Courier Corp. (CRRC)
F4Q08 (Qtr End 09/27/08) Earnings Call
November 6, 2008 2:30 pm ET
James Conway - Chairman and CEO
Bob Story - COO
Jamie Clement - Sidoti
Paul Hogan - Fenimore Asset Management
Previous Statements by CRRC
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Thank you, Michelle. Good afternoon and welcome to Courier Corporation's fourth quarter and fiscal year 2008 earnings conference call. I am Jim Conway, Chairman and Chief Executive Officer. Thank you for joining us.
We released earnings at about 8:30 this morning. I hope you've all had a chance to see the results. It was by and large the quarter we anticipated, though it certainly was not the year we had anticipated. A year ago, we were in record territory with clouds on the horizon due to the weak housing market, but expectations of continued overall growth.
Today, we are in a changed economy and [with the scars] to prove it, but we had a profitable quarter and we have great strength as we face the uncertainties to come and I will share these with you in a few minutes.
Courier’s Chief Operating Officer, Bob Story, is here with me today. Peter Folger, Courier’s Chief Financial Officer is also here with us. Bob will begin with an overview of financial results for the fourth quarter and the fiscal year. I will then discuss the key issues driving our business. I’ll also provide guidance and what to expect for the year. Bob, please go ahead.
Thank you, Jim. Before I begin, I'll remind you that during this call, we may make forward-looking statements relating to the company's financial goals and business environment. Actual results may differ materially. Information about factors that could potentially impact our financial results is included in today's press release and in our filings with the SEC, including our 2007 annual report on Form 10-K. We encourage you to review those factors in conjunction with any forward-looking statements we make today.
During this call, we will discuss certain non-GAAP financial measures including EBITDA and free cash flow. You will find additional disclosures regarding these non-GAAP measures in our press release, including reconciliations of these measures with comparable GAAP measures. These non-GAAP measures should be considered in addition to not as a substitute for or superior to GAAP financial measures.
Also, during this call, whenever we refer to earnings per share, it will be on a diluted basis.
Okay. I'd like to start off today talking about our biggest business challenge in 2008, Creative Homeowner.
Creative publishes and distributes books on home design, decorating and gardening through a variety of channels, the largest being the home center chains. Creative sales have been under severe pressure since the housing market began its downturn almost two years go. As the housing market worsened this year, so did Creative's results.
Their sales in the fourth quarter were down 33% from last year, and down 27% for the entire 2008 fiscal year. Given this difficult environment, Creative took steps earlier this year to reduce costs, including a reduction in payroll of approximately $1 million. They also narrowed their focus of their publishing program, reducing spending on new titles by an additional $1 million.
And they incurred charges of approximately $1.4 million in the second and third quarters, they increased inventory reserves and write-down the investment in titles that were not performing up to expectations in light of the difficult market conditions. As a result of the falling sales and these other charges, Creative incurred a pre-tax loss of $1.3 million in the fourth quarter and $6.5 million for the fiscal year.
On top of this in the third quarter, we incurred a pre-tax impairment charge of $23.8 million because of Creative’s deteriorating performance and outlook. We completed the impairment assessment in the fourth quarter reducing the charge by approximately $200,000 to $23.6 million.
In light of the continuing weakness in the economy, we determined that further steps were needed to [write] the ship at Creative. Today we have announced that Creative will be exiting the distribution business in December. Their distribution business serves one customer, a nationwide retailer. Creative manages the warehousing, distribution and placement of its books, as well as the books from other publishers across a portion of this customer's store network.
As part of this service, Creative performs weekly in-store functions including restocking and display management. We believe that exiting the distribution business will serve our interests without compromising those of our customer.
Together with the other steps we have already taken, we believe that these actions will reduce pre-tax losses at Creative by more than $3 million in 2009, including the initial expenditure of approximately $300,000 for severance and other related costs.
Creative's operating results and the impairment charge have significantly impacted Courier's results this year. Overall, Courier sales in the fourth quarter were $76 million, down 5% compared to the same period last year with net income of $7.2 million or $0.60 per diluted share, down from $90.4 million or $0.74 per share last year.