<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the quarterly period ended December 26, 1998
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or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --------- EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-7597
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COURIER CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
MASSACHUSETTS 04-2502514
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) 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
------------- ----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at January 29, 1999
- ------------------------------------- --------------------------------------
Common Stock, $1 par value 3,207,744 shares
Page 1 of 12
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COURIER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 26, September 26,
ASSETS 1998 1998
- ------ ---------------- ------------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $194 $722
Accounts receivable, less allowance
for uncollectible accounts 30,211 27,941
Inventories (Note B) 11,850 10,828
Deferred income taxes 1,749 1,758
Other current assets 552 847
---------------- ------------------
Total current assets 44,556 42,096
Property, plant and equipment, less
accumulated depreciation: $71,060
at December 26, 1998 and $69,102
at September 26, 1998 31,547 33,257
Real estate held for sale or lease, net 329 336
Goodwill and other intangibles, net 11,256 11,421
Other assets 522 520
---------------- ------------------
Total assets $88,210 $87,630
---------------- ------------------
---------------- ------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 2 of 12
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COURIER CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
December 26, September 26,
LIABILITIES AND STOCKHOLDERS' EQUITY 1998 1998
- ------------------------------------ ---------------- ------------------
<S> <C> <C>
Current liabilities:
Current maturities of long-term debt $ 312 $ 312
Accounts payable 9,039 9,294
Accrued payroll 2,689 4,319
Accrued taxes 5,565 4,935
Other current liabilities 7,789 6,709
---------------- ------------------
Total current liabilities 25,394 25,569
Long-term debt 6,706 6,781
Deferred income taxes 2,819 2,992
Other liabilities 2,263 2,498
---------------- ------------------
Total liabilities 37,182 37,840
---------------- ------------------
Stockholders' equity:
Preferred stock, $1 par value - authorized
1,000,000 shares; none issued
Common stock, $1 par value - authorized
6,000,000 shares; issued 3,750,000 shares 3,750 3,750
Additional paid-in capital 440 384
Retained earnings 50,551 49,464
Treasury stock, at cost: 564,000 shares
at December 26, 1998 and 578,000
shares at September 26, 1998 (3,713) (3,808)
---------------- ------------------
Total stockholders' equity 51,028 49,790
---------------- ------------------
Total liabilities and stockholders' equity $ 88,210 $ 87,630
---------------- ------------------
---------------- ------------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 3 of 12
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COURIER CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------
December 26, December 27,
1998 1997
------------- -------------
<S> <C> <C>
Net sales $39,301 $35,306
Cost of sales 29,963 26,512
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Gross profit 9,338 8,794
Selling and administrative expenses 7,003 6,525
Interest expense 135 347
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Income before taxes 2,200 1,922
Provision for income taxes (Note C) 780 712
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Net income $1,420 $1,210
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Net income per share (Note D):
Basic $0.45 $0.40 *
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Diluted $0.43 $0.38 *
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Cash dividends declared per share $0.105 $0.093 *
------------- -------------
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</TABLE>
* Amounts have been adjusted to reflect a three-for-two stock split
effected on June 1, 1998.
The accompanying notes are an integral part of the consolidated financial
statements.
Page 4 of 12
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COURIER CORPORATION
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Cash provided from (used for) operating activities $ 12 $ (1,220)
------------ ------------
Investment activities:
Capital expenditures (254) (506)
Business acquisition - (563)
------------ ------------
Cash used for investment activities (254) (1,069)
------------ ------------
Financing activities:
Scheduled long-term debt repayments (75) (170)
Increase in long-term borrowings - 2,250
Cash dividends (333) (282)
Proceeds from stock plans 122 487
------------ ------------
Cash provided from (used for) financing activities (286) 2,285
------------ ------------
Decrease in cash and cash equivalents (528) (4)
Cash at the beginning of the period 722 27
------------ ------------
Cash at the end of the period $ 194 $ 23
------------ ------------
------------ ------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
Page 5 of 12
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COURIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED FINANCIAL STATEMENTS
The balance sheet as of December 26, 1998, the statements of income for the
three-month periods ended December 26, 1998 and December 27, 1997, and the
statements of cash flows for the three-month periods ended December 26, 1998 and
December 27, 1997 are unaudited and, in the opinion of management, all
adjustments necessary for a fair presentation of such financial statements have
been recorded. Such adjustments consisted only of normal recurring items.
Certain amounts for fiscal 1998 have been reclassified in the accompanying
financial statements in order to be consistent with the current year's
classification.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The year-end balance sheet data as
of September 26, 1998 was derived from audited 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 Form 10-K and Annual Report as of
September 26, 1998.
NEW ACCOUNTING PRONOUNCEMENTS
Effective September 27, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS
No. 132, "Employer Disclosures about Pensions and Other Postretirement
Benefits". The adoption of SFAS No. 130 was not material to the consolidated
financial statements due to a lack of any items defined as other comprehensive
income by SFAS No. 130. The adoption of SFAS No. 132 was also not material to
the consolidated financial statements. The Financial Accounting Standards Board
recently issued SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", which will be effective for the Company's Annual Report
for the fiscal year ending September 25, 1999, and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will be effective in the
Company's fiscal year ending September 30, 2000. The Company does not expect
that the implementation of these new standards will be material to the
consolidated financial statements.
B. INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined using
the last-in, first-out (LIFO) method for most inventories. Inventories consisted
of the following:
<TABLE>
<CAPTION>
(000'S OMITTED)
-----------------------------------------
December 26, September 26,
1998 1998
----------------- ----------------
<S> <C> <C>
Raw materials $ 3,445 $ 3,171
Work in process 5,531 4,903
Finished goods 2,874 2,754
--------- ---------
Total inventories $11,850 $10,828
--------- ---------
--------- ---------
</TABLE>
Page 6 of 12
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COURIER CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
C. INCOME TAXES
The statutory federal tax rate is 34%. The total tax provision differs from that
computed using the statutory federal tax rate for the following reasons:
<TABLE>
<CAPTION>
(000's Omitted)
THREE MONTHS ENDED
------------------
December 26, December 27,
1998 1997
------------- -------------
<S> <C> <C>
Federal income taxes at
statutory rate $ 748 $ 653
State income taxes, net 42 50
Goodwill amortization 43 49
Export related income (56) (52)
Other 3 12
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Total provision $ 780 $ 712
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-------- -------
</TABLE>
D. NET INCOME PER SHARE
Following is a reconciliation of the 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 and stock grant plans. Shares and per share amounts
have been adjusted to reflect a three-for-two stock split effected in the
form of a dividend distributed on June 1, 1998.
<TABLE>
<CAPTION>
(000'S OMITTED)
THREE MONTHS ENDED
------------------
December 26, December 27,
1998 1997
------------ ------------
<S> <C> <C>
Average shares outstanding for basic 3,179 3,045
Effect of potentially dilutive shares 139 125
------- ------
Average shares outstanding for diluted 3,318 3,170
------- ------
------- ------
</TABLE>
Page 7 of 12
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COURIER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
Sales in the first quarter of fiscal 1999 increased 11% to $39.3 million from
$35.3 million in the prior year's first quarter. The Company's book
manufacturing segment sales were $39.0 million, an 11% increase over the same
period last year. The sales growth reflects increased sales to religious and
educational publishing customers, including increased revenues from 4-color book
manufacturing. The Company's customized education segment consists of The Home
School and Copyright Management Services (CMS). The Home School, which was
acquired on September 30, 1997, is a direct marketer of books and other
educational products for supplementing or replacing traditional education with
home-based learning. CMS provides customized coursepacks and copyright clearance
services primarily to colleges and universities. Revenues from these two newer
businesses are highly seasonal with the Company's fourth quarter historically
representing the period of highest market demand.
Gross profit increased by 6% to $9.3 million, or 24% of sales, in the first
quarter from $8.8 million, or 25% of sales, in the same period last year. The
increase in gross profit resulted from the increase in sales volume and from
gains in productivity while normal start-up costs associated with a new 4-color
press installed during the fourth quarter of fiscal 1998 reduced this year's
gross profit percentage.
Selling and administrative expenses increased to $7.0 million in the first
quarter of fiscal 1999 from $6.5 million in the same period last year. Expenses
related to improvements in the Company's information systems and infrastructure
increased by $0.3 million, including expenses related to "Year 2000" remediation
efforts of approximately $150,000. Selling expenses in the first quarter of
fiscal 1999 increased by $0.1 million.
Interest expense was $135,000 compared to $347,000 in the first quarter of
fiscal 1998 reflecting a reduction in average borrowings of approximately $13
million as well as a lower average interest rate.
The Company's effective tax rate for the first quarter was 35% compared to 37%
in the corresponding period last year primarily because of a lower effective
state tax rate this year.
Net income for the first quarter of fiscal 1999 was $1,420,000, up 17% over last
year's earnings of $1,210,000. Net income per share on a diluted basis increased
13% to $.43 per diluted share from $.38 per diluted share in the corresponding
period last year after adjusting for a three-for-two stock split effected on
June 1, 1998. Earnings from the Company's book manufacturing segment increased
17% over last year's first quarter to $2.0 million reflecting increased sales
volume and higher levels of productivity offset in part by start-up costs on a
new 4-color press and the cost of Year 2000 remediation efforts. The Company's
customized education segment reduced first quarter earnings by $.17 per diluted
share compared to a reduction of $.15 per diluted share for the same period last
year. Revenues and related earnings for these businesses, both of which are
highly seasonal, are expected to increase in the fourth quarter coinciding with
the months of highest market demand.
Weighted average shares outstanding increased by approximately 148,000 shares
primarily due to options exercised under the Company's stock option plans.
Effective September 27, 1998, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", and SFAS
No. 132, "Employer Disclosures about Pensions and Other Postretirement
Benefits". The adoption of SFAS No. 130 was not material to the consolidated
financial statements due to a lack of any items defined as other comprehensive
income by SFAS No. 130. The adoption of SFAS No. 132 was also not material to
the consolidated financial statements. The Financial Accounting Standards Board
recently issued SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information", which will be effective for the Company's Annual Report
for the fiscal year ending September 25, 1999, and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which will be effective in the
Company's fiscal year ending September 30, 2000. The Company does not expect
that the implementation of these new standards will be material to the
consolidated financial statements.
Page 8 of 12
<PAGE>
COURIER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES:
During the first quarter of fiscal 1999, operations provided approximately
$12,000 of cash. Net income was $1.4 million and depreciation was $2.1 million.
Working capital utilized approximately $3.2 million of cash due to increases in
accounts receivable of $2.3 million and inventories of $1.0 million.
Investment activities in the first three months of fiscal 1999 used
approximately $0.3 million of cash for capital expenditures. For the entire
fiscal year, capital expenditures are expected to be approximately $8 to $10
million, which includes approximately $0.6 million related to Year 2000 issues.
The Company's Raymond, New Hampshire facility, which had been leased through
June 1996, continues to be vacant pending sale or lease.
Financing activities for the first three months of fiscal 1999 used
approximately $0.3 million of cash, primarily for dividends. At December 26,
1998, the Company utilized approximately $5.3 million of its borrowing capacity
available under a $30 million long-term revolving credit facility.
YEAR 2000 ISSUE:
THE STATEMENTS IN THE FOLLOWING SECTION INCLUDE "YEAR 2000 READINESS DISCLOSURE"
WITHIN THE MEANING OF THE YEAR 2000 INFORMATION AND READINESS DISCLOSURE ACT.
Historically, many computer programs were written using two digits rather than
four to specify the year. Such software may recognize the year 2000 as "00"
which could result in computer system failures or miscalculations, commonly
referred to as the Year 2000 (Y2K) issue. The Company recognizes the need to
ensure that its operations will not be adversely impacted by a Year 2000
software failure. Incomplete or untimely resolution of the Y2K issue by the
Company, key suppliers, customers and other parties could have a material
adverse effect on the Company's results of operations, financial condition and
cash flows. The Company established a Year 2000 Management Task Force to address
the Y2K issue. This Task Force is coordinating efforts to identify, assess and
implement changes to information technology ("IT") systems and operational
systems such as presses and binders, telecommunications equipment, building
security and environmental controls, and is evaluating the Y2K readiness of key
suppliers, customers and other parties.
Operational systems have been inventoried and assessment of Y2K compliance is
approximately 90% complete. No instances of non-compliance have been found to
date indicating a low overall risk of non-compliance. Assessment, remediation
and testing is expected to be completed for operational systems by March 31,
1999.
The Company has substantially completed inventories and assessments of its IT
systems in use at each of its locations. Many of the IT systems are not
compliant. The Company is in the process of replacing or upgrading these systems
with enterprise-wide systems across all of the Company's operations, utilizing a
common IT infrastructure which collectively is designed to give the Company the
benefit of new technology with enhanced functionality and resultant improvements
in service and productivity. The replacement of non-compliant systems at the
Company's largest, most complex operation was completed on schedule in October
1998 and a second major operation was completed on schedule in December 1998.
Progress on upgrading all remaining operations is in process and on schedule.
The Company anticipates the implementation and testing of these IT systems will
be completed at all of the Company's operations before the end of fiscal 1999.
Page 9 of 12
<PAGE>
COURIER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
YEAR 2000 ISSUE (CONTINUED):
The Company is actively assessing the Y2K readiness of third parties (including
suppliers, financial institutions and customers) with which it has a material
relationship to identify potentially non-compliant parties. The Company has
performed site visits and is actively working with the key suppliers of raw
materials, such as paper mills and film and plate manufacturers. The Company
believes that its most reasonably likely, worst-case Y2K scenario may involve
non-compliant third parties, including suppliers of energy. The Company is
assessing the degree of exposure and risk of non-compliance by such third
parties, which could include possible consequences such as temporary plant
disruptions and delays in the receipt of key materials, the receipt of orders,
the delivery of finished products and the preparation of invoices. The Company
will be developing contingency plans specific to these risks during 1999 as it
works with its key suppliers, customers and other parties. The Year 2000 Task
Force will be continually monitoring the Y2K risks and related contingency
plans throughout 1999.
The Company estimates the cost of achieving Y2K compliance to be approximately
$2 million of which approximately half will be capital expenditures, primarily
for new IT systems. Costs incurred in the first quarter of fiscal 1999 directly
related to Y2K remediation were approximately $0.2 million bringing total costs
to date to approximately $1.0 million, of which approximately $0.6 million was
expensed. The remainder of the Y2K costs are expected to be incurred during
fiscal 1999. The Y2K costs are expected to be funded through operating cash
flows and available credit facilities. The Company does not separately track
all of the internal costs incurred for the Y2K project, partcularly the
related payroll costs of its information technology group.
FORWARD-LOOKING INFORMATION:
Statements that describe future expectations, plans or strategies are considered
forward looking. Such statements are subject to certain risks and uncertainties
which 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, changes in raw material
costs and availability, seasonal changes in customer orders, pricing actions by
competitors, consolidation among customers, success in the integration of
acquired businesses, Year 2000 issues, and general changes in economic
conditions. 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.
Page 10 of 12
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COURIER CORPORATION
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 26, 1998.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT
----------- ----------------------
<S> <C>
27 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K
None.
Page 11 of 12
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
COURIER CORPORATION
-------------------
(REGISTRANT)
FEBRUARY 8, 1999 By: S/JAMES F. CONWAY III
- --------------------------------- -----------------------------
Date James F. Conway III
Chairman, President and
Chief Executive Officer
FEBRUARY 8, 1999 By: S/ROBERT P. STORY, JR.
- --------------------------------- -----------------------------
Date Robert P. Story, Jr.
Senior Vice President and
Chief Financial Officer
FEBRUARY 8, 1999 By: S/PETER M. FOLGER
- --------------------------------- -----------------------------
Date Peter M. Folger
Vice President and
Chief Accounting Officer
Page 12 of 12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-25-1999
<PERIOD-START> SEP-27-1998
<PERIOD-END> DEC-26-1998
<CASH> 194
<SECURITIES> 0
<RECEIVABLES> 30,211<F1>
<ALLOWANCES> 1,116
<INVENTORY> 11,850
<CURRENT-ASSETS> 44,556
<PP&E> 102,607
<DEPRECIATION> 71,060
<TOTAL-ASSETS> 88,210
<CURRENT-LIABILITIES> 25,394
<BONDS> 0
0
0
<COMMON> 3,750
<OTHER-SE> 47,278<F2>
<TOTAL-LIABILITY-AND-EQUITY> 88,210
<SALES> 39,301
<TOTAL-REVENUES> 39,301
<CGS> 29,963
<TOTAL-COSTS> 29,963
<OTHER-EXPENSES> 6,965
<LOSS-PROVISION> 38
<INTEREST-EXPENSE> 135
<INCOME-PRETAX> 2,200
<INCOME-TAX> 780
<INCOME-CONTINUING> 1,420
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,420
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.43
<FN>
<F1>ACCOUNTS RECEIVABLE ARE NET OF ALLOWANCES
<F2>OTHER SE INCLUDES TREASURY STOCK
</FN>
</TABLE>
