For the six months ended October 31, 2003, the Company reported earnings of $0.14 per diluted share on revenues of $259.2 million, compared with year-ago earnings of $0.30 per diluted share on revenues of $254.7 million. Excluding a prior year sale of a discontinued operation, earnings from continuing operations for the six months ended October 31, 2002 were $0.24 per diluted share.

Foreign currency translation had the effect of increasing revenue by $8.2 million and $18.3 million for the three- and six-month periods ended October 31, 2003, respectively, versus the prior year comparable periods.

Second quarter highlights included:

• Debt repayment of $9.0 million and operating cash flow generation of $8.3 million despite lower operating earnings.
• Net debt (defined as total debt less cash and cash equivalents) reduction to $71.0 million, net debt-to-capital (defined as net debt plus shareholders' equity) reduction to 40.3%.
• Shared services net cost reduction offset by lower business volume, competitive pricing, and unfavorable sales mix.
• Transition of the Ophthalmic Lens Processing segment's operations to the shared services platform on November 1, 2003.
• Tax benefits of $0.10 per diluted share associated with the favorable resolution of a prior year foreign tax issue.

Commenting on the second quarter results, Marc T. Giles, president and chief executive officer said "We did not see an upturn in our business in the second quarter and visibility is low. While I am pleased with the progress made with our turnaround initiatives, especially shared services cost reductions, competitive pricing and unfavorable sales mix outweighed the cost benefits realized to date. We remain focused on cost reduction while uncertainty in global economic conditions continues. Going forward, our strategy remains unchanged: reduce debt, improve Spandex's operations, implement shared services, and reinvigorate innovation."

Fiscal second quarter revenue and order entry were $130.3 million and $131.0 million, respectively, compared with $128.8 million and $127.1 million a year ago. Foreign currency translation had the effect of increasing revenue by approximately $8.2 million in the fiscal second quarter versus the prior year comparable period.

The Company's backlog of orders increased $0.7 million during the fiscal second quarter to $32.0 million, which occurred primarily within the Apparel and Flexible Materials segment.

Fiscal second quarter gross margin of 34.4% decreased 1.2 percentage points from the prior year comparable period. Lower business volume, competitive pricing, a sales mix favoring lower margin products, and higher pension expenses were partially offset by cost reductions implemented last fiscal year.

Consolidated S,G,&A spending was lower than the prior year comparable period after adjusting for the effect of foreign currency translation. This was the result of cost reduction initiatives implemented last fiscal year, lower bonus expense, and lower legal and professional expenses. These effects were partially offset by higher pension costs.

Consolidated pension expense was approximately $0.9 million higher in the fiscal second quarter than in the prior year comparable period due primarily to changed assumptions for future pension plan investment performance and discount rates. There have been no subsequent changes to those assumptions.

Consolidated other expense included approximately $1.1 million of foreign currency transaction losses. The Company recognizes foreign currency gains and losses on the payment and translation of accounts payable balances that are reported in one currency and paid in another.

Second quarter restructuring charges of $0.5 million were the result of the transition of the Ophthalmic Lens Processing segment's operations to the Company's shared services platform and the discontinuation of an insignificant product line within the Company's Sign Making and Specialty Graphics segment.

Interest expense increased $1.1 million due to a higher weighted-average interest rate, which was partially offset by lower average debt balances. The Company's weighted average interest rate increased under the terms of the four-year $110.0 million senior credit facility entered into on May 9, 2003.

In the second quarter, the Company recorded a tax benefit of $2.2 million associated with the favorable resolution of a prior year foreign tax issue. Without the tax benefit, the Company's consolidated tax rate from continuing operations would have been 26.4% versus the statutory rate of 35.0%. The difference from the statutory rate was primarily attributable to benefits related to foreign tax planning strategies.

Segment profit (defined as earnings before interest and taxes - see attached reconciliation to GAAP measure) for the fiscal second quarter decreased to $9.1 million from $10.8 million in the prior year comparable period.

The Sign Making and Specialty Graphics segment reported revenues of $71.5 million in the fiscal second quarter, an increase of $2.6 million over the prior year comparable period. Foreign currency translation had the effect of increasing revenue by $6.4 million in the second fiscal quarter versus the prior year period. The overall decrease was the result of continued soft economic conditions for this segment's capital equipment products, particularly in Europe. Lower equipment sales in this segment's distribution business was the result of the weaker European economy, competition in inkjet imaging products, and disruption caused by the Company's re-engineering efforts.

Segment profit decreased $0.9 million versus the prior year comparable period. Lower sales volume, competitive price discounting, and higher pension expense ($0.4 million) were partially offset by cost control, lower bonus expense, and contract research and development reimbursements.

The Apparel and Flexible Materials segment's revenues increased 1.5%, or $0.6 million, to $38.4 million in the second fiscal quarter from the comparable period last year. Foreign currency translation had the effect of increasing revenue by $1.5 million in the fiscal second quarter versus the prior year comparable period.

Segment gross margin of 45.5% decreased 2.3 percentage points from the prior year comparable period due primarily to competitive pricing, but also to the effects of lower sales volume and a sales mix favoring lower margin, multi-ply cutter products versus higher margin, single-ply cutter and software products.

Segment profit increased by $0.5 million over the prior year comparable period despite the lower volume and unfavorable product mix. This resulted from a significant cost reduction associated with the Company's shared services initiative and lower current year bonus expense. Offsetting this, second quarter pension expense was $0.3 million higher than the prior year comparable period.

Segment order entry was $39.0 million, an increase of 5.3% from the prior year and largely the result of favorable foreign currency translation effects. Backlog increased 2.1% from the beginning of the quarter to $28.5 million primarily due to the growth of equipment orders received at the end of the quarter.

The Ophthalmic Lens Processing segment reported revenues of $20.4 million, a decrease of $1.7 million from the second quarter of fiscal 2003. The decrease was the result of prior year equipment purchases by large U.S. retail and discount chain customers that did not repeat this year. Higher current year equipment shipments to wholesale optical laboratories were an offset. The effect of foreign currency translation on revenues was not significant.

Segment profit decreased $1.2 million over the prior year comparable period due primarily to the lower sales volume. Also contributing to the decrease were restructuring and other charges associated with the November 1, 2003 transition of segment operations to the Company's shared services and information technology system platforms. Second quarter pension expense was approximately $0.1 million higher than the prior year comparable period in this segment. These unfavorable variances were partially offset by lower bonus expense.

Corporate and other expenses increased to $5.1 million from $4.2 million in the prior year comparable period. Higher pension and insurance costs, as well as foreign currency transaction losses, were partially offset by lower legal and professional expenses and lower bonus expense.

For the six months ended October 31, 2003, total debt was reduced by $5.2 million, which was the result of operating earnings, reduced cash balances, reduced capital expenditures, and proceeds from the sale of a promissory note in the first quarter.

At October 31, 2003, the Company had $9.7 million in cash and cash equivalents and $80.6 million in total debt. The Company's net debt (defined as total debt less cash and cash equivalents) declined $7.9 million during the second quarter to $71.0 million and the ratio of net debt to capital (defined as the sum of net debt and shareholders' equity) was 40.3%.

The Company was in compliance with all covenants related to its credit facilities as of October 31, 2003. Continued uncertainty in global economic conditions and prolonged weak business environments continue to make estimating demand for the Company's capital equipment products and projecting future results challenging. Although the Company continues to closely monitor compliance with covenants under its credit facilities, failure to be in compliance with any material covenant of the credit facilities could have a material effect on the Company's liquidity, financial position, and results of operations.

Upon recommendation of the Nominating and Governance Committee, the Board of Directors unanimously voted to recommend to shareholders for a vote at the Company's 2004 annual meeting charter and bylaw amendments to eliminate the Board's classified structure. If this recommendation should be adopted by at least 80% of the outstanding shares entitled to vote at the Company's 2004 annual meeting, all directors would stand for election or re-election each year beginning at the Company's 2005 annual meeting.