Courier Announces Second-Quarter Results

  Courier Announces Second-Quarter Results

Business Wire

NORTH CHELMSFORD, Mass. -- May 7, 2014

Courier Corporation (Nasdaq: CRRC), one of America’s leading innovators in
book manufacturing, publishing and content management, today announced results
for the quarter ended March 29, 2014, the second quarter of its 2014 fiscal
year. Revenues were $61.4 million, off slightly from $61.8 million in last
year’s second quarter. For the quarter, the company reported a loss of $3.4
million or $.30 per diluted share, including a non-cash impairment charge of
$1.9 million or $.17 per diluted share related to FastPencil, a California
startup acquired by Courier last spring, as well as an $825,000 write-off
associated with the failure of a book distribution customer. Excluding the
impairment charge and the receivable write-off, the adjusted loss for the
quarter was $1.0 million or $.09 per diluted share. In fiscal 2013’s second
quarter, net income was $336,000 or $.03 per diluted share.

For the first six months of fiscal 2014, Courier revenues were $134.2 million,
an increase of 6% from $126.5 million last year. The company reported a loss
for the six-month period of $0.7 million or $.06 per diluted share, including
the second-quarter impairment charge and receivable write-off; excluding those
items, income through six months was $1.7 million or $.14 per diluted share,
versus net income of $2.8 million or $.24 per diluted share for the first half
of fiscal 2014. Details of the impairment charge and other items, including
reconciliations of non-GAAP measures to GAAP, can be found in the tables at
the end of this release.

“For years our financial results have reflected the seasonal nature of our
business, with a slow second quarter paving the way for a stronger second
half,” said Courier Chairman and Chief Executive OfficerJames F. Conway
III.“Our performance so far this year is in line with that history. But this
spring we faced three additional challenges that reinforced the pattern and
led to a quarterly loss.

“Externally, the sudden closing and liquidation of our primary distributor
into the home improvement channel hurt results. Internally, we had to absorb
additional depreciation costs associated with expanded digital press capacity
acquired in anticipation of the coming textbook season—an investment that we
are confident will be amply rewarded over time. Finally, we took a non-cash
impairment charge of $1.9 million related to our California software startup,
FastPencil. While FastPencil’s enterprise-level sales are taking longer than
we had hoped, the company’s innovative technology platform continues to gain
traction in the large and growing community of self-publishers.

“Customized textbooks continue to be an important growth avenue for our
education business, but our second fiscal quarter falls outside the busy
season for this activity. In the religious market, the sales decline at our
largest customer came on the heels of a strong first quarter. On the
publishing side, the bright spot in a difficult quarter was the healthy sales
growth and improved bottom line at REA, whose line of AP test prep titles
continues to shine in a crowded competitive landscape.

“Despite the quarter’s challenges, our financial condition remains strong and
we face the second half of the fiscal year well positioned for the demand we
foresee. As a result, on April 23rd our Board of Directors declared a dividend
of$.21 per share, the same as last quarter.”

Book manufacturing: investing for the future amidst seasonal challenges

Courier’s book manufacturing segment reported second-quarter sales of$55.4
million, down 1% from $55.9 millionin last year’s second quarter. The
segment’s operating loss was $718,000, including a loss of $900,000 at
FastPencil, versus operating income of $1.4 milliona year ago. Additional
factors affecting earnings included a tight pricing environment and over $1
million of additional depreciation and amortization expense, primarily due to
recent investments in digital capacity in anticipation of future demand.

For the first six months of the fiscal year, book manufacturing sales were
$121 million, up 7% from $113 million in the first half of fiscal 2013.
Six-month operating income in the segment was $4.6 million, including a loss
of $1.8 million at FastPencil, versus income of $6.9 million a year ago.

The book manufacturing segment focuses on three markets: education, religion,
and specialty trade. Sales to theeducationmarket were$21 millionin the
second quarter, up 5% from a year earlier, driven by increased sales of
elementary and high school textbooks; for the year to date, education sales
were $49 million, up 10% from fiscal 2013. Sales to thereligiousmarket were
down 8% to$17 millionin the quarter, with sales to Courier’s largest
religious customer down 11%, but down only 2% on a year-to-date basis.
Overall, religious sales for the first six months of the fiscal year were up
3% over last year. Sales to thespecialty trademarket were $15 million,
comparable to last year’s second quarter, while year-to-date sales were $32
million, up 6% from last year, reflecting an increase in four-color work as
well as sales of digital print.

“Coming out of the seasonally slower second quarter in book manufacturing, we
expect stronger demand for the remainder of the year,” said Mr. Conway. “As it
happened, some of the burden of preparing for the future fell on the second
quarter, with two new digital presses ready and waiting for the coming season.
As the year progresses, we expect to be at or near capacity due to the
combination of continued growth in custom college textbooks, the gradual
ongoing revival of the elementary and high school textbook market, and helpful
vendor consolidation trends on the part of several publishers.”

Publishing: coping with a key distributor loss

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.

Second-quarter revenues for the segment were$9.0 million, down from $9.4
million last year, with sales up at REA but lower at the other two publishing
companies. The segment’s operating loss for the quarter was$1.2 million,
versus $368,000for the second quarter of fiscal 2013, with the difference
almost entirely attributable to the $825,000 write-off associated with the
closing of Creative Homeowner’s largest distribution customer. Publishing
revenues for the first six months of the year were $18 million, down 2% from
last year; the segment’s loss for the year to date was $1.8 million, versus
$1.5 million in fiscal 2013.

“While REA delivered a strong performance, Creative Homeowner was hurt by the
loss of its major home improvement distributor,” said Mr. Conway. “At Dover,
it’s worth noting that online sales, sales of ebooks, and sales of Creative
Haven line of adult coloring books all continued to rise during the quarter.”

Outlook

“While it has been a choppy year on the surface, the underlying drivers for
our business remain positive,” said Mr. Conway. “Our investments in technology
and service should stand us in good stead as we enter the busiest part of our
sales year. Our relationships with global leaders in our key markets are
stronger than ever, and in our largest market, education, we are encouraged by
the recent showings of renewed strength in the long-depressed elementary and
high school segment. At the same time, we still face intense pricing
pressures.

“As in the past, we expect our performance in fiscal 2014 to follow a seasonal
pattern, with stronger earnings in the second half driving full-year results.

“Overall, we expect fiscal 2014 sales of between $280 million and $292
million, compared to $275 million in fiscal 2013. We expect earnings per
diluted share of between $.70 and $.95, excluding the second-quarter
impairment charge and receivable write-off, versus 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 $45 million, excluding
the second-quarter impairment charge and receivable write-off, compared to $42
million in fiscal 2013.

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

AboutCourier Corporation

Courier Corporationis 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 inNorth
Chelmsford, Massachusetts. For more information, visit www.courier.com.

This news release includes forward-looking statements, including statements
relating to the Company's financial expectations for fiscal year 2014,
including sales, EBITDA and earnings per share. 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.
Some of the factors that could affect actual results include, among others,
pricing actions by competitors and other competitive pressures in the markets
in which the Company competes, consolidation among customers and competitors,
changes in customers’ demand for the Company’s products, including seasonal
changes in customer orders and shifting orders to lower cost regions,
increased concentration with a few customers, 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, insolvency of key customers or vendors, changes in
technology including migration from paper-based books to digital, changes in
market growth rates, changes in obligations of multiemployer pension plans 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, changes in raw material
costs and availability, changes in the Company’s labor relations, changes in
operating expenses including medical and energy costs, difficulties in the
startup 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 and changes in the
Company’s effective income tax rate. 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)
                                                               
                               SECOND QUARTER          YEAR TO DATE
                               March 29,   March 30,   March 29,    March 30,
                               2014       2013       2014        2013     
                                                                    
Net sales                      $61,443     $61,778     $134,239     $126,534
Cost of sales                  50,420     49,774     105,324     98,530   
                                                                    
Gross profit                   11,023      12,004      28,915       28,004
                                                                    
Selling and administrative     13,322      11,281      26,770       23,249
expenses
Impairment charge, net of
reduction in contingent        1,870      -          1,870       -        
consideration liability (1)
                                                                    
Operating income (loss)        (4,169  )   723         275          4,755
                                                                    
Interest expense, net          108        191        283         381      
                                                                    
Income (loss) before taxes     (4,277  )   532         (8       )   4,374
                                                                    
Income tax provision           (907    )   196        715         1,618    
(benefit)
                                                                    
Net income (loss)              ($3,370 )   $336       ($723    )   $2,756   
                                                                    
Net income (loss) per          ($0.30  )   $0.03      ($0.06   )   $0.24    
diluted share
                                                                    
Cash dividends declared per    $0.21      $0.21      $0.42       $0.42    
share
                                                                    
Wtd. average diluted shares    11,314      11,405      11,299       11,430
outstanding
                                                                    
SEGMENT INFORMATION:
                                                                    
Net sales:
Book Manufacturing             $55,355     $55,919     $120,931     $113,400
Publishing                     8,991       9,353       18,112       18,487
Elimination of intersegment    (2,903  )   (3,494  )   (4,804   )   (5,353   )
sales
Total                          $61,443     $61,778     $134,239     $126,534
                                                                    
Operating income (loss):
Book Manufacturing             ($718   )   $1,395      $4,592       $6,894
Publishing                     (1,169  )   (368    )   (1,769   )   (1,504   )
Impairment charge, net (1)     (1,870  )   -           (1,870   )   -
Stock based compensation       (385    )   (331    )   (743     )   (672     )
Intersegment profit            (27     )   27         65          37       
Total                          ($4,169 )   $723        $275         $4,755
                                                                    

(1) In the second quarter of fiscal 2014, the Company recorded a $4.5 million
impairment charge related to FastPencil's goodwill as well as a reduction in
the related contingent consideration liability of $2.6 million. Both
adjustments are non-cash and not deductible for income tax purposes.


COURIER CORPORATION
SEGMENT RESULTS OF OPERATIONS (Unaudited)
(In thousands)
                                                               
                                                                    
BOOK MANUFACTURING SEGMENT     SECOND QUARTER          YEAR TO DATE
                               March 29,   March 30,   March 29,    March 30,
                               2014       2013       2014        2013     
                                                                    
Net sales                      $55,355     $55,919     $120,931     $113,400
Cost of sales                  48,135     47,526     99,351      91,956   
                                                                    
Gross profit                   7,220       8,393       21,580       21,444
                                                                    
Selling and administrative     7,938      6,998      16,988      14,550   
expenses
                                                                    
Operating income (loss)        ($718   )   $1,395     $4,592      $6,894   
                                                                    
                                                                    
                                                                    
                                                                    
PUBLISHING SEGMENT             SECOND QUARTER          YEAR TO DATE
                               March 29,   March 30,   March 29,    March 30,
                               2014       2013       2014        2013     
                                                                    
Net sales                      $8,991      $9,353      $18,112      $18,487
Cost of sales                  5,159      5,769      10,841      11,964   
                                                                    
Gross profit                   3,832       3,584       7,271        6,523
                                                                    
Selling and administrative     5,001      3,952      9,040       8,027    
expenses
                                                                    
Operating loss                 ($1,169 )   ($368   )   ($1,769  )   ($1,504  )
                                                                             


COURIER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(In thousands)
                                                        
                                                             
                                                 March 29,   September 28,
ASSETS                                           2014        2013
                                                             
Current assets:
  Cash and cash equivalents                      $4,451      $57
  Investments                                    968         1,012
  Accounts receivable                            32,199      43,837
  Inventories                                    37,136      35,086
  Deferred income taxes                          4,131       3,954
  Other current assets                           4,744       2,579
    Total current assets                         83,629      86,525
                                                             
Property, plant and equipment, net               89,649      93,051
Goodwill and other intangibles                   20,770      25,756
Prepublication costs                             6,380       6,717
Deferred income taxes                            3,029       2,924
Long-term investments                            5,461       500
Other assets                                     1,176       1,521
                                                             
    Total assets                                 $210,094    $216,994
                                                             
                                                             
LIABILITIES AND STOCKHOLDERS' EQUITY
                                                             
Current liabilities:
  Current maturities of long-term debt           $2,757      $1,125
  Accounts payable                               11,053      13,699
  Accrued taxes                                  1,081       3,117
  Other current liabilities                      13,946      18,033
    Total current liabilities                    28,837      35,974
                                                             
Long-term debt                                   31,457      24,583
Other liabilities                                8,165       10,393
                                                             
    Total liabilities                            68,459      70,950
                                                             
    Total stockholders' equity                   141,635     146,044
                                                             
    Total liabilities and stockholders' equity   $210,094    $216,994
                                                             


COURIER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
                                                       
                                    For the Six Months Ended
                                    March 29,                 March 30,
                                    2014                     2013        
Operating Activities:
Net income (loss)                   ($723        )            $2,756
Adjustments to reconcile net
income to cash provided from
operating activities:
Depreciation and                    13,092                    11,638
amortization
Stock-based compensation            743                       672
Impairment charge                   4,500                     -
Change in fair value of             (2,280       )            15
contingent consideration
Deferred income taxes               (282         )            270
Changes in other working            (1,045       )            746
capital
Other long-term, net                91                       (741        )
                                                              
Cash provided from operating        14,096                   15,356      
activities
                                                              
Investment Activities:
Capital expenditures                (7,532       )            (8,793      )
Prepublication costs                (1,479       )            (1,643      )
Loan receivable and other           (4,917       )            (59         )
investments
Life insurance proceeds             387                      -           
                                                              
Cash used for investment            (13,541      )            (10,495     )
activities
                                                              
Financing Activities:
Long-term debt borrowings,          8,506                     1,641
net
Cash dividends                      (4,842       )            (4,839      )
Proceeds from stock plans           175                       166
Stock repurchases                   -                         (1,568      )
Other                               -                        (235        )
                                                              
Cash provided from (used            3,839                    (4,835      )
for) financing activities
                                                              
Increase in cash and cash           $4,394                   $26         
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                          ($723        )            $2,756
Income tax provision                715                       1,618
Interest expense, net               283                       381
Depreciation and                    13,092                    11,638
amortization
Impairment charge                   4,500                     -
Change in fair value of             (2,280       )            15          
contingent consideration
EBITDA                              $15,587                  $16,408     
                                                                          


COURIER CORPORATION
OTHER RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES (Unaudited)
(In thousands, except per share amounts)



                Quarter Ended March 29, 2014                  Year To Date March 29, 2014
                 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       ($4,277 )   ($907   )   ($3,370 )   ($0.30 )   ($8    )   $715        ($723   )   ($0.06  )
measures
                                                                                                   
Impairment
charge,    (1)   1,870       -           1,870       0.17       1,870      -           1,870       0.17
net
Bad-debt   (2)   825        317        508        0.04      825       317        508        0.04    
provision
                                                                                                   
Non-GAAP         ($1,582 )   ($590   )   ($992   )   ($0.09 )   $2,687    $1,032     $1,655     $0.14   
measures
                                                                                                   
                                                                                                   
                                                                                                   
PUBLISHING                   Quarter Ended March 29, 2014                  Year To Date March 29, 2014
SEGMENT
                             GAAP-       Non-        Non-GAAP              GAAP-       Non-        Non-GAAP
                             Basis       Recurring   Basis                 Basis       Recurring   Basis
                             Measures    Items (2)   Measures             Measures    Items (2)   Measures
                                                                                                   
Net sales                    $8,991      ($450   )   $8,541                $18,112     ($450   )   $17,662
Cost of                      5,159      -          5,159                10,841     -          10,841  
sales
                                                                                                   
Gross                        3,832       (450    )   3,382                 7,271       (450    )   6,821
profit
                                                                                                   
Selling and
administrative               5,001      (1,275  )   3,726                9,040      (1,275  )   7,765   
expenses
                                                                                                   
Operating                    ($1,169 )   $825       ($344  )              ($1,769 )   $825       ($944   )
loss
                                                                                                   

(1) In the second quarter of fiscal 2014, the Company recorded a $4.5 million
impairment charge related to FastPencil's goodwill as well as a reduction in
the related contingent consideration liability of $2.6 million. Both
adjustments are non-cash and not deductible for income tax purposes.

(2) In the second quarter of fiscal 2014, the Company recorded a bad debt
provision of $1.3 million related to Creative Homeowner's primary distributor
as well as a reduction in the related sales returns reserve of $0.5 million,
resulting in a net reduction in operating income of $0.8 million.

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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