Courier Announces Third-Quarter Results

  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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