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Courier Reports Solid First Quarter

Thursday, January 26, 2012

Press release from the issuing company

Courier Corporation (Nasdaq: CRRC), one of America’s leading book manufacturers and specialty publishers, today announced results for the quarter endedDecember 24, 2011, the first quarter of its 2012 fiscal year. Revenues for the quarter were $62.9 million, up 3% from last year’s first-quarter sales of $61.2 million. Net income for the quarter was $1.5 million or $.12 per diluted share, compared to $1.7 million or $.14 per diluted share in the first quarter of fiscal 2011. Results in this year’s first quarter included a pretax charge of $1.5 million related to severance and post-retirement benefit costs, as well as a pretax gain of $0.6 million from the sale of certain non-operating assets. Excluding these transactions, income for the quarter was $.17 per diluted share. Details of these transactions can be found in the tables at the end of this release.

Sales gains were concentrated in Courier’s book manufacturing segment, reflecting the effects of multi-year agreements with key customers in the education and religious markets, with particularly strong growth in Courier Digital Solutions’ customized college textbook business. Sales in the company’s publishing segment were down from last year’s first quarter, which included nearly $500,000 in sales to Borders Group. Borders filed for bankruptcy inFebruary 2011 and completed the liquidation of its store inventories in September, eliminating a major outlet for books and undercutting sales at other booksellers during this period.

“Our book manufacturing segment got the new fiscal year off to a solid start,” said Courier Chairman and Chief Executive Officer James F. Conway III. “It was particularly gratifying to see positive sales trends in all three of our major markets of education, religion and specialty trade. Our publishing segment had a challenging quarter as the industry continued to work through the effects of the Borders liquidation and Creative Homeowner continued to suffer from the troubles in America’s housing sector. However, the segment achieved several important milestones, including the release of over 1,000 titles in e-book format and the launch of REA’s new All Access™ program, which combines printed study guides, online diagnostics and a mobile flashcard app into a powerful new resource for AP test preparation.

“With our debt level reduced by $3 million during the quarter to less than $19 million, we head into the spring season in a strong financial position—in recognition of which Courier’s Board of Directors once again declared a quarterly dividend of $.21 per share, marking the start of our nineteenth consecutive year of dividend payments.”

Book manufacturing grows across all three markets

Courier’s book manufacturing segment had first-quarter sales of $56 million, up 6% from $53 million in last year’s first quarter. The segment’s operating income for the quarter was $4.2 million. Excluding severance and post-retirement benefit costs, the segment’s operating income was $5.1 million, up 34% from $3.8 million a year ago. Gross profit in the segment was $12.5 million or 22.3% of sales, up from $11.4 million or 21.5% of sales in last year’s first quarter despite a competitive pricing environment, reflecting an improved sales mix, operating efficiencies enabled by recent technology investments, and the closing of a redundant one-color plant last March.

The book manufacturing segment focuses on three markets: education, religion, and specialty trade. Sales to theeducation market were up 3% in the quarter, helped by growing demand for customized college textbooks and increased sales of books for elementary and high schools. Sales to the religious market were up 9% from last year’s first quarter, with some of the boost due to the timing of orders from the company’s largest religious customer. Sales to the specialty trade market were up 9% from a year ago, reflecting increased four-color work, as well as an increase in orders at Courier Digital Solutions.

“Our book manufacturing segment performed well throughout the quarter,” said Mr. Conway. “Courier Digital Solutions continued to reap the benefits of its pioneering capabilities for customized textbook production and the efficiency of its digital inkjet presses. We were also pleased to expand our already strong relationship with Pearson Education.

“At the same time, our other facilities were also busy, with a burst of orders for elementary and high school textbooks at our four-color plant in Kendallville, Indiana and increased production at our Philadelphia Scripture plant in conjunction with our expanding international role on behalf of our largest religious customer. As always, we continued to work closely with all our customers to stay on top of their needs and help them succeed in today’s evolving markets.”

Publishing launches key products in post-Borders marketplace

Courier’s specialty publishing segment includes three businesses: Dover Publications, a niche publisher with thousands of titles in dozens of specialty trade markets; Creative Homeowner, which publishes books on home design, decorating, landscaping and gardening; and Research & Education Association (REA), a publisher of test preparation books and study guides.

First-quarter revenues for the segment were $9.5 million, down 12% from last year’s first quarter. Sales were down 6% at Dover and down 28% at REA, reflecting the loss of Borders as a key customer and, in REA’s case, some sales attrition in advance of the release of its new All Access™ line of AP test preparation materials. Creative Homeowner sales were down 38%, as demand for books on home improvement continued to be depressed amid the weak housing market and the increased availability of information online. Overall, the segment lost $1.8 million in the quarter. Excluding severance and post-retirement benefits costs, the segment’s loss was $1.3 million, versus a loss of $0.8 million in fiscal 2011. Gross profit in the segment was $3.1 million or 32.7% of sales, versus $3.8 million or 35.6% of sales in last year’s first quarter, reflecting the impact of lower sales.

“With the Borders liquidation unfolding across the country during the fall, our publishing segment’s weak results were not surprising, particularly in comparison with last year’s first quarter,” said Mr. Conway. “In addition to lost sales toBorders itself, we felt the effects of slower sales at other booksellers as consumers snapped up bargains at Borders’ store closing sales.

“Over time, as the market absorbs the former Borders inventory, we expect sales to improve at other bricks-and-mortar retailers. In the meantime, we have already seen healthy growth in online sales—a trend we expect to continue. In addition, we are rapidly converting our physical books into electronic books. By the end of the quarter, over 1,000 titles were available through Apple’s iBookstore, and we are working hard to increase both the number of our e-book titles as well as the number of platforms on which our titles are available.

“Another very positive development has been the release of REA’s unique All Access™ program, which straddles the line between physical and digital media to offer high school students a more efficient and engaging learning experience as they prepare for the increasingly high-stakes AP exams. With nine AP titles now available in All Access™ form, students can get a great jump on this spring’s testing season while REA gets a jump on its competitors in this key market.”


“Once again, our strong customer relationships helped us start the year on a positive note despite the market turbulence caused by the Borders liquidation,” said Mr. Conway. “Our book manufacturing operations are performing well thanks to last year’s equipment investments and the elimination of redundant one-color capacity. Meanwhile, our publishing businesses have responded to adversity with innovative product launches that should help them recover in a post-Borders environment.

“For the full fiscal year we expect capital expenditures of between $10 million and $12 million, versus $16 million in fiscal 2011. We will also benefit from a full year’s worth of cost reductions related to the March 2011 closure of our one-color plant in Stoughton, Massachusetts, as well as from cost reductions last fall at Courier Publishing. And as usual, we expect our performance for the remainder of the fiscal year to follow a seasonal pattern, with the larger portion of our earnings coming in the second half.

“In line with our past practice, today’s guidance, including comparisons to prior performance, excludes impairment and restructuring charges. It also excludes the non-recurring items from the past quarter related to severance and post retirement benefit costs and the gain from the sale of non-operating assets as well as the Borders receivable write-off in last year’s second quarter. Overall, we expect fiscal 2012 sales of between $273 million and $286 million, an increase over fiscal 2011 of between 5% and 10% (which includes the benefit of a 53-week year in fiscal 2012). And we expect earnings per diluted share of between $.75 and $1.05, which compares with our fiscal 2011 earnings of$.89 per diluted share.

“In addition to measuring our performance by generally accepted accounting principles, we also track several non-GAAP measures including EBITDA (earnings before interest, taxes, depreciation and amortization) as an additional indicator of the company’s operating cash flow performance. This measure should be considered in addition to, not a substitute for or superior to, measures of financial performance prepared in accordance with GAAP. In fiscal 2012, we expect EBITDA to be between $39 million and $45 million, compared to $39 million in fiscal 2011, excluding last year’s impairment and restructuring charges and this year’s severance and post retirement benefit costs and the gain from the sale of non-operating assets.

“Factors not incorporated into our guidance include the possibility of future impairment or restructuring charges.”


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