RICHMOND, Va., April 24 -- Cadmus Communications Corporation today announced net sales of $113.4 million for the third quarter of its fiscal year 2003, an increase of 1% from $112.7 million in last year's third quarter. Operating income was $7.5 million (6.6% of net sales), both income from continuing operations(1) and net income were $2.2 million, or $0.24 per share for the third quarter of fiscal 2003, compared with operating income of $7.4 million (6.5% of net sales), income from continuing operations of $1.5 million, and net income of $0.3 million, or $0.04 per share, in the third quarter of fiscal 2002. Adjusted as described below(2), operating income for the third quarter of fiscal 2003 was $8.6 million, a slight increase over the prior year period and income from continuing operations(1) was $2.9 million, or $0.32 per share, an increase from $2.7 million, or $0.30 per share in last year's third quarter. Highlights for the third quarter were as follows: * Net sales increased 1% compared to last year's third quarter as continued growth in scientific, technical and medical ("STM") services offset continued softness in the special interest magazine market; * Operating income, adjusted as described below, increased to $8.6 million compared to $8.5 million last year and $8.3 million in the second quarter; * Operating margins were 7.6% of net sales, flat with last year, but increased from 7.3% in the second quarter; * Interest expense (combined with securitization costs) decreased by 6% compared to last year's third quarter; * EBITDA margin declined to 11.7% from 12.3% last year but increased compared to 11.5% in the second quarter; * Total debt (including securitization) decreased by $9.0 million during the quarter, due to cash flow from operations, progress on new working capital initiatives and the sale of an idle facility. Bruce V. Thomas, president and chief executive officer, remarked, "We are pleased with our third quarter performance, in which we continued to deliver improved performance both sequentially and year over year. Several of our competitors recently have issued releases warning of the difficult market conditions in which they are operating. Those conditions do in fact exist in the more commodized segments of the industry. However, when we embarked on our differentiation strategy nearly three years ago, we believed that our strategy would allow us to show better growth and profitability even in difficult market conditions. The results of successful implementation of that strategy are beginning to show. Particularly in our most differentiated divisions, the content-oriented STM services and specialty packaging divisions, we have seen consistent top-line growth and improved return on capital. These positive trends, combined with early indications of similar differentiation in our other businesses, are encouraging." Thomas further stated, "In addition to our continued positive trends in net sales and operating margins, we also generated strong cash flow in the third quarter. We achieved our internal debt reduction target of $6 million through cash flow from operations and new working capital initiatives that produced reductions in both receivables and inventories from December 2002. In addition, we paid down another $3 million in debt with the proceeds from the sale of a facility that had been idled in the special interest magazine division. We achieved this debt reduction while making over $3.3 million in capital investments and also making a $1 million cash contribution to our pension plan. For the year, debt has been reduced by $14.8 million. This management team remains committed to, and is actively working to achieve, working capital improvement and continued debt reduction as we go forward." Third Quarter Operating Results Review Net sales for the fiscal third quarter totaled $113.4 million compared with $112.7 million last year, an increase of 1%. Publisher Services Group sales overall were $98.0 million, flat with $98.2 million last year, as growth in STM services from existing accounts and from new business wins offset continued softness in advertising and pricing pressures in the special interest magazine market. Specialty Packaging segment sales were $15.5 million, an increase of 7% from $14.5 million, as this division continued to generate new business wins, primarily in the healthcare market. Operating income, adjusted as described below, was $8.6 million or 7.6% of net sales in the third quarter, compared to $8.5 million or 7.6% of net sales last year. Cash flow from operations and the sale of an idle facility was used to reduce total debt (including $26.2 million related to securitization) by $9.0 million for the quarter. Income from continuing operations, adjusted as described below, for the third quarter totaled $2.9 million or $0.32 per share, compared with $2.7 million or $0.30 per share last year. Net sales for the first nine months of fiscal 2003 totaled $332.6 million compared with $338.3 million last year, a decline of 2%. Publisher Services Group sales were $289.3 million, down 3% from $299.1 million, primarily because of continued softness in advertising and volume and pricing pressures. Specialty Packaging segment sales were $43.3 million, an increase of 11% from $39.2 million. For the nine months ended March 31, 2003, operating income, adjusted as described below, was $24.1 million or 7.2% of net sales, compared to $23.6 million or 7.0% of net sales last year. Income from continuing operations for the first nine months, adjusted as described below, totaled $7.6 million or $0.84 per share, compared with $7.0 million or $0.78 per share last year(3). Cash flow from operations and the sale of an idle facility was used to reduce total debt (including securitization) by $14.8 million during the first nine months of fiscal 2003. As previously announced, the Company implemented a restructuring program to close its special interest magazine facility in East Stroudsburg, PA, close the reprint department at Easton, PA, and relocate certain manufacturing equipment to other facilities to rationalize capacity and improve utilization. While the majority of these actions were completed in the second quarter, activities continued in this quarter as well. In connection with these activities, the Company recorded a pre-tax charge of $1.1 million, consisting of $0.3 million in asset impairment charges and $0.8 million in exit and disposal activities. Of the total charge this quarter, $0.3 million represented non-cash expenses. For the first nine months of this fiscal year, the Company has recorded pre-tax charges totaling $10.1 million, consisting of $7.1 million in asset impairment charges and $3.0 million in exit and disposal activities. Of the total charge this year, $7.1 million represented non-cash expenses.