Exhibit 99
ANNUAL MEETING OF SHAREHOLDERS
November 13, 1996
As I said in my chairman's letter in this year's annual report, Cadmus
has been pursuing a strategy to change itself from a traditional printing
company to a full service provider of graphic communications and marketing
solutions. In these remarks I want to do three things. First, review the
progress that we have made since we began this journey in 1991. Second, discuss
some of the accomplishments and some of the disappointments of fiscal 1996. And
third, share with you where Cadmus is headed strategically and some of the steps
and actions that we will be taking to achieve our goal.
First, let's look back to where we were less than five years ago. What
was Cadmus? We were a holding company - purely and simply. We were Garamond,
Byrd, Washburn, WDM, Graftech, American Graphics, and 3 Score. Cadmus was little
more than where the numbers were consolidated and the name under which the stock
was listed.
Where were we? We were in Baltimore, Richmond, Charlotte and Atlanta. We
were 1,860 employees in 7, relatively small, printing facilities.
Finally, what were our numbers? In 1991, revenues were $178 million. Our
stock price was $7-1/4. And shareholder value was $43 million.
From this modest start in 1991, we have marched fairly methodically
toward our strategic vision and goal - making progress year after year and step
by step.
In 1992, we purchased Tuff Stuff, forming our publishing group and
taking our first major step up the creative "food chain." We also formed the
Cadmus Color Center, indicating our unequivocal commitment to remain at the
leading edge of technology and graphic arts competence. Finally, we acquired
W.M. Brown & Sons and formed Expert/Brown - solidifying our position as a
dominant commercial and promotional printer in central Virginia.
In 1993, we purchased Cadmus Custom Publishing, extending further our
presence in targeted marketing and beginning the integration of our marketing
and communications capabilities. We also formed a strategic alliance with Lanman
and merged Vaughan Printing with Central Florida Press, extricating ourselves
from a very difficult market and competitive position in Central Florida.
Finally, we initiated our concept of product line leadership with a
reorganization of Byrd into journal, magazine, and promotional print divisions.
In 1994, we made additional strides toward the achievement of our
strategic goal. We purchased Waverly Press, then our largest competitor in
scientific, technical, and medical journal production. Subsequently, we combined
Waverly Press and the Byrd Journal division to form Cadmus Journal Services, the
world's largest journal producer. In addition, to prepare for the much larger
company which is our objective and vision, we added major talent to our
corporate group with the addition of key executives in Finance and Human
Resources.
In 1995, we acquired a successful multi-media company, Modelmation, to
form Cadmus Interactive, bringing to Cadmus world class interactive, internet,
and multimedia capabilities. Importantly, we were selected as General Electric's
preferred provider for graphic communications services - confirming both our
market's direction toward vendor consolidation and the progress we had made in
providing full service solutions to Fortune 1000 companies. We also enhanced our
IT expertise and began building a Cadmus-wide network with the addition of
Edward Fernstrom.
And so, where does Cadmus stand today? In short, we have come a very
long way and we stand much closer to our vision of being the single best
provider of communications and marketing solutions.
We are now Cadmus - everywhere. We are no longer just a holding
company, adding up the numbers from a collection of small printing companies. We
are an integrated communications company.
We are still in Baltimore, Richmond, Charlotte and Atlanta. But, we are
also in Boston, New York, Lancaster, Easton, Raleigh, Denver and Los Angeles. We
are 3,200 Cadmus associates in 17 facilities nationwide.
And, we are no longer just printers. We offer solutions-based
periodical production, graphic communications, and marketing services. These
broad product/service offerings are supported by well established niche product
lines such as journal services, magazines, specialty packaging, financial
printing, mutual funds, point of purchase, media replication, direct marketing,
custom publishing, and interactive and multimedia development.
Finally, what are the numbers for Cadmus? Again, this is a measure of
our progress since 1991. Annualized revenues for Cadmus are over $400 million.
Our stock is trading between $16.50 and $17.50. Our shareholder value is $121
million.
I want to say a few more words about fiscal 1996, a year in which we
made perhaps our most dramatic progress toward our strategic goal - but a year
shadowed by disappointing financial results and unexpected problems at several
of our key businesses.
During fiscal 1996, we made three big changes at Cadmus. First, we
positioned Cadmus to provide much expanded and vertically integrated products
and services. We acquired businesses - businesses such as Lancaster Press,
further strengthening our dominant position in STM journal production; The
Software Factory - bringing the media replication and fulfillment capabilities
required to complete our full-service offerings to our growing hi-tech customer
base; The Mowry Company - growing further our "footprint" in direct and data
base marketing; and Peachweb Internet Development - adding to our internet and
intranet development skills and capabilities.
We developed new capabilities and products. Capabilities such as
Marketing IT - providing full agency and creative services to small to mid-sized
software publishers. Products such as the Disc Taxi - a patented device that
delivers and simultaneously promotes CD and disc software and internet products.
Finally, we completed an equity offering to fund these acquisitions and
the development of these new capabilities - an offering that preserved Cadmus'
traditionally prudent balance sheet.
Second, we truly became Cadmus, combining 15 separate companies into
one team and eliminating the holding company and multiple company names. All of
our business cards look alike, the uniforms of our manufacturing associates bear
this logo, all of our trucks and all of our facilities bear the Cadmus name and
the Cadmus look, and the phones at all of our facilities are answered "Cadmus."
This has brought us together more than ever before and allowed us to begin
developing and building a single identity and brand in the marketplace.
Third, and finally, we increased our marketing focus by reorganizing
all our sales efforts around product lines. We put some of our strongest and
most capable leaders in charge of product lines - bringing more talent and focus
than ever before to the sale and marketing of our products and services.
We "unhooked" our sales personnel from specific plants - allowing them
to pursue opportunities beyond traditional geographic limits and individual
plant capacity. We have built on our success as a single source provider -
learning better how to sell these strategic partnership relationships and how to
provide these sorts of services to our customer partners. Partners such as
NationsBank, First Union, Morningstar, Hardees, James River, and many others.
At the same time, however, we had disappointing performance from a
financial and earnings perspective. On a positive note, revenues grew 20.4% to
$337 million - reflecting both the inclusion of new acquisitions as well as the
marketplace's reception to our product line strategy and focus. We saw
significant increases in almost all of our product lines, led by financial
services (up 59%), specialty packaging (up 18%), magazines (up 17%), journals
(up 8.5%), and interactive (up 89%).
However, gross margins declined from 25.1 to 23%. These results were
caused by manufacturing inefficiencies and excess capacity at several of our
plants as well as product mix changes in our direct marketing and point of
purchase product lines. Net operating profit margins declined to 4.9% as these
manufacturing and product mix issues were combined with a higher level of
investment in the resources and infrastructure to support the companies new
unified operating structure. Finally, as a result of these lower margins,
combined with a substantial increase in the number of shares outstanding,
earnings per share before extraordinary items were $.87 - down from $1.21 in
fiscal 1995 and well short of our expectations. In short, fiscal 1996 was a year
of extraordinary change and extraordinary accomplishment for Cadmus. But it was
also a year of disappointing financial performance.
We have responded aggressively to our financial and earnings issues. We
created a new group structure to refine and focus on profit and loss
accountability. We moved forcefully to cut costs and eliminate waste and
inefficiency. And we have redeployed our leaders and talent to drive for
improved performance both in the field and in our Finance, HR, and IT functions.
We are beginning to see results. For our first quarter, sales increased
26%, largely as a result of the inclusion of the acquisitions that I had
mentioned earlier. Operating margins increased from 5.3 to 5.4%.
Finally, earnings per share were $.19.
Clearly, we are disappointed with our fiscal 1996 financial performance
and, as I have said, we are acting aggressively to restore Cadmus to its full
earnings potential. However, as Gary Tooker, the CEO of Motorola said, "We live
in the world of the sound bite and the short look, but we don't look at our
business that way." We are convinced that Cadmus is uniquely well positioned to
achieve an incredibly exciting vision - a vision I'd like to help you picture
and more completely understand.
First, we are aware that we are operating in a very dynamic competitive
and market environment. Our customers and our prospects are increasingly looking
to consolidate vendors and outsource functions and activities that are not core
to their business. At the same time, they are struggling to find ways to deliver
their marketing messages in increasingly targeted, increasingly multimedia, and
increasingly efficient ways.
These trends present for Cadmus an enormous opportunity. Companies are
seeing the value of what Cadmus is uniquely positioned to deliver - that is,
tightly controlled, tightly coordinated, and increasingly choreographed
marketing and graphic communications messages. They recognize the efficiencies
we can provide and they appreciate the increased impact of our full service
solution.
We know that these are steps in our strategic evolution and we have
been methodically climbing the steps. We have worked since 1991 to truly
differentiate our traditional print products and services. More recently, we
have learned, and have developed the infrastructure, to combine these products
and services in full-service offerings to our clients and customers. Now, we are
focused on increasing our marketing skills and competencies and providing these
clients with highly effective, highly innovative, and expertise-driven solutions
to their marketing and communications challenges.
Over the years, Cadmus has assembled many of the pieces required to be
the best single source for these sorts of consultative marketing solutions.
However, we must continue to build and add to our capabilities. We must obtain
additional geographic "reach" and we need to add to our marketing and
communications capabilities. We need to add additional and enhanced agency
skills. We need more marketing personnel and marketing expertise. And we need to
add personnel capable of integrating marketing and graphic communications
products and services seamlessly for our customers and clients.
Increasingly, we are convinced that we are within reach of our vision.
A vision that when clients have a tough marketing challenge, one that requires
not only the development of a marketing plan but the flawless execution thereof,
Cadmus will be the only logical choice -- the best single source for these
marketing and total communications solutions.
So, in conclusion, Cadmus is a very different company today than when
we began this strategic evolution not quite five years ago. A company truly
unified, significantly larger and more capable, and much closer to a powerful
strategic vision and strategic goal. A year ago, I talked to you about our
excitement and our optimism about Cadmus. We have lost none of that and have now
combined it with a determination to restore Cadmus to its full earnings power
and potential. We see before us another five years of growth and opportunity and
we believe that we will be able, in 2001, to look back with pride on our
accomplishments between 1996 and 2001.
I am more grateful today than ever before for the tireless energy and
loyalty of the associates of Cadmus - who are now truly teammates in the
fulfillment of our vision - and for the continued support and patience of our
shareholders, who have stayed with us and remained confident in us throughout
this exciting but difficult year. On behalf of my teammates and colleagues, I
pledge to you once again to do all in our power to remain worthy of your
continued investment and support.