<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
____________
Form 8-K
____________
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) December 31, 1999
-----------------
CADMUS COMMUNICATIONS CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<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)
</TABLE>
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
--------------
<PAGE>
Item 5. Other Events.
On February 2, 2000, 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, 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 execution of the restructuring plan and the successful
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
February 3, 1999.
CADMUS COMMUNICATIONS CORPORATION
By: /s/ C. Stephenson Gillispie, Jr.
-----------------------------------
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
<PAGE>
Exhibit 99-1
FOR IMMEDIATE RELEASE Contact: David E. Bosher
Senior Vice President and CFO
(804) 287-5685
CADMUS COMMUNICATIONS REPORTS SECOND QUARTER RESULTS
----------------------
REPORTS EARNINGS OF $0.30 PER SHARE BEFORE RESTRUCTURING CHARGES
RICHMOND, VA (February 2, 2000) - Cadmus Communications Corporation (Nasdaq/NM:
CDMS) today announced earnings for its fiscal second quarter of $2.7 million, or
$0.30 per share, before restructuring charges. Financial highlights for the
three months ended December 31, 1999, included the following:
o Net sales increased 21% to $131.4 million compared with $108.8 million
last year;
o Income, before restructuring charges, totaled $2.7 million, or $0.30 per
share;
o Operating income before restructuring charges increased 58% to $11.0
million from $7.0 million last year;
o EBITDA, adjusted for the restructuring charges, rose 43% to $17.1 million
in the second quarter compared with $12.0 million last year, and
o After-tax charges of $10.0 million, or $1.11 per share, were recorded for
the quarter as part of the restructuring plan announced earlier in the
fiscal year.
"Excluding restructuring charges, earnings for our second fiscal quarter were up
77% from earnings of $0.17 per share in the first fiscal quarter," remarked C.
Stephenson Gillispie, Jr., Cadmus' chairman, president, and chief executive
officer. "This positive comparison reinforces the viability of our plan to
focus the Company's resources on the professional communications and specialty
packaging markets."
Gillispie continued, "We especially are encouraged by the improvement in our
ongoing operating results. In our professional communications business, we
continued to gain momentum in our new business development activities. In
addition, we again enjoyed strong revenue growth in our other businesses,
particularly our specialty packaging businesses. At the same time, our focus on
cash flow continues to produce solid results. During the first half, our strong
cash flows from operations have allowed us to reduce debt by more than $16
million. For the balance of the year, our focus will remain the same --
increased revenue growth, continued strong cash flow, and effective execution of
our restructuring-related actions."
Commenting on the status of the Company's restructuring, Bruce V. Thomas,
executive vice president and chief operating officer, added, "Much of our
managerial focus over the last quarter has been on moving the restructuring
actions along expeditiously and efficiently. We are nearing the end of that
process, and believe that these initiatives set the foundation for sustained
progress during the second half of this year and for fiscal 2001. In the
second quarter, we realized only a small portion of the substantial cost savings
that are expected to accrue from our restructuring plan. We continue to estimate
that the annualized improvement in operating income from our restructuring plan
will exceed $6 million and that we also will achieve approximately $1 million in
annual interest savings. Our goal remains to complete this restructuring by the
end of fiscal 2000. "
During the second quarter the Company completed the closure of its point of
purchase (POP) business unit and substantially accomplished the major steps of
its restructuring program. The Company recorded an after-tax restructuring
charge of $10.0 million, or $1.11 per share, for the second quarter consisting
primarily of write-off and closure costs from the point of purchase business and
severance-related charges. Since restructuring charges can be recognized only
as actions actually occur, the Company anticipates some additional - but much
smaller - charges in its fiscal third quarter related to its previously
announced integration initiatives.
<PAGE>
Second Fiscal Quarter Operating Results - Detailed Review
Net sales for the second quarter rose 21% to $131.4 million. Adjusted for the
contribution from Mack and for divested operations, net sales increased 9% for
the second quarter from $79.2 million to $86.3 million. The Company continued to
experience strong internal sales growth from its specialty packaging, technology
solutions, and graphic solutions businesses.
Operating income before restructuring charges increased 58% to $11.0 million
from $7.0 million last year and adjusted operating margins improved to 8.4% of
sales from 6.4% last year. EBITDA, adjusted for the restructuring charge,
totaled $17.1 million compared with $12.0 million a year ago. Strong cash flow
from operations, combined with proceeds from the sale of the Company's direct
marketing operation, resulted in a reduction in total debt of $16.3 million for
the first half, exclusive of debt repaid through securitization of receivables.
Total debt was $232.2 million at December 31, 1999.
Income for the second quarter, excluding restructuring charges, totaled $2.7
million, or $0.30 per share, compared with $3.1 million, or $0.39 per share last
year. After restructuring charges, the Company recorded a net loss in the
second quarter of fiscal 2000 of $7.3 million, or $0.81 per share.
Restructuring and other charges for the second quarter totaled $16.0 million
before taxes and $10.0 million after taxes. These included the integration of
journal composition operations, the elimination of certain corporate and
marketing communications sector administrative costs, completion of the POP
business closure, and related exit costs and asset impairments. Of the total
pre-tax restructuring charges of $32.6 million for the first fiscal half, non-
cash charges comprised approximately $26.9 million. The Company expects
additional charges in its fiscal third quarter related to the additional
reductions in force in connection with the restructuring plan.
Cadmus Communications Corporation provides end-to-end, integrated graphic
communications services to professional publishers, not-for-profit societies,
and corporations. Cadmus is the largest provider of production services to
scientific, technical and medical journal publishers in the world, the fourth
largest publications printer in North America, and a leading national provider
of specialty package product and services. Additional information about the
Company is available at 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 execution of the restructuring plan and the
successful 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>
CADMUS COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)
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<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
----------------------------- ------------------------------
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C>
Net sales $ 131,396 $ 108,811 $ 256,153 $ 208,595
----------- ------------ ------------ ------------
Operating expenses:
Cost of sales 102,505 86,983 201,420 166,018
Selling and administrative 17,917 14,871 35,368 29,495
Restructuring and other charges 15,971 -- 32,561 --
----------- ------------ ------------ ------------
136,393 101,854 269,349 195,513
----------- ------------ ------------ ------------
Operating income (loss) (4,997) 6,957 (13,196) 13,082
----------- ------------ ------------ ------------
Interest and other expenses:
Interest 5,830 2,064 11,997 4,207
Securitization costs 411 -- 411 --
Other, net 31 (182) (397) (316)
----------- ------------ ------------ ------------
6,272 1,882 12,011 3,891
----------- ------------ ------------ ------------
Income (loss) before income taxes (11,269) 5,075 (25,207) 9,191
Income tax expense (benefit) (4,000) 1,954 (5,305) 3,539
----------- ------------ ------------ ------------
Net income (loss) $ (7,269) $ 3,121 $ (19,902) $ 5,652
=========== ============ ============ ============
Earnings per share, assuming dilution:
Net income (loss) per share $ (0.81) $ .39 $ (2.21) $ .70
=========== ============ ============ ============
Weighted-average common shares
outstanding 9,014 8,046 9,014 8,126
=========== ============ ============ ============
Cash dividends per common share $ .05 $ .05 $ .10 $ .10
======= ======= ======= =======
</TABLE>
<PAGE>
SELECTED HIGHLIGHTS
(In thousands, except per share data and percents)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------ -------------------------------
1999 1998 1999 1998
------------ ----------- ----------- -----------
<S> <C>
Operating data, before restructuring charges:
Operating income $ 10,974 $ 6,957 $ 19,365 $ 13,082
Income 2,680 3,121 4,192 5,652
EBITDA* 17,114 11,977 32,654 23,109
Depreciation & amortization expense 6,171 4,838 12,892 9,711
Percent to net sales:
Gross profit 22.0% 20.1% 21.4% 20.4%
Selling, general and administrative 13.6% 13.7% 13.8% 14.1%
expenses
Operating income 8.4% 6.4% 7.6% 6.3%
EBITDA 13.0% 11.0% 12.7% 11.1%
Earnings per share, assuming dilution $ .30 $ .39 $ .47 $ .70
</TABLE>
* Earnings before interest, taxes, depreciation, amortization and securitization
costs
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
December 31, June 30,
1999 1999
(unaudited)
------------------- ----------------
Assets:
<S> <C>
Cash and cash equivalents $ 944 $ 5,068
Accounts receivable, net 67,541 92,532
Inventories 28,313 30,586
Other current assets 9,807 12,072
Property plant and equipment, net 156,000 173,085
Other assets, net 194,521 210,503
------------------- ----------------
Total assets $ 457,126 $ 523,846
=================== ================
Liabilities and shareholders' equity:
Current liabilities, excluding current debt 76,248 73,292
Total debt 232,248 275,879
Other long-term liabilities 32,866 38,142
Shareholders' equity 115,764 136,533
------------------- ----------------
Total liabilities and shareholders' equity $ 457,126 $ 523,846
=================== ================
</TABLE>
<PAGE>
Prepared Remarks from Conference Call Exhibit 99-2
SECOND 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 Dave
Bosher, our senior vice president and chief financial officer, will join me in
reviewing the results for our second 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 December 31, 1999.
In brief, we believe these results solidly affirm the actions we are taking to
focus on Cadmus' core strengths in the professional communications and specialty
packaging markets. Proof positive of this is shown right at the bottom line
where earnings, before restructuring charges, totaled $0.30 per share, up 77%
from the $0.17 per share we recorded in our fiscal first quarter on the same
basis; and, on the top line, where despite the distractions of acquisition
integration and restructuring, we produced solid top-line growth, again led by
the 40+ percent growth in our specialty packaging business. We understand there
remains room for lots of further improvement. But, this is clearly a part of an
upward trend and shows solid progress over the last ninety days.
As we had previously indicated, we did record restructuring charges in the
second quarter that resulted in a reported net loss for the period. Bruce will
talk in more detail about where we stand with our restructuring, but our target
for annualized savings remains approximately $6 million before taxes and we
still anticipate total charges in the range of $33 million to $37 million,
with approximately $7 million being cash in nature.
Before I turn the call over to Bruce for a discussion of restructuring and
operations, let me comment on the functioning of our new organization. As I
indicated three months ago, major changes in reporting lines and executive
personnel are perhaps as important a step as any company can undertake. These
changes don't lend themselves to short-term measurement, but they really do
affect a corporation's fundamental progress. Certainly, three months is a brief
test; but I am very pleased with what I am already seeing in terms of decision-
making and operating effectiveness.
At this point, I'll turn the call to Bruce for a more in-depth discussion of our
operations.
<PAGE>
Operating Review - Bruce Thomas
- -------------------------------
Thank you, Steve, and good morning.
I'd like to talk first about our restructuring and then turn to operations.
First, restructuring. As you may recall, our restructuring program included
four distinct components:
One, the closure of our point of purchase business;
Two, the implementation of the planned second phase of synergies in
conjunction with the integration of Mack;
Three, the divestiture of our Richmond- and Charlotte-based marketing
agencies; and
Four, the consolidation and elimination of certain corporate and marketing
sector functions.
Let me give you a quick recap of those four components:
o First, POP was closed in October. All equipment has been sold or relocated.
The one remaining building is now held for sale. Receivables and inventory
liquidations are in-line with expectations and essentially completed. In
short, this closure has proceeded very much as planned.
o Second, the phase 2 Mack synergies. We have made good progress here, but
additional steps remain to be done.
The consolidation of our two composition facilities in Lancaster,
Pennsylvania is substantially complete, with all reductions in force to be
finished by the end of the 3rd quarter. We anticipate that the actual sale
of the vacated facility will take place in the 4th quarter or early in
fiscal 2001. In addition, we've made good progress in consolidating certain
departmental and SG&A functions between our CJS and Mack operations. These
actions will likely extend into the third and possibly the fourth quarters,
but also are on-track in terms of savings.
o Third, the Richmond agency business was closed in July and we completed the
sale of the Charlotte-based agency operation on September 30. These
restructuring actions are complete.
o Lastly, we have consolidated certain corporate functions, including
eliminating the overhead associated with our Marketing Communications sector.
Again, these actions are complete.
Our target for annualized savings remains approximately $6 million before taxes.
We got very little benefit from these savings in the second quarter, since we
did incur operating losses from out point of purchase in the quarter prior to
its closure. We still anticipate total charges in the range of $33 million to
$37 million, with approximately $7 million being cash in nature.
Now, from an operations perspective, we are making progress in our efforts to
drive improved revenue growth and improved operating efficiencies. At specialty
packaging, net sales rose 48% this quarter, pushing their string of double-digit
sales gains to 9 consecutive quarters. This is really a bright spot in our
operations, and the trend looks good for continued progress over the remainder
of the year. Also, we should note that the significant sales gains we have made
year-to-date in this business have made up for over 85% of the plant under-
absorption issue created by the sale of Cadmus Financial Communications last
spring.
In Professional Communications, we have completed the integration of our sales
force and we now have our sales teams aggressively selling the full range of
Cadmus/Mack capabilities. We are not yet where we need to be in terms of top
line growth, but new business development has accelerated throughout the year
and we have much better activity levels and some good momentum here. In
addition, it is important to note that our analysis indicates that we are not
experiencing meaningful print run declines or meaningful price erosion and pages
<PAGE>
are holding steady or increasing on most of our journals. In short, we are
convinced that the base business is pretty solid. With the stepped-up new
business development, with activities we have underway, we are optimistic that
we will achieve improved top-line journal and magazine volume in the coming
quarters.
Also in our Professional Communications business, we have made progress in our
plants and are looking forward to improved productivity and efficiency in the
second half and in fiscal 2001. During the past 6 months, we have installed
common measurements and a common management model across all 7 of our sites.
These new tools and techniques, combined with more aggressive collaboration with
our now integrated sales force, should translate directly to improved volume
capacity management in the coming calendar year.
Finally, we have continued to invest aggressively in electronic products
particularly for the scientific, technical, and medical markets - creating
products such as on-line peer review to augment our existing suite of electronic
products, services, and capabilities. We continue to see sizable opportunities
in electronic media for a company with our presence, reputation, and expertise
in the STM market.
In summary, we are on-track with our restructuring plan and we have made good
progress with the basic "blocking and tackling" of running the business.
With that. I'll ask Dave to review the financials in additional detail.
Financial Review-Dave Bosher
- -----------------------------
Thanks, Bruce. I am not going to reiterate the numbers from our news release
verbatim, but let me highlight a couple of year-to-year comparisons that will
help you understand the true pace of our ongoing business.
First, Mack added $42.2 million to our sales in the second quarter. Adjusted
for Mack and for the operations we have divested since a year ago, our pro forma
sales rose 9% for the quarter, from $79.2 million to $86.3 million.
Professional Communications net sales, adjusted for the acquisition of Mack,
were down slightly again in the second quarter, a result of lower than expected
net new business and lower paper prices. Bruce referenced the underlying
momentum in new sales development, and we believe we will see an improved sales
trend become more visible during the second fiscal half.
Outside of the Professional Communications area, we continued to see robust
sales growth. Our specialty packaging business sales grew 48%. That was on the
heels of a 30% increase in the first quarter. In addition, our graphic solutions
operation recorded a 10% increase in sales in the second quarter
Before restructuring charges, operating income rose 58% for the quarter from
$7.0 million last year to $11.0 million, and operating margins trended up to
8.4% in the quarter from 6.7% in the first quarter and 6.4% last year. EBITDA
for the quarter rose 43% to $17.1 million and EBITDA as a percent of sales
improved to 13.0% from just 11.0% last year. I also want to point out that
operating losses in the quarter from point of purchase prior to its closure
<PAGE>
reduced second quarter income by approximately $600,000 pre-tax, or $0.04 per
share. In addition, the spike-up in short-term interest rates in the fourth
quarter, which have dropped back since New Year's, led to incrementally higher
than expected interest expense of over $300,000, or another $.02 per share for
the quarter.
Now, let's take a look at our balance sheet. Excluding debt repaid through our
receivables securitization program, we have reduced debt by $16.3 million during
the first half of fiscal 2000 bringing total debt at December 31 down to $232.2
million compared to $275.9 million at June 30. Cash flow for the half totaled
$13.1 million, after the payment of $2.4 million in restructuring-related
payments. Free cash flow from operations, before acquisition and divestiture
related payments, totaled $11.2 million year-to-date, again after $2.4 million
in restructuring payments. CAPEX in the first half totaled $9.4 million, keeping
us on-target for our full-year fiscal 2000 capital budget of $20 million. With
controls on CAPEX and continued focus on working capital management, we still
project free cash flow of at least $20 million for the fiscal year. As we have
stated, our plan remains to use this free cash flow to repay debt.
On a final note, you may note that we have a new item on our income statement
this quarter called securitization costs. During the quarter, we entered into a
receivables securitization program with our lead bank, which initially allows
for up to $35 million in borrowing under the program. The program is saving us
over 200 basis points annually on borrowings under this program compared to
loans under our credit facility. These securitization costs are essentially the
interest expenses on those borrowings. At December 31, borrowings under this
program totaled $27.3 million. This amount has been deducted from receivables
under our assets and, as mentioned above, our total debt has been reduced by a
like amount.
We hope to bring the CadmusMack receivables into this program by the end of the
third quarter, at which time the total program size will increase to
approximately $45 million and the opportunity for additional interest savings
will increase.
Thank you, and I will turn the call back over to Steve.
Closing - Steve Gillispie
Before I turn the call over for any questions you may have for us, I need to add
the customary boilerplate comments. Please note that certain of our comments
here represent "forward looking statements" and are subject to certain risks and
uncertainties that could cause actual results to differ materially. 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 and to which you should refer for
additional details."
- ---- Operator, we are now ready for questions.
Closing - Steve Gillispie
- -------------------------
Thanks again for your participation this morning. I would reiterate that the
second quarter results are gratifying, but the real challenge is to prove we can
establish a solid record of growth on this improved base, particularly in
magazines and journals in the Professional Communications group. I believe our
performance over the remainder of this fiscal year is going to help establish
that pattern.
