XNAS:CRRC Courier Corp Quarterly Report 10-Q Filing - 6/23/2012

Effective Date 6/23/2012

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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 June 23, 2012

 

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

(Registrant’s 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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non- accelerated filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

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 registrant’s classes of common stock, as of the latest practicable date.

 

Class

 

Outstanding at July 31, 2012

Common Stock, $1 par value

 

11,445,845 shares

 

 

 



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands except per share amounts)

 

 

 

QUARTER ENDED

 

NINE MONTHS ENDED

 

 

 

June 23,

 

June 25,

 

June 23,

 

June 25,

 

 

 

2012

 

2011

 

2012

 

2011

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

58,896

 

$

61,894

 

$

184,220

 

$

185,708

 

Cost of sales (Note F)

 

45,864

 

47,174

 

143,392

 

150,509

 

 

 

 

 

 

 

 

 

 

 

Gross profit

 

13,032

 

14,720

 

40,828

 

35,199

 

 

 

 

 

 

 

 

 

 

 

Selling and administrative expenses (Note F)

 

10,285

 

11,242

 

35,227

 

36,353

 

Impairment charge (Note E)

 

 

8,608

 

 

8,608

 

 

 

 

 

 

 

 

 

 

 

Operating income (loss)

 

2,747

 

(5,130

)

5,601

 

(9,762

)

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

246

 

194

 

699

 

645

 

Other income (Note G)

 

 

 

(587

)

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss)

 

2,501

 

(5,324

)

5,489

 

(10,407

)

 

 

 

 

 

 

 

 

 

 

Income tax provision (benefit) (Note C)

 

937

 

(2,195

)

2,031

 

(4,127

)

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

1,564

 

$

(3,129

)

$

3,458

 

$

(6,280

)

 

 

 

 

 

 

 

 

 

 

Net income (loss) per share (Note I):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.13

 

$

(0.26

)

$

0.29

 

$

(0.52

)

 

 

 

 

 

 

 

 

 

 

Diluted

 

$

0.13

 

$

(0.26

)

$

0.29

 

$

(0.52

)

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.21

 

$

0.21

 

$

0.63

 

$

0.63

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

2



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

June 23,

 

September 24,

 

 

 

2012

 

2011

 

ASSETS

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents

 

$

56

 

$

104

 

Investments

 

1,310

 

1,141

 

Accounts receivable, less allowance for uncollectible accounts of $941 at June 23, 2012 and $789 at September 24, 2011

 

30,765

 

35,320

 

Inventories (Note B)

 

39,098

 

39,353

 

Deferred income taxes

 

4,338

 

4,431

 

Recoverable income taxes

 

1,476

 

 

Other current assets

 

1,259

 

1,443

 

 

 

 

 

 

 

Total current assets

 

78,302

 

81,792

 

 

 

 

 

 

 

Property, plant and equipment, less accumulated depreciation of $196,885 at June 23, 2012 and $182,918 at September 24, 2011

 

90,116

 

100,523

 

 

 

 

 

 

 

Goodwill (Notes A and E)

 

15,992

 

16,025

 

Other intangibles, net (Note A)

 

1,995

 

2,302

 

Prepublication costs, net (Note A)

 

7,245

 

7,334

 

Deferred income taxes

 

2,882

 

3,772

 

Other assets

 

1,273

 

1,278

 

 

 

 

 

 

 

Total assets

 

$

197,805

 

$

213,026

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

3



 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 

 

 

June 23,

 

September 24,

 

 

 

2012

 

2011

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt

 

$

1,855

 

$

1,804

 

Accounts payable

 

10,094

 

12,061

 

Accrued payroll

 

7,121

 

7,737

 

Accrued taxes

 

745

 

2,185

 

Other current liabilities (Note F)

 

8,482

 

7,696

 

 

 

 

 

 

 

Total current liabilities

 

28,297

 

31,483

 

 

 

 

 

 

 

Long-term debt (Note H)

 

17,188

 

19,718

 

Other liabilities (Note F)

 

6,247

 

7,502

 

 

 

 

 

 

 

Total liabilities

 

51,732

 

58,703

 

 

 

 

 

 

 

Stockholders’ equity (Note J):

 

 

 

 

 

Preferred stock, $1 par value - authorized 1,000,000 shares; none issued

 

 

 

Common stock, $1 par value - authorized 18,000,000 shares; issued 11,825,000 at June 23, 2012 and 12,237,000 at September 24, 2011

 

11,825

 

12,237

 

Additional paid-in capital

 

19,206

 

19,129

 

Retained earnings

 

115,896

 

123,811

 

Accumulated other comprehensive loss

 

(854

)

(854

)

 

 

 

 

 

 

Total stockholders’ equity

 

146,073

 

154,323

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

197,805

 

$

213,026

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

4



 

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 

 

 

NINE MONTHS ENDED

 

 

 

June 23,

 

June 25,

 

 

 

2012

 

2011

 

Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

3,458

 

$

(6,280

)

Adjustments to reconcile net income (loss) to cash provided from operating activities:

 

 

 

 

 

Depreciation and amortization

 

18,022

 

17,437

 

Impairment charge (Notes A and E)

 

 

8,608

 

Stock-based compensation

 

1,098

 

1,072

 

Deferred income taxes

 

983

 

(3,974

)

Gain on disposition of assets (Note G)

 

(587

)

 

Changes in assets and liabilities:

 

 

 

 

 

Accounts receivable

 

4,555

 

3,553

 

Inventory

 

255

 

(1,120

)

Accounts payable

 

(1,967

)

(2,440

)

Accrued and recoverable taxes

 

(2,916

)

(3,058

)

Other elements of working capital

 

(6

)

(775

)

Other long-term, net

 

(1,003

)

3,515

 

 

 

 

 

 

 

Cash provided from operating activities

 

21,892

 

16,538

 

 

 

 

 

 

 

Investment Activities:

 

 

 

 

 

Capital expenditures

 

(4,065

)

(11,670

)

Prepublication costs

 

(3,171

)

(3,218

)

Proceeds on disposition of assets (Note G)

 

587

 

 

Short-term investments

 

(169

)

(176

)

 

 

 

 

 

 

Cash used for investment activities

 

(6,818

)

(15,064

)

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

Long-term debt borrowings (repayments)

 

(2,479

)

5,858

 

Cash dividends

 

(7,693

)

(7,610

)

Proceeds from stock plans

 

167

 

219

 

Share repurchases (Note J)

 

(4,842

)

 

Other

 

(275

)

 

 

 

 

 

 

 

Cash used for financing activities

 

(15,122

)

(1,533

)

 

 

 

 

 

 

Decrease in cash and cash equivalents

 

(48

)

(59

)

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

104

 

107

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$

56

 

$

48

 

 

The accompanying notes are an integral part of the consolidated condensed financial statements.

 

5



 

COURIER CORPORATION

 

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

 

A.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Financial Statements

 

The consolidated condensed balance sheet as of June 23, 2012, and the consolidated condensed statements of operations for the three-month and nine-month periods ended June 23, 2012 and June 25, 2011, and the statements of cash flows for the nine-month periods ended June 23, 2012 and June 25, 2011 are unaudited.  In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of such financial statements have been recorded.  The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

 

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 24, 2011 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 Company’s most recent Annual Report on Form 10-K for the year ended September 24, 2011.

 

Goodwill and Other Intangibles

 

The Company evaluates possible impairment to goodwill and other intangible assets annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. There were no such events or changes in circumstances in the period ended June 23, 2012.  “Other intangibles” include trade names, customer lists and technology.  Trade names with indefinite lives are not subject to amortization.  Customer lists and technology are being amortized over five to ten-year periods.

 

Fair Value Measurements

 

Certain assets and liabilities are required to be recorded at fair value on a recurring basis, while other assets and liabilities are recorded at fair value on a nonrecurring basis, generally as a result of impairment charges.  Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Assets measured at fair value on a nonrecurring basis include long-lived assets and goodwill and other intangible assets. The three-tier value hierarchy, which prioritizes the inputs used in the valuation methodologies, is:

 

Level 1Valuations based on quoted prices for identical assets and liabilities in active markets.

Level 2Valuations based on observable inputs other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data.

Level 3Valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

 

Fair Value of Financial Instruments

 

Financial instruments consist primarily of cash, investments in mutual funds (Level 1), accounts receivable, accounts payable, debt obligations and contingent consideration (Level 3).  At June 23, 2012 and September 24, 2011, the fair value of the Company’s financial instruments approximated their carrying values.  The fair value of the Company’s revolving credit facility approximates its carrying value due to the variable interest rate and the Company’s current rate standing.

 

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 to four years.

 

6



 

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 56% and 53% of the Company’s inventories at June 23, 2012 and September 24, 2011, respectively.  Other inventories, primarily in the specialty publishing segment, are determined on a first-in, first-out (FIFO) basis.  Inventories consisted of the following:

 

 

 

(000’s Omitted)

 

 

 

June 23,
2012

 

September 24,
2011

 

Raw materials

 

$

4,824

 

$

5,574

 

Work in process

 

9,218

 

8,698

 

Finished goods

 

25,056

 

25,081

 

Total

 

$

39,098

 

$

39,353

 

 

C.            INCOME TAXES

 

In calculating the provision for income taxes on an interim basis, the Company uses an estimate of the annual effective tax rate based upon the facts and circumstances known and applies that rate to its ordinary year-to-date earnings or losses. The effect of discrete items, such as unusual or infrequently occurring events, is recognized in the interim period in which the discrete item occurs.

 

The provision for income taxes differs from that computed using the statutory federal income tax rates for the following reasons:

 

 

 

(000’s Omitted)

 

 

 

Nine Months Ended

 

 

 

June 23, 2012

 

June 25, 2011

 

Federal taxes at statutory rates

 

$

1,922

 

35.0

%

$

(3,539

)

34.0

%

State taxes, net of federal tax benefit

 

257

 

4.7

 

(690

)

6.6

 

Federal manufacturer’s deduction

 

(136

)

(2.5

)

81

 

(0.8

)

Other

 

(12

)

(0.2

)

21

 

(0.2

)

Total

 

$

2,031

 

37.0

%

$

(4,127

)

39.7

%

 

D.            OPERATING SEGMENTS

 

The Company has two operating 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 Publications, Inc., Federal Marketing Corporation, Inc., d/b/a Creative Homeowner, and Research & Education Association, Inc. (“REA”).

 

Segment performance is evaluated based on several factors, of which the primary financial measure is operating income.  Operating income is defined as gross profit (sales less cost of sales) less selling and administrative expenses, and includes severance and other restructuring costs but excludes stock-based compensation.  As such, segment performance is evaluated exclusive of interest, income taxes, stock-based compensation, intersegment profit, impairment charges, and other income.  The elimination of intersegment sales and related profit represents sales from the book manufacturing segment to the specialty publishing segment.

 

7



 

The following table provides segment information for the three-month and nine-month periods ended June 23, 2012 and June 25, 2011.

 

 

 

(000’s Omitted)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 23,

 

June 25,

 

June 23,

 

June 25,

 

 

 

2012

 

2011

 

2012

 

2011

 

Net sales:

 

 

 

 

 

 

 

 

 

Book manufacturing

 

$

52,413

 

$

54,997

 

$

163,863

 

$

163,627

 

Specialty publishing

 

9,127

 

9,872

 

28,214

 

30,760

 

Elimination of intersegment sales

 

(2,644

)

(2,975

)

(7,857

)

(8,679

)

Total

 

$

58,896

 

$

61,894

 

$

184,220

 

$

185,708

 

 

 

 

 

 

 

 

 

 

 

Pretax income (loss):

 

 

 

 

 

 

 

 

 

Book manufacturing operating income

 

$

3,982

 

$

5,050

 

$

10,537

 

$

3,799

 

Specialty publishing operating loss

 

(975

)

(1,154

)

(3,938

)

(3,949

)

Impairment charge (Note E)

 

 

(8,608

)

 

(8,608

)

Stock-based compensation

 

(331

)

(366

)

(1,098

)

(1,072

)

Elimination of intersegment profit

 

71

 

(52

)

100

 

68

 

Interest expense, net

 

(246

)

(194

)

(699

)

(645

)

Other income

 

 

 

587

 

 

Total

 

$

2,501

 

$

(5,324

)

$

5,489

 

$

(10,407

)

 

E.            GOODWILL AND OTHER INTANGIBLES

 

The Company evaluates possible impairment to goodwill and other intangible assets annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  There were no such events or changes in circumstances in the period ended June 23, 2012.  During fiscal 2012, goodwill was reduced by $33,000 reflecting a deferred tax adjustment.  In the third quarter of fiscal 2011, the Company recorded a pre-tax impairment charge of $8.4 million, representing all of REA’s goodwill. In addition, an impairment charge of approximately $200,000 for prepublication costs was recorded in the third quarter of fiscal 2011 relating to underperforming titles.

 

“Other intangibles” include customer lists related to Moore-Langen Printing Company, Inc. (“Moore Langen”), which are being amortized over a 10-year period, as well as customer lists and technology related to the acquisition of Highcrest Media LLC (“Highcrest Media”), which are being amortized over a 5-year period.  Amortization expense related to customer lists and technology was approximately $100,000 in the third quarters and $300,000 in the first nine months of both fiscal years 2012 and 2011. Annual amortization expense for fiscal years 2012 to 2014 will be $410,000; decreasing to $135,000 and $6,000 in fiscal years 2015 and 2016, respectively.  The Company’s trade names have indefinite lives and as such are not subject to amortization.

 

The following table reflects the components of “Other intangibles”, which are in the Company’s book manufacturing segment, at September 24, 2011 and June 23, 2012.

 

 

 

(000’s Omitted)

 

 

 

Trade
Name

 

Customer
Lists

 

Technology
& Other

 

Total

 

Gross carrying amount

 

$

931

 

$

931

 

$

1,230

 

$

3,092

 

Accumulated amortization

 

 

(369

)

(421

)

(790

)

Balance at September 24, 2011

 

931

 

562

 

809

 

2,302

 

Amortization expense

 

 

(123

)

(184

)

(307

)

Balance at June 23, 2012

 

$

931

 

$

439

 

$

625

 

$

1,995

 

 

8



 

F.            RESTRUCTURING COSTS

 

In the first nine months of fiscal 2012, the Company recorded pre-tax charges of $1.8 million for severance and post-retirement benefit costs related to cost reduction measures as well as the retirement of the Company’s Chief Operating Officer.  Approximately $1.0 million and $0.6 million of these costs were included in selling and administrative expenses in the Company’s book manufacturing segment and specialty publishing segment, respectively. In addition, approximately $0.2 million of these costs were included in cost of sales in the Company’s book manufacturing segment.  At June 23, 2012, approximately $0.6 million of the remaining restructuring payments were included in “Other current liabilities” and approximately $0.2 million, which will be paid by December 2013, were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

In the first nine months of fiscal 2011, the Company recorded restructuring costs of $7.5 million in its book manufacturing segment associated with closing and consolidating its Stoughton, Massachusetts manufacturing facility in March 2011 due to the impact of technology and competitive pressures affecting the one-color paperback books in which the plant specialized.  Remaining payments of approximately $3.7 million will be made over periods ranging from 3 years for a building lease obligation to 19 years for a liability related to a multi-employer pension plan.  At June 23, 2012, approximately $1.0 million of these restructuring payments were included in “Other current liabilities” and $3.2 million were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

The following table depicts the remaining accrual balances for these restructuring costs.

 

 

 

(000’s omitted)

 

 

 

Accrual at

 

Charges

 

Costs

 

Accrual at

 

 

 

September 24,

 

or

 

Paid or

 

June 23,

 

 

 

2011

 

Reversals

 

Settled

 

2012

 

Employee severance, post-retirement and other benefit costs

 

$

285

 

$

1,814

 

$

(958

)

$

1,141

 

Early withdrawal from multi-employer pension plan

 

2,119

 

 

(67

)

2,052

 

Lease termination, facility closure and other costs

 

2,345

 

 

(466

)

1,879

 

Total

 

$

4,749

 

$

1,814

 

$

(1,491

)

$

5,072

 

 

G.            OTHER INCOME

 

The Company historically leased non-operating real property to cell phone companies for two cell-tower sites on a month-to-month basis.  In the first quarter of fiscal 2012, the Company recorded a gain of $587,000 associated with the sales and assignments of both of these interests. The Company does not have further financial obligations under these arrangements.

 

H.            LONG-TERM DEBT

 

The Company has a $100 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 2.25%.  On March 22, 2012, the Company amended this credit facility and extended the maturity date by three years to March 31, 2016.  The Company also added TD Bank, N.A. to the bank group, replacing Wells Fargo, N.A.. At June 23, 2012, the Company had $15.6 million in borrowings under this facility at an interest rate of 1.5%.  The revolving credit facility contains restrictive covenants including provisions relating to the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all such covenants at June 23, 2012.  The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion.  The revolving credit facility is used by the Company for both its long-term and short-term financing needs.

 

9



 

I.             NET INCOME PER SHARE

 

The following is a reconciliation of the outstanding shares used in the calculation of basic and diluted net income per share.  Potentially dilutive shares, calculated using the treasury stock method, consist of shares issued under the Company’s stock option plans.  In the third quarter and first nine months of fiscal 2011, approximately 36,000 and 34,000 potentially dilutive shares, respectively, were excluded due to the Company incurring a loss in those periods.

 

 

 

(000’s Omitted)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 23,
2012

 

June 25,
2011

 

June 23,
2012

 

June 25,
2011

 

 

 

 

 

 

 

 

 

 

 

Average shares outstanding for basic

 

11,951

 

11,996

 

12,028

 

11,978

 

Effect of potentially dilutive shares

 

75

 

 

65

 

 

Average shares outstanding for diluted

 

12,026

 

11,996

 

12,093

 

11,978

 

 

J.             SHARE REPURCHASE PLAN

 

On April 19, 2012, the Company announced the approval by its Board of Directors for the repurchase of up to $10 million of the Company’s outstanding common stock from time to time on the open market or in privately negotiated transactions, including pursuant to a Rule 10b5-1 nondiscretionary trading plan. This stock repurchase authorization is effective for a period of twelve months. Through June 23, 2012, the Company repurchased approximately 445,000 shares of common stock for approximately $4.8 million.

 

10



 

Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

 

Critical Accounting Policies and Estimates:

 

The Company’s 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 and other intangibles, and prepublication costs.  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 Company’s reported financial results include the following:

 

Accounts Receivable.   Management performs ongoing credit evaluations of the Company’s customers and adjusts credit limits based upon payment history and the customer’s 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 risks that have been identified.  If the financial condition of the Company’s 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 and technology, which are amortized on a straight-line basis over periods ranging from five to ten years, and an indefinite-lived trade name. The Company evaluates possible impairment of goodwill and other intangibles at the reporting unit level, which is the operating segment or one level below the operating segment, on an annual basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable.  The Company completed its annual impairment test at September 24, 2011, which resulted in no change to the nature or carrying amounts of its intangible assets in its book manufacturing segment.  At the end of the third quarter of fiscal 2011, the Company recorded a pre-tax impairment charge of $8.4 million, which represented 100% of REA’s goodwill.  Changes in market conditions or poor operating results could result in a decline in value of the Company’s goodwill and other intangible assets thereby potentially requiring an additional 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 four years.  At the end of the third quarter of fiscal 2011, an impairment charge of approximately $200,000 was recorded for REA’s underperforming titles. Management regularly evaluates the sales and profitability of the products based upon historical and forecasted demand.  If actual market conditions are less favorable than those projected by management, additional amortization expense may be required.

 

11



 

Overview:

 

Courier Corporation, founded in 1824, is one of America’s leading book manufacturers and specialty publishers.  The Company has two operating 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, offering services from prepress and production through storage and distribution, as well as state-of-the-art digital print and content management capabilities.  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 including children’s books, literature, art, music, crafts, mathematics, science, religion and architecture.  REA publishes test preparation and study-guide books and software for high school, college and graduate students, and professionals.  Creative Homeowner publishes books on home design, decorating, landscaping, and gardening, and sells home plans.

 

Results of Operations:

 

 

 

FINANCIAL HIGHLIGHTS

 

 

 

(dollars in thousands except per share amounts)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 23,
2012

 

June 25,
2011

 

%
Change

 

June 23,
2012

 

June 25,
2011

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

58,896

 

$

61,894

 

-4.8

%

$

184,220

 

$

185,708

 

-0.8

%

Cost of sales

 

45,864

 

47,174

 

-2.8

%

143,392

 

150,509

 

-4.7

%

Gross profit

 

13,032

 

14,720

 

-11.5

%

40,828

 

35,199

 

16.0

%

As a percentage of sales

 

22.1

%

23.8

%

 

 

22.2

%

19.0

%

 

 

Selling and administrative expenses

 

10,285

 

11,242

 

-8.5

%

35,227

 

36,353

 

-3.1

%

Impairment charge

 

 

8,608

 

 

 

 

8,608

 

 

 

Operating income (loss)

 

2,747

 

(5,130

)

 

 

5,601

 

(9,762

)

 

 

Interest expense, net

 

246

 

194

 

26.8

%

699

 

645

 

8.4

%

Other income

 

 

 

 

 

(587

)

 

 

 

Pretax income (loss)

 

2,501

 

(5,324

)

 

 

5,489

 

(10,407

)

 

 

Income tax provision (benefit)

 

937

 

(2,195

)

 

 

2,031

 

(4,127

)

 

 

Net income (loss)

 

$

1,564

 

$

(3,129

)

 

 

$

3,458

 

$

(6,280

)

 

 

Net income (loss) per diluted share

 

$

0.13

 

$

(0.26

)

 

 

$

0.29

 

$

(0.52

)

 

 

 

Revenues in the third quarter of fiscal 2012 were $58.9 million, down 5% from the same period last year. Book manufacturing segment sales were $52.4 million, also down 5% from last year’s third quarter, reflecting changes in the seasonal ordering habits of the Company’s educational publishing customers. For the first nine months of fiscal 2012, book manufacturing segment revenues increased slightly to $163.9 million. In the specialty publishing segment, revenues were $9.1 million in the third quarter and $28.2 million for the first nine months, down 8% in both periods compared to the corresponding periods of last year, reflecting a challenging retail environment. In addition, the first nine months of last year included approximately $0.8 million of sales to Borders Group, Inc. (“Borders”). In February 2011, Borders filed for bankruptcy and completed the liquidation of its store inventories in September 2011, which temporarily saturated the trade book market and eliminated a major outlet for books.

 

Net income for the third quarter of fiscal 2012 was $1.6 million, compared to a net loss of $3.1 million in the corresponding period of fiscal 2011. This year’s third-quarter results included severance costs of $235,000 related to the further consolidation of the Company’s one-color printing operations. Last year’s third quarter included a pre-tax impairment charge of $8.6 million primarily related to REA’s goodwill following the impact of the Borders bankruptcy. For the first nine months of fiscal 2012, net income was $3.5 million compared to a net loss of $6.3 million in the corresponding period last year. The Company’s year-to-date net income in fiscal 2012 included a pre-tax restructuring charge of $1.8 million, as well as a pre-tax gain of $0.6 million from the sale of certain non-operating assets. In the first nine months of fiscal 2011, in addition to the $8.6 million impairment charge, the Company recorded a bad-debt provision of $750,000, fully reserving the Borders’ receivable balance. Year-to-date results for fiscal 2011 also included pre-tax restructuring costs of $7.5 million.

 

12



 

Restructuring Costs

 

In the first nine months of fiscal 2012, the Company recorded pre-tax charges of $1.8 million for severance and post-retirement benefit costs related to cost reduction measures as well as the retirement of the Company’s Chief Operating Officer.  Approximately $1.0 million and $0.6 million of these costs were included in selling and administrative expenses in the Company’s book manufacturing segment and specialty publishing segment, respectively. In addition, approximately $0.2 million of these costs were included in cost of sales in the Company’s book manufacturing segment.  In the aggregate, these events are expected to reduce expenses on an annual basis by approximately $3 million.  At June 23, 2012, approximately $0.6 million of the remaining restructuring payments were included in “Other current liabilities” and approximately $0.2 million, which will be paid by December 2013, were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

In the first nine months of fiscal 2011, the Company recorded restructuring costs of $7.5 million in its book manufacturing segment associated with closing and consolidating its Stoughton, Massachusetts manufacturing facility in March 2011 due to the impact of technology and competitive pressures affecting the one-color paperback books in which the plant specialized.  Remaining payments of approximately $3.7 million will be made over periods ranging from 3 years for a building lease obligation to 19 years for a liability related to a multi-employer pension plan.  At June 23, 2012, approximately $1.0 million of these restructuring payments were included in “Other current liabilities” and $3.2 million were included in “Other liabilities” in the accompanying consolidated balance sheet.

 

The following table depicts the remaining accrual balances for these restructuring costs.

 

 

 

(000’s omitted)

 

 

 

Accrual at

 

Charges

 

Costs

 

Accrual at

 

 

 

September 24,

 

or

 

Paid or

 

June 23,

 

 

 

2011

 

Reversals

 

Settled

 

2012

 

Employee severance, post-retirement and other benefit costs

 

$

285

 

$

1,814

 

$

(958

)

$

1,141

 

Early withdrawal from multi-employer pension plan

 

2,119

 

 

(67

)

2,052

 

Lease termination, facility closure and other costs

 

2,345

 

 

(466

)

1,879

 

Total

 

$

4,749

 

$

1,814

 

$

(1,491

)

$

5,072

 

 

Book Manufacturing Segment

 

 

 

SEGMENT HIGHLIGHTS

 

 

 

(dollars in thousands)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 23,
2012

 

June 25,
2011

 

%
Change

 

June 23,
2012

 

June 25,
2011

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

52,413

 

$

54,997

 

-4.7

%

$

163,863

 

$

163,627

 

0.1

%

Cost of sales

 

42,193

 

43,445

 

-2.9

%

132,008

 

138,810

 

-4.9

%

Gross profit

 

10,220

 

11,552

 

-11.5

%

31,855

 

24,817

 

28.4

%

As a percentage of sales

 

19.5

%

21.0

%

 

 

19.4

%

15.2

%

 

 

Selling and administrative expenses

 

6,238

 

6,502

 

-4.1

%

21,318

 

21,018

 

1.4

%

Operating income

 

$

3,982

 

$

5,050

 

 

 

$

10,537

 

$

3,799

 

 

 

 

Within the book manufacturing segment, the Company focuses on three key publishing markets: education, religious and specialty trade. In fiscal 2012, sales to the education market decreased 12% to $23 million in the third quarter and were down 3% to $67 million in the first nine months compared to the corresponding periods last year. These declines in sales resulted from textbook publishers tightly managing inventories and obsolescence exposure by ordering closer to the start of the academic year and in smaller quantities. Sales to the religious market were down 3% to $14 million compared to the third quarter of last year while on a year-to-date basis sales of $48 million were comparable to fiscal 2011.  Sales to the Company’s largest religious customer, while down 3% in the quarter, were up 2% for the first

 

13



 

nine months of fiscal 2012 which is in line with historic norms for this customer.  Sales to the specialty trade market increased 1% in the quarter to $12 million and increased 6% to $43 million for the first nine months compared to the same periods last year reflecting an increase in digital print orders and a return to more traditional ordering patterns as the marketplace continues to assimilate the loss of Borders.

 

Cost of sales in the book manufacturing segment decreased by $1.3 million to $42.2 million in the third quarter compared to the corresponding period last year, primarily due to the lower sales volume. In April 2012, the Company further consolidated its one-color operations by transferring work from its Westford, Massachusetts facility to its Kendallville, Indiana facility, which had redundant one-color capacity. Third-quarter cost of sales included related restructuring costs of $212,000. For the first nine months of fiscal 2012, cost of sales decreased by $6.8 million to $132.0 million compared to the same period last year, which included $7.1 million of restructuring costs. Gross profit for the third quarter was $10.2 million, or 19.5% of sales, compared to $11.6 million, or 21.0% of sales, in the same period last year reflecting competitive pricing, lower sales volume and reduced recycling income.  Gross profit year to date was $31.9 million, or 19.4% of sales, compared to $24.8 million, or 15.2% of sales in the first nine months of fiscal 2011.  The improvement in gross profit was primarily due to $7.1 million of restructuring costs in fiscal 2011 compared with $212,000 of such costs in fiscal 2012.  In addition, modest year-to-date improvement in this segment’s gross profit margin was achieved despite a highly competitive pricing environment and a decline in recycling income in fiscal 2012 as a result of gains in operating efficiencies from recent technology investments and savings from the closing of the Company’s one-color Stoughton facility last year.

 

Selling and administrative expenses for the segment decreased $0.3 million to $6.2 million in the third quarter of fiscal 2012 compared to the same period last year.  For the first nine months of fiscal 2012, selling and administrative expenses increased $0.3 million to $21.3 million compared to the corresponding period of fiscal 2011.  Such expenses in fiscal 2012 included approximately $1.0 million of severance and post-retirement benefit costs.  The cost reduction measures taken in fiscal 2012 are expected to generate expense savings of approximately $750,000 annually in the segment. In the first nine months of fiscal 2011, selling and administrative expenses in this segment included $0.4 million of restructuring costs.

 

Third quarter operating income in the book manufacturing segment was $4.0 million compared with $5.1 million in the same period last year, reflecting the lower sales volume as well as $235,000 of restructuring costs in fiscal 2012. On a year-to-date basis, operating income was $10.5 million compared to $3.8 million in the first nine months of fiscal 2011. Restructuring costs in this segment were $1.2 million in the first nine months of fiscal 2012 compared to $7.5 million in the corresponding period of fiscal 2011. Operating results for the first nine months included improvements in operating efficiencies and savings from closing the Company’s one-color Stoughton facility in March 2011 and further consolidation of the Company’s one-color operations in April 2012.

 

Specialty Publishing Segment

 

 

 

SEGMENT HIGHLIGHTS

 

 

 

(dollars in thousands)

 

 

 

Quarter Ended

 

Nine Months Ended

 

 

 

June 23,
2012

 

June 25,
2011

 

%
Change

 

June 23,
2012

 

June 25,
2011

 

%
Change

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

9,127

 

$

9,872

 

-7.5

%

$

28,214

 

$

30,760

 

-8.3

%

Cost of sales

 

6,387

 

6,653

 

-4.0

%

19,340

 

20,446

 

-5.4

%

Gross profit

 

2,740

 

3,219

 

-14.9

%

8,874

 

10,314

 

-14.0

%

As a percentage of sales

 

30.0

%

32.6

%

 

 

31.5

%

33.5

%

 

 

Selling and administrative expenses

 

3,715

 

4,373

 

-15.0

%

12,812

 

14,263

 

-10.2

%

Operating loss

 

$

(975

)

$

(1,154

)

 

 

$

(3,938

)

$

(3,949

)

 

 

 

Within the Company’s specialty publishing segment, sales decreased 8% both in the third quarter and first nine months of fiscal 2012 to $9.2 million and $28.2 million, respectively, compared to the corresponding periods in fiscal 2011. Approximately $0.8 million of the decline in year-to-date sales in this segment was attributable to the loss of Borders as a customer, whose bankruptcy and liquidation in 2011

 

14



 

eliminated an important retail channel and also temporarily flooded the book market with low-priced inventory. Sales at REA increased 2% in the quarter to $1.4 million but were down 10% year to date to $3.7 million, compared to the same periods last year when Borders had been one of REA’s largest customers.  At Dover, sales were down 2% to $6.3 million for the third quarter, and for the first nine months of fiscal 2012 decreased 1% to $20.9 million compared to the corresponding prior-year periods.  For Creative Homeowner, sales were down 31% in the third quarter to $1.4 million and down 34% to $3.6 million for the first nine months of this year compared to the same periods of fiscal 2011 as demand for books on home improvement continued to be depressed amid the weak housing market as well as the availability of information online. In March 2012, Home Depot announced it will be discontinuing the sale of books in its home centers; in fiscal 2011, Home Depot stores accounted for less than 10% of Creative Homeowner’s sales.  During fiscal 2012, the Company continued to expand its e-book sales channel with the March signing of an agreement with Amazon and a July agreement with Barnes & Noble, in addition to existing arrangements with Apple and Google.

 

Cost of sales in the specialty publishing segment decreased 4% to $6.4 million for the third quarter and decreased 5% to $19.3 million for the first nine months of fiscal 2012, compared to the same periods last year, reflecting lower sales and an improved cost structure in the segment.  Gross profit in this segment decreased 15% to $2.7 million in the third quarter and, as a percentage of sales, decreased to 30.0% from 32.6% in the corresponding period last year.  For the first nine months of fiscal 2012, gross profit decreased 14% to $8.9 million and, as a percentage of sales, decreased to 31.5% from 33.5% in the first nine months of last year.  These declines in gross profit resulted from the lower sales volume as well as changes in product and sales mix.

 

Selling and administrative expenses in this segment decreased $0.7 million to $3.7 million in the third quarter and decreased $1.5 million to $12.8 million for the first nine months compared to the same periods last year.  On a year-to-date basis, selling and administrative expenses included $0.6 million of restructuring charges for severance and post-retirement benefit costs, while last year included a bad-debt provision of $750,000 for Borders.  The cost reduction measures taken in fiscal 2012 are expected to reduce selling and administrative expenses in this segment by approximately $1.5 million on an annual basis.

 

The operating loss for the specialty publishing segment for the quarter was $1.0 million, compared to $1.2 million in last year’s third quarter, reflecting the benefit of recent cost reduction measures.  For the first nine months of fiscal 2012, the operating loss was $3.9 million, comparable to the corresponding period of last year.

 

Total Consolidated Company

 

Interest expense, net of interest income, was $246,000 in the third quarter of fiscal 2012, compared to $194,000 of net interest expense in the same period last year.  For the first nine months, interest expense, net of interest income, was $699,000, compared to $645,000 in the corresponding period of last year.  Average debt under the revolving credit facility in the third quarter of fiscal 2012 was approximately $15.7 million at an average annual interest rate of 1.5%, generating interest expense of approximately $60,000. Average debt under the revolving credit facility in the third quarter of last year was approximately $25.1 million at an average annual interest rate of 0.7%, generating interest expense of approximately $45,000.  Average debt under the revolving credit facility in the first nine months of fiscal 2012 was approximately $16.4 million at an average annual interest rate of 1.1%, generating interest expense of approximately $133,000.  Average debt under the revolving credit facility in the first nine months of last year was approximately $22.5 million at an average annual interest rate of 0.7%, generating interest expense of approximately $125,000. At June 23, 2012, $3.5 million was borrowed under the Company’s term loan with related interest expense of $37,000 in the third quarter and $111,000 in the first nine months of fiscal 2012 compared to $53,000 and $160,000 in the third quarter and first nine months of last year, respectively. In addition, approximately $115,000 of interest expense was amortized in the first nine months of this fiscal year associated with the restructuring costs incurred in fiscal 2011. Interest expense also includes commitment fees and other costs associated with maintaining the Company’s $100 million revolving credit facility. Interest capitalized in the first nine months of last year was approximately $30,000; no interest was capitalized the first nine months of fiscal 2012.

 

In the first quarter of fiscal 2012, the Company recorded other income of $587,000 from the sale of its interests in non-operating real property relating to cell towers.

 

15



 

The effective tax rates for the first nine months of fiscal years 2012 and 2011 were 37.0% and 39.7%, respectively. The higher rate in fiscal 2011 resulted in part from the state tax benefit of the restructuring charges being realized at lower effective rates.

 

For purposes of computing net income or loss per diluted share, weighted average shares outstanding increased by approximately 30,000 shares and 115,000 shares from last year’s third quarter and first nine months, respectively. In the third quarter and first nine months of fiscal 2011, approximately 36,000 and 34,000 potentially dilutive shares, respectively, were excluded due to the Company incurring a loss in those periods. The remaining increase in weighted average shares outstanding for the year to date reflects shares issued under the Company’s stock plans offset in part by the repurchase of approximately 445,000 shares during the third quarter of fiscal 2012.

 

Liquidity and Capital Resources:

 

During the first nine months of fiscal 2012, operations provided $21.9 million of cash, compared to $16.5 million in the corresponding period of last year. Net income was $3.5 million and depreciation and amortization were $18.0 million.

 

Investment activities in the first nine months of fiscal 2012 used $6.8 million of cash. Capital expenditures were $4.1 million.  For the entire fiscal year, capital expenditures are expected to be approximately $8 to $10 million, compared to $16 million for fiscal 2011.  Prepublication costs were $3.2 million year to date, comparable to the first nine months of last year.  For the full fiscal year, prepublication costs are projected to be approximately $4 million, comparable to fiscal 2011.

 

On April 19, 2012, the Company announced the approval by its Board of Directors for the repurchase of up to $10 million of the Company’s outstanding common stock from time to time on the open market or in privately negotiated transactions, including pursuant to a Rule 10b5-1 nondiscretionary trading plan. This share repurchase authorization is effective for a period of twelve months.  Through June 23, 2012, the Company repurchased approximately 445,000 shares of common stock for approximately $4.8 million.

 

Financing activities for the first nine months of fiscal 2012 used approximately $15.1 million of cash.  In addition to $4.8 million used for the share repurchases, cash dividends of $7.7 million were paid and borrowings decreased by $2.5 million during the first nine months of fiscal 2012.  At June 23, 2012, borrowings under a term loan used to finance the purchase of the Company’s new digital print assets were $3.5 million, with $1.4 million at a fixed annual interest rate of 3.9% and $2.1 million at a fixed annual interest rate of 3.6%.  The Company also has a $100 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 2.25%.  On March 22, 2012, the Company amended this credit facility and extended the maturity date by three years to March 31, 2016.  The Company also added TD Bank, N.A. to the bank group, replacing Wells Fargo, N.A.. At June 23, 2012, the Company had $15.6 million in borrowings under this facility at an interest rate of 1.5%.  The revolving credit facility contains restrictive covenants including provisions relating to the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all such covenants at June 23, 2012.  The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion.  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 for at least the next twelve months.

 

16



 

The following table summarizes the Company’s contractual obligations and commitments at June 23, 2012 to make future payments as well as its existing commercial commitments.

 

 

 

 

 

(000’s 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)

 

$

19,043

 

$

1,855

 

$

1,599

 

$

15,589

 

$

 

Operating leases (3)

 

7,843

 

1,289

 

2,088

 

1,495

 

2,971

 

Purchase obligations (4)

 

2,810

 

2,810

 

 

 

 

Other liabilities (5)

 

8,613

 

2,367

 

2,509

 

813

 

2,924

 

Total

 

$

38,309

 

$

8,321

 

$

6,196

 

$

17,897

 

$

5,895

 

 


(1) Amounts do not include interest expense.

(2) Includes the Company’s revolving credit facility, which has a maturity date of March 2016.

(3) Represents amounts at September 24, 2011, except for the Stoughton, Massachusetts building lease obligation, which was included in “Other liabilities” at both September 24, 2011 and June 23, 2012.

(4) Represents capital commitments.

(5) Includes approximately $3.4 million of restructuring costs, in addition to a related current liability of $1.6 million.

 

Forward-Looking Information:

 

This Quarterly Report on Form 10-Q 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.  Some of the factors that could affect actual results are discussed in Item 1A of this Form 10-Q and 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.

 

17



 

Item 3.                                                         QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

There have been no material changes from the information concerning the Company’s “Quantitative and Qualitative Disclosures About Market Risk” as previously reported in the Company’s Annual Report on Form 10-K for the year ended September 24, 2011.

 

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 Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s 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 Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

 

(b)                     Changes in internal controls over financial reporting

 

There was no change in the Company’s 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 Company’s internal control over financial reporting.

 

18



 

PART II.  OTHER INFORMATION

 

Item 1.

 

Legal Proceedings

 

 

 

 

 

None.

 

 

 

Item 1A.

 

Risk Factors

 

The Company’s consolidated results of operations, financial condition and cash flows can be adversely affected by various risks.  Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially affect actual results and are often beyond our control.  We discuss below the risks that we believe are material.  You should carefully consider all of these factors.  For other factors that may cause actual results to differ materially from those indicated in any forward-looking statement contained in this report, see Forward-Looking Information in Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Industry competition and consolidation may increase pricing pressures and adversely impact our margins or result in a loss of customers.

 

The book industry is extremely competitive.  In the book manufacturing segment, consolidation over the past few years of both customers and competitors within the markets in which the Company competes has caused downward pricing pressures.  In addition, excess capacity and competition from printing companies in lower cost countries may increase competitive pricing pressures.  Furthermore, some of our competitors have greater sales, assets and financial resources than us, particularly those in foreign countries, who may derive significant advantages from local governmental regulation, including tax holidays and other subsidies.  All or any of these competitive pressures could affect prices or customers’ demand for our products, impacting our profit margins and/or resulting in a loss of customers and market share.

 

A reduction in orders or pricing from, or the loss of, any of our significant customers may adversely impact our operating results.

 

We derived approximately 53% and 47% of our fiscal 2011 and 2010 revenues, respectively, from two major customers.  We expect similar concentrations in fiscal 2012.  We do business with these customers on a purchase order basis and they are not bound to purchase at particular volume levels.  As a result, any of these customers could determine to reduce their order volume with us.  A significant reduction in order volumes from, or the loss of, either of these customers could have a material adverse effect on our results of operations and financial condition.

 

Because a significant portion of publishing sales are made to or through retailers and distributors, the insolvency of any of these parties could have a material impact on the Company’s financial results.

 

In our specialty publishing segment, sales to retailers and distributors are highly concentrated on a small group, which previously included Borders Group, Inc. (“Borders”). During fiscal 2011, we recorded a bad debt expense of $700,000 related to the Borders’ bankruptcy and liquidation. Sales to Borders for our publishing segment in fiscal 2011 declined $3.3 million compared to fiscal 2010. In addition, the Company experienced a 9% reduction in sales in the trade market of its book manufacturing segment in fiscal 2011 compared with the prior year.

 

As a result of the impact of the Borders situation, in the third quarter of fiscal 2011, the Company recorded a pre-tax impairment charge of $8.6 million, representing 100% of REA’s goodwill as well as approximately $200,000 for prepublication costs related to underperforming titles.

 

Similarly, any bankruptcy, liquidation, insolvency or other failure of another major retailer or distributor could also have a material impact on the Company.

 

Electronic delivery of content may adversely affect our business.

 

Electronic delivery of content offers an alternative to the traditional delivery through print and there are many companies that have greater assets and financial resources that are investing in eBooks and

 

19



 

electronic textbooks.  Widespread consumer acceptance of electronic delivery of books is uncertain, as is the extent to which consumers are willing to replace print materials with electronic materials.  To the extent that our customers’ acceptance of these electronic alternatives should continue to grow, demand for and/or pricing of our printed products may be adversely affected. To the extent that we do not successfully adapt to provide our content in electronic form, demand for our content may suffer, and to the extent that consumers substitute free information online for our content and/or do not demand our electronic offerings, sales may suffer.

 

A failure to successfully adapt to changing book sales channels may have an adverse impact on our business.

 

Over the last several years, the “bricks & mortar” bookstore channel has experienced a significant contraction, including the bankruptcy of Borders and Nebraska Book Co., the closure of many independent bookstores, and the reduction in inventory and shelf space for books in other national chains.  There is no guarantee that we will be able to penetrate alternative channels and address the challenges in these channels, including creating price competitive products for these markets and accurately predicting the volume of returns.

 

Declines in general economic conditions may adversely impact our business.

 

Economic conditions have the potential to impact our financial results significantly.  Within the book manufacturing and specialty publishing segments, we may be adversely affected by the current worldwide economic downturn, including as a result of changes in government, business and consumer spending.  Examples of how our financial results may be impacted include:

 

·                  Fluctuations in federal or state government spending on education, including a reduction in tax revenues due to the current economic environment, could lead to a corresponding decrease in the demand for educational materials, which are produced in our book manufacturing segment and comprise a portion of our publishing products.

 

·                  Consumer demand for books can be impacted by reductions in disposable income when costs such as electricity and gasoline reduce discretionary spending.

 

·                  Tightness in credit markets may result in customers delaying orders to reduce inventory levels and may impact their ability to pay their debts as they become due and may disrupt supplies from vendors, and may result in customers or vendors becoming insolvent.

 

·                  The insolvency of key vendors may have an adverse effect on our operations.

 

·                  Changes in the housing market may impact the sale of Creative Homeowner’s products.

 

·                  Reduced fundraising by religious customers may decrease their order levels.

 

·                  A slowdown in book purchases may result in retailers returning an unusually large number of books to publishers to reduce their inventories.

 

A failure to keep pace with rapid industrial and technological change may have an adverse impact on our business.

 

The printing industry is in a period of rapid technological evolution.  Our future financial performance will depend, in part, upon the ability to anticipate and adapt to rapid industrial and technological changes occurring in the industry and upon the ability to offer, on a timely basis, services that meet evolving industry standards.  If we are unable to adapt to such technological changes, we may lose customers and may not be able to maintain our competitive position. In addition, we may encounter difficulties in the implementation and start-up of new equipment and technology.

 

We are unable to predict which of the many possible future product and service offerings will be important to establish and maintain a competitive position or what expenditures will be required to develop and provide these products and services.  We cannot assure investors that one or more of these factors will not vary unpredictably, which could have a material adverse effect on us. In addition, we cannot assure investors, even if these factors turn out as we anticipate, that we will be able to implement our strategy or that the strategy will be successful in this rapidly evolving market.

 

20



 

Our operating results are unpredictable and fluctuate significantly, which may adversely affect our stock price.

 

Our quarterly and annual operating results have fluctuated in the past and are likely to fluctuate in the future due to a variety of factors, some of which are outside of our control. Factors that may affect our future operating results include:

 

·                  the timing and size of the orders for our books;

 

·                  the availability of markets for sales or distribution by our major customers;

 

·                  the lengthy and unpredictable sales cycles associated with sales of textbooks to the elementary and high school market;

 

·                  our customers’ willingness and success in shifting orders from the peak textbook season to the off-peak season to even out our manufacturing load over the year;

 

·                  fluctuations in the currency market may make manufacturing in the United States more or less attractive and make equipment more or less expensive for us to purchase;

 

·                  issues that might arise from the integration of acquired businesses, including their inability to achieve expected results;

 

·                  the funding status of multi-employer union pension plans;

 

·                  changes in the interest rate charged by our banks, which is determined by LIBOR; and

 

·                  tightness in credit markets affecting the availability of capital for ourselves, our vendors, and/or our customers.

 

As a result of these and other factors, period-to-period comparisons of our operating results are not necessarily meaningful or indicative of future performance. In addition, the factors noted above may make it difficult for us to forecast and provide in a timely manner public guidance (including updates to prior guidance) related to our projected financial performance. Furthermore, it is possible that in future quarters our operating results could fall below the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could decline.

 

Our financial results could be negatively impacted by impairments of goodwill or other intangible assets, or other long-lived assets.

 

We perform an annual assessment for impairment of goodwill and other intangible assets, as well as other long-lived assets, at the end of our fiscal year or whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below its carrying value, including a downturn in the market value of the Company’s stock.  A downward revision in the fair value of one of our acquired businesses could result in impairments of goodwill and non-cash charges.  Any impairment charge could have a significant negative effect on our reported results of operations.  For example, at the end of the third quarter of fiscal 2011, the Company determined that the fair value of REA was below its carrying value and a pre-tax impairment charge of $8.6 million was recorded, which represented 100% of REA’s goodwill as well as approximately $200,000 for prepublication costs related to underperforming titles and long-lived assets.

 

Fluctuations in the cost and availability of paper and other raw materials may cause disruption and impact margins.

 

Purchases of paper and other raw materials represent a large portion of our costs.  In our book manufacturing segment, paper is normally supplied by our customers at their expense or price increases are passed through to our customers.  In our specialty publishing segment, cost increases have generally been passed on to customers through higher prices or we have substituted a less expensive grade of paper.  However, if we are unable to continue to pass on these increases or substitute a less expensive grade of paper, our margins and profits could be adversely affected.

 

Availability of paper is important to both our book manufacturing and specialty publishing segments.  Although we generally have not experienced difficulty in obtaining adequate supplies of paper, unexpected changes in the paper markets could result in a shortage of supply.  If this were to occur in the future, it could cause disruption to the business or increase paper costs, adversely impacting either or

 

21



 

both net sales or profits.

 

Fluctuations in the costs and availability of other raw materials could adversely affect operating costs or customer demand and thereby negatively impact our operating results, financial condition or cash flows.

 

In addition, fluctuations in the markets for paper and raw materials may adversely affect the market for our waste byproducts, including recycled paper, and used plates, and therefore adversely affect our income from such sales.

 

Energy costs and availability may negatively impact our financial results.

 

Energy costs are incurred directly to run production equipment and facilities and indirectly through expenses such as freight and raw materials such as ink.  In a competitive market environment, increases to these direct and indirect energy related costs might not be able to be passed through to customers through price increases or mitigated through other means.  In such instances, increased energy costs could adversely impact operating costs or customer demand.  In addition, interruption in the availability of energy could disrupt operations, adversely impacting operating results.

 

Inadequate intellectual property protection for our publications could negatively impact our financial results.

 

Certain of our publications are protected by copyright, primarily held in the Company’s name.  Such copyrights protect our exclusive right to publish the work in the United States and in many other countries for specified periods.  Our ability to continue to achieve anticipated results depends in part on our ability to defend our intellectual property against infringement.  Our operating results may be adversely affected by inadequate legal and technological protections for intellectual property and proprietary rights in some jurisdictions and markets.  In addition, some of our publications are of works in the public domain, for which there is nearly no intellectual property protection.  Our operating results may be adversely affected by the increased availability of such works elsewhere, including on the Internet, either for free or for a lower price.

 

A failure to maintain or improve our operating efficiencies could adversely impact our profitability.

 

Because the markets in which we operate are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability.  Although we have been able to expand our capacity, improve our productivity and reduce costs in the past, there is no assurance that we will be able to do so in the future.  In addition, reducing operating costs in the future may require significant initial costs to reduce headcount, close or consolidate operations, or upgrade equipment and technology.

 

Changes in postal rates and postal regulations may adversely impact our business.

 

Postal costs are a significant component of our direct marketing cost structure and postal rate changes can influence the number of catalogs that we may mail.  In addition, increased postal rates can impact the cost of delivering our products to customers.  The occurrence of either of these events could adversely affect consumer demand and our results of operations.

 

Our facilities are subject to stringent environmental laws and regulations, which may subject us to liability or increase our costs.

 

We use various materials in our operations that contain substances considered hazardous or toxic under environmental laws.  In addition, our operations are subject to federal, state, and local environmental laws relating to, among other things, air emissions, waste generation, handling, management and disposal, waste water treatment and discharge and remediation of soil and groundwater contamination.  Permits are required for the operation of certain of our businesses and these permits are subject to renewal, modification and in some circumstances, revocation.  Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA,” commonly referred to as “Superfund”), and similar state laws and regulations, we may be liable for costs and damages relating to soil and groundwater contamination at off-site disposal locations or at our facilities.  Future changes to environmental laws and regulations may give rise to additional costs or liabilities that could have a material adverse impact on our financial position and results of operations.

 

22



 

A failure to successfully integrate acquired businesses may have a material adverse effect on our business or operations.

 

Over the past several years, we have completed several acquisitions, and may continue to make acquisitions in the future.  We believe that these acquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of these acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner.  The challenges involved in successfully integrating acquisitions include:

 

·                  we may find that the acquired company or assets do not further our business strategy, or that we overpaid for the company or assets, or that economic conditions have changed, all of which may result in a future impairment charge;

 

·                  we may have difficulty integrating the operations and personnel of the acquired business and may have difficulty retaining the customers and/or the key personnel of the acquired business;

 

·                  we may have difficulty incorporating and integrating acquired technologies into our business;

 

·                  our ongoing business and management’s attention may be disrupted or diverted by transition or integration issues and the complexity of managing diverse locations;

 

·      we may have difficulty maintaining uniform standards, controls, procedures and policies across locations;

 

·                  an acquisition may result in litigation from terminated employees of the acquired business or third parties; and

 

·                  we may experience significant problems or liabilities associated with technology and legal contingencies of the acquired business.

 

These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time.  From time to time, we may enter into negotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significant diversion of management’s time from our business as well as significant out-of-pocket costs. Tightness in credit markets may also affect our ability to consummate such acquisitions.

 

The consideration that we pay in connection with an acquisition could affect our financial results.  If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash and credit facilities to consummate such acquisitions.  To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, our existing stockholders may experience dilution in their share ownership in our company and their earnings per share may decrease.  In addition, acquisitions may result in the incurrence of debt, large one-time write-offs and restructuring charges.  They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges.  Any of these factors may materially and adversely affect our business and operations.

 

A failure to hire and train key executives and other qualified employees could adversely affect our business.

 

Our success depends, in part, on our ability to continue to retain our executive officers and key management personnel.  Our business strategy also depends on our ability to attract, develop, motivate and retain employees who have relevant experience in the printing and publishing industries.  There can be no assurance that we can continue to attract and retain the necessary talented employees, including executive officers and other key members of management and, if we fail to do so, it could adversely affect our business.

 

A lack of skilled employees to manufacture our products may adversely affect our business.

 

If we experience problems hiring and retaining skilled employees, our business may be negatively affected.  The timely manufacture and delivery of our products requires an adequate supply of skilled employees, and the operating costs of our manufacturing facilities can be adversely affected by high turnover in skilled positions.  Accordingly, our ability to increase sales, productivity and net earnings could be impacted by our ability to employ the skilled employees necessary to meet our requirements.

 

23



 

Although our book manufacturing locations are geographically dispersed, individual locations may encounter strong competition with other manufacturers for skilled employees.  There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities.  In addition, unions represent certain groups of employees at one of our locations, and periodically, contracts with those unions come up for renewal.  The outcome of those negotiations could have an adverse affect on our operations at that location.  Also, changes in federal and/or state laws may facilitate the organization of unions at locations that do not currently have unions, which could have an adverse affect on our operations.

 

We are subject to various laws and regulations that may require significant expenditures.

 

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Consumer Product Safety Act, the rules and regulations of the Consumer Products Safety Commission as well as laws and regulations relating to personal information.  We may be required to make significant expenditures to comply with such governmental laws and regulations and any amendments thereto. Complying with existing or future laws or regulations may materially limit our business and increase our costs.  Failure to comply with such laws may expose us to potential liability and have a material adverse effect on our results of operations.

 

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

On April 19, 2012, the Company announced the approval by its Board of Directors for the repurchase of up to $10 million of the Company’s outstanding common stock from time to time on the open market or in privately negotiated transactions, including pursuant to a Rule 10b5-1 nondiscretionary trading plan. This stock repurchase authorization is effective for a period of twelve months. Through June 23, 2012, approximately 445,000 shares of common stock were repurchased for approximately $4.8 million.  The following table summarizes the monthly purchases under this program during the third quarter of the Company’s fiscal year 2012.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

 

 

 

 

 

 

(c) Total Number of

 

(d)  Approximate Dollar

 

 

 

(a) Total

 

 

 

Shares Purchased as

 

Value of Shares that

 

 

 

Number of

 

(b) Average

 

Part of Publicly

 

May Yet Be

 

 

 

Shares

 

Price Paid

 

Announced Plans or

 

Purchased Under

 

Fiscal Month

 

Purchased

 

per Share

 

Programs

 

the Plans or Programs

 

March 25, 2012 - April 21, 2012

 

 

 

 

 

April 22, 2012 - May 19, 2012

 

161,946

 

$

10.64

 

161,946

 

$

8,277,000

 

May 20, 2012 - June 23, 2012

 

283,104

 

$

11.02

 

283,104

 

$

5,158,000

 

 

 

 

 

 

 

 

 

 

 

Total

 

445,050

 

$

10.88

 

445,050

 

 

 

 

Item 3.

 

Defaults Upon Senior Securities

 

 

 

 

 

None.

 

 

 

Item 4.

 

Mine Safety Disclosures

 

 

 

 

 

Not applicable.

 

 

 

Item 5.

 

Other Information

 

 

 

 

 

There have been no material changes to the procedures by which security holders may recommend nominees to the Company’s Board of Directors.

 

24



 

Item 6.

 

Exhibits

 

 

Exhibit No.

 

Description

 

 

 

 

 

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

 

 

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*   Filed herewith.

** Furnished herewith.

 

25



 

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)

 

 

 

 

 

 

 

 

 

August 2, 2012

 

By:

/s/James F. Conway III

Date

 

 

James F. Conway III

 

 

 

Chairman, President and

 

 

 

Chief Executive Officer

 

 

 

 

 

 

 

 

August 2, 2012

 

By:

/s/Peter M. Folger

Date

 

 

Peter M. Folger

 

 

 

Senior Vice President and

 

 

 

Chief Financial Officer

 

 

 

 

 

 

 

 

August 2, 2012

 

By:

/s/Kathleen M. Leon

Date

 

 

Kathleen M. Leon

 

 

 

Vice President and

 

 

 

Controller

 

26



 

EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

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

 

 

 

101.INS**

 

XBRL Instance Document

 

 

 

101.SCH**

 

XBRL Taxonomy Extension Schema Document

 

 

 

101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document

 

 

 

101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document

 

 

 

101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document

 


*   Filed herewith.

** Furnished herewith.

 

27


XNAS:CRRC Courier Corp Quarterly Report 10-Q Filling

Courier Corp XNAS:CRRC Stock - Get Quarterly Report SEC Filing of Courier Corp XNAS:CRRC stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XNAS:CRRC Courier Corp Quarterly Report 10-Q Filing - 6/23/2012
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