Courier 10-K 2005
Documents found in this filing:
WASHINGTON, D.C. 20549
For the transition period from to
Commission file number 0-7597
A Massachusetts corporation
I.R.S. Employer Identification No. 04-2502514
Telephone No. 978-251-6000
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 par value
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 ý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yesý Noo
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso Noý
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of the registrants most recently completed second fiscal quarter.
Common Stock, $1 par value - $295,148,021
Indicate the number of shares outstanding of each of the registrants classes of common stock as of November 21, 2005.
Common Stock, $1 par value - 12,314,764
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrants proxy statement for the annual meeting of stockholders scheduled to be held on Jan. 18, 2006 (Part III).
Item 1. Business.
Courier Corporation and its subsidiaries (Courier or the Company) are among Americas leading book manufacturers and specialty publishers. Courier Corporation, founded in 1824, was incorporated under the laws of Massachusetts on June 30, 1972. The Company has two business segments: book manufacturing and specialty book publishing. In fiscal 2003, Courier sold all of the assets of Courier Custom Publishing, Inc. which comprised all of the remaining activities of the customized education segment.
The book manufacturing segment focuses on streamlining and enhancing the process of bringing books from the point of creation to the point of use. Based on sales, Courier is the fifth largest book manufacturer in the United States and largest in the Northeast, offering services from prepress and production through storage and distribution. Couriers principal book manufacturing markets are religious, educational and specialty trade books with products including Bibles, educational texts and consumer books. Revenues from this segment accounted for approximately 85% of Couriers consolidated revenues in 2005.
The specialty publishing segment consists of Dover Publications, Inc. (Dover), acquired by Courier on September 22, 2000, as well as Research & Education Association, Inc. (REA), which was acquired on January 6, 2004. Dover publishes over 9,000 titles in more than 30 specialty categories ranging from literature and poetry classics to paper dolls, and from music scores to clip art. REA publishes test preparation and study-guide books and software for high school, college and graduate students and professionals. The combination of Dovers and REAs publishing, sales and distribution skills with Couriers book manufacturing, digital content conversion, and e-commerce skills are providing a powerful end-to-end publishing solution for Courier. Revenues in this segment were approximately 18% of consolidated sales in 2005.
Additional segment information, including the amounts of earnings before taxes and total assets, for each of the last three fiscal years, is contained in Note J in the Notes to Consolidated Financial Statements on pages F-18 to F-20 included in this Annual Report on Form 10-K.
On December 17, 2002, the Company sold the assets of its wholly owned subsidiary, Courier Custom Publishing, Inc. Courier Custom Publishing provided customized coursepacks and textbooks. The disposition was accounted for as a discontinued operation. Additional information is contained in Note I in the Notes to Consolidated Financial Statements on page F-17 included in this Annual Report on Form 10-K. In March 2001, Courier sold substantially all of the assets of The Home School and ceased operating this business. The Company had purchased the assets of The Home School Books & Supplies in September 1997.
BOOK MANUFACTURING SEGMENT
Couriers book manufacturing segment produces hard and softcover books, as well as related services involved in managing the process of creating and distributing these products for publishers, religious organizations and other information providers. Courier provides book manufacturing and related services from six facilities in Westford, Stoughton and North Chelmsford, Massachusetts; Philadelphia, Pennsylvania; North Bergen, New Jersey; and Kendallville, Indiana.
Early in fiscal 2006, the Company announced the acquisition of Moore-Langen Printing Company, Inc. (Moore Langen), an Indianapolis-based printer specializing in book covers and known for innovative production techniques. The acquisition, a $15 million cash transaction completed on October 17, 2005, will be accounted for as a purchase and, accordingly, Moore Langens financial results will be included in the consolidated financial statements from the date of acquisition.
Couriers book manufacturing operations consist of both electronic and conventional film processing, platemaking and printing and binding of soft and hard cover books. Each of Couriers six facilities have certain specialties adapted to the needs of the market niches Courier serves, such as short-run book manufacturing, printing on lightweight paper and four-color book manufacturing. These services are primarily sold to publishers of educational, religious and consumer books. During 2004, the Company expanded its four-color book manufacturing capabilities with the addition of a major new four-color press at its Kendallville, Indiana facility. A second identical press is scheduled for installation in the first quarter of fiscal 2006.
Couriers book manufacturing sales force of 18 people is responsible for all of the Companys sales to over 400 book-manufacturing customers. Couriers salespeople operate out of sales offices located in New York, New York; Chicago, Illinois; Philadelphia, Pennsylvania; Hayward, California; North Chelmsford, Massachusetts; and North Bergen and North Caldwell, New Jersey.
Sales to The Gideons International aggregated approximately 28% of consolidated sales in 2005, 27% in 2004, and 28% in 2003. Sales to Pearson plc aggregated approximately 19% of consolidated sales in 2005 and 17% in both 2004 and 2003. A significant reduction in order volumes or price levels from either of these customers would have a material adverse effect on the Company. No other customer accounted for more than 10% of consolidated sales. The Company distributes products around the world; export sales, as a percentage of consolidated sales, were approximately 21% in both 2005 and 2004, and 22% in 2003. Approximately 90% of the export sales were in the book manufacturing segment in each of these years.
All phases of Couriers business are highly competitive. The printing industry, exclusive of newspapers, includes approximately 44,000 establishments. While most of these establishments are relatively small, several of the Companys competitors are considerably larger or are affiliated with companies that are considerably larger and have greater financial resources than Courier. In recent years, consolidation of both customers and competitors within the Companys markets has increased pricing pressures. The major competitive factors in Couriers book manufacturing business in addition to price are product quality, speed of delivery, customer service, availability of appropriate printing capacity, related services and technology support.
SPECIALTY BOOK PUBLISHING SEGMENT
Dover, acquired by the Company in September 2000, is a publisher of books in over 30 specialty categories, including fine and commercial arts, childrens books, crafts, music scores, graphic design, mathematics, physics and other areas of science, puzzles, games, social science, stationery items, and classics of literature for both juvenile and adult markets, including the Dover Thrift Editions. In 2002, a new line of scholarly hardcover books valuable to scientists and mathematicians was launched under the name of Dover Phoenix Editions.
Dover sells its products through most American bookstore chains, independent booksellers, childrens stores, craft stores and gift shops, as well as a diverse range of distributors around the world. Dover has also sold its books directly to consumers for over 50 years through its specialty catalogs and, since 2001, over the Internet at www.doverpublications.com. Dover mails its proprietary catalogs to over 500,000 consumers. In 2002, Dover launched www.DoverDirect.com, which is a business-to-business site for its retailers and distributors.
REA, acquired by the Company in January 2004, publishes more than 800 test preparation and study-guide titles. Product lines include Problem Solvers®, Essentials®, Super Reviews® and Test Preparation books. REA sells its products around the world through major bookseller chains, college bookstores, and teachers supply stores, as well as directly to teachers and other consumers through catalogs and over the Internet at www.REA.com.
The U.S. publishing market is comprised of over 80,000 publishers. Many of these publishers are very small, but a few are much larger than Dover and REA or are part of organizations that are much larger. In addition, newer sources of competition have emerged with large retailers launching or expanding publishing operations and new web-based publishing businesses starting up, which compete in the specialty book publishing market, including publishing of electronic books. Dover distinguishes its products by offering an extremely wide variety of high quality books at modest prices. REA offers high editorial quality study guides and test preparation books and software products in almost every academic area including many specialized areas such as teacher certification, adult education, and professional licensing.
MATERIALS AND SUPPLIES
Courier purchases its principal raw materials, primarily paper, but also plate materials, ink, adhesives, cover stock, casebinding materials and cartons, from numerous suppliers, and is not dependent upon any one source for its requirements. Many of Couriers book manufacturing customers purchase their own paper and furnish it at no charge to Courier for book production. Dover and REA purchase a significant portion of their books from Couriers book manufacturing operations. Paper prices increased slightly in both 2005 and 2004 after a slight decrease in 2003.
The Companys operations are subject to federal, state and local environmental laws and regulations relating to, among other things: air emissions; waste generation, handling, management and disposal; wastewater treatment and discharge; and remediation of soil and groundwater contamination. The Company periodically makes capital expenditures so that its operations comply, in all material respects, with applicable environmental laws and regulations. No significant expenditures for this purpose are anticipated in 2006. The Company does not believe that its compliance with applicable environmental laws and regulations will have a material impact on the Companys earnings or competitive position.
The Company employed 1,479 persons at September 24, 2005 compared to 1,465 a year ago.
Couriers overall business is not significantly seasonal in nature, although demand is normally highest in the Companys fourth quarter. Educational publishers in the book manufacturing segment and Dovers business all contribute to this higher fourth quarter demand. There is no portion of Couriers business subject to cancellation of government contracts or renegotiation of profits.
Courier holds no material patents, licenses, franchises or concessions that are important to its operations, but does have trademarks, service marks, and Universal Resource Locators (URLs) on the World Wide Web in connection with each of its business segments. Substantially all of Dovers and REAs publications are protected by copyright, either in its own name, in the name of the author of the work, or in the name of a predecessor publisher from whom rights were acquired.
The Company makes available free of charge (as soon as reasonably practicable after they are filed or furnished to the SEC) copies of its Annual Report on Form 10-K, as well as all other reports required to be filed by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, via the Internet at www.courier.com or upon written request to Robert P. Story, Jr., Senior Vice President and Chief Financial Officer, Courier Corporation, 15 Wellman Avenue, North Chelmsford, MA 01863.
Item 2. Properties.
The following schedule lists the facilities owned or leased by Courier at September 24, 2005. Courier considers its plants and other facilities to be well maintained and suitable for the purposes intended.
(1) Also houses warehousing and end-user fulfillment operations supporting the book manufacturing segment.
(2) In May 2004, the Company completed the sale of approximately 200,000 square feet of unoccupied and underutilized portions of its multi-building manufacturing complex in Westford, MA for $1.7 million. The Company will continue its current levels of book manufacturing at the site. Additional information is contained in Note K on page F-20 of this Annual Report on Form 10-K.
The Companys products are manufactured on equipment that in most cases is owned by the Company, although it leases computers, image setters and other electronic prepress equipment which are subject to more rapid obsolescence. In addition, one printing press is leased whereby the lessor holds title and the Company has an option to purchase the equipment upon expiration of the lease in 2008 at a price of $161,658. Capital expenditures amounted to approximately $19.7 million in 2005, $13.4 million in 2004, and $10.9 million in 2003. Capital expenditures in 2005 included approximately $11 million for deposits on another four-color press and related equipment, installed in December 2005 at the Kendallville, Indiana facility. Capital expenditures also included investments of approximately $3.5 million in the specialty publishing segment for an integrated software solution, as well as a program to relocate and improve warehousing operations. Fiscal 2006 capital expenditures are expected to increase to approximately $30 million, including payments on another four-color press, which will further expand the Companys capacity to produce four-color textbooks. This latest press is expected to be installed in early fiscal 2007 and is identical to the presses installed in April 2004 and December 2005. The fiscal 2006 capital projections also include bindery and warehouse expansion to support the additional four-color press capacity. Courier considers its equipment to be in good operating condition and adequate for its present needs.
ENCUMBRANCES AND RENTAL OBLIGATIONS
For a description of encumbrances on certain properties and equipment, see Note D of Notes to Consolidated Financial Statements on page F-11 of this Annual Report on Form 10-K. Information concerning leased properties and equipment is disclosed in Note E of Notes to Consolidated Financial Statements, which appears on page F-12 of this Annual Report on Form 10-K.
Item 3. Legal Proceedings.
In the ordinary course of business, the Company is subject to various legal proceedings and claims. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the quarter ended September 24, 2005.
Item 5. Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
The information required by this Item is contained in the section captioned Selected Quarterly Financial Data (Unaudited) which appears on page F-22 of this Annual Report on Form 10-K.
Item 6. Selected Financial Data.
The information required by this Item is contained in the section captioned Five-Year Financial Summary appearing on page F-21 of this Annual Report on Form 10-K.
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The information required by this Item is contained in the section captioned Managements Discussion and Analysis on pages F-23 through F-30 of this Annual Report on Form 10-K.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold any derivative financial instruments, derivative commodity instruments or other financial instruments except as noted in Notes A and M of Notes to Consolidated Financial Statements, which appear on pages F-7 through F-9 and F-20 of this Annual Report on Form 10-K. The Company engages neither in speculative nor derivative trading activities. The Company is exposed to market risk for changes in interest rates on invested funds as well as borrowed funds. The Companys revolving bank credit facility bears interest at a floating rate. There were no borrowings under this facility at any time during 2005.
Item 8. Financial Statements and Supplementary Data.
The information required by this Item is contained on pages F-1 through F-20 of this Annual Report on Form 10-K.
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
Item 9A. Controls and Procedures
The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to the Companys management in a timely fashion. An evaluation of the effectiveness of the design and operation of the Companys disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended (the Exchange Act)) (Disclosure Controls) was performed as of the end of the period covered by this report. This evaluation was performed under the supervision and with the participation of the Companys
management, including the Companys Chief Executive Officer and Chief Financial Officer. Based upon that evaluation, the Companys Chief Executive Officer and Chief Financial Officer concluded that these Disclosure Controls are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded , processed, summarized and reported within the time periods specified by the SECs rules and forms. The Company continually reviews its disclosure controls and procedures, and its internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that its systems evolve with its business. In designing and evaluating the disclosure controls and procedures, the Companys management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.
There were no changes in the Companys internal control over financial reporting during the fourth quarter of fiscal year 2005 that have materially affected, or that are reasonably likely to materially affect, the Companys internal control over financial reporting.
Management of the Company is responsible for the preparation, integrity and objectivity of the Companys consolidated financial statements and other financial information contained in its Annual Report to Stockholders. Those consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States. In preparing those consolidated financial statements, the Companys management was required to make certain estimates and judgments, which are based upon currently available information and managements view of current conditions and circumstances.
The Audit Committee of the Board of Directors, which consists solely of independent directors, oversees the Companys process of reporting financial information and the audit of its consolidated financial statements. The Audit Committee stays informed of the financial condition of the Company and regularly reviews managements financial policies and procedures, the independence of the independent auditors, the Companys internal control and the objectivity of its financial reporting. The independent registered public accounting firm has free access to the Audit Committee and to meet with the Audit Committee periodically, both with and without management present.
The Company has retained Deloitte & Touche LLP, an independent registered public accounting firm, to audit its consolidated financial statements found in this Annual Report on Form 10-K for the year ended September 24, 2005. The Company has made available to Deloitte & Touche LLP all of its financial records and related data in connection with their audit of the consolidated financial statements.
The Company has filed with the Securities and Exchange Commission the required certifications related to its consolidated financial statements as of and for the year ended September 24, 2005. These certifications are attached as exhibits to this Annual Report on Form 10-K for the year ended September 24, 2005.
Management has responsibility for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Management has assessed the effectiveness of the Companys internal control over financial reporting as of September 24, 2005. In making its assessment, the Companys management has utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control-Integrated Framework. Management concluded that based on its assessment, the Companys internal control over financial reporting was effective as of September 24, 2005. Managements assessment of the effectiveness of the Companys internal control over financial reporting as of September 24, 2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report dated November 30, 2005, which appears below in this Annual Report on Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of
Directors and Stockholders of Courier Corporation
We have audited managements assessment, included in the accompanying Managements Report on Internal Control Over Financial Reporting, that Courier Corporation and subsidiaries (the Company) maintained effective internal control over financial reporting as of September 24, 2005, based on criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Companys management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on managements assessment and an opinion on the effectiveness of the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating managements assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinions.
A companys internal control over financial reporting is a process designed by, or under the supervision of, the companys principal executive and principal financial officers, or persons performing similar functions, and effected by the companys board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, managements assessment that the Company maintained effective internal control over financial reporting as of September 24, 2005, is fairly stated, in all material respects, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 24, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended September 24, 2005 of the Company and our report dated November 30, 2005 expressed an unqualified opinion on those financial statements.
Item 9B. Other Information
The following table sets forth information concerning the granting on September 22, 2005 of restricted stock awards and stock options under the Courier Corporation 1993 Stock Incentive Plan to each of the Executive Officers.
Item 10. Directors and Executive Officers of the Registrant.
Couriers executive officers, together with their ages and all positions and offices with the Company presently held by each person named, are as follows:
The terms of office of all of the above executive officers continue until the first meeting of the Board of Directors following the next annual meeting of stockholders and the election or appointment and qualification of their successors, unless any officer sooner dies, resigns, is removed or becomes disqualified.
Mr. Conway III was elected Chairman of the Board in September 1994 after serving as acting Chairman since December 1992. He has been Chief Executive Officer since December 1992 and President since July 1988.
Mr. Nichols became an executive officer of Courier in June 1989. He was elected a Director of the Company in March 1995 and became Senior Vice President of the Company in November 1996. He became Chairman of National Publishing Company in December 1999. He had previously been President of National Publishing Company since 1976.
Mr. Story became Senior Vice President and Chief Financial Officer in April 1989. He joined Courier in November 1986 as Vice President and Treasurer. He was elected a Director of the Company in February 1995.
Mr. Folger has been Controller since 1982 and became Vice President in November 1992.
Mr. Tobin became Vice President of Courier Corporation and Executive Vice President of Courier Companies in October 2000, and Executive Vice President of National Publishing Company in March 2002. He joined Courier Companies as National Sales Manager in 1994 and became Vice
President of Sales and Marketing in 1997.
Mr. Zimmerman became Vice President, Publishing and an executive officer of Courier Corporation in October 2004. He joined Courier in December 1994 as General Manager of its former Copyright Management Services operation and became Vice President of e-Commerce for Courier in September 2000.
The Company has adopted a code of ethics entitled Courier Corporation Business Conduct Guidelines, which is applicable to all of the Companys directors, officers, and employees. These Business Conduct Guidelines are available on the Companys Internet website, located at www.courier.com.
All other information called for by Item 10 is contained in the definitive Proxy Statement, under the captions Item 1: Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance, to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006. Such information is incorporated herein by reference.
Item 11. Executive Compensation.
Information called for by Item 11 is contained in the definitive Proxy Statement, under the caption Executive Compensation, to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006. Such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Information called for by Item 12 is contained in the definitive Proxy Statement, under the captions Security Ownership of Certain Beneficial Owners and Management and Executive Compensation, to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006. Such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions.
Information called for by Item 13 is contained in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006. Such information is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information called for by Item 14 is contained in the definitive Proxy Statement, under the caption Item 2: Ratification and Approval of Selection of Independent Auditors, to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006. Such information is incorporated herein by reference.
Item 15. Exhibits and Financial Statement Schedules.
* Exhibit is furnished herewith.
+ Designates a Company compensation plan or arrangement.
Pursuant to the requirements of Section 13 or 15(d) 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, on November 30, 2005.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated, on November 30, 2005.
To the Board of Directors and Stockholders of Courier Corporation
North Chelmsford, Massachusetts
We have audited the accompanying consolidated balance sheets of Courier Corporation and subsidiaries (the Company) as of September 24, 2005 and September 25, 2004, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended September 24, 2005. Our audits also included the financial statement schedule in Item 15(a)2. These financial statements and financial statement schedule are the responsibility of the Companys management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Courier Corporation and subsidiaries as of September 24, 2005 and September 25, 2004, and the results of their operations and their cash flows for each of the three years in the period ended September 24, 2005, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of the Companys internal control over financial reporting as of September 24, 2005, based on the criteria established in Internal ControlIntegrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated November 30, 2005 expressed an unqualified opinion on managements assessment of the effectiveness of the Companys internal control over financial reporting and an unqualified opinion on the effectiveness of the Companys internal control over financial reporting.
DELOITTE & TOUCHE LLP
November 30, 2005
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
The accompanying notes are an integral part of the consolidated financial statements.
A. Summary of Significant Accounting Policies
Business: Courier Corporation and its subsidiaries (Courier or the Company) print, publish and sell books. Courier has two business segments: book manufacturing and specialty book publishing. On January 6, 2004, Courier purchased substantially all of the assets of Research & Education Association, Inc. (REA) which is included in the specialty publishing segment (see Note H). On December 17, 2002, the Company sold the assets of Courier Custom Publishing, Inc., which comprised all of the activities of the customized education segment (see Note I).
Principles of Consolidation and Presentation: The consolidated financial statements, prepared on a fiscal year basis, include the accounts of Courier Corporation and its subsidiaries after elimination of all significant intercompany transactions. Such financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (generally accepted accounting principles), which require the use of certain estimates and assumptions.
Financial Instruments: Financial instruments consist primarily of cash, accounts receivable, accounts payable and debt obligations. The Company classifies as cash and cash equivalents amounts on deposit in banks and cash invested temporarily in various instruments with maturities of three months or less at time of purchase. At September 24, 2005 and September 25, 2004, the fair market value of the Companys financial instruments approximated their carrying values.
Interest income from these instruments was $666,000 in 2005, $230,000 in 2004, and $200,000 in 2003 and is included in the caption Interest (income) expense, net in the accompanying Consolidated Statements of Income.
Property, Plant and Equipment: Property, plant and equipment are recorded at cost, including interest on funds borrowed to finance the acquisition or construction of major capital additions. Interest capitalized in 2004 was $74,000. No interest was capitalized in 2005 and 2003. The Company provides for depreciation of property, plant and equipment on a straight-line basis over periods ranging from 10 to 40 years on buildings and improvements and from 3 to 11 years on equipment and furnishings.
Leasehold improvements are amortized on a straight-line basis over the shorter of their useful life or the term of the lease. Expenditures for maintenance and repairs are charged against income as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized. When assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.
Goodwill: The Company evaluates possible impairment annually or whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. Goodwill has been allocated $9.2 million and $24.0 million, net of accumulated amortization of $2.1 million and $0.9 million, to the book manufacturing and specialty publishing segments, respectively. There has been no change in the carrying amount of goodwill during the year or in the allocation of goodwill by reportable segment.
Long-Lived Assets: Management periodically reviews long-lived assets for impairment and does not believe that there is any material impairment of any asset of the Company as measured in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.
Prepublication Costs: Prepublication costs, associated with the specialty publishing segment, are amortized to cost of sales using the straight-line method over estimated useful lives of three years for REA and four years for Dover Publications.
Income Taxes: Deferred income tax liabilities and assets are determined based upon the differences between the financial statement and tax bases of assets and liabilities, and are measured by applying enacted tax rates and laws for the taxable years in which these differences are expected to reverse.
Revenue Recognition: Revenue is recognized upon shipment of goods to customers or upon the transfer of ownership for those customers for whom the Company provides manufacturing and distribution services. Revenue for distribution services is recognized as services are provided. Shipping and handling fees billed to customers are classified as revenue.
Use of Estimates: The process of preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period. Actual results may differ from these estimates.
Net Income per Share: Basic net income per share is based on the weighted average number of common shares outstanding each period. Diluted net income per share also includes potentially dilutive items such as stock options (see Note L).
Treasury Stock: Pursuant to a 2004 change in state law, the Companys treasury stock was reclassified to the status of authorized but unissued shares. The Company had historically used treasury stock for stock options exercised and stock grants.
Stock Splits: On May 27, 2005 and December 5, 2003, the Company distributed three-for-two stock splits, effected in the form of 50% stock dividends. Previously authorized but unissued shares were used to effect these dividends. Weighted average shares outstanding and per share amounts presented in the accompanying financial statements for periods prior to the stock splits have been restated to give effect to these stock splits.
Stock-Based Compensation: Pursuant to SFAS No. 123, Accounting for Stock-Based Compensation, as amended by SFAS No. 148, the Company applies the recognition and measurement principles of APB Opinion No. 25, Accounting for Stock Issued to Employees and related interpretations. Accordingly, because the number of shares is fixed and the exercise price of the stock options granted equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized. Had compensation cost for stock options and for grants under the Employee Stock Purchase Plan been determined under the fair value provisions of
SFAS No. 123, the Companys net income would have been as follows:
For purposes of pro forma disclosures, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model (see Note F).
New Accounting Pronouncements: In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123R, Share-Based Payment (SFAS 123R). Under this new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and to recognize the expense over the service period. SFAS 123R allows for several alternative transition methods. On April 14, 2005, the Securities and Exchange Commission announced the adoption of a rule that defers the required effective date of SFAS 123R for registrants to the beginning of the first fiscal year beginning after June 15, 2005. Accordingly the Company will implement this new standard in the first quarter of its fiscal year 2006 and will restate all prior periods on a retrospective basis. The Company believes that the pro forma disclosures in this Note A under Stock-Based Compensation appropriately reflect the anticipated impact this standard would have had on reported net income if adopted in the periods presented and will provide the basis for the retrospective restatement of such periods.
In November 2004, the FASB issued SFAS No. 151, Inventory Costs (SFAS 151), an amendment of ARB No. 43, Chapter 4. SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material. SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not believe the adoption of SFAS 151 will have a material effect on its consolidated financial position, results of operations or cash flows.
Inventories are valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method for approximately 41% and 37% of the Companys inventories at September 24, 2005 and September 25, 2004, respectively. Other inventories, primarily in the specialty publishing segment, are determined on a first-in, first-out (FIFO) basis. Inventories consisted of the following at September 24, 2005 and September 25, 2004:
On a FIFO basis, reported year-end inventories would have been higher by $5.4 million in fiscal 2005 and $5.5 million in fiscal 2004.
C. Income Taxes
The provision for income taxes from continuing operations differs from that computed using the statutory federal income tax rates for the following reasons:
The provision for income taxes from continuing operations consisted of the following:
The following is a summary of the significant components of the Companys deferred tax assets and liabilities as of September 24, 2005 and September 25, 2004:
Non-current deferred tax assets have been netted against non-current deferred tax liabilities for balance sheet classification purposes.
D. Long-Term Debt
At September 24, 2005 and September 25, 2004, long-term debt consisted of an obligation under an industrial development bond arrangement totaling $510,000 and $593,000, respectively, including current maturities of $85,000 and $83,000, respectively. This industrial bond arrangement bears interest at a 3% rate. Scheduled aggregate principal payments of this obligation are $85,000 in 2006, $88,000 in 2007, $91,000 in 2008, $93,000 in 2009, $96,000 in 2010, and $57,000 thereafter. The industrial bond arrangement provides for a lien on the assets acquired with the proceeds.
The Company has a $45 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%. During 2005, the Company extended the maturity date of this facility to March 2008 and amended certain provisions, including reducing the amount of the facility from $60 million to $45 million to reduce the cost of the commitment fee. The revolving credit facility is available to the Company for both its long-term and short-term financing needs.
The revolving credit facility contains restrictive covenants including provisions relating to the maintenance of working capital, the level of capital expenditures, the incurring of additional indebtedness and a quarterly test of EBITDA to debt service. It also provides for a commitment fee not to exceed 3/8% per annum on the unused portion. These fees are included in the caption Interest (income) expense, net in the accompanying Consolidated Statements of Income.
E. Commitments and Contingencies
The Company is committed under various operating leases to make annual rental payments for certain buildings and equipment. Amounts charged to operations under such leases approximated $3,363,000 in 2005, $3,902,000 in 2004 and $4,103,000 in 2003. As of September 24, 2005, minimum annual rental commitments under the Companys long-term operating leases are approximately $2,836,000 in 2006, $2,536,000 in 2007, $1,875,000 in 2008, $1,145,000 in 2009, $1,146,000 in 2010, and $1,998,000 in the aggregate thereafter. The Company leases one of its facilities from a corporation owned in part by an executive of one of the Companys subsidiaries. The lease agreement requires annual payments of approximately $276,000 through July 2007. At September 24, 2005 and September 25, 2004, the Company had letters of credit outstanding of $1,318,000 and $1,250,000, respectively.
In the ordinary course of business, the Company is subject to various legal proceedings and claims. The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its consolidated financial statements.
F. Stock Arrangements
Stock Incentive Plans: The Companys stock incentive plans provide for the granting of stock options and stock grants up to a total of 2,064,375 shares. Under the plan provisions, both non-qualified and incentive stock options to purchase shares of the Companys common stock may be granted to key employees. The option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant. Additionally, during 2005 and 2004, 8,943 and 10,788 shares of restricted stock, respectively, with values of $319,000 and $293,000, respectively, were granted which vest in three years. No such shares were granted in 2003. Amortization expense relating to restricted stock grants was $214,000, $160,000 and $159,000 for 2005, 2004 and 2003, respectively.
Directors Option Plan: In January 2005, stockholders approved the Courier Corporation 2005 Stock Equity Plan for Non-Employee Directors (the 2005 Plan). Under the plan provisions, non-qualified stock options to purchase shares of the Companys common stock may be granted to non-employee directors up to a total of 225,000 shares. The option price per share is the fair market value of stock at the time the option is granted. The options are immediately exercisable and have a term of five years. During 2005, 36,000 options were granted under the 2005 Plan. The 2005 Plan replaced the previous non-employee directors plan which had been adopted in 1989 (the 1989 Plan). In the first quarter of fiscal 2005, 9,000 options were granted under the 1989 Plan. No further options will be granted under the 1989 Plan.
The following is a summary of all option activity for these plans: