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Courier Corporation Reports Record Sales and Earnings

Press release from the issuing company

NORTH CHELMSFORD, Mass.--Nov. 3, 2005-- Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced record results for the fiscal year ending September 24, 2005. Concluding the year with the best quarter in its history, the company recorded an all-time high in annual revenues and its ninth straight year of record income. Simultaneously with the release of the company's operating results, Courier's Board of Directors announced a 20% increase in its quarterly common stock dividend. This marked the ninth consecutive year of double-digit increases in Courier's dividend, and followed a 50% dividend increase six months ago. Fourth quarter net income was $8.0 million, or $.64 per diluted share, up 5% from $7.6 million, or $.61 per diluted share, in the fourth quarter of fiscal 2004. Revenue for the quarter was $63.5 million, up 7% from $59.2 million in last year's fourth quarter. For fiscal 2005 as a whole, net income rose to $22.1 million, up 8% from $20.5 million in 2004. Net income per diluted share was $1.77, an increase of 6% over last year's earnings of $1.67. Revenue for the year was $227 million, up 8% from $211 million a year ago. (Prior-year earnings per share have been adjusted to reflect a three-for-two stock split on May 27, 2005.) "Our book manufacturing business had a terrific year," said Courier Chairman and Chief Executive Officer James F. Conway III. "We continued to take advantage of a strong education market, using our increased four-color printing capacity to capture a greater share of business from textbook publishers on top of the growth in the market itself. As always, we continued to invest in technology and service, and as a result we were able to deliver for customers in a manner that has prepared the way for further gains in the future. "Results in our specialty publishing segment were not what we would have liked, as major initiatives in sales and marketing, distribution and information technology reduced both sales and income.Yet as we approach the completion of these initiatives, we expect to see significant improvements starting in fiscal 2006. In addition, we are encouraged by the initial response by retailers to our rollout of new merchandising programs at Dover Publications, and by the continued growth and development of Research & Education Association (REA). "Beyond record sales and income, fiscal 2005 was notable by several other measures. We increased our dividend twice, completed a three-for-two stock split, and outperformed the S&P 500 for the eighth year out of the last nine. And despite nearly $20 million in capital investments, we ended the year with $34 million in cash, $10 million more than last year." Book manufacturing Courier's book manufacturing segment had fourth-quarter sales of $54.8 million, up 11% from last year's fourth quarter. Pretax earnings for the segment rose 23% in the fourth quarter to $11.2 million or $.58 per diluted share versus $9.1 million or $.48 per diluted share in 2004. For the full year, book manufacturing sales were $193.6 million, up 9% from $177.2 million in fiscal 2004. Pretax earnings for the year were $30.8 million or $1.60 per diluted share, an increase of 22% from last year's $25.2 million or $1.34 per diluted share. Gross profit as a percentage of the year's sales increased to 29.5% from 27.9% in 2004, reflecting increased sales volume, improved plant productivity, and a higher-value product mix as a result of publishers' growing emphasis on four-color production. The book manufacturing segment focuses on three publishing markets: education, religion, and specialty trade. Sales to the education market rose 14% in the fourth quarter and 15% for the full year, driven by strong sales at all levels, from elementary and high school through college. In the religious market, sales were up 3% in the fourth quarter but flat for the year as a whole, reflecting an earlier decision to discontinue certain low-priced work. Sales to the specialty trade market were up 18% in the fourth quarter and up 7% for the full year. "For several years Courier has been capturing a greater share of the four-color textbook market, and this year was everything we hoped it would be," said Mr. Conway. "Our new ManRoland press ran at capacity, giving publishers the quality and timely service needed to capitalize on an extended wave of growth in textbook orders. With a second identical press currently being installed, we will be ready for the additional volume we expect. "Meanwhile, we are expanding our service capabilities in other ways as well. Shortly after the conclusion of the fiscal year, we tripled our in-house cover printing capacity with the acquisition of Moore Langen, an Indianapolis-based firm known throughout the industry for innovative book cover production techniques. Also, in response to customer requests, we are expanding our array of sewing and binding options, which will enable us to qualify for a sizable volume of work which was previously closed to us. Disciplined investment and collaboration with customers are at the heart of our success in all our markets, and will continue to be a positive differentiator for Courier as we build on our 2005 accomplishments." Specialty publishing Courier's specialty publishing segment reported fourth-quarter sales of $10.3 million, down 8% from $11.2 million in last year's fourth quarter. The segment's pretax income was $1.3 million or $.06 per diluted share for the quarter, compared to $2.6 million or $.13 per diluted share last year. For the full year, specialty publishing sales were $40.3 million, down 1% from $40.8 million in fiscal 2004. Full-year pretax income for the segment was $3.8 million, compared to $6.5 million a year earlier. The 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. REA sales were $1.7 million in the fourth quarter, up 15% from fiscal 2004. For the year, REA sales totaled $5.6 million, in line with expectations. Dover sales were down 11% to $8.6 million in the fourth quarter, and off 6% to $34.7 million for the full year. The declines reflected soft sales to trade retailers as well as fourth-quarter shipment delays in conjunction with a previously announced warehouse consolidation and enterprise-wide information system conversion to SAP. Both of these tasks are due to be completed in the current quarter along with the reconfiguration of sales and marketing begun last spring. Dover's direct-to-consumer sales continued to increase as they have every year, rising 9% in the fourth quarter and 12% for the year. Overall, the segment's gross profit as a percentage of sales declined to 44.3% in the fourth quarter versus 50.1% a year earlier, and 45.9% for the full year, versus 47.9% for fiscal 2004. This decline reflected the reduced sales volume at Dover and costs related to the warehousing and information technology projects. "This has been a challenging period for our publishing segment," said Mr. Conway. "We started the year with an ambitious agenda for upgrading Dover's organization and infrastructure, and we have made tremendous progress toward our goals. Yet the fourth quarter caught us midstream in our information technology and warehouse conversions, compounding reduced sales with shipping delays. I am confident that once the new systems are fully implemented, they will improve our efficiency and enhance our service. In the meantime, we have rolled out a series of innovative merchandising programs that have been well received by trade retailers and should help us turn the corner and start recapturing the growth Dover is capable of. Factor in the continuing strong performance at REA, and I remain as enthusiastic as ever about our publishing prospects." Outlook for fiscal 2006 "Trends in the education market remain very favorable for our book manufacturing business," said Mr. Conway. "We look forward to continuing our growth in fiscal 2006 and beyond, extending our gains in volume and market share as demand for four-color textbooks continues to rise. In the religious market, our decision to focus on core accounts and higher-value work has improved our financial performance and service levels. While specialty trade sales were uneven over the past year, we hope to build on the upturn we experienced in the fourth quarter. And the acquisition of Moore Langen, a $15-million cash transaction completed on October 17, should add approximately $12 million to our sales for the year and be modestly accretive to fiscal 2006 earnings after allocating interest expense on the acquisition price against these earnings. "In our specialty publishing segment, we expect Dover's excellent product offering, revitalized sales and marketing organization, state-of-the-art infrastructure and strong focus on the needs of retailers to drive renewed revenue growth as the year progresses, while REA continues on its leadership track in test preparation, student proficiency and teacher certification. "Throughout both of our businesses, we will continue to work hard to deliver the best service in the industry while maximizing operating efficiency. The results of these efforts point to another record year. "For fiscal 2006 overall, we expect to achieve sales growth of 14% to 16% (which includes the benefit of a 53-week year in fiscal 2006), resulting in total sales of between $258 and $263 million, which would be another record high for Courier. And we expect earnings per share to grow even faster, reaching $2.00 to $2.10 for fiscal 2006, prior to the effect of a change in stock option accounting. This represents an increase of between 13% and 19% from this year's earnings of $1.77 per diluted share, and would also set a new company record." New stock option accounting rules, which require expensing the value of stock options, become effective at the beginning of fiscal year 2006. The impact of this change is expected to reduce fiscal 2006 earnings by $.06 per diluted share. The new rule will be applied retrospectively resulting in a reduction in fiscal 2005 earnings of $.10 per diluted share. After the effect of the change, fiscal 2006 earnings are expected to be between $1.94 and $2.04 per diluted share, compared to $1.67 per diluted share for fiscal 2005, an increase of between 16% and 22%.