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Courier Reports Record Third Quarter

Press release from the issuing company

NORTH CHELMSFORD, Mass.--July 14, 2005-- Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ending June 25, 2005, the third quarter of its 2005 fiscal year. Helped by outstanding performance in its book manufacturing segment, Courier posted the highest third-quarter and nine-month revenues and net income in its history. Revenues for the quarter were $58.8 million, up 6% from last year's third-quarter sales of $55.5 million. Net income for the quarter was $5.9 million or $.47 per diluted share, an increase of 13% over prior-year results of $5.2 million or $.42 per diluted share. (Prior-year earnings per share have been adjusted to reflect a three-for-two stock split on May 27, 2005.) For the first nine months of Courier's 2005 fiscal year, net income was $14.1 million or $1.13 per diluted share, up 9% from $13.0 million or $1.05 per diluted share for the first nine months of fiscal 2004. Nine-month sales for fiscal 2005 were $163.5 million, up 8% from $152.0 million in the first nine months of last year. Robust sales to educational publishers were key to Courier's strong quarterly results. Book manufacturing revenues were up 8% from last year's third quarter, and up 9% for the fiscal year to date, as Courier's increased four-color printing capacity enabled it to take advantage of growing demand for four-color textbooks. Sales in Courier's specialty book publishing segment were down 4% for the quarter, but up 1% through nine months. "Our book manufacturing business performed very well this quarter," said Courier Chairman and Chief Executive Officer James F. Conway III. "We continued to benefit from our disciplined investments in capacity and service, increasing our share of business with leading textbook publishers on top of solid growth in underlying demand. Our specialty publishing segment delivered mixed results, with a sales gain at Research & Education Association offset by slow sales at Dover Publications. On the other hand, we made headway in our previously announced reorganization of Dover sales and marketing, receiving enthusiastic reactions from customers and achieving month-by-month sequential growth in sales as the quarter progressed. "It was also a successful spring by other measures. We completed our three-for-two stock split while retaining the dividend at its pre-split level, resulting in an effective dividend increase of 50%. In our publishing segment, we reached the midpoint in a warehouse consolidation initiative that we expect to complete in September. More significantly, we 'went live' this week with a major information technology upgrade replacing old Dover systems with SAP. In addition, our cash flow and financial condition continue to be excellent, leaving us well positioned for long-term growth." Book manufacturing pretax income up 31% Courier's book manufacturing segment had third-quarter sales of $50.6 million, up 8% from last year's third quarter. Pretax income for the segment rose 31% in the quarter to $8.3 million or $.43 per diluted share, versus $6.4 million or $.34 per diluted share in 2004. For the first nine months of the fiscal year, book manufacturing sales were up 9% to $138.8 million, with pretax income up 22% to $19.6 million or $1.02 per share. Gross profit in the segment rose 20% to $15.0 million in the quarter, and was up 11% through three quarters. Gross profit also increased as a percentage of sales, rising to 29.7% in the third quarter from 26.8% a year earlier, and reaching 28.0% through nine months versus 27.3% in fiscal 2004. The book manufacturing segment focuses on three publishing markets: education, religion, and specialty trade. Sales to the education market rose 8% in the quarter, as the trend to increased demand for four-color textbooks continued in both the elementary/high school and college markets. Through the first nine months of the year, education sales were up 16% over fiscal 2004. Sales to the religious market were up 8% for the third quarter, with some of the gain resulting from order timing. Religious sales were down 1% through nine months, reflecting a decision to discontinue production of certain low-priced work. Sales to the specialty trade market were down 3% for the third quarter and up 3% through nine months, in keeping with modest growth in the overall market. "Our increased four-color capacity was crucial to our performance this quarter," said Mr. Conway. "The new ManRoland press we installed last year was running at capacity throughout the quarter, and we are preparing for the installation of a second identical press by the end of 2005 in anticipation of further growth in the textbook market. At the same time, we have been working hard to turn our sales growth into increased earnings, and our efforts have been increasingly successful. Our plants and workforce are more productive than ever, resulting in benefits for customers and shareholders alike." Specialty book publishing results down at Dover, up at REA Courier's specialty publishing segment includes two businesses: Research & Education Association (REA), a publisher of test preparation books and study guides, and Dover Publications, a niche publisher with thousands of titles in dozens of specialty trade markets. Overall, the segment reported third-quarter sales of $9.9 million, down 4% from $10.4 million in last year's third quarter. Third-quarter sales at REA were $1.4 million, up 7% from $1.3 million in 2004. At Dover, third-quarter sales were $8.6 million, down 6% from $9.1 million a year earlier, as an 11% decline in sales to U.S. retailers more than offset an 11% increase in international sales and a 13% gain in direct-to-consumer sales. The segment's pretax income was $0.7 million or $.04 per diluted share for the quarter, down from $1.5 million or $.08 per diluted share in fiscal 2004. Part of this decline was attributable to expenditures of approximately $300,000 in support of the warehousing and information technology projects mentioned above. Gross profit as a percentage of sales was 44.5%, versus 47.3% a year ago, reflecting both the effects of reduced sales volume at Dover and the costs of the warehouse initiative, which is expected to generate annual savings of approximately $800,000 starting in fiscal 2006. For the first nine months, specialty publishing sales were $29.9 million, up 1% from $29.6 million last year, with Dover sales contributing $26.0 million and REA sales contributing $3.9 million. Pre-tax income for the segment through nine months was $2.6 million or $.13 per diluted share compared to $3.9 million or $.20 per diluted share last year. "We knew we had work to do to bring Dover's sales and marketing organization up to the level needed to capture the revenues its products deserve," said Mr. Conway. "The good news is that we are starting to see positive signs. With several key hires in place, the culture is being revitalized, with sales, marketing and editorial working together to meet the needs of both readers and retailers. A down quarter is not surprising during such a transformation. More important for the long term is the reaction of customers and employees to the changes, and these have been overwhelmingly positive. "Both Dover and REA have always had outstanding editorial content. We are getting better at tailoring that content to today's markets, producing and distributing it with increasing efficiency, and strengthening our already strong ties to readers. We are now also on our way to forging a new generation of proactive, mutually beneficial relationships with the trade retailers who represent more than two-thirds of our volume. I expect additional evidence of this achievement in the fourth quarter." Outlook "With our book manufacturing business enjoying its best year ever, we remain on track for record full-year results and continued growth in fiscal 2006," said Mr. Conway. "At the same time, our specialty publishing segment is making progress that should result in improved performance next year. "With only one quarter to go in our fiscal year, we have narrowed our 2005 guidance, though it is still within the previously announced range. We now expect full-year sales growth of 6% to 8%, resulting in total sales of between $224 and $228 million, which would be a new record high for Courier. And we expect full-year earnings per diluted share in the range of $1.73 to $1.80, an increase of between 4% and 8% from fiscal 2004 earnings of $1.67 per diluted share (as adjusted for our May 2005 stock split) -- which would also be a company record. This guidance excludes any impact from the recently revised stock option accounting rules, which are presently scheduled to become effective beginning in the first quarter of our fiscal year 2006."