RICHMOND, Va., Aug. 4 -- Cadmus Communications Corporation today announced net sales of $111.1 million for the fourth quarter of its fiscal year 2005, an increase of 1% from $109.6 million in last year's fourth quarter. Operating income was $4.4 million and net income was $1.2 million, or $0.13 per share, for the fourth quarter of fiscal 2005, compared to operating income of $8.9 million and a net loss of $2.1 million, or a loss of $0.22 per share, in the fourth quarter of fiscal 2004. For the full year, net sales were $436.4 million, down 2% from fiscal 2004 net sales of $445.4 million, operating income was $30.1 million compared to $33.9 million last year, and net income was $15.0 million, or $1.60 per share, compared to net income of $6.7 million, or $0.72 per share, last year. Included in the results for the fourth quarter of fiscal 2005 are (i) restructuring and other charges of $4.9 million, or $0.33 per share, related to the impairment of assets to be replaced as part of the previously announced equipment upgrade plan, and (ii) a gain from discontinued operations of $0.6 million, or $0.06 per share, resulting from the settlement of certain lease guaranty costs which were incurred last quarter relating to a former subsidiary.(1) Results for the fourth quarter of fiscal 2004 include (i) costs of $8.3 million, or $0.60 per share, associated with the Company's refinancing of its senior subordinated notes, and (ii) restructuring and other costs of $0.2 million, or $0.01 per share. Adjusted for the impact of the items noted above, operating income was $9.3 million for the fourth quarter of fiscal 2005, an increase of 2% from last year's $9.1 million, and income from continuing operations was $3.8 million, or $0.40 per share, compared to $3.5 million, or $0.39 per share, in the fourth quarter of fiscal 2004, adjusted as described above.(2) For the full year, adjusted for the full-year impact of the items noted above(2) and the fiscal year 2005 impact of the federal tax benefit of approximately $5.0 million, or $0.54 per share, recorded last quarter, operating income was $35.3 million for fiscal year 2005, an increase of 3% from $34.3 million last year, and income from continuing operations was $14.2 million, or $1.52 per share, compared to $12.4 million, or $1.34 per share, in fiscal year 2004. Operating highlights for the fourth quarter and the fiscal year were as follows: * Net sales increased 1% to $111.1 million, led by continued strong growth in Specialty Packaging and better trends in STM journals. For the full year, consolidated revenues decreased 2% to $436.4 million from $445.4 million in fiscal 2004; * Specialty Packaging net sales increased 22% to $19.8 million and operating margins expanded to 8.0% from 7.7% last year. For the full year, Specialty Packaging net sales rose 20% to $78.2 million and operating margins increased to 9.4% from 6.6% in fiscal 2004; * Consolidated operating margins, as adjusted, increased to 8.4% of net sales compared to 8.3% in the prior year. For the full year, consolidated operating margins, as adjusted, increased to 8.1%, from 7.7% in fiscal 2004; * Earnings per share, as adjusted, rose to $0.40 from $0.39 last year. For the full year, earnings per share, as adjusted rose 13.4% to $1.52 per share; * EBITDA rose to $14.2 million for the fourth quarter from $14.0 million last year and EBITDA margins were 12.8%, flat with last year. For the full year, EBITDA rose to $55.1 million, an increase of 2% from last year, and EBITDA margins increased to 12.6% from 12.1% in fiscal 2004; and * Total debt increased by $1.5 million (excluding the fair market value of interest rate swap agreements) as the Company made certain down payments during the quarter in connection with its recently announced equipment upgrade plan.(3) For the fiscal year, total debt decreased by $10.8 million (excluding the fair market value of interest rate swap agreements). Bruce V. Thomas, president and chief executive officer, remarked, "I am pleased with our performance this quarter, as we again delivered solid year over year improvement. From a revenue perspective, there were several positive signs. We reversed recent trends to post top line growth on a consolidated basis, we sustained exceptional growth in our Specialty Packaging segment, and we saw better trends in revenues in our core STM journal division. Those results are encouraging. From a margin perspective, we continue to do very well, with operating margins rising to 8.4% and EBITDA margins holding at a solid 12.8% for the quarter. Finally, as we have done all year, and despite continued investment to enter new markets and add to our resources and capabilities around the world, we continue to do a very good job of controlling our costs and managing SG&A expense. For the quarter, SG&A declined to 9.2% of net sales, a percentage that we believe to be among the strongest in the industry." Continuing, Mr. Thomas stated, "While we posted steady and improving financial performance, we also accomplished many initiatives key to strengthening and positioning our business going forward. During the quarter, we (i) expanded our Chennai operations and won new business from both new and existing educational customers, (ii) relocated and expanded our Dominican Republic operations and won new health care-related packaging business for that plant; (iii) won several new and prestigious customers for our Emerging Solutions products, and (iv) completed a comprehensive review of our paper programs, making several changes in our mill and merchant relationships to achieve cost reduction, improved service, and better opportunities for revenue growth. In addition, and obviously most importantly, we completed our planning for our comprehensive equipment upgrade of both our Specialty Packaging and Publisher Services segments and we placed orders for packaging and publication presses and related equipment that is in every respect state of the art. This equipment will begin arriving in the Fall and should give us enormous improvements both in our competitiveness from a pure print perspective and in our overall cost structure and manufacturing efficiency. In short, we are proud of the solid financial performance we have delivered and excited about the opportunities we have created for our business going forward as a result of these key initiatives and achievements." Paul K. Suijk, senior vice president and chief financial officer, noted, "For the quarter, our overall debt increased by $1.5 million. During the quarter, we paid our semi-annual interest payment of $5.2 million on the senior subordinated notes. In addition, we also paid approximately $0.9 million in down payments on presses and other equipment related to our equipment upgrade plan and we paid a $1.0 million settlement related to discontinued operations. For the year, however, we reduced debt by $10.8 million, to bring our total debt to $157.0 million (excluding the fair market value of interest rate swap agreements) as of June 30, 2005. All in all, from a debt reduction and cash flow perspective, it was another solid quarter and another strong year." Fourth Quarter Operating Results Review Net sales for the fourth quarter totaled $111.1 million compared with $109.6 million last year, an increase of 1%. Specialty Packaging segment net sales were $19.8 million, an increase of 22% from $16.2 million last year. Publisher Services segment net sales were $91.4 million, a decrease of 2% from $93.3 million last year, as a result of lower freight and postage (which are pass through costs for the Company) and continued pricing pressures in certain markets. Operating income for the quarter was $9.3 million or 8.4% of net sales in the fourth quarter, compared to $9.1 million, or 8.3% of net sales last year, adjusted as described above.(4) Specialty Packaging operating income rose 26% to $1.6 million and operating income margins increased to 8.0% from 7.7% last year as the business continued to benefit from higher overall volume, improved business mix, and efficiencies derived from new and more efficient technology and work flows. Publisher Services operating income declined 14% to $8.9 million and operating income margins declined to 9.7% from 11.0% last year due to (i) costs incurred to support our educational and Emerging Solutions initiatives, (ii) severance and related costs incurred in connection with content-related capacity rationalization, and (iii) continued pricing pressures in certain markets. Income from continuing operations for the fourth quarter totaled $3.8 million, or $0.40 per share, compared to $3.5 million, or $0.39 per share, in last year's fourth quarter, adjusted as described above.(5) Cash generated from operations, offset by the $5.2 million semi-annual interest payment on the senior subordinated notes, the $0.9 million down payments on presses and related equipment related to our equipment upgrade plan and the $1.0 million lease guaranty settlement resulted in an increase in total debt of $1.5 million for the quarter, excluding the fair market value of interest rate swap agreements. The Company repurchased approximately 45,000 shares of its common stock during the fourth quarter under our previously announced stock repurchase program, which resulted in a net cash outflow of approximately $0.2 million for the quarter. The additional minimum liability related to the Company's frozen defined benefit pension plan and other pension plans increased based on the latest valuation reports resulting in a decrease in shareholders' equity of $8.4 million, net of tax. Fiscal Year Operating Results Review Net sales for fiscal year 2005 totaled $436.4 million compared with $445.4 million last year, a decrease of 2%. Specialty Packaging segment net sales were $78.2 million, an increase of 20% from $65.2 million last year. Publisher Services segment net sales were $358.3 million, down 6% from $380.2 million last year. For fiscal year 2005, operating income was $35.3 million, or 8.1% of net sales, compared to $34.3 million, or 7.7% of net sales last year, adjusted as described above.(6) For fiscal year 2005, Specialty Packaging operating income rose 71% to $7.4 million and operating income margins increased to 9.4% from 6.6% last year. Publisher Services operating income declined 8% to $35.8 million and operating margins declined to 10.0% from 10.2% last year.(7) Income from continuing operations for fiscal year 2005 totaled $14.2 million, or $1.52 per share, compared to $12.4 million, or $1.34 per share, last year, adjusted as described above.(2,8) Cash generated from operations resulted in a decrease in total debt of $10.8 million for fiscal year 2005, excluding the fair market value of interest rate swap agreements. The Company has repurchased approximately 260,000 shares of its common stock during fiscal year 2005 under our previously announced stock repurchase program, which resulted in a net cash outflow of approximately $1.2 million for fiscal year 2005. Outlook Commenting on the Company's outlook for fiscal 2006 and fiscal 2007, Mr. Thomas stated, "Obviously, the equipment upgrade plan that we recently announced is the big news for both fiscal 2006 and fiscal 2007. This plan will help us in three key ways. First, it will provide the capacity we need to continue to grow our business in our target publishing markets, particularly the attractive STM and educational markets. Second, it will add a second in-line folding carton production system in our Charlotte facility, adding needed capacity there and also permitting us to relocate existing equipment to expand our highly successful Global Packaging Services ("GPS") capabilities with new facilities in the Dominican Republic and in Honduras. Finally, and most importantly, it will permit us to streamline our existing print operations -- eliminating older and less efficient equipment and significantly improving our manufacturing efficiencies. Capital spending will increase to just over $50 million in fiscal 2006 -- as we have accelerated the delivery and installation of all equipment in fiscal 2006 -- before returning to the more normal $13-15 million range in fiscal 2007. We continue to believe that the plan will add at least an additional $12-15 million in EBITDA annually, with the full benefit being obtained in fiscal 2007." Commenting further, Mr. Thomas said, "On a pure operating basis, our Specialty Packaging business has been growing strongly, the division remains very busy, and we see solid growth continuing through fiscal 2006. In our Publisher Services segment, we will be focused on growing our educational business, growing our Emerging Solutions business, and operating our business as effectively and efficiently as possible while we effect a comprehensive upgrade of our manufacturing platform. There will be a lot going on in our Publisher Services Group in fiscal 2006, but we believe that steady improvement is possible. At this point, published estimates for Cadmus are $1.62 for fiscal 2006, and $2.33 for fiscal 2007. We are comfortable with those estimates and they represent our guidance and outlook for both periods. Please note that in this guidance, the potential additional tax benefit of up to a total of $37 million that we have discussed previously has not been taken into consideration and would represent upside to our guidance."