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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