Exhibit 99.2
Prepared Remarks from Conference Call
Thursday, October 14, 1999
Introduction - Steve Gillispie
Good morning. I want to thank you for joining us on what we realize is short
notice. Each of you should have received a copy of our news release that we
issued this morning regarding two key developments for Cadmus. One is a major
change in our organizational structure, and the other is a restructuring plan
that we believe will have material, near-term impact on our earnings model.
Let me preface all of our comments with the note that we are confident that
these collective actions are going to yield meaningful improvement in our
financial performance not only in fiscal 2000, but also over the next several
years. Our intent today, however, is to be very fact based -- to give you (1) a
clear picture of why we are making these changes, (2) the benchmarks you can use
to monitor our progress in completing this plan, and (3) most importantly, the
resulting returns that we expect.
I want to take a few minutes to highlight the organizational changes that we
have made. Then, Bruce Thomas will walk you through the restructuring plan and
the specific actions we will be taking over the next several months.
Finally, Dave Bosher will join us in addressing any questions you may have.
First, our organizational changes. As explained in the release, Bruce Thomas
will be serving in the new position of Executive Vice President and Chief
Operating Officer, with day-to-day operating responsibility for all of our
business units. Dave Bosher will replace Bruce as Chief Financial Officer. Steve
Isaac, who has served as Executive Vice President of the Marketing
Communications Sector, will be leaving the Company to return to the marketing
and advertising industry.
Our new organizational structure represents more than just an evolutionary
change in the way we are going to manage Cadmus. I believe that the returns from
this managerial realignment are going to be very real and very significant.
Since 1995, we have been pursuing a plan to focus our business on those markets
where we have core strengths and can establish market leadership positions. At
the same time, we have been working to streamline and make our governance and
decision-making structure more effective. The path has not been straight or
without bumps along the way. Our announcements today, however, mark a true
milestone in this process.
As a result of these changes, we will be able to move more quickly to capitalize
on business opportunities and meet competitive threats. Our focus going forward
is going to be on execution, and it also will be proactive. In my view, and in
our Board's view, this structure absolutely represents the right approach to
drive better execution, as well as a forward-looking process at each of our
business units.
My personal goal is to complement Bruce's day-to-day oversight of our operations
with the execution of the strategic steps and other broad initiatives that will
allow us to maximize the return on our capital and shareholder value.
The markets in which we compete are growing, but they also are changing and
consolidating at an increasing pace. We have a solid competitive stance and
strong end-to-end capabilities in each of these markets.
In this environment, there are opportunities for Cadmus to expand our
relationships with existing customers; to add significant new customers seeking
our market-focused, end-to-end capabilities; and to enhance our business profile
through acquisitions and/or alliances. I will focus my energies on ensuring that
we can translate these strong market positions into above average top-line
growth.
At this point, I'll turn the call over to Bruce for a more detailed description
of our restructuring plan.
Restructuring Plan - Bruce Thomas
Thank you, Steve.
The restructuring plan we are announcing today is large, and it is
comprehensive. It is designed to take all of the steps necessary to concentrate
our resources on those markets where we have strong competitive positions, and
to significantly improve our financial performance both near-term and going
forward. In my remarks, I want to give you a brief "thumbnail" of the plan, and
then I'll walk you through some of the details of each of its major components.
First, however, let me frame for you the broad financial impacts of this
restructuring plan. We estimate that the charge, that we will be taking in our
1st and 2nd fiscal quarters, will be in the range of $33 to $37 million pre-tax.
Of that amount, only $6-8 million will require cash outlays. The balance, which
represents the bulk of the charge, will be non-cash primarily associated with
the write-off of assets, goodwill, and intangibles associated with the point of
purchase business.
We estimate that annual savings from this restructuring plan will be
approximately $6 million before taxes. A portion of these savings will be
realized in this fiscal year with the full impact accruing in fiscal 2001. In
addition, we expect to realize approximately $15 million in net after-tax cash
proceeds, all of which will be used to repay debt and generate lower interest
expense.
The restructuring plan consists of four broad components:
1. closing our Atlanta-based point of purchase business;
2. implementing additional, planned synergies in connection with our
continued integration of Mack;
3. divesting our Richmond- and Charlotte-based marketing agencies; and
4. consolidating and rationalizing certain corporate functions and
overhead.
I'd like to briefly discuss these components, highlighting the specific actions
being taken, the timing of each action, and the financial impact we expect from
each action going forward.
First, the closure of our point of purchase business. Obviously, this has been a
very difficult decision for us. We have devoted significant managerial time,
attention, and energy in an attempt to restore this unit to profitability.
However, we continue to sustain sizeable operating losses. We have concluded
that it is no longer in the best interests of the organization as a whole to
continue to absorb these losses and to further distract and disrupt the rest of
the organization in an attempt to turn this business around. Therefore, our POP
operations will be closed. Some customers have already been notified and others
will be notified today. We will be working with them to transition their work to
other Cadmus units or to alternative suppliers. We believe that this transition
can be accomplished over the next 30 to 45 days, and that we will completely
cease operations at POP on or about December 1.
Second, the planned additional synergies related to the ongoing integration of
Mack. As we have previously told you, we are following the same integration
model that produced the highly successful integrations of Waverly Press and
Lancaster. Our initial step was to obtain the savings from procurement-related
activities. Most of this procurement integration has been accomplished, and we
are on track to hit our annual savings target.
In the next phase of our integration, we will be consolidating several redundant
departments and operations and rationalizing our overhead structure.
Specifically, we will be consolidating our two composition facilities in the
Lancaster, Pennsylvania area. These facilities are only five miles apart, use
identical composition systems, and share several major customers. We will be
consolidating these operations into Mack's Science Press facility, which will
result in a reduction in force and efficiency improvements, and also will free
up a building for sale.
In addition to this consolidation, we will be consolidating our warehousing and
fulfillment operations, where we store and distribute non-current issues of
journals and magazines. This consolidation will result in a significant
reduction in lease expense, as well as improved operating efficiencies.
Finally, we will be consolidating reprint operations, where we actually receive
author requests for additional copies of their articles and reproduce those
reprints. Currently, we have two centers where we receive these requests and 5
facilities where these reprints are produced. The savings here will largely be
the result of equipment consolidation and liquidation, as well as efficiency
improvement.
These integration-related actions were identified during our due diligence
process related to Mack. Their implementation is occurring right on schedule,
and our anticipated savings of at least $3 to $3.5 million annually is also
right on target with the amounts that we originally sized at the time of the
Mack acquisition. We expect that all of these actions will be completed in the
second half of this fiscal year and that we will realize the full savings from
this integration during fiscal 2001.
Third, the divestiture and closure of our marketing agencies. These actions have
been completed. As you know, we closed the Richmond-based agency in July, and on
September 30, we sold our Charlotte-based Direct Marketing agency.
Finally, we are consolidating certain corporate functions and reducing
overheads. In particular, and most significantly, we are eliminating all
overhead formerly associated with the Marketing Communications sector. In
addition, we will effect some integration of the Finance, IT, and HR functions
across our Professional Communications sector and at our corporate office. This
consolidation should be accomplished during the second quarter, and we would
expect to begin realizing the benefits from these actions in the second half of
this fiscal year.
Let me just conclude by saying that we are firmly convinced that this plan
significantly enhances the outlook for Cadmus' future profitability, and
positions us to capitalize on opportunities for growth in the markets we have
targeted. Perhaps most importantly, we are well on our way to effectively
executing this plan. We have been working on these actions for several months
and have very well developed plans and processes to ensure that we can manage
and execute in timely fashion. We will stay on schedule and we will get it done.
With that, let me turn this call back over to Steve for his concluding remarks.
Conclusion - Steve Gillispie
Thanks, Bruce. We hope this detailed review of our plan has been helpful.
Obviously, some of the actions, such as the Mack integration actions, were
planned and expected. Others, such as the POP closing, are difficult, but
absolutely necessary decisions. Our focus is on consistent, above-average growth
in earnings per share. We are confident that this goal is attainable and believe
that our performance in the second half will provide you with evidence that we
are on the right course.
At this point, we'd like to turn this discussion over to you for questions that
you may have for Bruce, Dave or me.