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Strong Quarter in Book Manufacturing Boosts Courier Results

Press release from the issuing company

Courier Corporation (Nasdaq: CRRC), one of America’s leading book manufacturers and specialty publishers, today announced fourth-quarter and full-year results for its fiscal year ended September 24, 2011.

Courier’s fourth-quarter 2011 revenues were $73.7 million, up 5% from $70.2 million in last year’s fourth quarter. Net income for the quarter was up sharply to $6.4 million or $.53 per diluted share. In fiscal 2010, fourth-quarter net income was $1.1 million or $.09 per diluted share including a $4.7 million pretax impairment charge, and $4.2 million or $.35 per diluted share excluding that impairment charge.

For fiscal 2011 overall, Courier sales were $259.4 million, up slightly from $257.1 million in fiscal 2010. Net income for the year was $134,000 or $.01 per diluted share including earlier charges for impairment, restructuring and the writedown of receivables from Borders Group Inc. Excluding these charges, net income for fiscal 2011 would have been $10.7 million or $.89 per diluted share. For fiscal 2010, net income was $7.1 million or $.60 per diluted share including the fourth-quarter impairment charge, and $10.2 million or $.85 per diluted share excluding it. Details of the impairment charges and other costs can be found in the tables at the end of this release.

“We finished this challenging year with significant achievements in both of our business segments,” said Courier Chairman and Chief Executive Officer James F. Conway III. “Our book manufacturing segment had one of the best quarters in its history, as we continued to benefit from our leadership in technology and service to the education and religious markets.

“Sales to the specialty trade market continued to be down, reflecting the same forces that have constrained our publishing businesses for the last several quarters. As a result, over the course of the year we made painful adjustments in both our manufacturing and publishing segments to streamline operations and reduce costs, including the March closure of our Stoughton plant. Yet both segments also achieved important milestones with continuing promise for the future. Our investment in Courier Digital Solutions more than justified itself with explosive growth in customized textbooks filling all three presses through a busy summer season. At the same time, Courier Publishing ramped up its investment in digital and online offerings across all three of its businesses.

“Throughout the year, we maintained our solid cash flow and strong financial position, reducing our debt by $2 million from a year earlier to $21.5 million. With new presses up and running both at Courier Digital Solutions and at our Kendallville, Indiana four-color offset plant, the current round of capital expenditures is winding down. In its wake, we are better positioned than ever to deliver excellent service to our customers, many of whom face the same market challenges as we do. Helping them succeed remains the surest path to our own success.

“At our Board of Directors meeting this past week, Courier’s Executive Vice President and Chief Operating Officer Bob Story announced his intention to retire in December following a remarkable 25-year career in which he has been a key contributor to our successes both as a book manufacturer and as a publisher. I would like to take this opportunity to express my deepest thanks to Bob for his extraordinary services to our company, both in the past and present and also in his continuing service in an advisory role. At the same time, I am pleased to announce the promotion of Rajeev Balakrishna to Senior Vice President and General Counsel, with overall responsibility for publishing operations; and the appointment of Peter Folger, Courier’s Senior Vice President and Chief Financial Officer, to the additional corresponding role of head of our book manufacturing operations.

“Finally, I am pleased to report that once again, Courier’s Board of Directors declared a dividend of $.21 per share, the same as last quarter. In addition, the Board reaffirmed its commitment to the dividend for the coming fiscal year, based on its confidence in the continuing strength of the company’s balance sheet, cash flow and business prospects.”

Book manufacturing: solid growth in education continues

Courier’s book manufacturing segment had fourth-quarter sales of $66.6 million, up 9% from $61.1 million last year. Operating income in the fourth quarter was $11.0 million, up 61% from $6.8 million in the fourth quarter of fiscal 2010.

For the full year, book manufacturing sales were $230.2 million, up 3% from $222.8 million in fiscal 2010. The segment’s full-year operating income was up 18% to $22.5 million, excluding the restructuring costs, versus $19.1 million in fiscal 2010.

The segment’s gross profit was $17.8 million or 26.7% of sales in the fourth quarter, versus $14.0 million or 22.8% a year ago. Gross profit for fiscal 2011 was $49.8 million or 21.7% of sales, excluding restructuring costs, versus $46.8 million or 21.0% of sales last year. The improvement in margins in a competitive pricing environment reflected an improved sales mix, operating efficiencies made possible by recent technology investments and the closing of the Stoughton plant, and increased recycling income.

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, up 16% from a year earlier. For the year, education sales were $100 million, up 9% from fiscal 2010, due to higher sales of college textbooks. Sales to the religious market were up 6% to $18 million in the quarter, and up 5% to $66 million for the full year, reflecting gains at Courier’s largest religious customer. Sales to the specialty trade market were down 8% to $14 million in the quarter, and down 9% to $54 million for the full year, reflecting the impact of the Borders Group bankruptcy and the growth of e-books on trade publishers.

During the year Courier added four-color press capacity, both digital and offset, to meet robust demand for college textbooks. At Courier Digital Solutions, the software and solutions capabilities of Highcrest Media continued to drive rapid growth in the production of customized versions of textbooks tailored to the needs of individual schools, professors and classes. With its second digital inkjet press fully booked following its installation last September, the company added a third HP press in June, in time for the peak summer season.

“Our book manufacturing business succeeded in the midst of widespread market uncertainty through a combination of innovation and consolidation,” said Mr. Conway. “Sales were up modestly for the year, but with significant disparities between markets, and between different kinds of book production. The Borders bankruptcy validated our decision to close our one-color plant in Stoughton, Massachusetts in the face of declining demand for one-color books. Meanwhile, our investment in Courier Digital Solutions and our continuing leadership in four-color offset production paid off handsomely in the college textbook market. While sales at the elementary and high school levels were up in the fourth quarter, they remained down for the year amid continuing soft demand.

“We also continued to work closely with our largest religious customer, a global missionary organization we now serve across more than 100 countries. Religious sales grew at a mid-single-digits pace in line with past patterns and with the long-term customer agreement signed this past year in support of the organization’s ambitious program of worldwide Scripture distribution.”

Specialty publishing results reflect impact of Borders liquidation

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 $10.1 million, down 15% from last year’s fourth quarter, reflecting a combination of direct and indirect effects of the Borders Group bankruptcy and liquidation. The direct impact came from the loss of $900,000 in sales to Borders itself; indirect consequences included reduced consumer purchasing at other bookstores and reduced remainder sales in a market temporarily saturated by the Borders liquidation, resulting in an increase in Courier’s obsolescence reserve. Sales were down 14% at Dover, 20% at Creative Homeowner, and 20% at REA, for which Borders had been the second-largest customer. Despite its sales decline, REA remained profitable, but Dover and Creative Homeowner reported operating losses. Overall, the segment’s fourth-quarter operating loss was $872,000, versus operating income of $211,000 in fiscal 2010.

For the year as a whole, specialty publishing sales were $40.8 million, down 11% from $46.0 million in fiscal 2010, with $3.3 million, or more than 60% of the decline, attributable to lost sales to Borders. The segment’s operating loss for the year was $4.1 million, excluding the second quarter bad-debt provision for Borders, versus a loss of $714,000 last year. In addition to lower sales, key factors in the loss included increased returns and the increased allowance for inventory obsolescence.

Positive developments, both in the quarter and for the year, included double-digit increases in sales to online retailers and excellent sales growth at mass merchandising chains, an emerging channel Courier cultivated to reach a broader audience and complement sales at traditional bookstores. At the same time, the company expanded its investment in digitized content, including the conversion of printed content into electronic form to take advantage of the growing market for e-books, maximize its flexibility to reintroduce or repurpose out-of-print titles, and make the quality of its content more visible to online shoppers and search engines.

“The Borders bankruptcy and liquidation continued to cast a shadow over the entire industry for much of our fiscal year,” said Mr. Conway. “The effects lasted right through our fourth quarter, when Borders liquidated the remainder of its more than 600 original stores. In addition, e-books continued to account for a growing share of total trade books sold. Between these two factors and the unsettled economy, it was a challenging year for trade publishers everywhere, Courier included. We were partially able to compensate through increased sales to online retailers, and we began reaping significant benefits from our outreach to the major nationwide retail chains.

“With traditional bookselling channels narrowing through store closings, reductions in shelf space and cautious buying, the entire industry is still working its way to a post-Borders equilibrium in the supply chain. Following the close of the fiscal year we took additional steps to bring Courier Publishing’s cost structure in line with the reduced demand we have been experiencing during this period.

“At the same time, we moved decisively to capture our own piece of the e-book traffic that has been the brightest spot in the industry throughout the year. Over the coming months and years, readers will find our superb offering of books in print complemented by a rapidly expanding array of digital content, from online study centers to e-books and mobile apps.”


“Our greatest successes as a book manufacturer in fiscal 2011 came from playing to our strengths in the education and religious markets, and we expect to do more of the same in fiscal 2012,” said Mr. Conway. “We also expect Courier Digital Solutions to continue to outpace the overall education market with its integrated solutions for customized textbook production. On the publishing side, having worked our way through the worst of the Borders collapse, we expect conditions in the traditional bookstore supply chain to gradually stabilize. At the same time, we continue to pursue additional relationships in non-bookstore channels, both bricks-and-mortar and online. And we will be courting consumers not only through this broader range of channels, but also through the release of e-books and other digital content alongside our print offerings.

“With our new presses up and running, we expect capital expenditures, which were $16 million in fiscal 2011, to decline to between $10 million and $12 million in fiscal 2012. We also expect to benefit from a full year’s worth of cost reductions related to the March 2011 closure of our one-color plant in Stoughton, Massachusetts, as well as from cost reductions this fall at Courier Publishing.

“As in the past, we expect our performance in fiscal 2012 to follow a seasonal pattern, with the larger portion of our earnings coming in the second half.

“In line with our past practice, today’s guidance, including comparisons to prior performance, excludes impairment and restructuring charges. It also excludes severance expenses related to this fall’s cost-reduction measures in our publishing segment as well as certain post-retirement benefits. Overall, we expect fiscal 2012 sales of between $273 million and $286 million, an increase over fiscal 2011 of between 5% and 10% (which includes the benefit of a 53-week year in fiscal 2012). And we expect earnings per diluted share of between $.75 and $1.05, which compares with our fiscal 2011 earnings of $.89 per diluted share, excluding the Borders receivable write-off.

“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 2012, we expect EBITDA to be between $39 million and $45 million, compared to $39 million in fiscal 2011.

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


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