Cadmus Reports Q4 Results: Solid Top Line Growth Drives Improved Performance
Press release from the issuing company
RICHMOND, Va., July 30 -- Cadmus Communications Corporation today announced net sales of $114.4 million for the fourth quarter of its fiscal year 2003, an increase of 5% from $109.0 million in last year's fourth quarter. Operating income was $6.6 million and net income was $1.7 million, or $0.19 per share for the fourth quarter of fiscal 2003, compared with operating income of $7.3 million and net income of $1.6 million, or $0.17 per share, in the fourth quarter of fiscal 2002. For the full year, operating income was $20.7 million compared to $27.4 million last year, and income from continuing operations was $2.7 million, or $0.30 per share, compared to $5.0 million, or $0.55 per share last year.
Adjusted as described below,(1) operating income for the fourth quarter of fiscal 2003 was $8.6 million, an increase from $8.5 million in the prior year period, and net income was $3.0 million, or $0.33 per share, an increase from $2.7 million, or $0.30 per share in last year's fourth quarter. For the full year, as adjusted, operating income was $32.7 million, an increase from $32.1 million last year, and income from continuing operations was $10.6 million, or $1.17 per share, an increase from $9.7 million, or $1.07 per share last year.
Highlights for the fourth quarter were as follows:
-- Net sales increased 5% compared to last year's fourth quarter, led by continued growth in scientific, technical and medical ("STM") services and specialty packaging;
-- Publisher Services Group net sales increased 3% to $99.2 million, and operating income from that group rose to $11.1 million (11.2% of net sales);
-- Total debt (including securitization) decreased by $0.6 million during the quarter, due to strong cash flow from operations and progress on new working capital initiatives. This continued debt reduction was achieved despite a $6.1 million semi-annual bond interest payment, $6.1 million in capital expenditures, and a $3.1 million investment to fund the previously announced expansion of the Company's offshore content processing operations; and
-- Interest expense and securitization costs declined to $3.7 million for the fiscal 4th quarter, down from $4.2 million in the previous year.
Highlights for the full fiscal year were as follows:
-- Despite difficult economic and industry conditions throughout the year, net sales were flat year over year, as double-digit growth in specialty packaging and solid growth in STM services offset volume and pricing pressures in the special interest magazine market;
-- The Company met analyst expectations and slightly exceeded its business plan for the year;
-- Sequential increases in earnings per share were achieved throughout fiscal 2003;(1) and
-- Total debt was reduced by another $15.4 million during the fiscal year, bringing total debt reduction since June 30, 2000 to $75.1 million.
Bruce V. Thomas, president and chief executive officer, remarked, "We are very pleased with our performance in the fourth quarter and with our performance for the full year. As the recent announcements by several of our competitors indicate, industry conditions continue to be difficult. Nevertheless, we have been able to meet expectations, exceed our business plan, grow our revenues, and post sequential and year over year improvement in earnings throughout the year. We are particularly encouraged by the strong top-line growth we achieved this quarter. This growth, again achieved despite difficult market conditions, reflects the success we are having with our differentiation strategy and with our efforts to bring high-value and increasingly content-oriented products and services to market."
Thomas further stated, "We have continued to work hard to further differentiate our business so that we can sustain revenue growth. In this quarter, we have expanded our content services operations in India, through the formation of our KnowledgeWorks Global Limited joint venture announced earlier this week and the opening of a second offshore facility. Also in this quarter, we launched our ArticleWorks(SM) service to help publishers reduce their costs and generate new revenue. These initiatives highlight our continued commitment to providing comprehensive tools to meet the needs of our publishing customers and to expanding our outsourcing solutions model to new and increasingly global markets."
Finally, Thomas noted, "We remain keenly aware of the need to drive for improved efficiencies and lower costs in our business. During the year, we have rationalized capacity and restructured our plants to permit us to gain additional print manufacturing efficiencies. In addition, we reduced our total debt by another $15.4 million during the year, as newly implemented processes drove improved management of our working capital. This brings total debt reduction in the three years this management team has been in place to $75.1 million. We are encouraged that these achievements are sustainable and reflect the institutionalization of comprehensive and improved management systems and practices across all our divisions and all of our plants."
Fourth Quarter Operating Results Review
Net sales for the fiscal fourth quarter totaled $114.4 million compared with $109.0 million last year, an increase of 5%. Publisher Services Group sales were $99.2 million, an increase of 3% from $96.3 million last year, as a result of continued growth in STM services from existing accounts and from new business wins. Specialty Packaging segment sales were $15.1 million, an increase of 19% from $12.7 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 7.5% of net sales in the fourth quarter, compared to $8.5 million or 7.8% of net sales last year.(2) Cash flow from operations was used to reduce total debt (including $26.7 million related to securitization) by $0.6 million for the quarter. Income from continuing operations, adjusted as described below, for the fourth quarter totaled $3.0 million or $0.33 per share, compared with $2.7 million or $0.30 per share last year.
The Company recorded an additional minimum liability in connection with the annual valuation of its defined benefit pension plan, which resulted in an after-tax reduction in shareholders' equity of approximately $23.8 million. The defined benefit pension plan will be frozen effective July 31, 2003. In connection with the previously announced restructuring program, the Company recorded a pre-tax charge of $2.0 million, or $0.14 per share, in the fourth quarter consisting of $0.8 million in asset impairment charges, $0.5 million in exit and disposal activities, and $0.7 million in connection with the curtailment of the pension plan. Of the total charge, $1.6 million represented non-cash expenses.
Fiscal Year Operating Results Review
Net sales for the fiscal year ended June 30, 2003 totaled $446.9 million compared with $447.3 million last year, essentially flat year over year. Publisher Services Group sales were $388.5 million, down 2% from $395.4 million, primarily because of the softness in advertising and volume and pricing pressures that existed during the year. Specialty Packaging segment sales were $58.4 million, an increase of 13% from $51.9 million. For the twelve months ended June 30, 2003, operating income, adjusted as described below, was $32.7 million or 7.3% of net sales, compared to $32.1 million or 7.2% of net sales last year.(3) Income from continuing operations for the fiscal year, adjusted as described below, totaled $10.6 million or $1.17 per share, compared with $9.7 million or $1.07 per share last year.
Cash flow from operations and the sale of an idle facility was used to reduce total debt (including securitization) by $15.4 million during fiscal year 2003. For fiscal year 2003, the Company recorded pre-tax charges totaling $12.0 million, or $0.87 per share, in connection with the previously announced restructuring program consisting of $7.8 million in asset impairment charges, $3.5 million in exit and disposal activities and $0.7 million for the pension plan curtailment. Of the total charge this year, $8.7 million represented non-cash expenses.
Outlook for Fiscal 2004
Commenting on the Company's outlook for fiscal 2004, Mr. Thomas stated, "As has been stated by several of my colleagues at our competitors, industry and economic conditions remain difficult. Demand remains soft and pricing pressures continue. Despite these continued pressures, we believe that Cadmus is poised to build on a successful 2003. We believe that we are in a position to sustain our track record of year over year improved earnings throughout fiscal 2004, and, assuming that industry and economic conditions do not deteriorate further, we believe that published expectations for our business in the range of $1.32 per share are reasonable and attainable."
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