Education Gains Boost Courier Results

  Education Gains Boost Courier Results

              Customized Textbooks Continue to Lead Sales Growth

Business Wire

NORTH CHELMSFORD, Mass. -- November 21, 2013

Courier Corporation (Nasdaq: CRRC), one of America’s leading innovators in
book manufacturing, publishing and content management, today announced
fourth-quarter and full-year results for its fiscal year ended September 28,
2013.

Courier’s 2013 fiscal year had 52 weeks. Its 2012 fiscal year had 53 weeks,
with the extra week included in the fourth quarter.

Fourth-quarter revenues in fiscal 2013 were $84 million, up 9% from $77
million in the fourth quarter of fiscal 2012. Net income in this year’s fourth
quarter was $6.8 million or $.59 per diluted share, up from $5.7 million or
$.50 per diluted share in last year’s fourth quarter, which included
restructuring costs of $1.5 million or $.08 per diluted share primarily
related to the writedown of an unutilized one-color press. Excluding those
costs, fourth-quarter net income in fiscal 2012 was $6.6 million or $.58 per
diluted share.

For the full year of fiscal 2013, Courier sales were $275 million, up 5% from
$261 million for the 53 weeks of fiscal 2012. Net income was $11.2 million or
$.98 per diluted share, up from $9.2 million or $.77 per diluted share last
year, which included restructuring costs of $3.3 million or $.17 per diluted
share as well as a first-quarter pretax gain of $0.6 million from the sale of
certain non-operating assets. Excluding those items, net income for fiscal
2012 was $10.9 million or $.91 per diluted share. Details of last year’s
restructuring costs and other items can be found in the tables at the end of
this release.

The principal contributor to the sales increase, both for the quarter and for
the year, was growing demand from educational publishers. Sales of textbooks
for elementary and high schools rose, reversing several years of slower sales,
while sales of college textbooks grew by a larger amount, led by sales of
textbooks customized to the needs of individual professors, courses,
institutions and geographic regions.

“We finished a very good year in the education market with a banner quarter in
which total textbook sales rose more than 25%,” said Courier Chairman and
Chief Executive Officer James F. Conway III. “Between our industry-leading
textbook customization technology and our combination of four-color offset and
digital inkjet printing capabilities, we are producing top-quality textbooks
at a variety of run lengths to meet highly specific needs for publishers and
educators alike. This past spring, we opened a second digital facility near
our four-color offset plant in Kendallville, Indiana, to help meet demand
throughout the United States. In addition, shortly after the close of the
fiscal year we entered into new relationships which will enable us to extend
the benefits of our technology to millions of students in Brazil.

“As always, we worked hard to help our customers succeed, and we continued to
grow our share with our largest customers in both the education and religious
markets. Our manufacturing and distribution relationship with our largest
religious customer spans more than 100 countries and plays an expanding role
in helping our customer deliver Scriptures to tens of millions of people each
year. At the same time, we took an important step in a very different market
with our April acquisition of California-based startup FastPencil, provider of
a collaborative content management application as well as a self-publishing
software platform that has been used by more than 50,000 content creators.

“Our publishing segment reported sales essentially even with last year, but
cut its operating loss nearly in half as ebook sales passed the million-dollar
mark and started to contribute significantly to profitability. Well over 4,000
print titles, representing all three of our publishing brands, are now
available as ebooks on all the major retail platforms. Also, consumers can now
obtain Dover’s entire ebook offering via direct download from a newly
redesigned www.doverpublications.com website.

“Pleased as we were with our sales gains in book manufacturing, operating
margins were under pressure from the combined effects of a very competitive
pricing environment and lower recycling revenues. But cash flow remained
strong, and while our debt at year-end was up by $10 million as a result of
our investments in expanded digital capacity and FastPencil, we enter fiscal
2014 in solid financial condition. Confirming this judgment, Courier’s Board
of Directors has once again declared a dividend of $.21 per share, the same as
last quarter. In addition, following the expiration of the stock repurchase
program authorized last year, the Board has issued a new authorization for the
repurchase of up to $10 million in Courier stock.”

Book manufacturing: custom textbooks continue to outperform

Courier’s book manufacturing segment had fourth-quarter sales of $76 million,
up 10% from $69 million last year. Fourth-quarter operating income in the
segment was $10.8 million, versus $10.2 million last year including
restructuring costs. Excluding those costs, the segment’s fourth-quarter
operating income in fiscal 2012 was $11.7 million.

For the full year, book manufacturing sales were $247 million, up 6% from $233
million in fiscal 2012. The segment’s full-year operating income was $22.0
million, versus $20.7 million last year, including restructuring costs.
Excluding those costs, fiscal 2012 operating income in the segment was $23.4
million.

The segment’s gross profit was $20.6 million or 27.1% of sales in the fourth
quarter, versus $19.6 million or 28.4% of sales in last year’s fourth quarter
excluding restructuring costs. Gross profit for fiscal 2013 was $53.9 million
or 21.8% of sales, versus fiscal 2012 gross profit of $51.7 million or 22.2%
of sales excluding restructuring costs. The reduction in gross profit margins
resulted from intense price competition, reduced recycling income, and
increased expense associated with the LIFO method of accounting for certain
inventories. Other factors affecting the segment’s overall profitability
included increased performance-based compensation costs and transaction costs
related to the FastPencil acquisition and our pending investment in Brazil.

The book manufacturing segment focuses on three markets: education, religion,
and specialty trade. Sales to the education market were $39 million in the
fourth quarter, up 26% over the previous year. For the year, education sales
were $112 million, up 14% from fiscal 2012, with most of the growth related to
sales of college textbooks, but also renewed growth in sales of elementary and
high school textbooks. Sales to the religious market were $19 million in the
quarter, down 3% from last year; for fiscal 2013 as a whole, religious sales
were $69 million, up 2% over fiscal 2012, in line with historical trends.
Fourth-quarter sales to the specialty trade market were $16 million, down 4%
from an exceptionally strong quarter last year; for the full year, specialty
trade sales were $59 million, down 2% from fiscal 2012, reflecting tight
inventory management leading to smaller print quantities.

Digital sales increased both in the fourth quarter and for the year as a
whole, reflecting escalating demand for customized versions of college
textbooks. With its Massachusetts digital facility running close to capacity,
in April Courier opened a second digital production facility in Kendallville,
Indiana, and utilization was high at both facilities through the balance of
the year.

“The education market continues to deliver for us—as we do for our customers,”
said Mr. Conway. “Our consistent policy of customer-focused investment is
helping publishers and educators reach today’s students more effectively than
ever with materials that provide a powerful, integrated learning experience.
With our combination of offset and digital capacity, we can meet
course-specific deadlines while producing efficiently at every scale across
the full life cycle of every title. This capability is a key factor driving
the continued expansion of our relationship with our major customer in the
education market.

“Having successfully replicated our Massachusetts digital operations at our
new Indiana facility, it was only natural for us to investigate other markets
suitable for our technology and approach. Earlier this year we began
discussions with leaders in Brazil’s education market, the largest in Latin
America. In October we entered into a pair of agreements with Digital Page
Gráfica E Editora, a Sao Paulo-based digital printing firm, and Santillana,
the largest Spanish/Portuguese educational publisher in the world. We expect
both agreements to close by the end of this calendar year. Under these
agreements, through the combination of our customization technology and
Digital Page’s manufacturing facilities, Santillana will become the first
publisher in Brazil to offer textbooks customized to the needs of individual
schools—while Courier takes a position as 40% owner of Digital Page.

“Sales to the religious market were down in the fourth quarter but up slightly
for the full year, in keeping with our long history of quarter-to-quarter
fluctuations with our largest religious customer. The decline in specialty
trade sales reflects continued tight management of inventories and associated
utilization to digital printing for certain titles. Though overall order flow
in specialty trade remained consistent, we expect the pattern of tight
inventory management to continue.

“Finally, our April acquisition of FastPencil and its popular self-publishing
software platform brought us a ground-floor position in one of the industry’s
fastest-growing segments. FastPencil’s workflow technology, licensing
expertise and Premiere publishing imprint also offer significant benefits for
established authors, particularly in combination with our digital print
capabilities.”

Publishing: ebook sales making a difference

Courier’s 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 and plans on
home design, decorating, landscaping and gardening.

Fourth-quarter revenues for the segment were $10.3 million, up 2% over last
year’s 14-week fourth quarter. Overall, the segment’s fourth-quarter operating
income was $324,000, versus a loss of $426,000 in fiscal 2012.

For the year as a whole, publishing sales were $37.6 million, down 2% from
$38.4 million in fiscal 2012. The segment’s operating loss for fiscal 2013 was
$2.1 million, much improved from a fiscal 2012 loss of $4.4 million including
restructuring costs, or $3.7 million excluding those costs. The improved
performance reflected the continuation of stringent cost-control measures,
reduced inventory obsolescence costs and increased ebook revenues.

“Dover continues to look better each quarter,” said Mr. Conway. “Our
investment in ebooks is starting to generate a larger audience as well as
improved profitability. In addition, the revamped website combines a
refreshing new look with a host of new features including an improved shopping
cart and the ability to bundle print and ebook purchases. Meanwhile, our other
publishing brands continue to offer excellent content through a channel
network still compromised by the loss of Borders and Home Depot. Yet with
attentive management and increasingly effective use of digital print to
minimize obsolescence costs, we have continued to bring the segment’s losses
down as we pursue additional sales and distribution opportunities.”

Outlook

“We enter fiscal 2014 with exciting prospects, but also continuing
challenges,” said Mr. Conway. “We continue to reap the benefits of our
investments in customization and content management, and we are adding to
those investments in order to expand our opportunities, both domestically and
internationally. Yet at the same time, we face the same pressures on print
pricing as the rest of the industry. As a result, while we expect revenues to
continue to outpace the overall U.S. education market and maintain their
growth pace with our largest religious customer, we expect growth in net
income to be constrained by those continuing pressures, even as EBITDA rises.

“As in the past, we expect our performance in fiscal 2014 to follow a seasonal
pattern, with the larger portion of our earnings coming in the second half.

“Overall, we expect fiscal 2014 sales of between $275 million and $295
million, compared to $275 million in fiscal 2013. We expect earnings per
diluted share of between $.70 and $1.00, which compares with our fiscal 2013
earnings of $.98 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
2014, we expect EBITDA to be between $41 million and $46 million, compared to
$42 million in fiscal 2013.

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

About Courier Corporation

Courier Corporation is America’s third largest book manufacturer and a leader
in content management and customization in new and traditional media. It also
publishes books under three brands offering award-winning content and
thousands of titles. Founded in 1824, Courier is headquartered in North
Chelmsford, Massachusetts. For more information, visit www.courier.com.

This news release includes forward-looking statements, including statements
relating to the continuation of the Company’s dividend for fiscal year 2014,
expansion into e-books and digital content offerings, and the Company’s
financial expectations for fiscal year 2014, including sales, EBITDA, earnings
per share and capital expenditures. Statements that describe future
expectations, plans or strategies are considered “forward-looking statements”
as that term is defined under the Private Securities Litigation Reform Act of
1995 and releases issued by the Securities and Exchange Commission. The words
“believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions
which are predictions of or indicate future events and trends and which do not
relate to historical matters identify forward-looking statements. Such
statements are subject to risks and uncertainties that could cause actual
results to differ materially from those currently anticipated. Factors that
could affect actual results include, among others, changes in customers’
demand for the Company’s products, including seasonal changes in customer
orders and shifting orders to lower cost regions, changes in market growth
rates, changes in raw material costs and availability, pricing actions by
competitors and other competitive pressures in the markets in which the
Company competes, consolidation among customers and competitors, insolvency of
key customers or vendors, changes in the Company’s labor relations, changes in
obligations of multiemployer pension plans, success in the execution of
acquisitions and the performance and integration of acquired businesses
including carrying value of intangible assets and contingent consideration,
restructuring and impairment charges required under generally accepted
accounting principles, changes in operating expenses including medical and
energy costs, changes in technology including migration from paper-based books
to digital, difficulties in the start up of new equipment or information
technology systems, changes in copyright laws, changes in consumer product
safety regulations, changes in environmental regulations, changes in tax
regulations, changes in the Company’s effective income tax rate and general
changes in economic conditions, including currency fluctuations, changes in
interest rates, changes in consumer confidence, changes in the housing market,
and tightness in the credit markets. Although the Company believes that the
assumptions underlying the forward-looking statements are reasonable, any of
the assumptions could be inaccurate, and therefore, there can be no assurance
that the forward-looking statements will prove to be accurate. The
forward-looking statements included herein are made as of the date hereof, and
the Company undertakes no obligation to update publicly such statements to
reflect subsequent events or circumstances.

                                                        
COURIER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per share amounts)
                                                                    
                   QUARTER ENDED                   YEAR ENDED
                   September       September       September        September
                   28,             29,             28,              29,
                   2013           2012 (1)        2013            2012 (1)
                                                                    
Net sales          $84,242         $77,100         $274,919         $261,320
Cost of sales      59,317         55,721         207,162         199,113  
                                                                    
Gross profit       24,925          21,379          67,757           62,207
                                                                    
Selling and
administrative     14,080         11,910         49,142          47,137   
expenses
                                                                    
Operating          10,845          9,469           18,615           15,070
income
                                                                    
Interest           97              196             803              895
expense, net
Other income       -              -              -               (587     )
                                                                    
Income before      10,748          9,273           17,812           14,762
taxes
                                                                    
Income tax         3,963          3,564          6,590           5,595    
provision
                                                                    
Net income         $6,785         $5,709         $11,222         $9,167   
                                                                    
Net income per     $0.59          $0.50          $0.98           $0.77    
diluted share
                                                                    
Cash dividends
declared per       $0.21          $0.21          $0.84           $0.84    
share
                                                                    
Wtd. average
diluted shares     11,438          11,446          11,431           11,928
outstanding
                                                                    
SEGMENT
INFORMATION:
                                                                    
Net sales:
Book               $75,946         $69,177         $247,406         $233,040
Manufacturing
Publishing         10,330          10,141          37,635           38,355
Elimination of
intersegment       (2,034  )       (2,218  )       (10,122  )       (10,075  )
sales
Total              $84,242         $77,100         $274,919         $261,320
                                                                    
Operating
income (loss):
Book               $10,814         $10,176         $21,953          $20,713
Manufacturing
Publishing         324             (426    )       (2,069   )       (4,364   )
Stock based        (346    )       (331    )       (1,348   )       (1,429   )
compensation
Intersegment       53             50             79              150      
profit
Total              $10,845         $9,469          $18,615          $15,070
                                                                    
                                                                    
(1) Fiscal year 2012 was a 53-week period; the additional week was included in
the fourth quarter.

                                                         
COURIER CORPORATION
SEGMENT RESULTS OF OPERATIONS (Unaudited)
(In thousands)
                                                                      
                                                                      
BOOK
MANUFACTURING      QUARTER ENDED                     YEAR ENDED
SEGMENT
                   September       September         September        September
                   28,             29,               28,              29,
                   2013            2012 (1)          2013             2012 (1)
                                                                      
Net sales          $75,946         $69,177           $247,406         $233,040
Cost of sales      55,334          51,071           193,499         183,079  
                                                                      
Gross profit       20,612          18,106            53,907           49,961
                                                                      
Selling and
administrative     9,798           7,930            31,954          29,248   
expenses
                                                                      
Operating          $10,814         $10,176          $21,953         $20,713  
income
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
                                                                      
PUBLISHING         QUARTER ENDED                     YEAR ENDED
SEGMENT
                   September       September         September        September
                   28,             29,               28,              29,
                   2013            2012 (1)          2013             2012 (1)
                                                                      
Net sales          $10,330         $10,141           $37,635          $38,355
Cost of sales      6,069           6,919            23,864          26,259   
                                                                      
Gross profit       4,261           3,222             13,771           12,096
                                                                      
Selling and
administrative     3,937           3,648            15,840          16,460   
expenses
                                                                      
Operating          $324            ($426   )         ($2,069  )       ($4,364  )
income (loss)
                                                                      
                                                                      
(1) Fiscal year 2012 was a 53-week period; the additional week was included in
the fourth quarter.

                                                         
COURIER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands)
  
                                                                 
                                           September 28,         September 29,
ASSETS                                     2013                  2012
                                                                 
Current assets:
   Cash and cash equivalents               $57                   $64
   Investments                             1,012                 765
   Accounts receivable                     43,837                35,152
   Inventories                             35,086                36,364
   Deferred income taxes                   3,954                 4,273
   Other current assets                    2,579                 950
      Total current assets                 86,525                77,568
                                                                 
Property, plant and equipment, net         93,051                89,952
Goodwill and other intangibles             25,853                17,880
Prepublication costs                       6,717                 7,135
Deferred income taxes                      2,827                 3,451
Other assets                               2,021                 1,374
                                                                 
      Total assets                         $216,994              $197,360
                                                                 
                                                                 
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                 
Current liabilities:
   Current maturities of long-term         $1,125                $1,872
   debt
   Accounts payable                        13,699                11,364
   Accrued taxes                           3,117                 3,857
   Other current liabilities               18,033                15,777
      Total current liabilities            35,974                32,870
                                                                 
Long-term debt                             24,583                13,696
Other liabilities                          10,393                6,283
                                                                 
      Total liabilities                    70,950                52,849
                                                                 
      Total stockholders' equity           146,044               144,511
                                                                 
      Total liabilities and                $216,994              $197,360
      stockholders' equity

                                                       
COURIER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
                                                                 
                                 For the Years Ended
                                 September 28,                   September 29,
                                 2013                            2012
Operating
Activities:
Net income                       $11,222                         $9,167
Adjustments to
reconcile net income
to
cash provided from
operating                                                        
activities:
Depreciation and                 23,526                          25,060
amortization
Stock-based                      1,348                           1,429
compensation
Deferred income                  746                             479
taxes
Gain on disposition              -                               (587      )
of assets
Change in fair value
of contingent                    275                             100
consideration
Changes in other                 (3,707     )                    5,244
working capital
Other long-term, net             (1,272     )                    (1,909    )
                                                                 
Cash provided from               32,138                         38,983    
operating activities
                                                                 
Investment
Activities:
Capital expenditures             (22,168    )                    (9,934    )
Business
acquisition, net of              (5,000     )                    -
cash acquired
Prepublication costs             (3,421     )                    (4,069    )
Proceeds on
disposition of                   166                             587
assets
Investments                      (747       )                    376       
                                                                 
Cash used for
investment                       (31,170    )                    (13,040   )
activities
                                                                 
Financing
Activities:
Long-term debt
borrowings                       10,140                          (5,954    )
(repayments), net
Cash dividends                   (9,651     )                    (10,098   )
Stock repurchases                (1,568     )                    (10,000   )
Proceeds from stock              339                             344
plans
Other                            (235       )                    (275      )
                                                                 
Cash used for                    (975       )                    (25,983   )
financing activities
                                                                 
Decrease in cash and             ($7        )                    ($40      )
cash equivalents
                                                                 
                                                                 
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 additional
indicators of the company's operating cash flow performance. These measures
should be considered in addition to, not a substitute for or superior to,
measures of financial performance prepared in accordance with GAAP.
                                                                 
Non-GAAP
reconciliation -
EBITDA:
Net income                       $11,222                         $9,167
Income tax provision             6,590                           5,595
Interest expense,                803                             895
net
Depreciation and                 23,526                          25,060
amortization
Change in fair value
of contingent                    275                             100
consideration
Restructuring costs              -                               1,892
Other income                     -                              (587      )
EBITDA                           $42,416                        $42,122   

                                                                                                                        
COURIER CORPORATION
OTHER RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES (Unaudited)
(In thousands, except per share amounts)
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
                                   Quarter Ended September 29, 2012                          Year Ended September 29, 2012
                                   Income      Income                          Net           Income        Income                           Net Income
                                                                               Income
                                   Before      Tax           Net               per           Before        Tax            Net               per
                                                                               Diluted                                                      Diluted
                                   Taxes       Provision     Income           Share         Taxes         Provision     Income           Share
                                                                                                                                            
GAAP basis measures                $9,273      $3,564        $5,709            $0.50         $14,762       $5,595         $9,167            $0.77
                                                                                                                                            
       Restructuring  (1 )         1,511       580           931               0.08          3,325         1,260          2,065             0.17
       costs
       Other income   (2 )         -           -            -                -            (587    )     (222     )     (365      )       (0.03    )
                                                                                                                                            
Non-GAAP measures                  $10,784     $4,144       $6,640           $0.58        $17,500      $6,633        $10,867          $0.91    
                                                                                                                                            
                                                                                                                                            
                                                                                                                                            
BOOK MANUFACTURING                             Quarter Ended September 29, 2012                           Year Ended September 29, 2012
SEGMENT
                                               GAAP          Non-Recurring     Non-GAAP                    GAAP Basis     Non-Recurring     Non-GAAP
                                               Basis
                                               Measures      Items (1)         Measures                    Measures      Items (1)         Measures
                                                                                                                                            
       Net sales                               $69,177                         $69,177                     $233,040                         $233,040
       Cost of sales                           51,071       (1,511    )       49,560                     183,079       (1,723    )       181,356  
                                                                                                                                            
       Gross profit                            18,106        1,511             19,617                      49,961         1,723             51,684
                                                                                                                                            
       Selling and
       administrative                          7,930        -                7,930                      29,248        (961      )       28,287   
       expenses
                                                                                                                                            
       Operating                               $10,176      $1,511           $11,687                    $20,713       $2,684           $23,397  
       income
                                                                                                                                            
                                                                                                                                            
PUBLISHING SEGMENT                             Quarter Ended September 29, 2012                            Year Ended September 29, 2012
                                               GAAP          Non-Recurring     Non-GAAP                    GAAP Basis     Non-Recurring     Non-GAAP
                                               Basis
                                               Measures      Items (1)         Measures                    Measures      Items (1)         Measures
                                                                                                                                            
       Net sales                               $10,141                         $10,141                     $38,355                          $38,355
       Cost of sales                           6,919                         6,919                      26,259                         26,259   
                                                                                                                                            
       Gross profit                            3,222         -                 3,222                       12,096         -                 12,096
                                                                                                                                            
       Selling and
       administrative                          3,648        -                3,648                      16,460        (641      )       15,819   
       expenses
                                                                                                                                            
       Operating loss                          ($426   )     $0               ($426   )                   ($4,364  )     $641             ($3,723  )
                                                                                                                                            
                                                                                                                                            
(1 )   During the prior year, cost reduction measures were taken in both of the Company's operating segments. Related severance and post-retirement
       benefit expenses were $1.9 million, while accelerated depreciation associated with a reduction in the Company's one-color offset press capacity
       of $1.4 million was recorded in the fourth quarter of last year.
                                                                                                                                            
(2 )   During the first quarter of last year, the Company recorded a $0.6 million gain associated with the sale of its interests in non-operating real
       property relating to cell towers.

Contact:

Courier Corporation
James F. Conway III, 978-251-6000
Chairman, President and Chief Executive Officer
or
Peter M. Folger, 978-251-6000
Senior Vice President and Chief Financial Officer
www.courier.com
 
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