UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
(Mark
One)
x
|
QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the quarterly period ended December 29,
2007
or
o
|
TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
For the
transition period from
to .
Commission
file number 0-7597
COURIER
CORPORATION
(Exact name of
registrant as specified in its charter)
Massachusetts
|
|
04-2502514
|
(State or other
jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer
Identification No.)
|
|
|
|
15
Wellman Avenue, North Chelmsford, Massachusetts
|
|
01863
|
(Address of
principal executive offices)
|
|
(Zip Code)
|
(978) 251-6000
(Registrants telephone number, including area code)
NO CHANGE
(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check
mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d)
of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant
was required to
file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Yes
x
No
o
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer or a
non-accelerated filer
(as defined in
Exchange Act Rule 12b-2).
Large accelerated
filer
o
Accelerated
filer
x
Non-accelerated
filer
o
Indicate by check
mark whether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).
Yes
o
No
x
Indicate the number of
shares outstanding of each of the issuers classes of common stock, as of the
latest practicable
date.
Class
|
|
Outstanding
at February 5, 2008
|
Common Stock, $1
par value
|
|
12,448,396
shares
|
COURIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share amounts)
|
|
THREE MONTHS ENDED
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
|
|
|
|
Net sales
|
|
$
|
62,863
|
|
$
|
64,312
|
|
Cost of sales
|
|
46,122
|
|
44,168
|
|
Gross profit
|
|
16,741
|
|
20,144
|
|
Selling and administrative
expenses
|
|
14,216
|
|
13,501
|
|
Interest expense, net
|
|
295
|
|
222
|
|
Pretax income
|
|
2,230
|
|
6,421
|
|
Provision for income taxes
(Notes A and C)
|
|
814
|
|
2,398
|
|
Net income
|
|
$
|
1,416
|
|
$
|
4,023
|
|
Net income per share (Note
D):
|
|
|
|
|
|
Basic
|
|
$
|
0.11
|
|
$
|
0.32
|
|
Diluted
|
|
$
|
0.11
|
|
$
|
0.32
|
|
Cash dividends declared
per share
|
|
$
|
0.20
|
|
$
|
0.18
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
2
COURIER
CORPORATION
CONSOLIDATED
CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars
in thousands)
|
|
December 29,
2007
|
|
September 29,
2007
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,510
|
|
$
|
1,549
|
|
Accounts receivable, less allowance for uncollectible accounts of
$1,597 at December 29, 2007 and $1,531 at September 29, 2007
|
|
38,229
|
|
47,673
|
|
Inventories (Note B)
|
|
37,744
|
|
38,183
|
|
Deferred income taxes
|
|
3,467
|
|
3,469
|
|
Other current assets
|
|
2,245
|
|
1,550
|
|
|
|
|
|
|
|
Total current assets
|
|
83,195
|
|
92,424
|
|
|
|
|
|
|
|
Property, plant and equipment, less accumulated depreciation:
$144,804 at
December 29, 2007 and $141,079 at September 29, 2007
|
|
96,230
|
|
97,778
|
|
|
|
|
|
|
|
Goodwill (Note A)
|
|
55,199
|
|
55,199
|
|
|
|
|
|
|
|
Other intangibles, net
(Note A)
|
|
12,686
|
|
12,904
|
|
|
|
|
|
|
|
Prepublication costs (Note
A)
|
|
10,237
|
|
10,220
|
|
|
|
|
|
|
|
Other assets
|
|
1,292
|
|
1,310
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
258,839
|
|
$
|
269,835
|
|
The accompanying
notes are an integral part of the consolidated financial statements.
3
COURIER
CORPORATION
CONSOLIDATED
CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars
in thousands)
.
|
|
December 29,
2007
|
|
September 29,
2007
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
Current maturities of long-term debt
|
|
$
|
91
|
|
$
|
91
|
|
Accounts payable
|
|
13,084
|
|
20,111
|
|
Accrued payroll
|
|
5,588
|
|
7,409
|
|
Accrued taxes
|
|
936
|
|
2,129
|
|
Other current liabilities
|
|
7,823
|
|
6,652
|
|
|
|
|
|
|
|
Total current liabilities
|
|
27,522
|
|
36,392
|
|
|
|
|
|
|
|
Long-term debt
|
|
18,147
|
|
17,375
|
|
Deferred income taxes
|
|
10,135
|
|
9,446
|
|
Other liabilities
|
|
3,485
|
|
3,619
|
|
|
|
|
|
|
|
Total
liabilities
|
|
59,289
|
|
66,832
|
|
|
|
|
|
|
|
Stockholders equity
(Notes F or G):
|
|
|
|
|
|
Preferred stock, $1 par value - authorized 1,000,000 shares; none
issued
|
|
|
|
|
|
Common stock, $1 par value - authorized 18,000,000 shares; issued
12,527,000 at December 29, 2007 and 12,612,000 at September 29, 2007
|
|
12,527
|
|
12,612
|
|
Additional paid-in capital
|
|
10,716
|
|
12,977
|
|
Retained earnings
|
|
176,812
|
|
177,919
|
|
Accumulated other comprehensive loss
|
|
(505
|
)
|
(505
|
)
|
|
|
|
|
|
|
Total stockholders equity
|
|
199,550
|
|
203,003
|
|
|
|
|
|
|
|
Total liabilities and
stockholders equity
|
|
$
|
258,839
|
|
$
|
269,835
|
|
The accompanying
notes are an integral part of the consolidated financial statements.
4
COURIER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
|
THREE MONTHS ENDED
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
|
|
|
|
Operating Activities:
|
|
|
|
|
|
Net income
|
|
$
|
1,416
|
|
$
|
4,023
|
|
Adjustments to reconcile net income to cash provided from operating
activities:
|
|
|
|
|
|
Depreciation and amortization
|
|
5,174
|
|
4,405
|
|
Stock-based compensation (Note F)
|
|
440
|
|
363
|
|
Deferred income taxes
|
|
691
|
|
570
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
Accounts receivable
|
|
9,444
|
|
3,665
|
|
Inventory
|
|
439
|
|
(3,969
|
)
|
Accounts payable
|
|
(7,027
|
)
|
1,872
|
|
Accrued taxes
|
|
(1,193
|
)
|
(1,050
|
)
|
Other elements of working capital
|
|
(1,345
|
)
|
(2,238
|
)
|
Other long-term, net
|
|
(169
|
)
|
(252
|
)
|
|
|
|
|
|
|
Cash provided from
operating activities
|
|
7,870
|
|
7,389
|
|
|
|
|
|
|
|
Investment Activities:
|
|
|
|
|
|
Capital expenditures
|
|
(2,192
|
)
|
(7,895
|
)
|
Prepublication costs
|
|
(1,228
|
)
|
(1,405
|
)
|
|
|
|
|
|
|
Cash used for investment
activities
|
|
(3,420
|
)
|
(9,300
|
)
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
Long-term debt borrowings
|
|
772
|
|
3,726
|
|
Cash dividends
|
|
(2,523
|
)
|
(2,242
|
)
|
Proceeds from stock plans
|
|
105
|
|
475
|
|
Stock repurchases (Note G)
|
|
(2,893
|
)
|
|
|
Excess tax benefits from stock-based compensation
|
|
50
|
|
(25
|
)
|
|
|
|
|
|
|
Cash provided from (used
for) financing activities
|
|
(4,489
|
)
|
1,934
|
|
|
|
|
|
|
|
Increase (decrease) in
cash and cash equivalents
|
|
(39
|
)
|
23
|
|
|
|
|
|
|
|
Cash and cash equivalents
at the beginning of the period
|
|
1,549
|
|
1,483
|
|
|
|
|
|
|
|
Cash and cash equivalents
at the end of the period
|
|
$
|
1,510
|
|
$
|
1,506
|
|
The accompanying notes are an integral part of the consolidated
financial statements.
5
COURIER CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Unaudited
Financial Statements
The balance sheet
as of December 29, 2007, the statements of income for the three-month
periods ended December 29, 2007 and December 30, 2006, and the
statements of cash flows for the three-month periods ended December 29,
2007 and December 30, 2006 are unaudited.
In the opinion of management, all adjustments necessary for a fair
presentation of such financial statements have been recorded. Such adjustments consisted only of normal
recurring items.
Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with accounting principles generally accepted in the United States
of America (generally accepted accounting principles) have been condensed or
omitted. The balance sheet data as of September 29,
2007 was derived from audited year-end financial statements, but does not
include disclosures required by generally accepted accounting principles. It is suggested that these interim financial
statements be read in conjunction with the Companys most recent Form 10-K
and Annual Report for the year ended September 29, 2007.
Prepublication Costs
Prepublication
costs, associated with creating new titles in the specialty publishing segment,
are amortized to cost of sales using the straight-line method over estimated
useful lives of three years for Research & Education Association, Inc.
(REA), four years for Dover Publications, Inc. (Dover) and five years
for Federal Marketing Corporation, d/b/a Creative Homeowner (Creative
Homeowner).
Goodwill
and Other Intangibles
The Company evaluates possible impairment
annually or whenever events or circumstances indicate that the carrying value
of the assets may not be recoverable. There were no such events or
circumstances in the period presented.
Other intangibles include customer lists related to Creative Homeowner
and Moore-Langen Printing Company, Inc. (Moore Langen), which are being
amortized over 15-year and 10-year periods, respectively. Amortization expense related to customer
lists was approximately $200,000 in the first quarters of both fiscal 2008 and
2007.
Recent Accounting Pronouncements
At the beginning of fiscal 2008, the
Company adopted the provisions of the Financial Accounting Standards Board (FASB)
Interpretation No. 48, Accounting for Uncertainty in Income Taxes an
interpretation of FASB Statement No. 109 (FIN 48), which is more fully
discussed in Note C below.
In December 2007, the FASB issued
Statement of Financial Accounting Standards No. 141 (revised 2007), Business
Combinations, (SFAS No. 141R), which replaces SFAS No. 141. This
statement retains the purchase method of accounting for business acquisitions,
but requires a number of changes in the recognition of assets acquired and
liabilities assumed as well as in the treatment of acquisition-related
costs. SFAS No. 141R is effective
at the beginning of the Companys fiscal year 2010 and will apply prospectively
to business combinations completed on or after that date.
6
COURIER CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
B. INVENTORIES
Inventories are
valued at the lower of cost or market.
Cost is determined using the last-in, first-out (LIFO) method for
approximately 43% and 45% of the Companys inventories at December 29,
2007 and September 29, 2007, respectively.
Other inventories, primarily in the specialty publishing segment, are
determined on a first-in, first-out (FIFO) basis. Inventories consisted of the following:
|
|
(000s Omitted)
|
|
|
|
December 29,
2007
|
|
September 29,
2007
|
|
Raw materials
|
|
$
|
4,944
|
|
$
|
5,295
|
|
Work in process
|
|
9,263
|
|
8,274
|
|
Finished goods
|
|
23,537
|
|
24,614
|
|
Total
|
|
$
|
37,744
|
|
$
|
38,183
|
|
C. INCOME TAXES
At the beginning
of fiscal 2008, the Company adopted the provisions of FIN 48, which contains a two-step approach to recognizing and
measuring uncertain tax positions accounted for in accordance with SFAS No. 109,
Accounting for Income Taxes. The first
step is to evaluate the tax position for recognition by determining if the
weight of available evidence indicates that it is more likely than not that the
position will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second
step is to measure the tax benefit as the largest amount that is cumulatively
more than 50% likely to be realized upon ultimate settlement. The Company recognizes interest and penalties
related to unrecognized tax benefits in income tax expense. The cumulative effect of adopting FIN 48 was
$108,000 and was recorded as a reduction in retained earnings at the beginning of
fiscal 2008 with a corresponding liability included under the caption Other
Liabilities in the accompanying consolidated condensed balance sheet. At December 29,
2007, such unrecognized tax benefits and accrued interest were approximately
$110,000 and the impact, if recognized, would favorably affect the Companys
effective income tax rate in future periods. The Company does not anticipate
any significant changes in the amount of unrecognized tax benefits over the
next twelve months.
The Company files federal and state income tax returns in various
jurisdictions of the United States. With few exceptions, the Company is no
longer subject to income tax examinations for years prior to fiscal 2004. Substantially all U.S. federal tax years
prior to fiscal 2004 have been audited by the Internal Revenue Service and
closed.
The provision for income taxes
differs from that computed using the statutory federal income tax rates for the
following reasons:
|
|
(000s Omitted)
|
|
|
|
Three Months Ended
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
Federal taxes at statutory
rates
|
|
$
|
781
|
|
35.0
|
%
|
$
|
2,247
|
|
35.0
|
%
|
State taxes, net of federal
benefit
|
|
65
|
|
2.9
|
|
214
|
|
3.3
|
|
Federal manufacturers
deduction
|
|
(34
|
)
|
(1.5
|
)
|
(55
|
)
|
(0.9
|
)
|
Tax benefit of export related
income
|
|
|
|
|
|
(22
|
)
|
(0.3
|
)
|
Stock-based compensation (Note
F)
|
|
2
|
|
0.1
|
|
8
|
|
0.1
|
|
Other
|
|
|
|
|
|
6
|
|
0.1
|
|
Total
|
|
$
|
814
|
|
36.5
|
%
|
$
|
2,398
|
|
37.3
|
%
|
7
COURIER CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
D. NET INCOME PER SHARE
The following is a
reconciliation of the shares used in the calculation of basic and diluted
income per share. Potentially dilutive
shares, calculated using the treasury stock method, consist of shares issued under the Companys stock option plans.
|
|
(000s Omitted)
|
|
|
|
Three Months Ended
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
Average shares outstanding for
basic
|
|
12,538
|
|
12,415
|
|
Effect of potentially dilutive
shares
|
|
157
|
|
241
|
|
Average shares outstanding for
diluted
|
|
12,695
|
|
12,656
|
|
E. BUSINESS SEGMENTS
The Company has two business segments: book manufacturing and
specialty publishing. The book manufacturing segment offers a full range of
services from production through storage and distribution for religious, educational
and specialty trade book publishers. The specialty publishing segment consists
of Dover, REA and Creative Homeowner.
In evaluating segment
performance, management primarily focuses on income or loss before taxes,
stock-based compensation and other income.
The elimination of intersegment sales and related profit represents
sales from the book manufacturing segment to the specialty publishing
segment. Corporate expenses that are
allocated to the segments include various support functions such as information
technology services, legal, finance, human resources and engineering, and
include depreciation and amortization expense related to corporate assets
.
The following table provides segment information for the
three-month periods ended December 29, 2007 and December 30, 2006.
|
|
(000s Omitted)
|
|
|
|
Three Months Ended
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
Net sales:
|
|
|
|
|
|
Book manufacturing
|
|
$
|
49,707
|
|
$
|
49,962
|
|
Specialty publishing
|
|
15,256
|
|
16,758
|
|
Elimination of intersegment
sales
|
|
(2,100
|
)
|
(2,408
|
)
|
Total
|
|
$
|
62,863
|
|
$
|
64,312
|
|
|
|
|
|
|
|
Income before taxes:
|
|
|
|
|
|
Book manufacturing
|
|
$
|
2,519
|
|
$
|
5,891
|
|
Specialty publishing
|
|
49
|
|
807
|
|
Stock-based compensation
|
|
(440
|
)
|
(363
|
)
|
Elimination of intersegment
profit
|
|
102
|
|
86
|
|
Total
|
|
$
|
2,230
|
|
$
|
6,421
|
|
8
COURIER CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
F. STOCK-BASED COMPENSATION
The Company
records stock-based compensation expense for the cost of stock options and stock
grants as well as shares issued under the Companys 1999 Employee Stock
Purchase Plan. The fair value of each option awarded is calculated on the date
of grant using the Black-Scholes option-pricing model. Stock-based compensation
recognized in selling and administrative expenses in the accompanying financial
statements in the first quarter of fiscal 2008 and 2007 was $440,000 and
$363,000, respectively. The related tax
benefit recognized in the first quarter of fiscal 2008 and 2007 was $152,000
and $112,000, respectively. Unrecognized stock-based compensation cost at December 29,
2007 was $1.9 million, to be recognized over a weighted-average period of 2.3
years.
Stock Incentive Plan:
The Companys stock incentive
plan provides for the granting of stock options and stock grants up to a total
of 2,064,375 shares. Under the plan
provisions, both non-qualified and incentive stock options to purchase shares
of the Companys common stock may be granted to key employees. The option price per share may not be less
than the fair market value of stock at the time the option is granted and
incentive stock options must expire not later than ten years from the date of
grant. The Company annually issues a
combination of stock options and stock grants to its key employees. Stock
options and stock grants generally vest over 3 years. The fair value of each option was estimated
using the Black-Scholes option-pricing model on the date of grant.
The
following table provides stock option activity under this plan in the first
quarter of fiscal 2008:
|
|
|
|
Weighted Average
|
|
Aggregate
Intrinsic
Value
|
|
|
|
Option
Shares
|
|
Exercise
Price
|
|
Remaining
Term (yrs)
|
|
|
Outstanding at
September 29, 2007
|
|
387,511
|
|
$
|
25.53
|
|
|
|
|
|
Exercised
|
|
(4,754
|
)
|
22.18
|
|
|
|
$
|
66,000
|
|
Outstanding at December 29,
2007
|
|
382,757
|
|
$
|
25.57
|
|
2.9
|
|
$
|
3,314,000
|
|
Exercisable at
December 29, 2007
|
|
279,704
|
|
$
|
21.48
|
|
2.4
|
|
$
|
3,314,000
|
|
Available for future grants
|
|
185,241
|
|
|
|
|
|
|
|
At December 29, 2007, there were 42,752 non-vested stock grants
outstanding with a weighted-average fair value of $37.42. No such stock grants
were issued in the first quarter of fiscal 2008.
Directors Option Plans:
In January 2005,
stockholders approved the Courier Corporation 2005 Stock Equity Plan for
Non-Employee Directors (the 2005 Plan). Under the 2005 Plan provisions,
non-qualified stock options to purchase shares of the Companys common stock
may be granted to non-employee directors up to a total of 225,000 shares. The option price per share is the fair market
value of stock at the time the option is granted. The options are immediately exercisable and
have a term of five years. The fair value of each option was estimated using
the Black-Scholes option-pricing model on the date of grant. The 2005 Plan replaced the previous non-employee
directors plan, which had been adopted in 1989. No options were issued or exercised under
these plans in the first quarter of fiscal 2008. At December 29, 2007, 167,097 option
shares were outstanding and exercisable with a weighted average exercise price
of $31.36, a weighted average remaining term of 2.0 years and an aggregate
intrinsic value of approximately $680,000.
Directors may also elect to receive their annual retainer and committee
chair fees as shares of stock in lieu of cash; no such shares were issued in
the first quarter of fiscal 2008. At December 29,
2007, there were 93,282 shares available for future grants under the 2005 Plan.
9
COURIER
CORPORATION
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
Employee Stock Purchase Plan:
The Companys 1999 Employee
Stock Purchase Plan (ESPP), as amended, covers an aggregate of 337,500 shares
of Company common stock for issuance under the plan. Eligible employees may purchase shares of
Company common stock at not less than 85% of fair market value at the end of
the grant period. During the first
quarter of fiscal 2008, no shares were issued under the ESPP. At December 29,
2007, there were 81,110 shares available for future issuances.
G.
STOCK REPURCHASE PLAN
On November 8, 2007,
the Company announced the approval by its Board of Directors for the repurchase
of up to $10 million of the Companys outstanding common stock from time to
time at managements discretion either through the open market or privately
negotiated transactions. In the first quarter of fiscal 2008, approximately 90,000 shares of common stock were
repurchased for approximately $2.9 million.
As such, at December 29, 2007, the Company had approximately $7.1
million of remaining authorization available for future stock repurchases.
10
Item 2
.
|
|
COURIER CORPORATION
|
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF
|
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Critical Accounting Policies and Estimates
:
The Companys consolidated
condensed financial statements have been prepared in accordance with generally
accepted accounting principles. The
preparation of these financial statements requires management to make estimates
and assumptions that affect the amounts reported in these financial statements
and accompanying notes. On an ongoing
basis, management evaluates its estimates and judgments, including those
related to collectibility of accounts receivable, recovery of inventories,
impairment of goodwill, prepublication costs and income taxes. Management bases its estimates and judgments
on historical experience and various other factors believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the periods presented. Actual results
may differ from these estimates. The
significant accounting policies which management believes are most critical to
aid in fully understanding and evaluating the Companys reported financial
results include the following:
Accounts Receivable
Management performs ongoing credit
evaluations of the Companys customers and adjusts credit limits based upon
payment history and the customers current creditworthiness. Collections and payments from customers are
continuously monitored. A provision for
estimated credit losses is determined based upon historical experience and any
specific customer collection issues that have been identified. If the financial condition of the Companys
customers were to deteriorate, resulting in an impairment of their ability to
make payments, additional allowances may be required.
Inventories
Management records reductions in the cost basis
of inventory for excess and obsolete inventory based primarily upon historical
and forecasted product demand. If actual
market conditions are less favorable than those projected by management,
additional inventory charges may be required.
Goodwill and Other
Intangibles
Other intangibles include customer lists
which are amortized on a straight-line basis over periods ranging from ten to
fifteen years. The Company evaluates possible impairment of goodwill and other
intangibles annually or whenever events or circumstances indicate that the
carrying value of the assets may not be recoverable. The Company completed the annual impairment
test at September 29, 2007 resulting in no change to the nature or
carrying amounts of its intangible assets.
Changes in market conditions or poor operating results could result in a
decline in value thereby potentially requiring an impairment charge in the
future.
Prepublication Costs
The
Company capitalizes prepublication costs, which include the costs of acquiring
rights to publish a work and costs associated with bringing a manuscript to
publication such as artwork and editorial efforts. Prepublication costs are
amortized on a straight-line basis over periods ranging from three to five
years. Management regularly evaluates
the sales and profitability of the products based upon historical and
forecasted demand. Based upon this
evaluation, adjustments may be required to amortization expense.
Income Taxes
The
income tax provision and related accrued taxes are based on amounts reported on
the Companys tax returns and changes in deferred taxes. Deferred income tax liabilities and assets are determined based upon the differences between
the financial statement and tax bases of assets and liabilities. Changes in the recoverability of the Companys
deferred tax assets or audits by tax authorities could result in future charges
or credits to income tax expense, and related accrued and deferred taxes.
11
Item 2
.
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF
|
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Overview:
Courier Corporation, founded in
1824, is one of Americas leading book manufacturers and specialty
publishers. The Company has two business
segments: book manufacturing and specialty publishing. The book manufacturing segment streamlines
the process of bringing books from the point of creation to the point of
use. Based on sales, Courier is the
third largest book manufacturer in the United States and largest in the Northeast,
offering services from prepress and production, through storage and
distribution. The specialty publishing
segment consists of Dover Publications, Inc. (Dover), Research &
Education Association, Inc. (REA), and Federal Marketing Corporation,
d/b/a Creative Homeowner (Creative Homeowner). Dover publishes over 9,000 titles in more
than 30 specialty categories ranging from literature to paper dolls, and from
music scores to clip art. REA publishes
test preparation and study-guide books and software for high school, college
and graduate students, as well as professionals. Creative Homeowner publishes and distributes
books on home design, decorating, landscaping, gardening and crafts, and sells
home plans.
Results of Operations:
FINANCIAL HIGHLIGHTS
(dollars in thousands except per share amounts)
|
|
Three Months Ended
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
%
Change
|
|
Net sales
|
|
$
|
62,863
|
|
$
|
64,312
|
|
-2.3
|
%
|
Cost of sales
|
|
46,122
|
|
44,168
|
|
4.4
|
%
|
Gross profit
|
|
16,741
|
|
20,144
|
|
-16.9
|
%
|
As a percentage of sales
|
|
26.6
|
%
|
31.3
|
%
|
|
|
Selling and administrative
expenses
|
|
14,216
|
|
13,501
|
|
5.3
|
%
|
Interest expense, net
|
|
295
|
|
222
|
|
32.9
|
%
|
Pretax income
|
|
2,230
|
|
6,421
|
|
-65.3
|
%
|
Provision for income taxes
|
|
814
|
|
2,398
|
|
|
|
Net income
|
|
$
|
1,416
|
|
$
|
4,023
|
|
-64.8
|
%
|
|
|
|
|
|
|
|
|
|
|
Net income per diluted share
|
|
$
|
0.11
|
|
$
|
0.32
|
|
-65.6
|
%
|
Revenues in the first
quarter of fiscal 2008 decreased 2% to $62.9 million compared to the same
period last year. Book manufacturing
revenues were down less than 1% with modest growth in education and religious
sales offset by lower trade sales. In
the specialty publishing segment, sales declined 9% in the first quarter of
fiscal 2008 compared to last year due to a weak retail market for Creative
Homeowner books, a result of the softness in the housing market. This was partially offset by an increase in
sales by REA.
Net income for the
quarter was $1.4 million, down from $4.0 million in the first quarter of fiscal
2007, reflecting delays in textbook orders that resulted in a significant drop
in capacity utilization in the book manufacturing segment and the impact of the
sales shortfall at Creative Homeowner.
12
Item 2
.
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF
|
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Book Manufacturing Segment
SEGMENT HIGHLIGHTS
(dollars in thousands)
|
|
Three Months Ended
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
%
Change
|
|
Net sales
|
|
$
|
49,707
|
|
$
|
49,962
|
|
-0.5
|
%
|
Cost of sales
|
|
39,316
|
|
36,910
|
|
6.5
|
%
|
Gross profit
|
|
10,391
|
|
13,052
|
|
-20.4
|
%
|
As a percentage of sales
|
|
20.9
|
%
|
26.1
|
%
|
|
|
Selling and administrative
expenses
|
|
8,013
|
|
7,379
|
|
8.6
|
%
|
Interest income
|
|
(141
|
)
|
(218
|
)
|
|
|
Pretax income
|
|
$
|
2,519
|
|
$
|
5,891
|
|
-57.2
|
%
|
Within this segment, the Company focuses on three key markets: education,
religious and specialty trade. In the first quarter of fiscal 2008, sales to
the education market rose 5% to $15.8 million, primarily driven by sales of
four-color textbooks, but were well below expected levels due to delays in
textbook reprint orders. The Companys first quarter is the seasonally slow
period for the education market, which is typically when publishers begin
placing orders for reprints. This year, a variety of industry factors
significantly reduced reprint order flow in the first three months of the year. It is anticipated that these orders will be
placed later in this fiscal year. Sales
to the religious market were up 3% to $16.2 million from last years first
quarter, which is in line with long-term historical growth trends. Sales to the specialty trade market, despite
share gains and a number of new accounts, were down 7% to $14.5 million for the
first quarter of fiscal 2008 compared to last year, which included several
large one-time orders. Sales of computer game books were down as well.
Cost of sales in the book manufacturing segment increased by 6.5% to
$39.3 million for the quarter compared to the same period last year. The higher cost of sales was the result of a
$600,000 increase in depreciation expense related to last years investments in
additional capacity to serve the long-term growth of the education market, a $300,000
increase in medical expenses along with other inflationary cost increases and a
lower capacity utilization. Gross profit
in this segment decreased by 20% to $10.4 million for the quarter, and as a
percentage of sales decreased to 20.9% from 26.1% in last years first
quarter. This decrease was attributable
to the lower capacity utilization and increased depreciation expense in the
first three months of fiscal 2008.
Selling and administrative expenses for the segment increased 9% in the
first quarter to $8.0 million and, as a percentage of sales, increased to 16.1%
from 14.8% last year. This increase
resulted from additions to the segments sales force in the fourth quarter of
last year to target specific markets and customers, as well as inflationary
cost increases.
Intercompany interest income allocated to the book manufacturing segment
in the first quarter decreased to $141,000 from $218,000 last year primarily
due to the capital expansion program in the prior year.
First quarter pretax income in this segment was $2.5 million, compared to
$5.9 million in the corresponding quarter last year, due in large part to
increased depreciation and medical costs combined with lower capacity
utilization and a resulting drop in gross profit.
13
Item 2
.
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF
|
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Specialty Publishing Segment
SEGMENT HIGHLIGHTS
(dollars in thousands)
|
|
Three Months Ended
|
|
|
|
December 29,
2007
|
|
December 30,
2006
|
|
%
Change
|
|
Net sales
|
|
$
|
15,256
|
|
$
|
16,758
|
|
-9.0
|
%
|
Cost of sales
|
|
9,009
|
|
9,753
|
|
-7.6
|
%
|
Gross profit
|
|
6,247
|
|
7,005
|
|
-10.8
|
%
|
As a percentage of sales
|
|
41.0
|
%
|
41.8
|
%
|
|
|
Selling and administrative
expenses
|
|
5,762
|
|
5,760
|
|
0.0
|
%
|
Interest expense
|
|
436
|
|
438
|
|
-0.5
|
%
|
Pretax income
|
|
$
|
49
|
|
$
|
807
|
|
-93.9
|
%
|
The Companys specialty
publishing segment reported first quarter sales of $15.3 million, down 9% from
$16.8 million in last years first quarter.
The decrease was attributable to a 24% decline in revenues at Creative
Homeowner, which was hurt by weakness in the economys housing sector and
reduced consumer traffic at home improvement centers, which are Creative
Homeowners most important sales channel.
In addition, Creative Homeowner experienced changes in the size and
timing of retailers promotion activity during the first quarter of fiscal 2008
compared to a year ago. Sales for the
rest of the segment were up 2%, with a 19% sales growth at REA partially offset
by a 2% sales decline at Dover. Dovers
sales reflect a weak holiday season for major book retailers this year, offset
in part by an increase in direct-to-consumer sales and growth with online
retailers. REAs sales reflect continued
market growth for test preparation books and study guides, as well as an
effective focus on high stakes testing in such areas as advanced placement and
high school exit exams.
Cost of sales in the specialty publishing segment decreased 8% to $9.0
million for the first three months of fiscal 2008 due to the lower sales volume
compared to the same period last year.
Gross profit as a percentage of sales for
the segment decreased in the quarter to 41.0% from 41.8% in the corresponding
period last year. Creative Homeowner
reduced the overall gross profit percentage in the segment because of their
lower sales volume while Dovers and REAs gross profit percentage improved
modestly in the first quarter of fiscal 2008 compared to last years first
quarter.
Selling and
administrative expenses in this segment were $5.8 million in the first quarter,
which was comparable to the first quarter last year.
Intercompany interest expense is allocated to the specialty publishing
segment based on acquisition costs, reduced by cash generated by each business
since acquisition. Interest expense for
the first quarter of fiscal 2008 was $436,000,
which was comparable to last years first quarter.
Pretax income in the specialty publishing segment for the first quarter
was $49,000, compared to $807,000, in last years first quarter. As a result of the impact of lower sales,
Creative Homeowner lost $750,000 in the quarter compared to pretax income last
year of $300,000. Apart from Creative Homeowner,
pretax income in the segment was up 62% from the first quarter of fiscal 2007,
with both Dover and REA reporting gains of more than 50%.
Total Consolidated Company
Interest expense, net of interest income, was $295,000 in the first
quarter of fiscal 2008, compared to $222,000 of net interest expense in the
same period of fiscal 2007. Average debt
under the revolving credit facility in the first quarter of fiscal 2008 was
approximately $18.3 million at an average annual interest rate of 5.5%,
generating interest expense of approximately $250,000. Average debt under the revolving credit
facility in the first quarter of last year was approximately $18.7 million at
an average annual interest rate of 5.8%, generating interest expense of
approximately $275,000. Interest expense
also includes commitment fees and other costs associated with maintaining this
credit facility. Interest
14
Item 2
.
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF
|
|
|
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
capitalized in the first three months of fiscal 2008 and fiscal 2007 was
approximately $52,000 and $125,000, respectively.
The Companys effective tax
rate for the first quarter of fiscal 2008 was 36.5% compared to 37.3% for the
same period last year. The decrease in
the effective tax rate was largely due to increased benefits from the phase in
of the domestic manufacturers deduction.
At the beginning
of fiscal 2008, the Company adopted the provisions of the Financial Accounting
Standards Board (FASB) Interpretation No. 48, Accounting for
Uncertainty in Income Taxes an interpretation of FASB Statement No. 109
(FIN 48). FIN 48 contains a two-step approach to recognizing and
measuring uncertain tax positions. The
first step is to evaluate the tax position for recognition by determining if
the weight of available evidence indicates that it is more likely than not that
the position will be sustained on audit, including resolution of related
appeals or litigation processes, if any.
The second step is to measure the tax benefit as the largest amount that
is cumulatively more than 50% likely to be realized upon ultimate
settlement. The cumulative effect of
adopting FIN 48 was $108,000 and was recorded as a reduction in retained
earnings at the beginning of fiscal 2008 with a corresponding liability
included under the caption Other Liabilities in the accompanying consolidated
condensed balance sheet. At December 29,
2007, such unrecognized tax benefits and accrued interest were approximately
$110,000 and the impact, if recognized, would favorably affect the Companys
effective income tax rate in future periods. The Company does not anticipate any
significant changes in the amount of unrecognized tax benefits over the next
twelve months.
For purposes of computing net income per diluted share, weighted average
shares outstanding increased by approximately 39,000 shares over last years
first quarter. This increase reflects
options exercised and shares issued under the Companys stock plans, offset in
part by lower potentially dilutive shares.
In addition, the Company repurchased approximately 90,000 shares of its
common stock in the first quarter of fiscal 2008 under a plan approved by the
Board of Directors on November 8, 2007.
Liquidity and Capital Resources
:
During the first three months
of fiscal 2008, operations provided approximately $7.9 million of cash. Net income was $1.4 million and depreciation
and amortization were $5.2 million.
Working capital decreased by approximately $0.3 million in the quarter.
Investment activities in the first quarter of fiscal 2008 used
approximately $3.4 million of cash. Capital expenditures were approximately
$2.2 million. For the entire fiscal
year, capital expenditures are expected to be approximately $20 to $25
million. This amount includes completion
of the expansion of printing and binding capacity in the religious book
manufacturing operation in Philadelphia and the construction of a 200,000
square foot warehouse to support the expanded capacity at the Kendallville,
Indiana facility. Prepublication costs
were $1.2 million compared to $1.4 million in the first three months last
year. For the full fiscal year, prepublication
costs are projected to be approximately $5 to $6 million.
Financing activities for the first three months of fiscal 2008 used
approximately $4.5 million of cash.
During the quarter, cash dividends were $2.5 million and $2.9 million
was used to repurchase approximately 90,000 shares of common stock under the
Companys share repurchase program authorized in November 2007. At December 29, 2007, the Company had
approximately $7.1 million of remaining authorization available for future
stock repurchases. Borrowings increased by $0.8 million during the first
quarter of fiscal 2008. At December 29,
2007, the Company had $17.9 million in borrowings under its $100 million
long-term revolving credit facility, which bears interest at a floating
rate. The revolving credit facility is
used by the Company for both its long-term and short-term financing needs. The Company believes that its cash on hand,
cash from operations and the available credit facility will be sufficient to
meet its cash requirements through 2008.
15
Item 2
.
|
|
MANAGEMENTS DISCUSSION AND
ANALYSIS OF
|
|
|
FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
|
The following table summarizes
the Companys contractual obligations and commitments at December 29, 2007
to make future payments as well as its existing commercial commitments.
|
|
(000s Omitted)
|
|
|
|
Payments due by period (1)
|
|
|
|
|
|
Less than
|
|
1 to 3
|
|
3 to 5
|
|
More than
|
|
|
|
Total
|
|
1 Year
|
|
Years
|
|
Years
|
|
5 Years
|
|
Contractual Payments:
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt (2)
|
|
$
|
18,238
|
|
$
|
91
|
|
$
|
189
|
|
$
|
17,958
|
|
$
|
|
|
Operating Leases (3)
|
|
8,998
|
|
2,676
|
|
3,572
|
|
1,654
|
|
1,096
|
|
Purchase Obligations (4)
|
|
2,279
|
|
2,279
|
|
|
|
|
|
|
|
Other Long-Term Liabilities
|
|
3,485
|
|
|
|
1,534
|
|
350
|
|
1,601
|
|
Total
|
|
$
|
33,000
|
|
$
|
5,046
|
|
$
|
5,295
|
|
$
|
19,962
|
|
$
|
2,697
|
|
(1) Amounts do not include interest expense.
(2) Includes the Companys revolving credit
facility, which has a maturity date of March 2011.
(3) Represents amounts at September 29,
2007.
(4) Represents capital commitments.
Recent Accounting Pronouncements:
In December 2007, the FASB issued Statement of Financial
Accounting Standards No. 141 (revised 2007), Business Combinations, (SFAS
No. 141R), which replaces SFAS No. 141. This statement retains the
purchase method of accounting for business acquisitions, but requires a number
of changes in the recognition of assets acquired and liabilities assumed as
well as in the treatment of acquisition-related costs. SFAS No. 141R is effective at the
beginning of the Companys fiscal year 2010 and will apply prospectively to
business combinations completed on or after that date.
Forward-Looking Information
:
This
Quarterly Report on Form 10-Q and the Companys Annual Report for the year
ended September 29, 2007 on Form 10-K include forward-looking
statements. Statements that describe
future expectations, plans or strategies are considered forward-looking
statements as that term is defined under the Private Securities Litigation
Reform Act of 1995 and releases issued by the Securities and Exchange
Commission. The words believe, expect,
anticipate, intend, estimate and other expressions which are predictions
of or indicate future events and trends and which do not relate to historical
matters identify forward-looking statements.
Such statements are subject to risks and uncertainties that could cause
actual results to differ materially from those currently anticipated. Factors that could affect actual results
include, among others, changes in customers demand for the Companys products,
including seasonal changes in customer orders and shifting orders to lower cost
regions, changes in market growth rates such as the housing market, changes in
raw material costs and availability, pricing actions by competitors and other
competitive pressures in the markets in which the Company competes, consolidation
among customers and competitors, success in the execution of acquisitions and
the performance and integration of acquired businesses, changes in operating
expenses including energy costs, changes in technology including migration from
paper-based books to digital, difficulties in the start up of new equipment or
information technology systems, changes in copyright laws, changes in tax
regulations, changes in the Companys effective income tax rate, and general
changes in economic conditions, including currency fluctuations and changes in
interest rates. 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.
16
Item 3.
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes from the
information concerning the Companys Quantitative and Qualitative Disclosures
About Market Risk as previously reported in the Companys Annual Report on Form 10-K
for the year ended September 29, 2007.
Item 4
. CONTROLS
AND PROCEDURES
(a) Evaluation of disclosure controls and
procedures
As required by Rule 13a-15
under the Securities Exchange Act of 1934, as of the end of the period covered
by this Quarterly Report, the Company carried out an evaluation under the
supervision and with the participation of the Companys management, including
the Companys Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Companys disclosure controls
and procedures. Based upon that
evaluation, the Chief Executive Officer and Chief Financial Officer concluded
that the Companys disclosure controls and procedures are effective to ensure
that information required to be disclosed by the Company in the reports it
files or submits under the Exchange Act is recorded, processed, summarized and
reported, within the time periods specified in the Securities and Exchange
Commissions rules and forms.
(b) Changes in internal controls over
financial reporting
There was no change in the
Companys internal control over financial reporting that occurred during the
period covered by this Quarterly Report that has materially affected, or that
is reasonably likely to materially affect, the Companys internal control over
financial reporting.
17
COURIER CORPORATION
|
|
PART II.
OTHER INFORMATION
|
Item 1
.
|
Legal Proceedings
|
|
|
|
None.
|
|
|
Item 1A
.
|
Risk Factors
|
|
|
|
There have been no material changes to the risk factors as previously
disclosed in Item 1A in the Companys
Annual Report on Form 10-K for the year ended September 29, 2007.
|
|
|
Item 2
.
|
Unregistered Sales of Equity
Securities and Use of Proceeds
|
|
|
|
None.
|
|
|
Item 3.
|
Defaults Upon Senior Securities
|
|
|
|
None.
|
|
|
Item 4.
|
Submission of Matters to a Vote of Security
Holders
|
|
|
|
None.
|
|
|
Item 5.
|
Other Information
|
|
|
|
None.
|
|
|
Item 6.
|
Exhibits
|
Exhibit No.
|
|
Description
|
|
10*
|
|
Amendment
to Courier Corporation Deferred Compensation Program, effective
January 1, 2008
|
|
31.1*
|
|
Certification
of Chief Executive Officer
|
|
31.2*
|
|
Certification
of Chief Financial Officer
|
|
32.1*
|
|
Certification of Chief
Executive Officer
|
|
32.2*
|
|
Certification
of Chief Financial Officer
|
|
* Filed herewith.
18
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the Company has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
COURIER CORPORATION
(Registrant)
February 7,
2008
|
|
By:
|
/
s/ James F. Conway III
|
Date
|
|
|
James F. Conway III
|
|
|
|
Chairman, President and Chief Executive Officer
|
|
|
|
|
February 7,
2008
|
|
By:
|
/
s/ Peter M. Folger
|
Date
|
|
|
Peter M. Folger
|
|
|
|
Senior Vice President and Chief Financial
Officer
|
|
|
|
|
February 7, 2008
|
|
By:
|
/
s/ Kathleen M. Leon
|
Date
|
|
|
Kathleen M. Leon
|
|
|
|
Vice President and Controller
|
19
EXHIBIT INDEX
Exhibit No.
|
|
Description
|
|
10*
|
|
Amendment
to Courier Corporation Deferred Compensation Program, effective
January 1, 2008.
|
|
31.1*
|
|
Certification
of Chief Executive Officer
|
|
31.2*
|
|
Certification
of Chief Financial Officer
|
|
32.1*
|
|
Certification of Chief
Executive Officer
|
|
32.2*
|
|
Certification
of Chief Financial Officer
|
|
*
Filed herewith.
20
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