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Courier reports higher revenues in Q4

Press release from the issuing company

North Chelmsford, Mass. - Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced fourth-quarter and full-year results for its fiscal year ended September 25, 2010.

Courier's consolidated fourth-quarter revenues were $70.2 million, up 3% from $68.4 million in last year's fourth quarter. Net income for the fourth quarter was $1.1 million or $.09 per diluted share, including a non-cash, pre-tax impairment charge of $4.7 million related to the company's Creative Homeowner publishing business. Excluding the impairment charge, net income for this year's fourth quarter would have been $4.2 million or $.35 per diluted share. Net income for the fourth quarter of fiscal 2009 was $5.7 million or $.48 per diluted share.

For fiscal 2010 overall, Courier sales were $257.1 million, up 3% from $248.8 million in fiscal 2009. Net income for the year was $7.1 million or $.60 per share, versus a loss of $3.1 million or $.27 per diluted share last year. Excluding the fourth-quarter impairment charge, net income for fiscal 2010 would have been $10.2 million or $.85 per diluted share. The net loss in fiscal 2009 included a non-cash, pre-tax impairment charge of $15.6 million and restructuring costs of $4.8 million. Excluding these items, net income for fiscal 2009 would have been $10.2 million or $.86 per diluted share. Details of the impairment charges and fiscal 2009 restructuring costs can be found in the tables at the end of this release.

"In the current economy, we knew that sales growth would be hard to achieve," said Courier Chairman and Chief Executive Officer James F. Conway III. "But we did it, returning to profitability while achieving higher sales in all three of our major book manufacturing markets and two of our three publishing brands. Once again we benefited from our balanced portfolio of markets and complementary businesses. Building on our strong customer relationships, we were able to grow share in key markets and secure additional business for the future. In addition, we made investments in our book manufacturing segment that have already begun improving performance in publishing as well.

"With our January acquisition of Highcrest Media and our spring installation of advanced four-color digital inkjet technology from HP, we launched Courier Digital Solutions (CDS), gaining access to the high-growth market for customized college textbooks as well as a range of other short-run opportunities in education and trade. CDS's very first customer was our own Dover Publications, which has quickly begun to capitalize on the economies of digital printing to reduce inventory while reviving dozens of titles from its vast backlist.

"We also are investing in much-needed additional capacity at our big four-color offset plant in Kendallville, Indiana, with a new press scheduled for December startup. Already widely regarded as the most efficient four-color book plant in the United States, the Kendallville plant will become even more so to meet projected demand in education and specialty trade.

"At the same time, in an uncertain economy we took care to manage frugally without compromising our service to customers. Faced with the continuing weakness in the home improvement market, we took steps to further reduce operating costs at our Creative Homeowner publishing business while safeguarding its award-winning editorial quality for the market's eventual recovery. We made capital investments totaling $25 million related to Courier Digital Solutions and our new press at Kendallville. And we finished the year in a strong financial position with solid cash flow. I am also pleased to report that once again, Courier's Board of Directors declared a dividend of $.21 per share, the same as last quarter."

Book manufacturing: focusing on growth areas

Courier's book manufacturing segment had fourth-quarter sales of $61.1 million, up 4% from $58.8 million last year. Operating income in the fourth quarter was $6.8 million, versus $9.0 million in the fourth quarter of fiscal 2009, excluding fiscal 2009 restructuring costs.

For the full year, book manufacturing sales were $222.8 million, up 5% from $212.2 million in fiscal 2009. The segment's full-year operating income was $19.1 million. Last year's operating income was $19.0 million, excluding restructuring costs.

The segment's gross profit was $14.0 million or 22.8% of sales in the fourth quarter, versus $15.0 million or 25.5% a year ago excluding restructuring costs. Gross profit for fiscal 2010 was $46.8 million or 21.0% of sales, up from $44.3 million or 20.9% of sales last year excluding restructuring costs. Factors affecting margins included a very competitive pricing environment, improved capacity utilization earlier in the year, increased recycling income, and cost-reduction measures.

The book manufacturing segment focuses on three markets: education, religion, and specialty trade. Sales to the education market were $27.1 million in the fourth quarter, up 4% from a year earlier. For the year, education sales were $92.4 million, up 6% from fiscal 2009, led by sales of college textbooks. Sales to the religious market were up 11% to $17.3 million in the quarter, and up 6% to $63.4 million for the full year, reflecting gains at Courier's largest religious customer. Sales to the specialty trade market were down 2% to $14.9 million in the quarter, but up 6% to $59.5 million for the full year, helped by increased demand for four-color books.

"Our book manufacturing business advanced on several fronts this year," said Mr. Conway. "We grew sales in all our major markets; we acquired capabilities that promise to be increasingly valuable both to our customers and to our own publishing segment; and we locked in some of our gains through new customer agreements that capitalize on our unique technology and expertise.

"In the religious market, we were particularly pleased to extend a 75-year relationship with a leading global missionary organization through a new multi-year agreement providing incentives for additional growth. In education, our Highcrest Media acquisition, now fully integrated into our Courier Digital Solutions (CDS) operation, has brought us new customers as well as a new dimension to an existing key customer relationship. Overall, CDS has performed beyond expectations, with our first HP system moving quickly from one-color operation to a full range of one- to four-color work, and a second system installed on schedule in late September.

"We also took a vital step forward at our Kendallville plant by ordering our fourth high-speed offset press from manroland. Our four-color capacity was stretched to the limit in fiscal 2010, and we expect increased demand in both education and specialty trade in 2011 and beyond. The new press will enable us to meet that demand more efficiently than ever. Our customers appreciate our willingness to invest across multiple platforms and the ups and downs of economic cycles to serve them better, and we are happy to do it for our mutual benefit."

Specialty publishing: pockets of opportunity in soft markets

Courier's specialty 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 on home design, decorating, landscaping and gardening.

Fourth-quarter revenues for the segment were $11.9 million, the same as last year's fourth quarter. Sales were up 6% at Dover, flat at REA after strong quarters earlier in the year, and down 23% at Creative Homeowner, reflecting the lackluster home improvement market. Because of the drop in sales, Creative Homeowner's operating loss for the quarter rose to $778,000 from $526,000 a year earlier. In total, the segment's fourth-quarter operating income was $211,000, versus $928,000 in last year's fourth quarter.

For the year as a whole, specialty publishing sales were $46.0 million, down 2% from $46.8 million in fiscal 2009. Including Creative Homeowner's loss of $2.6 million, the segment's full-year operating loss was $714,000, an improvement over last year of $1 million, attributable to revenue growth of 4% at Dover and 16% at REA.

"Given the adverse retail environment, we were happy to see Dover sales rise as well as they did, helped by children's books as well as direct-to-consumer, online and international sales," said Mr. Conway. "Dover also made news with several new titles in its Calla Edition series, most notably Marilyn, August 1953, a portfolio of previously unpublished photographs of Marilyn Monroe that has sparked widespread interest both domestically and internationally. Meanwhile, REA sales were up 16%, thanks to the combination of excellent spring releases and revamped cover designs that have strengthened the brand's in-store presence.

"Courier's non-cash, pre-tax impairment charge of $4.7 million related to Creative Homeowner reflects the systemic problems it currently faces in the home improvement market. For the last two years we have aggressively reduced costs at Creative Homeowner as that market has contracted. Yet within this shrinking market, Creative Homeowner products have actually gained share, reflecting their continuing excellence and relevance. Apart from editorial, virtually all Creative Homeowner functions have now been folded into unified publishing segment operations. And when the market eventually recovers, I'm confident that Creative Homeowner will be able to capitalize on it with outstanding titles calibrated to consumers' evolving needs."


"The road back from recession is rarely a straight line. But we're on it, and gaining speed from day to day," said Mr. Conway. "The competitive environment remains intense, but we have more to offer to help publishers succeed through the full life cycle of every title. Our combination of technologies is unsurpassed, and our expertise and attitude add value for customers every day. Between those valued relationships and our investments in new capacity, we expect to achieve further sales gains in fiscal 2011.

"Having seen capital expenditures rise from $10 million in fiscal 2009 to $28 million in fiscal 2010, we expect them to drop by about $10 million in fiscal 2011, as most of the spending on Courier Digital Solutions and our new Kendallville press has already been accounted for. Yet for the first time, we will have nearly a full year to benefit from those investments--and not only as a book manufacturer, but also as a publisher. By doing more for less with our combination of digital and offset platforms, our publishing businesses will be able to reach out more effectively to retailers and consumers with new niche products and an expanded backlist, generating further gains as the economy improves.

"For fiscal 2011 overall, we expect to achieve total sales of between $269 million and $288 million, an increase of between 5% and 12% over fiscal 2010. We expect earnings per diluted share of between $.85 and $1.15, versus our fiscal 2010 earnings of $.85 per diluted share, excluding the impairment charge.

"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 2011, we expect EBITDA to be between $41 million and $47 million, compared to $38 million in fiscal 2010, excluding impairment and restructuring charges.

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


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