical production companies. As a part of Cadmus, we will be able to deliver
a broader range of integrated, professional communications services to our
existing customers."
Mack will operate initially under the name CadmusMack and will remain
headquartered in Easton, Pennsylvania with manufacturing facilities located in
Easton, Ephrata, and East Stroudsburg, Pennsylvania, as well as in Baltimore,
Maryland. Mack will operate under Cadmus' Professional Communications sector
headed by Ward. Mack's current management team, including Mark Ploucha,
executive vice president of operations, and Steve Smith, executive vice
president of finance and administration, will remain with the company in their
current capacities.
Cadmus also announced that N. R. Puri, the former majority owner of The Mack
Printing Group, has joined Cadmus' Board of Directors. Mr. Puri's business
interests include investments in U.S., UK, German, Chinese, and Hungarian
companies that collectively employ over 5,000 people. "We are very fortunate
that Nat has agreed to join our Board," said Gillispie. "His well-rounded,
international expertise in a wide range of fields will be a great asset to
Cadmus."
Among the nation's largest publication printers and the second largest producer
of STM journals, The Mack Printing Group is headquartered in Easton,
Pennsylvania. The company composes, prints, and distributes over 500 STM
journals, in addition to nearly 200 magazines and other periodicals, from
sheet-fed and web printing facilities in Easton, Ephrata, and East Stroudsburg,
Pennsylvania, as well as in Baltimore, Maryland. Additional information about
Mack is available at the company's web site - www.mpg.com.
Cadmus Communications Corporation provides customers with integrated, end-to-end
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.
Additional information about Cadmus is available at the company's web site -
www.cadmus.com.
# # #
"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.
EXHIBIT 99.2
FOR IMMEDIATE RELEASE CONTACT: Dave Bosher 804-287-5685
Vice President and Treasurer
CADMUS COMMUNICATIONS CORPORATION
UNVEILS NEW FINANCING PACKAGE
RICHMOND, VA -- April 1, 1999 -- Cadmus Communications Corporation (NASDAQ NMS:
CDMS) announced today that in conjunction with its acquisition of The Mack
Printing Group, it has entered into a new $200 million revolving credit/term
facility. This major new bank facility is led by Wachovia Bank N.A., and
co-managed by First Union National Bank and Bank of America. The new facility
has a term of five years.
The company also announced that it plans to issue approximately $125 million of
senior subordinated notes in its fiscal fourth quarter. The notes are
anticipated to have a 10-year term.
The acquisition of Mack was funded by a combination of stock, senior debt, and
seller-provided subordinated debt. In addition to borrowings under Cadmus' new
credit facility, Cadmus entered into a bridge loan with J.P. Morgan & Co., First
Union Capital Markets Corp. and several of the Mack sellers. This bridge loan is
expected to be paid with the proceeds of the senior subordinated notes.
Commenting on the new financing plan, David E. Bosher, Cadmus' vice president
and treasurer, said, "We are pleased with the successful completion of this new,
larger bank credit facility. This facility provides the financial foundation for
the continued execution of our strategy and provides additional resources for
further investment in our selected niche markets. In addition, the anticipated
placement of $125 million of senior subordinated notes provides Cadmus access to
more permanent, longer-term capital, further solidifying our capital structure."
Cadmus Communications Corporation provides customers with integrated, end-to-end
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.
# # #
"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.
EXHIBIT 99.3
PREPARED REMARKS FROM CONFERENCE CALL
ANALYST CONFERENCE CALL
MONDAY, APRIL 5, 1999
INTRODUCTION
Good morning, ladies and gentlemen. Thank you for being with us this morning. I
am Steve Gillispie, Cadmus chairman, president and chief executive officer. Here
with me today are Bruce Thomas, Cadmus senior vice president and chief financial
officer, and Dave Bosher, Cadmus vice president and treasurer.
This morning we would like to review with you our recently announced acquisition
of The Mack Printing Group. I will provide an overview of why we are so pleased
with this acquisition and why we think it so significantly advances our strategy
and our operations. Then Dave Bosher will provide some detail regarding the
transaction itself as well as some additional information about Mack and about
Mack's past performance. We will then turn the call over for your questions.
Last month, on our conference call announcing the sale of our Financial unit, I
said that Cadmus' strategy is to provide integrated, end-to-end communications
solutions in niches 1) where we have or can achieve market leadership, 2) which
value our integrated, end-to-end service model, and 3) which offer the best
opportunities for growth both internally and through acquisition. I emphasized
that Cadmus Journal Services is the most mature example of this strategy
successfully at work. I noted then that we were focusing our resources and
placing Cadmus on a more aggressive pace for the development of its Professional
Communications and other "core" businesses.
The acquisition of Mack is completely in sync with this more focused strategy.
It solidifies further our world leadership position in the scientific,
technical, and medical market, a market which not only values but insists upon
end-to-end, integrated services. And it is an acquisition that builds upon our
strengths - augmenting our largest and most profitable business and a business
that, based on their handling of the Waverly and Lancaster acquisitions, has a
demonstrated track record of successful acquisition and integration.
Some of you are familiar with The Mack Printing Group as one of the few
remaining independent mid-size print companies with a strong journals specialty.
Mack has about 1900 employees operating from four plants all within Maryland and
Pennsylvania - close, and in several instances in the same town as, our
production facilities. In our journal and specialty magazine business, they have
long been a formidable competitor. Several of you have been convinced that Mack
represented our most logical acquisition candidate and have said so. You were
right. Let me review here why.
There are 6 basic reasons why Mack is an excellent fit with Cadmus:
1) Short-Run Journal Expertise. Mack has a strong specialization in
journals and has been producing these products for nearly 100 years.
Significantly, however, Mack has more experience and capability with
the very short run journals which have not been our market but which
nevertheless provide higher margins, faster growth and we think
considerable potential for future sales;
2) Specialty Magazine Capabilities. Mack has a very strong niche and
some exceptional capabilities in the business to business trade and
specialty magazine markets which now represent about 20% of our
Professional Communications revenues. Although we have shared this
market, we have very different production capabilities. By combining
these businesses, we not only extend our service offerings, but
become more efficient and more profitable in this niche.
3) Highly Complementary Assets and Product Facilities. Throughout the
production process, there are significant similarities and overlaps
between the two companies. For example, the principal typesetting
systems for Mack and Cadmus are Xyvision. The workhorse presses for
both businesses are Hantscho/Goss and Heidelberg. The benefits of
this kind of complementary equipment configuration are obvious in
terms of transferability of work, personnel, parts, and expertise. In
addition, Mack's combined journal and magazine products nearly double
the physical number of books now produced, finished and mailed by
Cadmus. This additional volume we think will be the basis for some
very attractive cost reductions and service enhancement in the
distribution of this material.
4) Physical Proximity. The Mack and Cadmus facilities are geographically
very close--all within an hour and a half of one another and in two
instances actually in the same town. This is a very strong plus in
several respects. Obviously, when only an hour or so away by car, it
is much easier and less expensive in time and cost for the management
of the various facilities to share work, assets, personnel, and "best
practices." In addition, it permits more effective rationalization of
infrastructure and overhead functions across the two businesses.
Finally, it simply makes integration easier and far more likely to
proceed without disruption.
5) Management Strength. The company is well run. Mack has a strong
management team which has developed an exceptionally loyal customer
base and posted very respectable margins and sales growth over the
past five years. Sales have nearly doubled since 1990 and operating
margins have consistently exceeded 10%, placing Mack among the profit
leaders in the industry.
6) Builds On Our Strengths. Finally, this acquisition plays directly to
our strengths. We have considerable experience with this business,
these markets, and this kind of acquisition. We have made two
previous large acquisitions in this market and have integrated them
very successfully and profitably. And with the addition of Joe Ward
last summer as well as other organizational changes, we have a
management team which is now deep enough and strong enough to absorb
this kind of growth.
Some of the benefits in these six areas we will realize almost immediately.
Others will take time and good execution. For the next three to five months, we
intend to concentrate on two things. First, we are asking the management teams
of Cadmus Journal Services and The Mack Group to concentrate on earnings, sales
growth, and free cash flow. To assure that this is our focus we will run both
businesses very nearly "as is." David Wilson will become Acting President of the
CadmusMack Operation and Joe Ward will continue as the head of Cadmus Journal
Services. Second, we are going to work to get the quickest possible benefit from
what we believe are substantial procurement-related savings. As Dave will soon
explain to you, these "Level One" synergies will make the transaction modestly
accretive for FY 2000. During this interim period both management teams will be
working to become familiar with each other's tangible and intangible
capabilities. We will combine this knowledge with some outside professional
assistance to find the maximum possible synergies and to craft the next stages
of our integration.
In summary this is a terrific fit for Cadmus, a transaction that firmly
establishes Cadmus as a market leader in this niche and that provides us with
enormous potential synergies and growth. We are pleased that we have been able
to deliver such a solid next step in the development and fulfillment of our
strategy.
At this point, I would like to ask Dave Bosher to describe the transaction to
you in greater detail and help you understand the economic fundamentals
underlying our enthusiasm for this acquisition.
Dave, .............
Thanks, Steve.
While we included some high-level data in our press release, let me know provide
a more detailed overview of Mack from a financial perspective. First, let's
start with revenues.
As disclosed in the release, Mack's calendar 1998 pro forma revenues were
approximately $165 million. This revenue stream is comprised of approximately
$60 million in STM and journal volume, while the remaining volume comes from
special interest magazine and short-run directory sales. As Steve mentioned,
over 50% of Mack's journal revenues are from short-run journals, the faster
growing portion of the STM market. Over the last five years, Mack's sales have
grown at an internal compounded rate of over 6% annually.
In addition to maintaining steady top-line growth over the last several years,
Mack has consistently generated 10% or better EBIT margins. Pro forma EBIT for
calendar 1998 was approximately $20 million, or 12.4% of sales. With
depreciation and amortization of $8.0 million, proforma EBITDA for 1998 was
approximately $28 million, or 17.1% of sales.
As we also disclosed in the release, total consideration paid was approximately
$200 million. Based on trailing results for calendar 1998, this purchase price
amounted to 10 times EBIT and 7 times EBITDA, very much in line with multiples
paid on recent transactions of similar size. Consideration paid consisted of
approximately $176 in cash and debt instruments, $6.4 million in seller junior
notes, and the issuance of 1.16 million shares of Cadmus common with an assigned
value of $18.6 million.
Adjusted for the acquisition of Mack and the recent divestitures of our
financial communications and custom publishing operations, Cadmus pro forma
revenues now approximate $540 million for fiscal 1999. Most importantly, with
the addition of the very profitable Mack business, we will increase Cadmus' EBIT
margin by approximately 150 basis points. Our proforma EBITDA margin will also
rise almost 250 basis points.
In addition to this "stand-alone" improvement in profitability, we believe that
there are significant synergies available with the combination of our Cadmus
Journal Services operation and Mack, as we have seen with the successful
integrations of Waverly Press and Lancaster Press. We believe there are several
levels of savings available. The first comes in the form of procurement savings
and lower administrative expense. Paper, prepress supplies and freight cost
reductions alone should improve EBIT by approximately $3 million annually. These
savings are relatively easy to achieve and are realized by rolling Mack's
existing purchases into existing Cadmus procurement programs. In addition, there
are redundant administrative expenses such as professional fees, audits, and the
like which will further add to pro forma costs savings. The second level of cost
reduction revolves around converting Mack purchases which do not qualify for our
existing Cadmus procurement programs to qualifying purchases. In addition, a
substantial portion of Mack's paper is customer supplied and the conversion of
this tonnage to Cadmus supplied paper will further increase synergies. The final
stage of savings should accrue from successful integration of the business
getting the right work on the right presses and both taking full advantage of
unique production capabilities and eliminating overlapping and redundant
initiatives, operations, and facilities. We believe that these savings should
exceed those of the first two levels of synergies.
Based on the foregoing, we believe that the transaction will be accretive to
earnings per share beginning in FY 2000. EPS accretion will be muted due to the
addition of approximately $3.5 million annually in non-tax deductible goodwill
resulting from the transaction. In addition to the EPS benefit from the
transaction, the underlying financial foundation of Cadmus should be even
stronger than GAAP earnings imply. Pro forma for the transaction, over
two-thirds of Cadmus' revenues will now come from our market-leading
Professional Communications sector. In addition, revenue and margin stability
will be further enhanced due to the increased % of revenues coming from the more
visible and contractual nature of the journal and periodical markets. Most
importantly, pro forma free cash flow should total $15 million in FY2000 and
consolidated pro forma EBITDA should amount to over $85 million. Again, over 85%
of Cadmus pro forma EBITDA before corporate expenses will now come from the
Professional Communications sector.
Finally, let me talk for a moment about our capital structure, our new credit
facility, and our financing plans. Due to the large debt component of the
transaction, Cadmus' debt-to-capital ratio will rise to approximately 65% as of
March 31, 1999. We believe this is a manageable debt load given the strong cash
flow profile of the pro forma businesses. As we demonstrated with the Lancaster
acquisition, we will move aggressively to deleverage the company with those
strong cash flows. With our Debt-to-EBITDA coverage at approximately 3.6 X, our
senior facility will provide us with additional dry powder we need going
forward.
To fund this transaction and ongoing operating and strategic initiatives, we
have entered into a new $200 million senior bank credit facility, led by
Wachovia Bank and co-managed by First Union and Bank of America. This facility
has a five-year term and is comprised of a $55 million term loan and $145 in
revolving credit. We also have issued $6.4 million in ten-year junior
subordinated notes and $18.6 million in Cadmus common shares to the seller.
Finally, and also in connection with the transaction, we have issued $110
million in ten-year, senior subordinated notes with J. P. Morgan, First Union
and the seller. We plan to re-finance these notes with the issuance of
approximately $125 million in ten-year, 144a senior subordinated notes in the
fourth quarter.
At this point, I will turn it back over to Steve for a wrap up and then your
questions. Steve . . . . . . .
Thank you Dave. As you can see, we are very pleased with this transaction, one
that we think dramatically advances our strategy and dramatically enhances
Cadmus. We have already begun the process of integrating these businesses and
initial reactions from customers and associates have been very positive. We look
forward to discussing with you over the next several quarters and years the very
positive results we anticipate from this exciting acquisition.
