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Digital Sales Growth Drives Courier Results

Monday, November 26, 2012

Press release from the issuing company

Strong Gains in Customized Textbooks, Religious Sales

NORTH CHELMSFORD, Mass. - Courier Corporation, one of America's leading innovators in book manufacturing, publishing and content management, today announced fourth-quarter and full-year results for its fiscal year ended September 29, 2012.

Courier's 2012 fiscal year had 53 weeks, with the extra week included in the fourth quarter. Fourth-quarter revenues in fiscal 2012 were $77.1 million, up 5% from $73.7 million in last year's fourth quarter. Net income for the quarter was $5.7 million or $.50 per diluted share, including restructuring costs of $1.5 million or $.08 per diluted share primarily related to the writedown of an unutilized one-color press. Excluding those costs, fourth-quarter net income was $6.6 million or $.58 per diluted share. In fiscal 2011, fourth-quarter net income was $6.4 million or $.53 per diluted share including restructuring costs, and $6.5 million or $.54 per diluted share excluding those costs.

For fiscal 2012, Courier sales were $261.3 million, up slightly from $259.4 million in fiscal 2011. Net income was $9.2 million or $.77 per diluted share, including restructuring costs of $3.3 million or $.17 per diluted share as well as a first-quarter pretax gain of $0.6 million from the sale of certain non-operating assets. Excluding those items, net income for fiscal 2012 would have been $10.9 million or $.91 per diluted share. In fiscal 2011, Courier's net income was $134,000 or $.01 per diluted share including restructuring costs, a bad-debt provision related to Borders Group Inc. and an impairment charge related to Research & Education Association in the wake of the Borders bankruptcy. Excluding those charges, net income for fiscal 2011 would have been $10.7 million or $.89 per diluted share. Details of the restructuring costs, impairment charges and other items for both years can be found in the tables at the end of this release.

"After another challenging year in a sluggish economy, we were pleased to have a strong finish," said Courier Chairman and Chief Executive Officer James F. Conway III. "We were especially pleased to reap the growing benefits of our steady investments in four-color digital inkjet technology, innovative content management solutions for the education and trade markets, and global distribution capabilities on behalf of our largest religious customer.

"It was a year of strong growth at Courier Digital Solutions, where sales increased 48% in response to escalating demand for college textbooks customized to individual course requirements and schedules. But it was also a year of growth in trade book sales as publishers increasingly utilized digital printing in combination with offset to capture the full life-cycle potential of every title. Separate from this trend, we also saw an increase in four-color offset sales from new and existing customers.

"Our publishing segment continues to work its way through the difficult economy and the channel challenges of the post-Borders retail environment. However, by continuing to take out costs we were able to trim the segment's losses for both the quarter and the year as a whole. Meanwhile, all three of our publishing businesses strengthened their own digital offerings. We head into the holiday season with more than 3,000 titles available in e-book form on all the major platforms.

"Throughout the year, we continued to distinguish ourselves competitively by our strong customer focus, efficient workflow and superior product quality. Equally important, we did so while maintaining the robust cash flow we have enjoyed for the last several years. As a result, even after a $10-million stock buyback, $10 million in capital expenditures and our customary $10 million in dividends paid, we were able to reduce our debt by $6 million from a year ago. I am pleased to report that once again, Courier's Board of Directors has declared a dividend of $.21 per share, the same as last quarter. The Board has also authorized another $10-million stock repurchase program and reaffirmed its commitment to the dividend based on its confidence in the company's balance sheet, cash flow and business prospects."

Book manufacturing: strong growth in religious and trade markets

Courier's book manufacturing segment had fourth-quarter sales of $69.2 million, up 4% from $66.6 million last year. Excluding restructuring costs, fourth-quarter operating income was $11.7 million in fiscal 2012, up from $11.2 million in fiscal 2011.

For the full year, book manufacturing sales were $233.0 million, up 1% from $230.2 million in fiscal 2011. The segment's full-year operating income, excluding restructuring costs, was $23.4 million, up 4% from $22.5 million in fiscal 2011.

The segment's gross profit, excluding restructuring costs, was $19.6 million or 28.4% of sales in the fourth quarter, versus $18.0 million or 27.0% of sales a year ago. Gross profit for fiscal 2012 as a whole was $51.7 million or 22.2% of sales, excluding restructuring costs, versus $49.9 million or 21.7% of sales last year. Despite intense price competition and reduced recycling income, the segment's margins improved because of a favorable sales mix and continued gains in operating efficiency made possible by recent technology investments and the consolidation of one-color capacity.

The book manufacturing segment focuses on three markets: education, religion, and specialty trade. Sales to the education market were $31 million in the fourth quarter, comparable to a year earlier. For the year, education sales were $98 million, down 3% from fiscal 2011, due to shorter run lengths in certain college textbooks and continued weakness in elementary and high school sales. Sales to the religious market were up 6% to $19 million in the quarter, and up 2% to $68 million for the full year; however, sales to Courier's largest religious customer were up 13% in the quarter and up 5% for the year. Sales to the specialty trade market were up 25% to $17 million in the quarter, and up 11% to $60 million for the full year, reflecting increased four-color offset sales as well as growing demand for digital.

Revenues rose sharply at Courier Digital Solutions, reflecting growth in demand for customized versions of college textbooks as well as increased sales of trade books. With its current digital facilities running close to capacity, in October Courier announced plans to add both a new HP digital cover press in Massachusetts and a complete new digital production facility to complement its four-color offset plant in Kendallville, Indiana.

"In large measure, our book manufacturing business returned to seasonal form in the fourth quarter," said Mr. Conway. "The difference is that the college textbook market continues to evolve toward a shorter peak season, with more customized editions prepared just ahead of the start of classes. However, we remain in excellent position to capture the digital growth opportunities this trend continues to create. With our new digital production capability at Kendallville, customers will soon be able to integrate top-quality digital and offset print strategies from a single location for complete life-cycle management of every title.

"It was also a quarter in which religious sales returned to form, with a double-digit increase at our largest customer more than making up for a couple of short quarters. Over the year, religious sales grew in keeping with longer-term trends associated with our ongoing partnership with this customer to bring Scriptures to people in more than 100 countries.

"Finally, it was a quarter of continued growth in trade sales, as we landed several new accounts while also achieving higher volume with a number of long-time customers. In a tough competitive environment, publishers appreciate our combination of quality, efficiency and responsiveness across the whole spectrum of one- to four-color work, both offset and digital. And the productivity of our people and workplaces, always high, continues to improve, helped further by our consolidation of one-color print capacity earlier in the year."

Publishing segment trims loss, increases online offerings

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

Fourth-quarter revenues for the segment were $10.1 million, comparable to last year's fourth quarter, with 9% sales growth at Dover offset by weak results at REA and Creative Homeowner. Despite its sales decline, REA remained profitable, but Dover and Creative Homeowner reported operating losses. Overall, the segment's fourth-quarter operating loss was $426,000, versus $872,000 in fiscal 2011.

For the year as a whole, publishing sales were $38.4 million, down 6% from $40.8 million in fiscal 2011, with sales up modestly at Dover but down at the other two businesses. Excluding restructuring costs in both years, the segment's operating loss for fiscal 2012 was $3.7 million, versus a loss of $4.1 million in fiscal 2011. The reduction in the loss was attributable to the effects of cost-reduction measures taken throughout the year.

"A year after the Borders bankruptcy, our publishing businesses have taken significant steps to regain their footing," said Mr. Conway. "Part of the solution is to provide content which consumers can access directly online, and we have delivered that: Dover with its DoverPictura.com online image library; REA with its All Access program, allowing students to access test prep materials anytime via mobile devices; and Creative Homeowner with its UltimatePlans.com downloadable home plan business.

"A larger part of the solution, of course, is sales through online retailers, where we saw double-digit growth this year in the segment. But while REA shared in the growth, it continued to suffer from the absence of Borders' bricks-and-mortar network, where REA products had benefited from prominent placement in store displays. Developing other channels remains a key agenda item for REA in the coming year.

"Finally, the third piece is our entry into e-books. After considerable investment, we now have thousands of titles available to consumers across all four leading e-book platforms of Amazon, Apple, Barnes & Noble and Google. The first fruits of this effort started to materialize during the fourth quarter."


"Once again we have come through a year of economic uncertainty with good prospects and solid finances," said Mr. Conway. "With our debt down and our organization more efficient than ever, we have been able to invest in growth opportunities we could not have foreseen just a few years ago. Bolstered by strong customer relationships in key long-term markets, we expect to continue to outpace the overall education market with our integrated solutions for customized textbook production, seize additional short-run opportunities among trade publishers, and continue the steady expansion of our responsibilities on behalf of our largest religious customer. And as a publisher, while we remain cautious about consumer spending, we expect to begin to benefit from our investments in e-books and other digital content to complement our print offerings.

"We expect capital expenditures, which were $10 million in fiscal 2012, to increase to between $17 million and $19 million in fiscal 2013, with approximately $13 million dedicated to expanding our digital capabilities.

"As in the past, we expect our performance in fiscal 2013 to follow a seasonal pattern, with the larger portion of our earnings coming in the second half. And we expect to have the additional digital capacity in Kendallville available in time for the busiest part of the year.

"In line with our past practice, today's guidance, including comparisons to prior performance, excludes impairment and restructuring charges. Overall, we expect fiscal 2013 sales of between $269 million and $283 million, an increase of between 3% and 8% over the 53-week period of fiscal 2012. We also expect earnings per diluted share of between $.75 and $1.05, which compares with our fiscal 2012 earnings of $.91 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 2013, we expect EBITDA to be between $39 million and $45 million, compared to $42 million in fiscal 2012, excluding restructuring charges.

Factors not incorporated into this guidance include the possibility of future impairment or restructuring charges.


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