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Cadmus Communications Announces Net Loss For Q4

Friday, August 04, 2006

Press release from the issuing company

RICHMOND, Va., Aug. 3 -- Cadmus Communications Corporation today announced results for its fourth quarter of fiscal 2006. Net sales were $113.5 million on a consolidated basis, an increase of 2% from $111.1 million in last year's fourth quarter. Operating income was $1.1 million, and net loss was $1.8 million, or a loss of $0.20 per share, compared to operating income of $4.4 million and net income of $1.2 million, or income of $0.13 per share in last year's fourth quarter. Included in the results for the fourth quarter of fiscal 2006 were restructuring and other charges of $1.2 million, or $0.08 per share net of taxes, related primarily to (i) severance expenses, costs to consolidate and reorganize manufacturing facilities, and impairment of assets to be replaced, all of which are part of the Company's previously announced equipment replacement and consolidation plan, and (ii) costs associated with management changes and related organizational changes within the Publisher Services segment and its Emerging Solutions operations. Adjusted for the impact of these items(2), adjusted operating income was $2.4 million and adjusted loss per share was $0.12 for the fourth quarter of fiscal 2006. For the quarter and for the fiscal year, operating highlights or items of note include the following: * For the quarter, net sales grew 2% on a consolidated basis with growth in net sales in both of the Company's segments, the fifth consecutive quarter in which the Company reported an increase in year over year consolidated net sales. For the year, net sales increased 3%. * For the quarter, content services net sales grew 8%, as pages continued to increase in the core scientific, technical, and medical ("STM") market and as growth accelerated for the Company's India-based subsidiary, KnowledgeWorks Global Limited. * For the quarter, net sales in the Specialty Packaging segment were up 2%, as lower freight billed (as an expense passed through to customers) and lower revenues in the Charlotte, North Carolina facility offset strong growth in the offshore operations. For the full year, however, net sales rose 12% to approximately $87.8 million. * With improved efficiencies at the Lancaster Press facility, on time delivery and overall customer satisfaction improved dramatically during the quarter. * Operating margins in the Specialty Packaging segment declined to 6.4% for the fourth quarter. Included in these results, however, are approximately $0.5 million in additional costs incurred in the Specialty Packaging segment related primarily to establishing the recently-announced PeriscopeCadmus(TM) joint venture and the joint venture's Asian offices. Excluding these one-time costs, adjusted operating margins increased to 8.9%(3). * The Company's recently-formed PeriscopeCadmus(TM) joint venture has been selected as one of four core suppliers of packaging for a major national retailer. While start-up spending in connection with this joint venture may adversely affect margins in the first quarter, this new business win should drive sustained growth and profitability in the specialty packaging joint venture for the balance of fiscal 2007. * Operating income for the quarter in the Publisher Services segment was negatively impacted by (i) continued operational inefficiencies in connection with the integration of the Lancaster and Science Press sites, (ii) one-time expenses relating to customer credits, (iii) pricing pressures, primarily in the special interest magazine segment, and (iv) higher utility costs. Bruce V. Thomas, president and chief executive officer, remarked, "Despite our challenges in fiscal 2006, we enter fiscal 2007 with optimism about our business. We are encouraged by the growth we are seeing in our business. This growth has been broad-based and sustained and we are accelerating new business development efforts to take advantage of our lower cost, more efficient manufacturing platform. We also are seeing much improved profitability from all of our offshore operations. Over the past several years, our investment in India, the Dominican Republic, Honduras, and Hong Kong has been substantial. These operations are now well established and we are beginning to see both accelerating growth and improving margins. Finally, we have rebuilt our Publisher Services leadership team, adding experienced managers such as Peter Hanson and John Miller in key leadership roles. We believe their skills and experience will have a very positive impact on our operational performance going forward." Continuing Mr. Thomas stated, "We expect to rebound sharply from the disappointing performance in fiscal 2006. We have much stronger operations domestically and robust and highly differentiating global capabilities in both content and print. We remain convinced that our strategy is sound, that it will permit us to deliver much improved performance in fiscal 2007, and that it continues to position the Company for long-term success." Paul K. Suijk, senior vice president and chief financial officer, provided additional specifics regarding the Company's expected performance for fiscal 2007. Mr. Suijk stated, "If we can sustain top line momentum, continue to benefit from the improving trends in our offshore and content operations, sustain or accelerate the pace of improvement at Lancaster, and realize the planned benefits from the web press installations at Easton, Pennsylvania and Richmond, Virginia (these start-ups are nearing completion and are on track), we can deliver approximately $53-55 million in adjusted EBITDA for fiscal 2007. Starting with the third quarter, the full savings on an annual run rate basis associated with the equipment replacement and consolidation plan should be fully realized. Therefore, the adjusted EBITDA run rate should be in the low-to-mid $60 million range in the second half of fiscal 2007. Once we complete the capital spending related to the equipment replacement and consolidation plan in the first quarter, we expect capital spending levels to return to the more historical levels of $10-15 million on an annual basis. At these EBITDA and spending levels, we would expect to reduce debt by approximately $10-15 million in fiscal 2007." Commenting further, Mr. Suijk stated, "The Company amended its senior bank credit agreement, effective June 30, 2006, to amend certain financial covenants, including total leverage and senior leverage, and to provide for certain other requirements under the terms of the agreement. This amendment will permit us the flexibility and the support we need to both complete our equipment upgrade plan and to effect the other aspects of our business plan for fiscal 2007. We are grateful for, and strongly encouraged by, the continuing support we have received from our banks, our bondholders, and our shareholders."




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