Cadmus Reports Q2 Sales of $113.7 million and a Loss of $0.6 million
Press release from the issuing company
RICHMOND, Va., Jan. 23 -- Cadmus Communications Corporation today reported net sales of $113.7 million, an operating loss of $0.6 million, and a net loss of $3.2 million, or $0.35 per share, for the second quarter of its fiscal year 2003. These results included restructuring and other charges of $8.9 million ($5.9 million after-tax), or $0.65 per share. Excluding the impact of restructuring and other charges, the Company reported income of $2.7 million, or $0.30 per share compared to $0.28 last year and $0.22 in the first quarter (see Note A).
Second quarter highlights, excluding restructuring and other charges and adjusted for the Company's adoption of SFAS No. 142 to provide more useful comparisons (see Note A and Selected Financial Information), were as follows:
-- Net sales declined less than 1% compared to last year's second quarter
as growth in scientific, technical and medical ("STM") services and
specialty packaging was offset by a decline in special interest
magazines and books and directories. Net sales increased by 8%
compared to the first quarter with all divisions producing sequential
-- Operating income increased to $8.3 million compared to $8.0 million
last year and $7.2 million in the first quarter; operating margins
increased to 7.3% of net sales from 7.0% last year and 6.8% in the
-- Income from continuing operations was $2.7 million, an increase of 8%
compared to last year and 37% compared to the first quarter;
-- EBITDA margin improved to 11.5% compared to 11.4% in last year's second
quarter and this year's first quarter;
-- Interest expense (combined with securitization costs) decreased by 9%
compared to last year's second quarter;
-- Total debt (including securitization) decreased by $1.1 million during
Bruce V. Thomas, president and chief executive officer, remarked, "We are pleased with our performance this quarter as we again achieved sequential and year over year improvement. We continued to experience momentum in our STM services and specialty packaging operations as a result of success in executing our differentiation strategy. Despite generally weak market conditions, we are encouraged by broad-based improvement in revenues from the first quarter of this year, with each of our market-focused divisions posting higher revenues. Based on this improving sales performance, in conjunction with our continued efforts to reduce costs and manage capacity, we generated improved operating and EBITDA margins. We are optimistic that we can sustain these positive trends during our second half, which should be helped by cost savings related to the closure of our special interest magazine facility in East Stroudsburg, PA and the successful transfer of customer volume into our Easton, PA and Richmond, VA facilities."
Thomas further stated, "We are now fully focused on the execution of our growth strategies. We have successfully repositioned our business and reduced our cost and debt levels. We are beginning to see new business activity as the market is responding positively to our differentiation strategy and outsourcing initiatives. To sustain this momentum and to position us to deliver on these opportunities, we have made several changes in our operating structure and management. First, we have formed a Publisher Services Group, which consists of our STM services, special interest magazines, and professional books and directories businesses. The Publisher Services Group will enable us to deliver more effective sales efforts, especially to multi- market publishers, implement more effectively the large outsourcing opportunities we have been pursuing, and achieve improved cost reductions in procurement and logistics. Second, we have promoted Stephen E. Hare to president of the Publisher Services Group from his position as executive vice president and chief financial officer. Steve has already begun to have an impact on this newly formed group and will continue to drive initiatives to improve growth and profitability. Finally, I am pleased to announce that Paul K. Suijk has joined Cadmus as senior vice president and chief financial officer. Paul most recently was CFO of Comdial Corporation and has more than 20 years of public company and multi-national experience in corporate finance, treasury, and business development. His experience will be valuable as we look to expand our worldwide presence, pursue international sales and expansion opportunities, and further leverage our global content processing capabilities. We believe we are continuing to build a strong, talented management team at Cadmus that will make significant contributions to our growth and profitability."
Second Quarter Operating Results Review
Net sales for the fiscal second quarter totaled $113.7 million compared with $114.4 million last year, a decline of less than 1%. Publisher Services Group sales were $98.2 million, down 3% from $101.3 million, primarily because of continued softness in advertising. Specialty Packaging segment sales were $15.5 million, an increase of 19% from $13.0 million as a result of new business wins, primarily in the healthcare market.
Operating income was $8.3 million or 7.3% of net sales in the second quarter, excluding restructuring and other charges, compared to $8.0 million or 7.0% of net sales (see Note A) last year. Cash flow from operations was used to reduce total debt (including $26.3 million related to securitization) by $1.1 million for the quarter. Income from continuing operations for the second quarter, excluding restructuring and other charges, totaled $2.7 million or $0.30 per share, compared with $2.5 million or $0.28 per share (see Note A) last year.
Net sales for the first half of fiscal 2003 totaled $219.1 million compared with $225.6 million last year, a decline of 3%. Publisher Services Group sales were $191.3 million, down 5% from $200.9 million, primarily because of continued softness in advertising and volume and pricing pressures. Specialty Packaging segment sales were $27.8 million, an increase of 13% from $24.7 million as a result of new business wins, primarily in the healthcare market. For the six months ended December 31, 2002, operating income, before restructuring and other charges, was $15.5 million or 7.1% of net sales, compared to $15.1 million or 6.7% of net sales (see Note A) last year. Cash flow from operations was used to reduce total debt (including securitization) by $5.8 million during the first half of fiscal 2003.
As announced in November 2002, the Company closed its special interest magazine facility in East Stroudsburg, PA, closed the reprint department at Easton, PA, and relocated certain manufacturing equipment to other facilities to rationalize capacity and improve utilization. In connection with these actions, the Company recorded a pre-tax charge of $8.9 million, consisting of $6.7 million in asset impairment charges and $2.2 million in exit and disposal activities. Of the total charge this quarter, $6.8 million represented non- cash expenses. The Company estimates that there will be additional charges related to these actions of approximately $2 million over the remainder of fiscal 2003.
Note A: In order to provide consistent comparisons in the text portion of this press release as it relates to the adoption of SFAS No. 142, income and earnings per share numbers for fiscal year 2003 have been adjusted to exclude the $56.3 million impact of the cumulative effect of a change in accounting principle for goodwill recorded in the first quarter of fiscal 2003, and income and earnings per share numbers for fiscal 2002 have been adjusted to exclude amortization expense. See "Condensed Consolidated Statements of Income" and "Selected Financial Information" below for reconciliation of reported and adjusted net income and earnings per share numbers.
Cadmus Communications Corporation provides end-to-end, integrated graphic communications services to professional publishers, not-for-profit societies and corporations. Cadmus is the world's largest provider of content management and production services to scientific, technical and medical journal publishers, the fifth largest periodicals printer in North America, and a leading provider of specialty packaging and promotional printing services. Additional information about Cadmus is available at http://www.cadmus.com .
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