NORTH CHELMSFORD, Mass.--July 15, 2004-- Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ended June 26, 2004, the third quarter of the company's 2004 fiscal year. Courier reported income from continuing operations of $5.2 million, up 9% from $4.8 million in last year's third quarter. Income per diluted share was $.63 for the quarter, up 7% from $.59 last year. Sales were $55.5 million for the quarter, up 9% from third-quarter sales of $51.1 million in fiscal 2003. For the first nine months of Courier's 2004 fiscal year, income from continuing operations was $13.0 million or $1.58 per diluted share, up 5% from $12.3 million or $1.52 per diluted share for the first nine months of fiscal 2003. Nine-month sales for fiscal 2004 were $152.0 million, up 2% from $148.5 million in the corresponding period last year. Both the third-quarter and nine-month results include results from Research & Education Association (REA) for the period since January 6, 2004, the date Courier acquired REA. In addition, on May 26, 2004, Courier realized a gain of $.02 per diluted share from the previously announced sale of unutilized buildings at its manufacturing facility in Westford, Massachusetts. Results from Courier Custom Publishing, which was sold by Courier in December 2002, were accounted for as a discontinued operation in fiscal 2003 and had no impact in fiscal 2004. "In the third quarter, we finally started gaining the traction needed to overcome our slow first half," said Courier Chairman and Chief Executive Officer James F. Conway III. "Two factors were key to our achievements. First, the education market showed tremendous strength at both the elementary/high school and college levels. Secondly, the new four-color press at our Kendallville, Indiana plant came onstream even more smoothly than we expected, helping us to gain share among educational book publishers while serving them more effectively than ever before. "Achieving these gains came with some reduction in gross margins for the quarter due to the combination of press startup expenses and lower pricing tied to the market share increases, but we feel this was a worthwhile tradeoff in light of the longer-term benefits. "In specialty publishing, while sales growth was disappointing, we invested during the quarter in several new programs that should help us reach out to more customers, including increased sales representation, online marketing initiatives, and collaborative sales efforts between Dover and REA. Equally important, across both of our operating segments, our cash flow and financial condition continued to be excellent. We generated an additional $7 million in cash in the quarter, ending June with $15 million in cash." Results by segment Book manufacturing sales for the third quarter of fiscal 2004 were $47.0 million, up 8% from last year's third quarter. Third-quarter pretax income for the segment was $6.4 million, up slightly from $6.3 million a year earlier. For the first nine months of fiscal 2004, book manufacturing sales were up 1% from fiscal 2003, while pretax income was up 2%. As a book manufacturer, Courier serves publishers in three markets: education, religious, and specialty trade. Sales to the education market were up 26% for the third quarter and 13% for the first nine months of the fiscal year. Sales to the elementary/high school market were up 30% both in the quarter and through nine months, reflecting strong gains in market share. Higher-education sales were up 23% for the quarter, bringing the nine-month sales increase to 6%, in line with expected growth. Sales to the religious market were down 3% in the quarter, with nine-month sales even with the previous year. Sales to specialty trade publishers were off 4% from last year's third quarter, and down 11% through nine months, as continuing declines in sales of computer game books offset small gains in other segments. "In a challenging year, the education market has increasingly outperformed expectations," said Mr. Conway. "We are particularly pleased to see this, as we have invested aggressively to offer our customers the very latest high-speed four-color textbook printing capabilities. Our increased capacity has been greeted by rising demand, as the pace of new textbook orders has picked up and customers have demonstrated their willingness to allocate a growing percentage of this business to Courier. In specialty trade, we have started to turn the corner from the declines of the first half of our fiscal year, and are seeing gains in most segments except computer game books. "We did see a decline in gross profit as a percentage of sales in book manufacturing, from 29.5% a year ago to 26.8% this past quarter. As our new press continues to ramp up, we expect both volume and manufacturing efficiency to rise and help us return to our traditional margins." Courier's specialty publishing segment includes two businesses: Research & Education Association (REA) and Dover Publications. Overall, the segment reported third-quarter sales of $10.4 million, up 16% from $8.9 million in last year's third quarter, with most of the increase attributable to the inclusion of REA sales. The segment's pretax income was $1.5 million for the quarter, up 24% from fiscal 2003's third-quarter figure of $1.2 million. While Dover's third-quarter sales of $9.1 million were up slightly over prior-year sales of $8.9 million, Dover pretax income was up 18% to $1.4 million. REA's third-quarter sales were $1.3 million, with pretax income of $75,000, slightly ahead of initial expectations following Courier's acquisition of REA in the previous quarter. For the first nine months of the year, specialty publishing sales were $29.6 million, up 12% from a year earlier. The segment's pretax income through nine months was $3.9 million, also up 12% from fiscal 2003. Within Dover Publications, sales to U.S. retailers were up 2% in the third quarter. Sales to large bookstore chains were down 7%, offsetting growth in sales to gift shops, craft stores and other non-bookstore outlets. International sales were flat in the third quarter against a very strong quarter in the prior year, and were up 13% for the first nine months of fiscal 2004. Direct-to-consumer sales rose 5% from a year earlier. "Dover's third-quarter sales were less than we had hoped, particularly in domestic trade," said Mr. Conway. "Independent booksellers are steadily being squeezed by the major chains, and sales at those large chains have been uneven. We fared much better with online retailers while recording smaller gains with non-bookstore channels and direct sales to consumers. Looking forward, we have launched initiatives which should help in all these areas. Among them are several new programs aimed at educators, new relationships with gift representatives in the New England and mid-Atlantic markets, and a series of innovative new products developed jointly with retailers for release later this year. We also look forward to the impact of Dover's fall list, whose 322 titles include five new series that were enthusiastically received at their introduction at BookExpo America in June. "Meanwhile, REA performed above our expectations in its first full quarter as part of Courier. We continue to be very pleased with REA's people, products and opportunities. As mentioned above, we are also moving to take advantage of synergies between REA and our other operations. Our book manufacturing segment is making more REA books than ever before. And within specialty publishing, we will be using REA's sales force to help place Dover books in college bookstores and other outlets where REA has a stronger presence." Outlook "We made significant strides in our third quarter toward overcoming the challenges of the first half of the year," said Mr. Conway. "We used our new press effectively to meet rising demand for four-color textbooks, a trend we see continuing. But slow retail trade sales hurt us both in book manufacturing and at Dover Publications. While we launched new programs to compensate for these conditions, we still fell short of the third-quarter growth needed to achieve our original full-year targets. "We continue to expect a strong fourth quarter, with earnings from continuing operations of $.90 to $1.00 per diluted share, versus $.85 last year. For fiscal year 2004 as a whole, we expect Courier's earnings per diluted share from continuing operations to be in the range of $2.48 to $2.58, up 5% to 9% from last year's comparable earnings of $2.37 per diluted share. We expect sales for the year to be in the range of $211 to $215 million, representing an increase of 4% to 6% over fiscal 2003 sales of $202 million. Signs point to higher growth in 2005, particularly in the education market. In the meantime, we are confident that our continuing commitment to customer focus, manufacturing capability and outstanding service will prove its value through the remainder of fiscal 2004 and enable us to record our eighth consecutive year of earnings growth."