Strong Third Quarter for Courier Includes Publishing Acquisition: Summary of Q3 Earnings Call July 20, 2006 -- Courier Corporation (NASDAQ: CRRC) announced their third quarter results last week. Total revenue for the company’s third quarter was $70.4 million, 20% higher than the $58.8 million reported for the third quarter of 2005. The increase was primarily due to strong sales in both of its operating segments and the effects of a publishing acquisition in April. Net income was $6.1 million or $.48 per diluted share, also a new record for the quarter and an increase of 9% over prior-year results of $5.5 million or $.44 per diluted share. For the first nine months of Courier's 2006 fiscal year, net income was $14.9 million, up 13% from the first nine months of fiscal 2005. Net income per diluted share was $1.19, up 12% over prior-year results of $1.06. Nine-month sales for fiscal 2006 were $185.6 million, up 14% from $163.5 million in fiscal 2005. Contents of this Summary * Quarter Highlights * Segment Performance * Guidance * Raine Radar * Q & A Quarter Highlights • The acquisitions of Moore Langen and Creative Homeowner contributed sales of $7 million in the third quarter and $10 million through nine months. • As previously announced, net income and income per share figures also reflect Courier’s adoption earlier this year of FAS 123R, a new accounting rule requiring the expensing of stock options. • Gross profit for the quarter was $22.1 million, up 13.9% from $19.4 million in the same quarter last year. • SG&A was $5.2 million, up $1.6 million from the same quarter a year ago, primarily due to the acquisition of Creative Homeowner, which accounted for $1.3 million of the increase. • Net Income per diluted share was $.48, up 9% from $.44 in the same quarter last year. • Investment activities were $68.7 million. This includes the acquisition of Moore Langen for approximately $15 million, the acquisition of Creative Homeowner for approximately $37 million, and also Capital Expenditures of $14.8 million for the new four-color press purchased last year and for the new four-color press being purchased later this year. Segment Performance Book Manufacturing Segment Courier’s book manufacturing segment had third-quarter sales of $57.7 million, up 14% from last year's third quarter. Pretax income for the segment rose 4% in the quarter to $8.7 million. Earnings per share increased to $.45 per diluted share, versus $.44 a year ago. Gross profit in the segment rose 3% to $15.6 million, but declined as a percentage of sales to 27.0%, versus 29.7% in last year's third quarter. For the first nine months of the fiscal year, book manufacturing sales were up 12% to $155 million, with pretax income up 7% to $21.2 million. Gross profit through nine months rose 9% to $42 million, and as a percentage of sales was 27.2% versus 28.0% in 2005, with the difference attributable to a combination of pricing pressures, planned expenditures related to the ongoing expansion of Courier's Kendallville, IN, manufacturing plant, and rising energy costs. Utility cost increases amounted to $400,000 during the third quarter alone and $1.5 million for the year to date, equivalent to $.08 per diluted share for the nine-month period. Specialty Publishing Segment Courier’s specialty publishing segment now includes three businesses: Dover Publications, Research & Education Association (REA), and Creative Homeowner. Third-quarter sales for the segment were $15.2 million, up 53% from $9.9 million in last year's third quarter, including $4.4 million in Creative Homeowner sales for the eight weeks since its acquisition by Courier. Sales increases of 9% at Dover and 13% at REA also contributed substantially to the segment’s growth. Pretax income was $1.1 million or $.06 per diluted share for the quarter, up 54% from fiscal 2005. Gross profit in the segment rose 51% to $6.7 million in the third quarter, but was down slightly as a percentage of sales at 43.7%, versus 44.5% a year ago, due to costs associated with the Creative Homeowner acquisition. Gross profit percentages were up at both Dover and REA, however, reflecting increased sales and the effects of warehousing and distribution improvements completed last year. For the first nine months of fiscal 2006, specialty publishing sales were $36.4 million, up 22% from $29.9 million last year. Nine-month pre-tax income for the segment was $3.3 million, up 26% from $2.6 million in fiscal 2005. Nine-month net income was $.17 per diluted share, up 31% from $.13 per diluted share last year. Guidance “Three-quarters of the way through our fiscal year, we are on track to another full year of record results,” said Jim Conway, chairman and CEO. “For fiscal 2006 overall, including the effects of a 53-week year and our Moore Langen and Creative Homeowner acquisitions, the company expects sales growth of 18% to 20%, leading to total sales of between $269 and $273 million.” They expect full-year net income per diluted share to be between $1.94 and $2.00, within the range of previous guidance. This range represents an increase of between 16% and 20% from fiscal 2005 earnings of $1.67 per diluted share, and would also set a new company record. Raine Radar Courier did extremely well on meeting the challenges set forth for the third quarter. New challenges for the next quarter are upgrading technology infrastructure, revamping antiquated warehousing systems, and reorienting sales and marketing to the reality of 21st century book retailing. The company should also benefit from the fact that they will have a 14-week fourth quarter. The integration of Creative Homeowner seems to be proceeding smoothly, and the business has also lived up to the financial expectations. If these challenges are met, Courier should be well aligned to be better positioned than ever for long-term growth. Q & A 1. CFO Robert Story believes that there are some very good opportunities in cross selling between Dover and Creative Homeowner, especially in the content development aspect. 2. The company’s plans for CAPEX in 2007 are roughly $25 million. This is directly related to the purchase of their third MAN Roland web press in the Indiana plant. They will also need some ancillary pieces of equipment for expanding the bindery and prepress lines. 3. The company is not forecasting any substantial changes to the competitive pricing dynamics of the industry in the short to medium term. 4. Over the next 18 months, the company will have many third-party contracts expiring in the four-color printing business which should leave an opportunity to add approximately $3 million to the company’s P&L.