Courier Corporation (Nasdaq: CRRC), one of America’s leading
book manufacturers and specialty publishers, today announced
results for the quarter ended March 26, 2011, the second quarter of
its 2011 fiscal year. Revenues were $62.7 million, up 6% from last
year’s second-quarter sales of $58.9 million. However, earnings
were down sharply due to a combination of factors including
restructuring costs associated with the closing of a one-color
printing facility in Stoughton, Massachusetts, and the write-down
of $750,000 in receivables relating to the bankruptcy of Borders
Group Inc. Overall, Courier reported a net loss for the quarter of
$4.8 million or $.40 per diluted share, compared to net income of
$1.4 million or $.12 per diluted share in the second quarter of
fiscal 2010. Excluding the restructuring costs and bad-debt
provision, net income for the quarter was $350,000 or $.03 per
diluted share.
For the first six months of fiscal 2011, Courier’s revenues were
$123.8 million, up 2% from fiscal 2010. Net loss for the year to
date was $3.2 million or $.26 per diluted share, versus net income
of $4.2 million or $.35 per diluted share in the first half of
fiscal 2010. Excluding the second-quarter restructuring costs and
bad-debt provision, net income for the first six months of fiscal
2011 was $2.0 million or $.17 per diluted share.
The second quarter of Courier’s fiscal year has traditionally
been its slowest. This year, earnings were further reduced, in
part, by increased depreciation expenses resulting from recent
investments to add both four-color offset and digital capacity in
anticipation of significantly larger book manufacturing demand over
the balance of the year.
In Courier’s book manufacturing segment, sales were up in both
the religious and education markets, while trade sales were down,
reflecting the ripple effects of Borders’ restructuring and store
closings. In Courier’s publishing segment, these effects were much
more pronounced, as Borders had accounted for 9% of Courier’s
publishing sales in fiscal 2010’s first half, but only 2% in fiscal
2011. Sales were down in the quarter at all three of Courier’s
publishing businesses.
“It was a challenging quarter before the Borders announcement,
and that made it more so,” said Courier Chairman and Chief
Executive Officer James F. Conway III. “We were pleased to be able
to grow revenues overall, but disheartened by the need to close our
single-color paperback plant in Stoughton in response to the
continuing shift in demand from one- to four-color books. We are
grateful to our Stoughton employees for their many years of loyal
service, and we have done our best to provide as many as possible
with new opportunities elsewhere in our organization.
“We did have important successes in the quarter, including a
dramatic turnaround in religious sales following a slow first
quarter, as well as continued double-digit growth in the college
textbook market. Business was down at Courier Digital Solutions,
but this was expected in CDS’s highly seasonal customized textbook
business. We continue to expect healthy growth over the balance of
the year, and expect to have our third HP digital inkjet press up
and running in June.
“The Borders situation promises to be a continuing challenge for
both segments of our business. However, with a reduced cost
structure, exciting new technology investments in place in book
manufacturing, and signs of accelerating demand for the peak
education season, I look forward to a stronger third and fourth
quarter.”
Book manufacturing: religious sales rebound
Courier’s book manufacturing segment had second-quarter sales of
$55.6 million, up 11% from $50.0 million in last year’s second
quarter. The segment’s second-quarter operating income was $2.4
million, excluding restructuring costs, versus $2.8 million a year
ago. Gross profit in the segment, excluding restructuring costs,
was $8.9 million or 16.1% of sales, versus $9.7 million or 19.5% of
sales in fiscal 2010, reflecting $1.1 million in increased
depreciation related to the addition of new capacity in
anticipation of future growth, as well as frictional costs related
to the closing of the Stoughton plant and the transfer of existing
one-color jobs to other facilities.
For fiscal 2011 to date, book manufacturing sales were $108.6
million, up 4% from fiscal 2010. Operating income through six
months was $6.2 million, excluding restructuring costs, versus $8.5
million in fiscal 2010.
The book manufacturing segment focuses on three publishing
markets: education, religious, and specialty trade. Sales to the
education market were up 2% in the quarter and up 3% for the year
to date due to increased sales of four-color textbooks for colleges
and universities, though sales at the elementary and high school
levels were off as many publishers elected to defer orders until
closer to the elementary and high school textbook season. Sales to
the religious market were up 50% over fiscal 2010’s second quarter,
reflecting a large increase in orders from the company’s largest
religious customer. Through the first six months of fiscal 2011,
religious sales were up 7%. Sales to the specialty trade market
were down 9% from last year’s second quarter and down 2% for the
year to date, reflecting industry-wide reaction to Borders Group’s
Chapter 11 bankruptcy filing.
In March Courier closed its smallest book manufacturing plant, a
leased facility in Stoughton, Massachusetts with 110 employees. In
conjunction with the plant closing, Courier took a pre-tax charge
of $7.5 million or $.39 per diluted share for severance, pension
withdrawal liabilities, anticipated lease costs and other related
expenses. Overall, Courier expects the closing to have a cash
impact of approximately $3 million over the remainder of fiscal
2011, with annualized pre-tax savings of approximately $4.5
million.
“It was a turbulent quarter in our industry, and in our
business,” said Mr. Conway. “Fortunately, our two most important
book manufacturing markets continue to offer solid long-term growth
prospects, and in both cases we have excellent relationships backed
by multi-year agreements with key customers. The steady shift in
demand toward four-color production and shorter print runs is a
fact of life for us, and we have prepared for continued growth in
this environment with our investments in digital printing and our
most efficient high-speed offset press yet. We are determined to
remain the service leader in our industry and to reap the resulting
share gains as we help customers capitalize on our technology.”
Publishing: soft quarter exacerbated by contraction at
Borders
Courier’s specialty publishing segment includes three
businesses: Dover Publications, a niche publisher with thousands of
titles in dozens of specialty trade markets; Creative Homeowner,
which publishes books on home design, decorating, landscaping and
gardening; and Research & Education Association (REA), a
publisher of test preparation books and study guides.
Second-quarter revenues for the segment were $10.1 million, down
14% from $11.7 million in last year’s second quarter, with lower
sales to Borders accounting for the largest part of the shortfall.
The segment’s operating loss for the quarter was $1.2 million,
excluding the bad-debt provision for Borders, compared to breakeven
last year. For fiscal 2011 to date, segment sales were $20.9
million, versus $23.3 million for the first half of last year. The
segment’s operating loss through six months was $2.0 million,
excluding the bad-debt provision for Borders, versus $0.5 million
for the corresponding period last year.
While the situation at Borders affected all three publishing
businesses, the shutdown of more than 200 Borders stores posed a
special challenge for REA, for which Borders is the largest sales
channel. Despite this challenge, REA was profitable in the quarter,
helped by sales of its growing line of AP Crash Course books.
Meanwhile, other channels were more productive for both Dover and
Creative Homeowner, with Dover’s consumer marketing driving greater
sales through online retailers and Creative Homeowner benefiting
from increased sales at home improvement centers.
“We felt the same pressures as most U.S. trade publishers this
quarter,” said Mr. Conway. “Weakness at any major retail chain
places a premium on effective merchandising throughout the rest of
the channel network. On the other hand, many of the books we
publish have strong and vocal consumer constituencies. Thousands of
students and teachers regard REA’s test-prep materials as simply
the best available and actively seek them out. Similarly, Dover’s
innovative products and ‘long-tail’ backlist continue to draw
enthusiastic consumers of all ages, helped by one of the most
sophisticated direct marketing operations in the industry.”
Outlook
“While the first half of fiscal 2011 has not lived up to
expectations, we continue to believe in the long-term strength of
our major markets,” said Mr. Conway. “Our steady investment in
state-of-the-art manufacturing capacity reduced our earnings in the
second quarter, but has placed us in an excellent position to meet
the higher textbook demand we foresee. At the same time, we
continue to take on more languages and more countries for our key
religious customer in keeping with our long-term agreement. In
addition, we expect annualized cost savings of approximately $4.5
million as the work of our Stoughton plant is absorbed into other
Courier facilities.
“In publishing, we recognize the continuing challenges posed in
part by the Borders bankruptcy, though we do expect a smaller
Borders store network to continue to operate.
“As a result, for the remainder of fiscal 2011, we expect
earnings per diluted share of $.73 to $.93, versus $.50 in the
corresponding period last year.
“For fiscal 2011 overall, we expect to achieve total sales of
between $271 million and $280 million, versus $257 million in
fiscal 2010. And we expect earnings per diluted share of between
$.90 and $1.10, excluding restructuring costs and the write-down of
the Borders receivable, versus our fiscal 2010 earnings of $.85 per
diluted share, excluding last year’s impairment charge.
“In addition to measuring our performance by generally accepted
accounting principles, we also track several non-GAAP measures
including EBITDA (earnings before interest, taxes, depreciation and
amortization) as an additional indicator of the company’s operating
cash flow performance. This measure should be considered in
addition to, not a substitute for or superior to, measures of
financial performance prepared in accordance with GAAP. In fiscal
2011, we expect EBITDA to be between $42 million and $46 million,
compared to $38 million in fiscal 2010, excluding last year’s
impairment charge and this year’s restructuring costs and bad-debt
provision for Borders.
“Factors not incorporated into our guidance include the
possibility of future impairment or restructuring charges.”
About Courier Corporation
Courier Corporation prints, publishes and sells books.
Headquartered in North Chelmsford, Massachusetts, Courier has two
business segments, full-service book manufacturing and specialty
book publishing. For more information, visit www.courier.com.
This news release includes 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 Company’s products, including seasonal changes in
customer orders and shifting orders to lower cost regions, changes
in market growth rates, 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, insolvency of key
customers or vendors, changes in the Company’s labor relations,
success in the execution of acquisitions and the performance and
integration of acquired businesses including carrying value of
intangible assets, restructuring and impairment charges required
under generally accepted accounting principles, changes in
operating expenses including medical and 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 consumer
product safety regulations, changes in environmental regulations,
changes in tax regulations, changes in the Company’s effective
income tax rate 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. 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) QUARTER
ENDED SIX MONTHS ENDED March 26, March 27, March 26, March 27, 2011
2010 2011 2010 Net sales $ 62,662 $ 58,879 $ 123,814
$ 121,983 Cost of sales 57,488 44,579
103,335 90,387 Gross profit
5,174 14,300 20,479 31,596 Selling and administrative
expenses 12,589 11,846 25,111
24,497 Operating income (loss) (7,415 )
2,454 (4,632 ) 7,099 Interest expense, net 248
119 451 237 Income
(loss) before taxes (7,663 ) 2,335 (5,083 ) 6,862 Income tax
provision (benefit) (2,856 ) 900 (1,932
) 2,643 Net income (loss) ($4,807 ) $
1,435 ($3,151 ) $ 4,219 Net income
(loss) per diluted share ($0.40 ) $ 0.12
($0.26 ) $ 0.35 Cash dividends declared per share $
0.21 $ 0.21 $ 0.42 $ 0.42 Wtd.
average diluted shares outstanding 12,015 11,941 12,000 11,925
SEGMENT INFORMATION:
Net
sales:
Book Manufacturing $ 55,587 $ 49,980 $ 108,630 $ 104,821 Specialty
Publishing 10,136 11,721 20,888 23,282 Elimination of intersegment
sales (3,061 ) (2,822 ) (5,704 ) (6,120
) Total $ 62,662 $ 58,879 $ 123,814 $ 121,983
Operating income
(loss):
Book Manufacturing ($5,092 ) $ 2,796 ($1,251 ) $ 8,497 Specialty
Publishing (1,986 ) 13 (2,795 ) (501 ) Stock based compensation
(368 ) (334 ) (706 ) (683 ) Intersegment profit 31
(21 ) 120 (214 ) Total ($7,415 ) $
2,454 ($4,632 ) $ 7,099
COURIER CORPORATION SEGMENT RESULTS OF OPERATIONS
(Unaudited) (In thousands)
BOOK MANUFACTURING
SEGMENT
QUARTER ENDED SIX MONTHS ENDED March 26, March 27, March 26, March
27, 2011 2010 2011 2010 Net sales $ 55,587 $ 49,980 $
108,630 $ 104,821 Cost of sales 53,711 40,243
95,365 82,009 Gross profit 1,876
9,737 13,265 22,812 Selling and administrative expenses
6,968 6,941 14,516 14,315
Operating income (loss) ($5,092 ) $ 2,796
($1,251 ) $ 8,497
SPECIALTY PUBLISHING
SEGMENT
QUARTER ENDED SIX MONTHS ENDED March 26, March 27, March 26, March
27, 2011 2010 2011 2010 Net sales $ 10,136 $ 11,721 $ 20,888
$ 23,282 Cost of sales 6,867 7,136
13,793 14,284 Gross profit 3,269 4,585
7,095 8,998 Selling and administrative expenses 5,255
4,572 9,890 9,499
Operating income (loss) ($1,986 ) $ 13 ($2,795 )
($501 ) COURIER
CORPORATION CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited) (In
thousands) March 26, September 25,
ASSETS
2011 2010 Current assets: Cash and cash equivalents $ 453 $
107 Investments 1,218 1,090 Accounts receivable 33,683 35,123
Inventories 38,330 39,933 Deferred income taxes 4,734 4,109 Other
current assets 7,004 2,388 Total current assets
85,422 82,750 Property, plant and equipment, net 100,078
103,009 Goodwill and other intangibles 27,204 27,409 Prepublication
costs 7,565 7,734 Other assets 1,283 1,292
Total assets $ 221,552 $ 222,194
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities: Current maturities of long-term debt $
1,787 $ 1,794 Accounts payable 13,664 14,399 Accrued taxes 1,083
617 Other current liabilities 16,771 15,358 Total
current liabilities 33,305 32,168 Long-term debt 23,673
21,904 Deferred income taxes 1,576 1,385 Other liabilities
7,410 3,788 Total liabilities 65,964
59,245 Total stockholders' equity 155,588
162,949 Total liabilities and stockholders' equity $ 221,552
$ 222,194 COURIER CORPORATION CONSOLIDATED
STATEMENTS OF FREE CASH FLOW (Unaudited) (In thousands) For
the Six Months Ended March 26, March 27, 2011 2010 Operating
activities: Net income (loss) ($3,151 ) $ 4,219 Adjustments to
reconcile net income (loss) tocash provided from operating
activities: Depreciation and amortization 11,575 10,348
Stock based compensation 706 683 Deferred income taxes (434 ) 317
Changes in working capital (429 ) (1,350 ) Other, net 3,549
(482 ) Cash provided from operating activities
11,816 13,735 Investments in organic growth: Capital
expenditures (6,079 ) (2,864 ) Prepublication costs (2,175 ) (2,102
) Proceeds from disposition of assets - 590
Free cash flow 3,562 9,359
Other investing and financing activities: Long-term
borrowings (repayments), net 1,762 (1,873 ) Cash dividends (5,069 )
(5,026 ) Proceeds from stock plans 219 241 Business acquisition,
net of cash acquired - (3,000 ) Other (128 ) (100 )
Cash used for other investing and financing activities
(3,216 ) (9,758 ) Increase (decrease) in cash
and cash equivalents $ 346 ($399 )
RECONCILIATION TO GAAP PRESENTATION Investing activities:
Capital expenditures ($6,079 ) ($2,864 ) Business acquisition, net
of cash acquired - (3,000 ) Prepublication costs (2,175 ) (2,102 )
Proceeds from disposition of assets - 590 Other (128 )
(100 ) Cash used for investing activities ($8,382 )
($7,476 ) Financing activities: Long-term borrowings
(repayments), net 1,762 (1,873 ) Cash dividends (5,069 ) (5,026 )
Proceeds from stock plans 219 241 Cash
used for financing activities ($3,088 ) ($6,658 )
Other non-GAAP measures - EBITDA: Net income (loss) ($3,151
) $ 4,219 Income tax provision (benefit) (1,932 ) 2,643 Interest
expense, net 451 237 Depreciation and amortization 11,575 10,348
Restructuring costs 7,472 - EBITDA $
14,415 $ 17,447 In addition to measuring our
performance by generally accepted accounting principles, we also
track several non-GAAP measures including Free Cash Flow and EBITDA
(earnings before interest, taxes, depreciation and amortization) as
additional indicators of the company's operating cash flow
performance. These measures should be considered in addition to,
not a substitute for or superior to, measures of financial
performance prepared in accordance with GAAP.
COURIER CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP MEASURES (In thousands)
Quarter Ended Six Months Ended
BOOK MANUFACTURING
SEGMENT
March 26, 2011 March 26, 2011 GAAP Restruc- Non- GAAP Restruc- Non-
Basis turing GAAP Basis turing GAAP Measures Costs (1)
Measures Measures Costs (1) Measures
Net sales $ 55,587 $ 55,587 $ 108,630 $ 108,630 Cost of sales
53,711 (7,061 ) 46,650
95,365 (7,061 ) 88,304
Gross profit 1,876 7,061 8,937 13,265 7,061 20,326
Selling and administrative expenses 6,968
(411 ) 6,557 14,516
(411 ) 14,105 Operating income (loss)
($5,092 ) $ 7,472 $ 2,380
($1,251 ) $ 7,472 $ 6,221
(1)
In the second quarter of fiscal 2011, the Company closed its book
manufacturing plant in Stoughton, Massachusetts, due to the impact
of technology and competitive pressures affecting the one-color
paperback books in which the plant specializes. Restructuring
charges included $4.4 million related to severance and pension
withdrawal liabilities and $3.1 million for lease termination and
other facility closure costs.
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