Cadmus Still Facing Challenges from Acquisitions: Summary of Q4 Earnings Call August 17, 2006 -- Cadmus Communications Corporation (NASDAQ: CDMS) announced their fourth quarter and fiscal year results recently. The company’s revenue was $113.5 million, 2% higher than the $111.1 million reported last year, marking the fifth consecutive quarter of year-over-year gains. For the year revenues were $451.4 million, up 3.4%, compared to $436.4 million during fiscal 2005. Operating income was $1.1 million, and net loss was $1.8 million, or $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 the fourth quarter last year. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • The company reported $12.1 million in capital spending versus $3.6 million last year. • Debt increased by $4.5 million. • Content services grew 8%, as pages continued to increase in the scientific, technical, and medical (STM) market and as growth accelerated in the India-based subsidiary KnowledgeWorks Global Limited. • Improved efficiencies at the Lancaster Press facility, on time delivery and overall customer satisfaction improved during the quarter. • The company’s recently formed PeriscopeCadmus joint venture has been selected as one of four core suppliers of packaging for a major national retailer. Segment Performance Publishing Services Segment Fourth quarter revenue for the segment was $93.5 million, up almost 2% from $91.4 million reported for the fourth quarter of fiscal 2005. The company experienced solid page and revenue growth from the STM market, continued growth in its emerging solutions technology offering, and better revenue trends in its printing plants serving the special interest magazine market. Adjusted operating income for the fourth quarter declined to $2.8 million from $8.9 million last year and operating income margins declined to 3.0% of net sales from 9.7% of net sales last year. This was primarily due to higher costs from operational inefficiencies and capacity constraints relating to the equipment replacement and consolidation plan. Net sales for the year were $363.7 million, an increase of 2% from $358.3 million posted last year. Specialty Packaging Segment Revenue for the segment was $20.1 million, up 2% from $19.8 million reported for the same period last year. Operating income for the fourth quarter was essentially flat from the prior period at $1.3 million or 6.4% of sales. This is down from the prior year Q4 of $1.6 million, or 8% of net sales. This segment continues to benefit from higher overall volume and efficiencies derived from new and more efficient technology and global workflows, which offset pricing pressures from larger customers. Net sales for the year were $87.8 million, an increase of 12% from $78.2 million last year. Guidance The company posted no specific EPS or revenue guidance for the company’s upcoming fiscal year. Expected adjusted EBITDA should be between $53 million and $55 million in 2007, an increase of 40% over fiscal year 2006. Total capital spending is projected to be between $15 million and $20 million in fiscal year 2007. The company also believes that they will be able to reduce debt levels by $10-$15 million in fiscal year 2007. Raine Radar Despite revenues inching upwards, earnings have fallen since last year. Certainly higher input and utility costs have taken their toll on earnings, as they have on many in the industry, but the company seems to be slow to respond to the problem. Accordingly, the stated goal for fiscal 2007 is to reduce costs through a number of inititatives. Q & A 1. The company stated that despite the challenges in 2006 they are optimistic about entering 2007. They are seeing much improved operations in their international businesses and believe they are becoming established overseas. Finally, they have rebuilt their Publishing Services leadership team, adding experienced managers in key roles. 2. Key goals for fiscal 2007 are to sustain top line momentum, sustain improved profitability from offshore operations, accelerate the pace at Lancaster Press, obtain full cost savings from equipment replacement and consolidation plan, and to reduce debt levels and associated interest expense. 3. Regarding the Sarbanes-Oxley compliance, the company believes that they will incur external extra costs of $700,000 to become compliant. 4. Regarding capital spending, the company spent the following: $41.4 million for publishing services equipment replacement program, $5.6 million in the publishing services segment for “other,” and $9.4 million in the specialty packaging segment for the fiscal year 2006. 5. Last quarter the company stated that they successfully completed their first priority of retaining customers by improving on time delivery, averaging over 90% for May/June. 6. The top priority in the coming quarters is to improve profitability by reducing overtime and spoilage, improving pressroom efficiencies, and cutting costs.