Company Achieves Sequential Improvement in Earnings and Further Debt Reduction RICHMOND, Va., Jan. 24 -- Cadmus Communications reported net sales of $120.9 million and net income of $1.3 million, or $0.15 per share, for the second quarter of its fiscal year 2002. Commenting on the quarter, Bruce V. Thomas, president and chief executive officer, remarked, "In this challenging economic environment, we are pleased to report sequential improvement in earnings. We are seeing benefits from our cost reduction programs that have reduced expenses on a company-wide basis. In addition, we have been awarded several new multi-year contracts and our new business development activity remains strong. As a result, we have been able to sequentially grow revenues in both our Publishing Services and Packaging businesses this quarter and believe that we have gained share in our key markets.'' Mr. Thomas added, "During the quarter, we saw improved overall performance and continued to generate positive cash flow and meaningful debt reduction. Our less economically sensitive divisions (scientific, technical and medical (''STM") journals and professional books and directories) continued to generate stable operating results. And, while our more economically sensitive divisions (special interest magazines and specialty packaging) still have much room for improvement, both achieved better profitability than in recent quarters. Looking ahead, we remain confident that our profit improvement actions, combined with lower debt levels, will continue to mitigate the volume and pricing pressures that we face.'' Operating Results Review Net sales for the fiscal second quarter totaled $120.9 million compared with $128.6 million last year, a decline of 6% . Publication Services segment (STM journal services, special interest magazines, and professional books and directories) sales were down 7%, almost entirely because of a 13% decline in special interest magazine sales. The decline in special interest magazine sales resulted from a continued reduction in advertising pages during this weak economic environment. Specialty packaging sales increased 5% in the quarter. All sales amounts for the prior year exclude divested and closed operations. Operating income totaled $6.9 million in the second quarter compared to $10.6 million last year before restructuring and other charges. Operating income improved sequentially compared to $5.9 million in the first quarter of 2002. Cash flow from operations and the proceeds of asset sales were used to reduce total debt (including securitization) by $13.9 million for the quarter. Net income for the second quarter totaled $1.3 million, or $0.15 per share, compared with $2.8 million, or $0.32 per share, last year before restructuring and other charges. If the Company had adopted Statement of Financial Accounting Standards No.142 ("SFAS 142''), which requires that goodwill be tested for impairment annually instead of amortized, second quarter earnings for fiscal 2002 would have been $0.28 per share as a result of the elimination of goodwill amortization. Net sales for the first half of fiscal year 2002 totaled $234.0 million compared with $245.7 million last year excluding divested and closed operations, a decline of 5% primarily because of lower special interest magazine sales. Operating income totaled $12.8 million for the first half compared to $21.1 million last year before restructuring and other charges. Cash flow from operations and asset sales were used to reduce total debt (including securitization) by $23.9 million for the first six months of the fiscal year. If the Company had adopted SFAS 142, first half earnings for fiscal 2002 would have been $0.48 per share as a result of the elimination of goodwill amortization.