<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) March 31, 2000
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CADMUS COMMUNICATIONS CORPORATION
---------------------------------
(Exact name of registrant as specified in its charter)
Virginia 0-12954 54-1274108
- ------------------------------- ---------------- ----------------------
(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
- ----------------------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (804) 287-5680
---------------
<PAGE>
Item 5. Other Events.
On May 2, 2000, Cadmus Communications Corporation (the "Company") issued the
press release attached hereto as Exhibit 99.1 with respect to third 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, senior 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 May 3, 2000.
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 CONTINUING PROFIT IMPROVEMENT
----------------------
THIRD QUARTER EARNINGS TOTAL $0.36 PER SHARE BEFORE RESTRUCTURING CHARGES
RICHMOND, VA (May 2, 2000) - Cadmus Communications Corporation (Nasdaq/NM: CDMS)
today announced earnings for its fiscal third quarter of $3.2 million, or $0.36
per share, before restructuring charges. Financial highlights for the three
months ended March 31, 2000 included the following:
. Net sales increased 22% to $121.7 million compared with $100.0 million
last year;
. Income, before restructuring charges, totaled $3.2 million, or $0.36
per share;
. EBITDA, adjusted for restructuring charges, rose 97% to $18.1 million
in the third quarter, up from $9.2 million a year ago; and
. Cash flow totaled $11.0 million, or $1.23 per share, in the third
quarter, bringing cash flow for the nine months to $23.2 million, or
$2.58 per share.
"Our earnings, excluding restructuring charges, have now increased sequentially
in each quarter this fiscal year," remarked C. Stephenson Gillispie, Jr.,
Cadmus' chairman, president, and chief executive officer. "This consistent
improvement is the direct result of the actions we have taken over the last 18
months to focus Cadmus on the professional communications and specialty
packaging markets, and to make new business development our top priority. As we
anticipated, our strategic repositioning has allowed us to manage our business
more effectively, to deliver improved operating margins, and to significantly
strengthen our cash flows. I am particularly encouraged by our top line
performance this quarter. The renewed top-line growth from our professional
communications business and the continued strong growth from our specialty
packaging business are the direct results of the emphasis we have placed on new
business development and sales growth over the last several months.
Gillispie concluded, "Obviously, I am pleased with our results for this quarter.
We believe that we are beginning to see the impact of our actions to reposition
Cadmus and the potential that we have as a more focused, more profitable, and
much larger business."
Bruce V. Thomas, executive vice president and chief operating officer, added,
"Our major challenge this year has been to sustain operating momentum while
completing our integration of Mack and our restructuring and debt reduction
plans. The integration of Mack continues to proceed on schedule. The renewed
top-line growth and margin improvement from our professional communications
operations this quarter reflect the positive impact of this successful
integration, as well as the momentum that we believe is building on the new
business development front. In addition, we are on-track for attaining all of
the planned savings from our restructuring actions and for achieving our cash
flow and debt reduction targets. Our results are starting to reflect the initial
benefit of these savings. Cash flow for the third quarter was $11.0 million,
bringing year-to-date cash flow to $23.2 million. These strong results have
enabled us to reduce debt by $26.9 million in the first nine months of this
year, exclusive of debt reduction due to the securitization program. As we lower
our financial leverage, we are reducing our exposure to fluctuations in
short-term interest rates as well as providing more support for future earnings
improvement.
-- more --
<PAGE>
Third Fiscal Quarter Operating Results - Detailed Review
Net sales for the third quarter rose 22% to $121.7 million. Adjusted for
acquisitions and divested operations, net sales increased 5% for the third
quarter from $78.5 million to $82.4 million. The Company continued to experience
strong internal sales growth from its specialty packaging business, with sales
rising 26% over the same period of last year. Professional Communications net
sales rose 2% from the same period of last year. Adjusted for paper and other
pass-through costs, Professional Communications value added revenue rose 6% in
the third quarter.
Operating income before restructuring charges increased 131% to $11.2 million
from $4.8 million last year and adjusted operating margins improved to 9.2% of
sales from 4.8% last year. EBITDA, adjusted for the restructuring charge,
totaled $18.1 million compared with $9.2 million a year ago. Strong cash flow
from operations, resulted in a reduction in total debt of $26.9 million for the
first nine months, exclusive of debt repaid through securitization of
receivables. Total debt was $221.1 million at March 31, 2000.
Income for the third quarter, excluding restructuring charges, totaled $3.2
million, or $0.36 per share, compared with $1.7 million, or $0.22 per share last
year. After restructuring charges, the Company recorded net income in the third
quarter of fiscal 2000 of $1.8 million, or $0.21 per share.
Restructuring and other charges for the third quarter totaled $1.6 million
before taxes and $1.4 million after taxes. These charges principally included
the consolidation of our back issue fulfillment operations and elimination of
overhead related to the combination of CJS and Mack. Of the total pre-tax
restructuring charges of $34.1 million for the first nine months, non-cash
charges comprised approximately $27.5 million.
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)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
---------------------------- ----------------------------
2000 1999 2000 1999
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 121,706 $ 100,001 $ 377,859 $ 308,596
------------ ------------- ------------- -------------
Operating expenses:
Cost of sales 93,734 80,248 295,154 246,266
Selling and administrative 16,785 14,907 52,153 44,402
Net gain on divestitures -- (9,521) -- (9,521)
Restructuring and other charges 1,583 -- 34,144 --
------------ ------------- ------------- -------------
112,102 85,634 381,451 281,147
------------ ------------- ------------- -------------
Operating income (loss) 9,604 14,367 (3,592) 27,449
------------ ------------- ------------- -------------
Interest and other expenses:
Interest 5,661 1,878 17,658 6,085
Securitization cost 465 -- 876 --
Other, net (300) 250 (697) (66)
------------ ------------- ------------- -------------
5,826 2,128 17,837 6,019
------------ ------------- ------------- -------------
Income (loss) before income taxes 3,778 12,239 (21,429) 21,430
Income tax expense (benefit) 1,929 4,712 (3,376) 8,251
------------ ------------- ------------- -------------
Net income (loss) $ 1,849 $ 7,527 $ (18,053) $ 13,179
============ ============= ============= =============
Earnings per share, assuming dilution:
Net income (loss) per share $ .21 $ .94 $ (2.00) $ 1.63
============ ============= ============= =============
Weighted-average common shares
outstanding 8,997 7,968 9,008 8,073
============ ============= ============= =============
Cash dividends per common share $ .05 $ .05 $ .15 $ .15
============ ============= ============= =============
</TABLE>
<PAGE>
SELECTED HIGHLIGHTS
(In thousands, except per share data and percentages)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
March 31, March 31,
------------------------------ ------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Operating data, before restructuring and other
special charges:
Value added revenue $ 85,810 $ 63,325 $ 259,089 $ 192,036
Operating income 11,187 4,846 30,552 17,928
Income 3,246 1,718 7,438 7,369
EBITDA* 18,133 9,212 50,787 32,321
Depreciation & amortization expense 6,646 4,616 19,538 14,327
Percent to net sales:
Gross profit 23.0% 19.8% 21.9% 20.2%
Selling, general and administrative
expenses 13.8% 14.9% 13.8% 14.4%
Operating income 9.2% 4.8% 8.1% 5.8%
EBITDA 14.9% 9.2% 13.4% 10.5%
Earnings per share, assuming dilution $ .36 $ .22 $ .83 $ .91
</TABLE>
* Earnings before interest, taxes, depreciation, amortization and
securitization costs
CONDENSED CONSOLIDATED BALANCE SHEET
(In thousands)
<TABLE>
<CAPTION>
March 31, 2000 June 30,1999
-------------- ------------
(unaudited)
<S> <C> <C>
Assets:
Cash and cash equivalents $ 1,456 $ 5,068
Accounts receivable, net 58,054 92,532
Inventories 28,477 30,586
Other current assets 9,372 12,072
Property plant and equipment, net 153,298 173,085
Other assets, net 196,252 210,503
----------------- ---------------
Total assets $ 446,909 $ 523,846
================= ===============
Liabilities and shareholders' equity:
Current liabilities, excluding current debt 70,907 73,292
Total debt 221,114 275,879
Other long-term liabilities 38,430 38,142
Shareholders' equity 116,458 136,533
----------------- ---------------
Total liabilities and shareholders' equity $ 446,909 $ 523,846
================= ===============
</TABLE>
<PAGE>
Prepared Remarks from Conference Call Exhibit 99-2
THIRD QUARTER FY 2000 EARNINGS RELEASE
--------------------------------------
Conference Call Script
----------------------
Introduction - Steve Gillispie
- ------------------------------
Good morning and welcome to the Cadmus Third Quarter conference call report.
Bruce Thomas, our executive vice president and chief operating officer, and Dave
Bosher, our senior vice president and chief financial officer, are with me today
and will each offer some observations about the results for our latest fiscal
quarter after which we will open this conference to your questions.
I would like to begin today by thanking all of you and particularly our
investors for the support you have shown our company through the wrenching
changes we have effected in the past several years and particularly through the
rough and extremely disheartening ride we have had with our stock price. As we
have said before, we made these changes to accomplish 3 objectives--(1) to focus
our energies and capital where we were the strongest and best experienced--in
other words periodical and specialty niche printing; (2) with that focus to
drive sustained internal top-line growth, and (3) to dramatically improve
margins, cash flows and earnings.
With the results of this quarter we can see the beginnings of the payoff or
potential return for this repositioning. Earnings have increased sequentially in
each quarter from $0.17 per share in the first quarter, $0.30 per share in the
second period, to $0.36, excluding restructuring charges, for this quarter. As
you will hear shortly in more detail, margins are at the highest level since
1987, EBITDA is up almost 100% from this period a year ago, and cash flow is at
$2.58 per share for the nine months ending March 31st.
Clearly we are still early in the journey toward our objective of new records in
revenue growth, margin improvement, earnings and debt reduction. But the start
is positive and promising. In professional communications, we are now seeing
increasing momentum in our business development program and did produce solid
top-line growth this quarter. Specialty packaging, with continuing double-digit
growth, is achieving some real successes in penetrating exciting new markets
which offer the promise of continuing top line success. We had promised our
bondholders $20 million of debt reduction and have to date achieved $26.9
million.
So, in summary we set out to create a simpler more focussed organization with
fewer disparate businesses and greater similarity and overlap of process and
product--an organization which our best leaders knew how to run and in which
they could succeed. For in the end it is the "front-line" business leaders and
associates who have to produce the results. And, for our year-to-date results
and particularly this quarter, they have had to do so in an industry environment
which you probably know better than I has been increasingly competitive and
difficult. So, if there is any real credit due for this quarter, it belongs to
these leaders and the nearly 4000 associates who are every day working more
effectively than ever before.
With that, I'll turn the call to Bruce for a more in-depth discussion of our
operations.
<PAGE>
Operating Review - Bruce Thomas
- -------------------------------
Thank you, Steve.
I would like to start out by discussing some of the revenue-related initiatives
in our professional communications and specialty packaging businesses. Our
business development and marketing programs remain focused on the model that
Cadmus has historically - and successfully - used to grow our business.
Specifically, we continue to emphasize our unique ability to bring
market-focused, end-to-end solutions to our customers' information dissemination
and marketing challenges. Only now, with our more focused approach and following
the acquisition of Mack, we really do have the size and range of capabilities in
each of our markets to deliver consistently on this strategy.
This competitive advantage is most evident in our STM journal business, and we
are pleased that we have regained top line growth this quarter. I'd like to make
four specific comments regarding our STM business, which is our largest business
segment. First, as we mentioned last quarter, we have experienced a higher than
normal attrition rate during the first half of this year, which offset fairly
solid new business momentum. This attrition, which largely was the result of
certain customers' unwillingness to have substantially all of their journal
production "eggs" in one basket, has slowed dramatically. This more normal
attrition level was a key in the top line growth this quarter in the journal
business. Second, our experience continues to affirm that the eBusiness aspect
of the professional journal market remains largely an adjunct to the
conventional products we are producing, NOT a replacement for them. While we are
experiencing some modest reductions in print runs, page counts are up, with
little net change in our net revenues per job. Third, we are seeing some
competitive pricing pressure due to consolidation among some of our publishing
customers, which will create margin pressure for us as we look to FY 2001.
However, and importantly, we also are seeing continued strong support for our
integrated, full-service approach that has been the hallmark of our business
model. Finally, we are making very rapid progress on several new products and
services - products like Rapid Review,(TM) a completely electronic, web-based
peer review and article management system, and KnowledgeCore,(TM) an STM-focused
digital assets management system. We think that these new products will be very
well received by the STM marketplace and have the potential to solidify our
existing revenue base and also attract new customers and new revenues.
In specialty packaging, the numbers clearly reflect the outstanding gains this
business is accomplishing. Although this is a large and consolidating industry,
there are still significant opportunities for businesses like ours that are
large enough to offer a diverse blend of production capabilities and creative
enough to link them together in innovative ways.
For example, our facility in Charlotte, which already was ISO-9002 certified,
has recently been GMP certified, which essentially makes us an approved provider
of pharmaceutical packaging materials. We have been pursuing this certification
and working to enter this very attractive market for nearly two years. We have
begun producing work for several major pharmaceutical companies and we believe
this market represents a considerable opportunity for us in fiscal 2001. In
addition, we continue to develop proprietary processes and products in our
specialty packaging business that have the potential to also yield substantial
growth in new sales. We expect to bring two of these products to market in
fiscal 2001.
We also are pleased with the progress we are making in our special interest
magazine business, where the additional scale and additional expertise we
obtained in connection with the Mack acquisition are
<PAGE>
starting to show positive results. We have won several significant multi-title
publications in the past several months and that work should begin late this
fourth quarter. We are pleased with these new wins and with our overall new
business momentum in this business. In addition, we have installed new
management at our Byrd Press facility, which is our largest manufacturing
facility, and we have begun to see improvement in performance there. As we enter
fiscal 2001, we believe there are solid opportunities for revenue growth and
margin improvement in our specialty magazine business.
Finally, we have substantially completed the restructuring and are benefiting
from the initial phase of the cost synergies that we targeted. Our fourth fiscal
quarter will be aided by these reduced costs, and we expect that trend to
continue during fiscal 2001. All aspects of the restructuring plan are on
schedule and we believe our original estimates in terms of the size of the
overall charge, the cash portion of the charge, and the savings from the
restructuring actions remain solid.
In summary, we are making good progress from a sales, manufacturing, and overall
operations perspective. Our business leaders, our associates and, most
importantly, our customers are responding favorably to our more focused approach
on these attractive markets.
I'll ask Dave now to review the more detailed financials.
Financial Review - Dave Bosher
- ------------------------------
Thanks, Bruce. I'm not going to reiterate the numbers from our news release
verbatim, but let me highlight some additional data and comparisons that will
assist you in better understanding our results and the pace of our ongoing
business.
Mack added approximately $39.3 million to our sales in the third quarter.
Excluding Mack's results and those of operations we have divested or closed
since a year ago, Cadmus pro forma sales rose 5% for the quarter, from $78.5
million to $82.4 million. Value added revenues, which exclude pass through costs
such as paper and supplies, actually rose 8% adjusted for acquisitions and
divestitures.
Professional Communications net sales, adjusted for the acquisition of Mack,
were up 2.4% for the quarter. Value added revenues, which exclude pass-through
costs such as paper actually increased 6% in this business over the prior year.
These gains, while moderate, indicate renewed momentum in this very important
part of our business.
As in the second quarter, our specialty packaging business recorded another
outstanding gain in net sales, up 26% in the third quarter from a year ago.
Sales at our graphic solutions operation were not as strong as earlier in the
year due to soft commercial printing market conditions in the third quarter and
competitive pressures. While this business deals with shorter lead times and
less earnings visibility, indications are that the fourth fiscal quarter will be
better for this operation.
Before restructuring charges, operating income rose 131% for the quarter to
$11.2 million from $4.8 million last year. Operating margins rose to 9.2% of
sales in the quarter from 8.4% in our second quarter of fiscal 2000 and from
4.8% of sales last year. It is important to note that we have achieved this
solid margin improvement while continuing to make substantial investments in our
electronic publishing operations. Those investments reduced third quarter
margins by approximately 60bps this year. EBITDA for the quarter rose 97% to
$18.1 million and EBITDA, as a percent of sales, improved to 14.9% from just
9.2% last year. Finally, interest expense for the quarter, including
securitization costs,
<PAGE>
totaled $6.1 million.
Now, let's take a quick look at our balance sheet and cash flows. We reduced
debt by $10.5 million in the third quarter, bringing our year-to-date reduction
in debt to $26.9 million. Total debt at March 31 was down to $221.1 million
compared to $275.9 million at June 30. Third quarter cash flow totaled $11.0
million dollars, bringing cash flow for the first nine months to $23.2 million.
This was after the $3.5 million in net cash payments related to our
restructuring actions. Free cash flow from operations, excluding acquisitions,
divestitures, and restructuring payments, totaled $21.5 million year-to-date.
Capital expenditures in the first nine months totaled $12.5 million, keeping us
on-target for our fiscal 2000 capital budget of $20 million. Our CAPEX controls,
coupled with continued focus on working capital management, should allow us to
meet and even exceed our free cash flow target of $20 million for the fiscal
year. Fourth quarter cash flow will be nominal due to the semi-annual payment of
interest on our senior subordinated note. As we have stated, our plan remains to
use free cash flow to repay debt.
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.
