Courier Corporation, one of America's leading book manufacturers and specialty publishers, today announced results for the quarter ended March 24, 2012, the second quarter of its 2012 fiscal year. Revenues were $62.4 million, down slightly from last year's second-quarter revenues of $62.7 million. However, the company's second-quarter net income of $440,000 or $.04 per diluted share represented an improvement over last year's second-quarter net loss of $4.8 million or $.40 per diluted share, which included restructuring costs associated with the closing of a plant in Stoughton, Massachusetts, and the write-down of $750,000 in receivables following the bankruptcy of Borders Group Inc. Excluding the restructuring costs and bad-debt provision, last year's second-quarter net income was $342,000 or $.03 per diluted share.

For the first six months of fiscal 2012, Courier revenues were $125.3 million, up from $123.8 million in fiscal 2011. Net income for the year to date was $1.9 million or $.16 per diluted share, including a first-quarter pretax charge of $1.5 million related to severance and post-retirement benefit costs and a first-quarter pretax gain of $0.6 million from the sale of certain non-operating assets. For the first six months of fiscal 2011, the company's net loss was $3.2 million or $.26 per diluted share, including the second-quarter restructuring costs and bad-debt provision. Excluding those items for both periods, net income for the first six months of fiscal 2012 was $2.5 million or $.21 per diluted share, compared to $2.0 million or $.17 per diluted share for the corresponding period last year. Details for these items can be found in the tables at the end of this release.

The second quarter of Courier's fiscal year has traditionally been its slowest, a phenomenon compounded by this year's unusually early quarterly close on March 24, in advance of traditional spring publishing promotions and normal seasonal increases in activity in the education market. In the company's book manufacturing segment, second-quarter sales were up in both the specialty trade and education markets, but off in the religious market against an exceptionally strong second quarter last year. For the year to date, book manufacturing sales were up in all three markets, with the largest gains in specialty trade. In Courier's publishing segment, second-quarter sales were up at Dover Publications but down elsewhere, while six-month sales remained down throughout the segment.

"Last year both of our business segments were hit hard in the second quarter by the collapse of Borders," said Courier Chairman and Chief Executive Officer James F. Conway III. "This year we saw some positive signs that consumers are starting to turn to other book retailers, as shown by our solid growth in book manufacturing sales to the specialty trade market through both the quarter and the first half of the year.

"Nonetheless, we continue to manage costs carefully, aligning our resources with changing markets and seasonal demand patterns. To that end we made further consolidations both in book manufacturing and in our publishing businesses. Helped by these prudent measures and by our continuing strong cash flow, our financial condition remains as strong as ever, with our debt down by $5 million since the start of fiscal 2012 and our $100-million credit facility extended through March 2016.

"In keeping with these achievements, I am pleased to announce that our Board of Directors has approved not only our regular quarterly dividend but also a $10 million stock repurchase program. With our reduced cost structure, our expanding array of digital offerings and our typical pattern of seasonal sales growth, I look forward to a stronger second half of the year."

Book manufacturing: trade rebound continues
Courier's book manufacturing segment had second-quarter sales of $55.5 million, comparable to the same period last year. For fiscal 2012 to date, book manufacturing sales were $111.5 million, up 3% from fiscal 2011. As previously mentioned, the first-quarter results for fiscal 2012 included restructuring costs for severance and post-retirement benefits, while last year's second-quarter results included plant closing costs. Excluding these restructuring costs, the segment's second-quarter operating income was $2.3 million, versus $2.4 million a year ago. On a year-to-date basis, operating income was $7.5 million, up 20% from $6.2 million for the first six months of last year. Again excluding restructuring costs, gross profit for the second quarter was $9.1 million or 16.5% of sales, versus $8.9 million or 16.1% of sales last year. Gross profit for the first half of fiscal 2012 was $21.6 million or 19.4% of sales compared to $20.3 million or 18.7% of sales. This improvement in gross profit margins in a competitive pricing environment reflects a favorable sales mix, operating efficiencies enabled by recent technology investments, and the closing of a redundant one-color plant last March.

The book manufacturing segment focuses on three markets: education, religious, and specialty trade. Sales to the education market were up 2% in the quarter and up 3% for the year to date, with the largest proportion of sales at the college and university levels. Sales to the religious market were down 4% from fiscal 2011 in the second quarter, but up 1% for the first six months of the year, driven by 4% growth in sales to our largest religious customer. Sales to the specialty trade market were up 8% from last year for both the second quarter and the first half of the fiscal year, reflecting increased four-color work, increased orders at Courier Digital Solutions, and a return to more traditional ordering patterns as the marketplace continues to assimilate the loss of Borders.

Faced with the market's continuing shift from one- to four-color book production, in early April Courier moved some one-color work from Westford, Massachusetts to its Kendallville, Indiana plant, which had redundant one-color capacity. This consolidation resulted in the loss of 34 positions in Westford. The company expects the consolidation to provide annualized pre-tax savings of approximately $1 million.

"We continue to benefit from the cost savings achieved through last year's closing of our one-color plant in Stoughton, Massachusetts," said Mr. Conway. "With the recent reductions at our Westford facility, we have gained additional savings without compromising our ability to deliver for our customers. At the same time, Westford will continue to have an important role within our overall manufacturing operations. Equally important, we expect to find new opportunities for some of our former Westford employees at our nearby Courier Digital Solutions facility as it prepares for growing demand in the upcoming summer season.

"In other ways it was a typical second quarter given the seasonality of many of our markets. We continue to enjoy excellent relationships with our largest customers in the education and religious markets, backed by multi-year agreements that position us well for long-term growth. And we continue to offer a distinctive, state-of-the-art combination of digital and offset technologies to help all our customers reach their markets as effectively as possible."

Publishing: adjusting to a post-Borders environment
Courier's specialty publishing segment includes three businesses: Dover Publications, a niche publisher with thousands of titles in dozens of specialty trade markets; Creative Homeowner, which publishes books on home design, decorating, landscaping and gardening; and Research & Education Association (REA), a publisher of test preparation books and study guides.

Second-quarter revenues for the segment were $9.6 million, down 5% from $10.1 million in last year's second quarter. The segment's operating loss for the quarter was $1.1 million, compared to a loss of $2.0 million last year including a $750,000 bad-debt provision related to Borders. For fiscal 2012 to date, segment sales were $19.1 million, versus $20.9 million for the first half of last year. The segment's operating loss through six months was $3.0 million, versus $2.8 million for the corresponding period last year.

Of the three Courier publishing businesses, REA alone was profitable during the quarter, though sales were down 5% as it continued to adjust to the absence of Borders, which had been one of its largest customers prior to the chain's closing. At Dover, sales rose 5%, helped by a sharp increase in sales to online retailers, enabling it to reduce its quarterly loss from a year earlier. Meanwhile Creative Homeowner, despite a sales decline of 34%, also narrowed its quarterly loss as Courier Publishing continued to achieve cost savings by consolidating certain publishing functions.

Positive developments in the quarter included the continuing rollout of e-book titles, the March signing of an agreement with Amazon which will make these titles available to a significantly wider audience on the Kindle platform, and preparations for the spring launch of DoverPictura.com, Dover's new online image store.

"Our publishing segment had another challenging quarter," said Mr. Conway. "At the same time, the uptick in sales at Dover provides further support to our belief that consumers have finally begun to move on from the loss of Borders and seek out fresh content from other retailers, particularly online.

"Equally important, we are poised to reap the benefit of several exciting new product initiatives. This spring marks the AP test season debut of REA's new All-Access program, which offers students a comprehensive combination of academic content and diagnostic tools for use anytime, anywhere. With the launch of DoverPictura.com, consumers everywhere will soon be able to obtain hundreds of thousands of unique historic and contemporary images in convenient digital form. And while they're online, they can also obtain more than 3,000 Dover, REA and Creative Homeowner titles in e-book form through an expanded array of sales channels including Amazon, Apple and Google."

Outlook
"Our long-term strengths in technology and service continue to help us amidst a challenging economic environment," said Mr. Conway. "As we expand the services we provide for our largest customers, we believe our efforts will be rewarded with increased volume. At the same time, our growing array of digital offerings is opening up new opportunities both in book manufacturing and in publishing. And we continue to seek additional ways to improve efficiency across our printing and publishing operations.

"For the full fiscal year we expect capital expenditures of between $8 million and $10 million, versus $16 million in fiscal 2011. We will also benefit from the consolidation of one-color printing capacity and other cost-reduction measures taken over the last year in both of our business segments. In addition, we expect to benefit from normal seasonal peaks in the education market, which traditionally drive stronger financial performance in the second half of our fiscal year.

"In line with our past practice, today's guidance, including comparisons to prior performance, excludes impairment and restructuring charges. It also excludes the non-recurring items from this year's first quarter related to severance and post-retirement benefit costs and the gain from the sale of non-operating assets, as well as the Borders receivable write-off in last year's second quarter. Overall, we expect fiscal 2012 sales of between $271 million and $282 million, an increase over fiscal 2011 of between 5% and 9% (which includes the benefit of a 53-week year in fiscal 2012). And we expect earnings per diluted share of between $.80 and $1.05, which compares with our fiscal 2011 earnings of $.89 per diluted share.

"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 $40 million and $45 million, compared to $39 million in fiscal 2011, excluding last year's impairment and restructuring charges and this year's severance and post-retirement benefit costs and the gain from the sale of non-operating assets.

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