Courier Announces Third-Quarter Results Business Wire NORTH CHELMSFORD, Mass. -- August 6, 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 June 28, 2014, the third quarter of its 2014 fiscal year. Revenues were $67.7 million, up 5% from last year’s third-quarter revenues of $64.1 million. Net income for the quarter was $1.2 million or $.10 per diluted share, versus $1.7 million or $.15 per diluted share in last year’s third quarter. For the first nine months of fiscal 2014, Courier revenues were $201.9 million, up 6% from $190.7 million in fiscal 2013. Net income for the year to date was $450,000 or $.04 per diluted share, including a second-quarter non-cash impairment charge of $1.9 million or $.16 per diluted share related to Courier’s FastPencil subsidiary and the write-off of an $825,000 receivable following the liquidation of a book distribution customer, also in the second quarter. Excluding the impairment charge and the receivable writeoff, adjusted income for the nine-month period was $2.8 million or $.25 cents per diluted share. For the first nine months of fiscal 2013, the company’s net income was $4.4 million or $.39 per diluted share. Details of these and other items, including reconciliations of non-GAAP measures to GAAP, can be found in the tables at the end of this release. One such non-GAAP measure is EBITDA (earnings before interest, taxes, depreciation and amortization), an additional indicator of the company’s operating cash flow performance. For the first nine months of fiscal 2014, Courier’s EBITDA, adjusted for the net impairment charge and receivable write-off, was $25.4 million, compared to $25.7 million in the same period last year. In Courier’s book manufacturing segment, third-quarter sales were up in two of its three principal markets. The largest gain was in the education market, with especially strong sales at the elementary and high school levels. Sales to the religious market were also up, while trade sales were off. For the year to date, sales were up in all three markets. In the company’s publishing segment, while sales were off slightly both for the quarter and for the year to date, the adjusted operating loss was down substantially. “We had a solid quarter across much of our business despite several factors that constrained our earnings,” said Courier Chairman and Chief Executive Officer James F. Conway III. “Pricing pressures and increasingly tight inventory management on the part of publishers have been facts of life for some time. In addition, this year we bore the non-cash burden of depreciation related to our recent expansion in digital press capacity without reaping the full benefit of that capacity until the latter half of the quarter. A third factor was our investment in FastPencil and the subsequent ramp-up. Over time, we expect all these investments to serve our customers and our company well. Meanwhile, we continue to grow our business with our largest religious customer both in the United States and around the world, as we help them carry out their long-term program of international Scripture distribution. “In our publishing segment, while sales were down, we continued to trim our operating losses, helped by improved performance at both Dover Publications and Research & Education Association (REA). “We head into our fourth quarter with a strong order flow for our digital and offset manufacturing facilities in Massachusetts and Indiana. “Given our performance this quarter and our strong financial condition, on July 24 our Board of Directors declared our regular quarterly dividend of $.21 per share.” Book manufacturing: textbook season starts slow but gains momentum Courier’s book manufacturing segment had third-quarter sales of $61.1 million, up 5% from $58.1 million in the same period last year. For fiscal 2014 to date, book manufacturing sales were $182.1 million, up 6% from $171.5 million in the first nine months of fiscal 2013. The segment’s third-quarter operating income was $3.0 million, versus $4.2 million a year ago. On a year-to-date basis, operating income was $7.6 million, versus $11.1 million for the same period last year. Factors affecting 2014 earnings in both the quarter and the year to date include continuing pricing pressures, increased depreciation expense associated with the expansion of digital capacity in advance of the peak textbook season, and costs associated with the company’s investment in FastPencil. The book manufacturing segment focuses on three markets: education, religious, and specialty trade. Sales to the education market were up 7% in the quarter and up 9% for the year to date, with the largest increase coming from sales of elementary and high school textbooks. Sales to the religious market were up 12% in the third quarter and up 5% for the first nine months of the year, largely driven by growth in sales to our largest religious customer. Sales to the specialty trade market were down 3% in the third quarter, but up 3% for the first nine months of the fiscal year. “For years we have benefited from taking a long view of opportunities in our major markets,” said Mr. Conway. “Once again this quarter proved us right despite its slow start, as the long-depressed elementary and high school textbook market continued its comeback. With our expanded digital capacity, we are well prepared to meet customers’ evolving needs amidst a continually changing landscape. We head into our fourth quarter with a strong backlog for both digital and offset, as the underlying drivers in the education market continue to be positive. “Meanwhile, in the religious market, we had an excellent quarter which more than made up for a slower second quarter and put us back on track for the year, in keeping with our long-term relationship with our largest religious customer.” Publishing: print and electronic working together to reduce losses Courier’s publishing segment includes three businesses: Dover Publications, a publisher of 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, a publisher of books on home design, decorating, landscaping and gardening. Third-quarter revenues for the segment were $8.5 million, down 4% from $8.8 million in last year’s third quarter. Despite this decline, the segment reduced its operating loss to $493,000, from a loss of $889,000 last year. For fiscal 2014 to date, segment sales were $26.6 million, versus $27.3 million for the first nine months of last year, with the shortfall entirely attributable to disruption at Creative Homeowner following the liquidation of its major distributor. The segment’s operating loss through nine months was $2.3 million, or $1.4 million excluding the write-off of the receivable from that distributor. Within the segment, sales were flat at Dover and REA, but down at Creative Homeowner, a pattern which held true both for the quarter and for the first nine months of the year. Operating results improved at both Dover and REA, with REA showing a profit both for the quarter and for the year to date. “Our publishing businesses continue to operate with focus and discipline,” said Mr. Conway, “paring back the segment’s operating losses and compensating for a challenging bricks-and-mortar retail environment with good growth in sales to online retailers, as well as electronic products. Dover continues to win new fans with its Creative Haven line of adult coloring books, while REA solidifies its standing as a leader in the test-prep market with a significantly leaner structure. In addition, our growing library of ebooks continues to generate new sales while improving profitability throughout the segment.” Outlook “We start our fourth quarter with the expectation of another strong finish to our fiscal year,” said Mr. Conway. “We are being helped by the continued improvement in the economy and, with it, the renewed growth in textbook demand at the elementary and high school levels. We also continue to benefit from our market-leading service offering in customized textbooks for colleges and universities and steady growth with our largest religious customer. At the same time, we expect our publishing segment to continue on its path of managing costs aggressively while staying closely aligned with retailers’ needs and consumers’ interests. “Overall, we expect fiscal 2014 sales of between $280 million and $289 million, compared to $275 million in fiscal 2013. We expect earnings per diluted share of between $.70 and $.90, 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 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 second 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, performance of investments in unconsolidated subsidiaries and exposure to risks of operating internationally, 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) THIRD QUARTER YEAR TO DATE June 28, June 29, June 28, June 29, 2014 2013 2014 2013 Net sales $67,665 $64,143 $201,904 $190,677 Cost of sales 54,335 49,315 159,659 147,845 Gross profit 13,330 14,828 42,245 42,832 Selling and administrative 11,219 11,813 37,989 35,062 expenses Impairment charge, net of reduction in contingent - - 1,870 - consideration liability (1) Operating income 2,111 3,015 2,386 7,770 Interest expense, 207 325 490 706 net Income before taxes 1,904 2,690 1,896 7,064 Income tax provision 731 1,009 1,446 2,627 Net income $1,173 $1,681 $450 $4,437 Net income per $0.10 $0.15 $0.04 $0.39 diluted share Cash dividends $0.21 $0.21 $0.63 $0.63 declared per share Wtd. average diluted 11,470 11,382 11,529 11,415 shares outstanding SEGMENT INFORMATION: Net sales: Book Manufacturing $61,121 $58,060 $182,052 $171,460 Publishing 8,462 8,818 26,574 27,305 Elimination of (1,918 ) (2,735 ) (6,722 ) (8,088 ) intersegment sales Total $67,665 $64,143 $201,904 $190,677 Operating income (loss): Book Manufacturing $2,979 $4,245 $7,571 $11,139 Publishing (493 ) (889 ) (2,262 ) (2,393 ) Impairment charge, - - (1,870 ) - net (1) Stock based (393 ) (330 ) (1,136 ) (1,002 ) compensation Intersegment profit 18 (11 ) 83 26 Total $2,111 $3,015 $2,386 $7,770 (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 THIRD QUARTER YEAR TO DATE SEGMENT June 28, June 29, June 28, June 29, 2014 2013 2014 2013 Net sales $61,121 $58,060 $182,052 $171,460 Cost of sales 50,747 46,209 150,098 138,165 Gross profit 10,374 11,851 31,954 33,295 Selling and administrative 7,395 7,606 24,383 22,156 expenses Operating income $2,979 $4,245 $7,571 $11,139 PUBLISHING SEGMENT THIRD QUARTER YEAR TO DATE June 28, June 29, June 28, June 29, 2014 2013 2014 2013 Net sales $8,462 $8,818 $26,574 $27,305 Cost of sales 5,525 5,831 16,366 17,795 Gross profit 2,937 2,987 10,208 9,510 Selling and administrative 3,430 3,876 12,470 11,903 expenses Operating loss ($493 ) ($889 ) ($2,262 ) ($2,393 ) COURIER CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In thousands) June 28, September 28, ASSETS 2014 2013 Current assets: Cash and cash equivalents $4,600 $57 Investments 1,013 1,012 Accounts receivable 34,316 43,837 Inventories 41,911 35,086 Deferred income taxes 4,286 3,954 Other current assets 4,759 2,579 Total current assets 90,885 86,525 Property, plant and equipment, net 85,876 93,051 Goodwill and other intangibles 20,529 25,756 Prepublication costs 6,095 6,717 Deferred income taxes 3,083 2,924 Long-term investments 5,461 500 Other assets 1,204 1,521 Total assets $213,133 $216,994 LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt $2,606 $1,125 Accounts payable 13,195 13,699 Accrued taxes 913 3,117 Other current liabilities 16,727 18,033 Total current liabilities 33,441 35,974 Long-term debt 32,436 24,583 Other liabilities 8,327 10,393 Total liabilities 74,204 70,950 Total stockholders' equity 138,929 146,044 Total liabilities and stockholders' equity $213,133 $216,994 COURIER CORPORATION CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (Unaudited) (In thousands) For the Nine Months Ended June 28, June 29, 2014 2013 Operating Activities: Net income $450 $4,437 Adjustments to reconcile net income to cash provided from operating activities: Depreciation and 19,878 17,823 amortization Stock-based compensation 1,136 1,002 Impairment charge 4,500 - Change in fair value of (2,185 ) 125 contingent consideration Deferred income taxes (491 ) 514 Changes in other working (3,198 ) (2,089 ) capital Other long-term, net 64 (734 ) Cash provided from 20,154 21,078 operating activities Investment Activities: Capital expenditures (9,365 ) (14,461 ) Acquisition of business - (5,000 ) Prepublication costs (2,143 ) (2,598 ) Loan receivable and (4,962 ) (686 ) other investments Life insurance proceeds 387 - Cash used for investment (16,083 ) (22,745 ) activities Financing Activities: Long-term debt 9,334 10,673 borrowings, net Cash dividends (7,270 ) (7,244 ) Proceeds from stock 175 170 plans Stock repurchases (1,767 ) (1,568 ) Other - (235 ) Cash provided from 472 1,796 financing activities Increase in cash and $4,543 $129 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) and adjusted EBITDA 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 $450 $4,437 Income tax provision 1,446 2,627 Interest expense, net 490 706 Depreciation and 19,878 17,823 amortization EBITDA $22,264 $25,593 Impairment charge 4,500 - Change in fair value of (2,185 ) 125 contingent consideration Bad debt provision 825 - Adjusted EBITDA $25,404 $25,718 COURIER CORPORATION OTHER RECONCILIATIONS OF GAAP TO NON-GAAP MEASURES (Unaudited) (In thousands, except per share amounts) Nine Months Ended June 28, 2014 Income Income Net Income Before Tax Net per Diluted Taxes Provision Income Share GAAP basis $1,896 $1,446 $450 $0.04 measures Impairment (1) 1,870 - 1,870 0.16 charge, net Bad-debt (2) 825 317 508 0.04 provision Non-GAAP $4,591 $1,763 $2,828 $0.25 measures PUBLISHING Nine Months Ended June 28, 2014 SEGMENT GAAP- Non- Non-GAAP Basis Recurring Basis Measures Items (2) Measures Net sales $26,574 ($450 ) $26,124 Cost of 16,366 - 16,366 sales Gross 10,208 (450 ) 9,758 profit Selling and 12,470 (1,275 ) 11,195 administrative expenses Operating ($2,262 ) $825 ($1,437 ) 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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