RICHMOND, Va., Aug. 5 -- Cadmus Communications Corporation today announced net sales of $109.6 million for the fourth quarter of its fiscal year 2004, a decline of 4% from $114.4 million in last year's fourth quarter. Operating income was $8.9 million and the net loss was $2.1 million, or a loss of $0.22 per share, for the fourth quarter of fiscal 2004, compared to operating income of $6.6 million and net income of $1.7 million, or $0.19 per share, in the fourth quarter of fiscal 2003. For the full year, net sales were $445.4 million, essentially flat with fiscal 2003 net sales of $446.9 million. In addition, for the full year, operating income was $33.9 million compared to $20.7 million last year, and net income was $6.7 million, or $0.72 per share, compared to a net loss of $53.6 million, or a loss of $5.94 per share last year. Results for the quarter and for the year were impacted by certain charges associated with the Company's recently-completed refinancing of its 9.75% senior subordinated notes. Adjusted for these charges and as described below,(1) operating income for the fourth quarter of fiscal 2004 was $9.1 million, an increase of 6% from $8.6 million in the prior year period, and income was $3.5 million, or $0.39 per share, an increase of 18% from $3.0 million, or $0.33 per share, in last year's fourth quarter.(2) For the full year, as adjusted, operating income was $34.3 million, an increase of 5% from $32.7 million last year, and income was $12.4 million, or $1.34 per share, up from $10.6 million, or $1.17 per share, last year, an increase of 17% and 15%, respectively.(2) Highlights for the fourth quarter(1) were as follows: * Net sales declined by approximately 4%, as continued growth in specialty packaging and content services was more than offset by lower freight (a pass through for the Company) and lower special interest magazine revenues; * Operating income rose 6% from last year's fourth quarter to $9.1 million and operating margins increased to 8.3% from 7.5% last year; * EBITDA rose 5% from last year's fourth quarter to $14.0 million and EBITDA margins rose to 12.8% from 11.6%; * Operating margins from the special interest magazine market of Cadmus' Publisher Services segment improved to 4.5%, representing significant progress towards management's 5% target. Revenues from this market declined by approximately 12%, as the Company managed capacity and focused on improved business mix; * Total debt decreased by $3.1 million during the quarter, excluding the $10 million cash impact of refinancing; and * The minimum liability related to Cadmus' pension plans, including the frozen defined benefit plan, decreased by $19.5 million during the fourth quarter. Highlights for the full fiscal year(1) were as follows: * Net sales were essentially flat as growth in other markets (see below) was offset by a decline in sales from the special interest magazine market due to pricing pressures in the market generally and management's actions to manage capacity to improve overall business mix; * In other markets, net sales showed solid growth, led by 12% growth in specialty packaging and a 3% increase in STM revenues which was driven by double-digit growth in content services; * Operating income increased 5% to $34.3 million and operating margins expanded to 7.7% from 7.3%; * Income increased 17% to $12.4 million and earnings per share rose 15% to $1.34 per share; and * Total debt (including securitization) decreased by $13.1 million during the fiscal year, excluding the $10 million cash impact of refinancing, despite the $7.8 million pension contribution made by the Company in the first quarter. Bruce V. Thomas, president and chief executive officer, remarked, "We are pleased with results for our fourth quarter and for the fiscal year. This is the second year in a row that we have achieved the financial objectives that we established at the beginning of the year. We hit our earnings per share target, we achieved sequential improvement throughout the year, we increased EBITDA nicely, and we expanded operating and EBITDA margins. Particularly in an industry that continues to be plagued by excess capacity and pricing pressures, we are proud of our results." Continuing, Mr. Thomas stated, "We also are pleased that we achieved these results while also accomplishing several key initiatives that should position Cadmus for continued success. Most importantly, we have successfully extended our content business into the much larger and very attractive educational market. We worked throughout the year to build our capabilities in this market and we did incur considerable costs doing so. Nevertheless, we are very encouraged by the receptivity of this market to our product and service offering and believe this represents an exciting and attractive new market for Cadmus. We also achieved much improved profitability this quarter in our special interest magazine market, where efforts to manage capacity and focus on improving overall product mix are delivering the results we had hoped for and that we expect in fiscal 2005. Finally, we successfully completed the refinancing of our senior subordinated notes and redeemed our subordinated promissory notes, which provide us with a lower cost of debt and improved flexibility going forward." Paul K. Suijk, senior vice president and chief financial officer, added, "We are pleased with our solid cash flow and debt reduction of $3.1 million for the quarter and $13.1 million for the year, excluding the $10 million paid in connection with the refinancing of our senior subordinated notes. This refinancing will reduce our annual interest expense going forward, provide sufficient liquidity to meet our operating requirements for working capital and capital expenditures, and support accelerated, yet disciplined, growth and entry into new content-rich markets. We have continued to focus on working capital initiatives to further de-leverage the Company. This quarter we reduced our overall receivables due to strong collections and we continue to focus on improving working capital trends." Fourth Quarter Operating Results Review Net sales for the fourth quarter totaled $109.6 million compared with $114.4 million last year, a decrease of 4%. Publisher Services segment sales were $93.3 million, a decrease of 6% from $99.2 million last year, as a result of lower freight and postage (which are pass through costs for the Company), continued pricing pressures, and management's plan to manage capacity, improve business mix, and generally drive for higher margins in the special interest magazine market. Specialty Packaging segment sales were $16.2 million, an increase of 7% from $15.1 million, as this division continued to benefit from recurring projects from healthcare and consumer products customers. Operating income, adjusted as described below, was $9.1 million or 8.3% of net sales in the fourth quarter, compared to $8.6 million or 7.5% of net sales last year.(3) Income before cumulative effect of a change in accounting principle, adjusted as described below, totaled $3.5 million, or $0.39 per share, for the fourth quarter compared with $3.0 million, or $0.33 per share, in last year's fourth quarter.(4) For the quarter, Publisher Services operating income declined 7% due to pricing pressures in the market generally and due to increased costs incurred in connection with the Company's educational market initiative and in connection with work flow changes regarding certain existing STM customers that will permit the Company to obtain additional pages from those accounts. By contrast, Specialty Packaging operating income rose 414% as the Company continued to benefit from higher overall volume, improved business mix, and the investments in more efficient technology and work flows made in fiscal 2003. Cash generated from operations resulted in a decrease in total debt of $3.1 million for the quarter, excluding the $10 million paid to redeem our $125 million, 9.75% senior subordinated notes and issue our new $125 million, 8.375% senior subordinated notes. The Company incurred expenses of $8.3 million, or $0.60 per share, associated with the refinancing of the notes, consisting primarily of the tender premium and the write-off of deferred loan costs related to the 9.75% notes. The Company also incurred approximately $0.2 million, or $0.01 per share, in restructuring charges as it completed its restructuring actions previously announced. As a result of our $7.8 million cash contribution in the first quarter and improved asset performance in the frozen defined benefit pension plan and our other benefit programs, the additional minimum liability was reduced in connection with the annual valuation which resulted in an increase in shareholders' equity of $19.5 million, before tax. Fiscal Year Operating Results Review Net sales for the fiscal year ended June 30, 2004 totaled $445.4 million, essentially flat compared to $446.9 million last year. Publisher Services segment sales were $380.2 million, a decrease of 2% from $388.5 million last year. In this segment, STM market revenues were up 3%, while revenue in the special interest magazine market fell by 10%. Specialty Packaging segment sales were $65.2 million, an increase of 12% from $58.4 million last year. For the twelve months ended June 30, 2004, operating income, adjusted as described below, was $34.3 million, or 7.7% of net sales, compared to $32.7 million, or 7.3% of net sales last year.(5) Income before cumulative effect of a change in accounting principle for the fiscal year, adjusted as described below, totaled $12.4 million, or $1.34 per share, compared to $10.6 million, or $1.17 per share, last year.(6) For the year, Publisher Services operating income declined 7% as the business was adversely affected by pricing pressures, particularly in the special interest magazine market. In addition, the business continued to incur costs in connection with its educational market initiatives, including the opening and staffing of the Company's Chennai, India facility, and with the launch of ArticleWorks(TM), dPub(TM), Rapid Production Manager(TM) and other electronic products and solutions for the professional publishing market. By contrast, Specialty Packaging operating income rose 152% as the Company continued to benefit from higher overall volume and improved business mix. Cash flows generated from operations, offset by the $7.8 million cash contribution to the frozen defined benefit pension plan in the first quarter of fiscal 2004, were used to reduce total debt (including securitization) by $13.1 million for fiscal 2004, excluding the $10 million paid to refinance the senior subordinated notes. Outlook for Fiscal 2005 Commenting on the Company's outlook for fiscal 2005, Mr. Thomas stated, "During fiscal 2004, the actions we took with respect to our debt provide us with a more flexible and less expensive structure going forward. In addition, we have targeted the educational market for expansion and have invested considerable energy into successfully entering this market. We continue to focus on improving the profitability of our special interest magazine business, and, in fact, all of our businesses. For fiscal 2005, we should realize the benefits of these actions and believe we can sustain our track record of year over year improved earnings. We have established certain targeted goals for fiscal 2005, including net sales growth of around 3%, EBITDA of $56-$58 million, earnings per share in the range of $1.62-$1.67, capital expenditures of $15-$19 million, and debt reduction of between $14-$17 million. Assuming that industry and economic conditions do not deteriorate, we believe these targets are reasonable and attainable."