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Courier Corp. (CRRC)
F3Q08 (Qtr End 06/28/08) Earnings Call
July 17, 2008 9:00 am ET
James Conway - Chairman, President and CEO
Bob Story - EVP and COO
Peter Folger - SVP and CFO
Jamie Clement - Sidoti
Paul Hogan - Fenimore Asset Management
John Rogers - Janney Montgomery Scott
Previous Statements by CRRC
» Courier Corporation F1Q09 (Quarter End 12/27/08) Earnings Call Transcript
» Courier Corp F4Q08 (Qtr End 09/27/08) Earnings Call Transcript
» Courier Corporation F2Q08 (Qtr End 3/31/08) Earnings Call Transcript
I would now like to turn the presentation over to your host for today's call, Mr. James Conway, Chairman, President and CEO. You may proceed, sir.
Thank you very much, Erica. Good morning, and welcome to Courier Corporation's third quarter earnings conference call. I am Jim Conway, Chairman and Chief Executive Officer. Thank you for joining us.
We released earnings at about 7:30 this morning. I hope you have all had a chance to see the results. Frankly, they weren't pretty. Sales were flat and profits took a dive from a combination of lower utilization on the manufacturing side and a serious drop in Creative Homeowner sales on the publishing side.
As a result of the loss of Creative Homeowner, we took an impairment charge in the value of that business, which gave us a large net loss for the quarter, but had no effect on our cash flow. We've taken strong measures to stabilize Creative Homeowner and will take more as needed.
At the same time, we had some positives in the quarter, and our financial condition remained strong, leaving us well positioned to face the challenges of the current economy. I have more to say about all this in a few minutes. But first, let's review the quarter.
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 third quarter and first nine months of fiscal year 2008. I'll then discuss the key issues driving our business. I'll also provide guidance on what to expect for the fourth quarter and full fiscal 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, among other things. Actual results may differ materially. Today's earnings release issued earlier this morning includes detailed commentary on the factors that could affect financial results. We encourage you to review those factors in conjunction with any forward-looking statements we make today. All forward-looking statements are being made under the provisions of the Private Securities Litigation Reform Act.
I'd like to start off this morning talking about Creative Homeowner. Creative publishes and distributes books on home design, decorating, landscaping and gardening. Their books are sold through many channels, but none as significant as the large home center chain. We have seen softening sales in this channel for six consecutive quarters now as a result of the downturn in the housing market.
Last quarter, we saw some signs that seemed to indicate that the rate of decline was slowing, as Spring approached, and as we were comparing against soft quarters a year ago. It turned out to be a short spurt. Sales continue to fall sharply this quarter. And on top of that, we were hit with very large returns from retailers in all our channels that were well above historical level. Much of this came late in the quarter.
Creative's third quarter gross sales were $5.9 million, down 24% from last year's third quarter. Returns were up approximately $1 million to $2.1 million, leaving net sales in the quarter at $3.7 million, down 45%. In the first nine months, Creative's net sales were $15.7 million, down 25% from last year.
During the quarter, Creative took steps to reduce costs, including the reduction in their payroll of approximately $1 million. They also narrowed the focus of their publishing program which we expect will reduce their spending by an additional $1 million. They incurred charges of approximately $1 million in the third quarter to increase inventory reserves and to write down the investment entitled that has not performed up to expectations in the light of recent sales experience.
As a result, Creative incurred a pre-tax loss of $3.6 million in the third quarter or $0.18 per diluted share, bringing their pre-tax loss for the first nine months to $5.2 million or $0.26 per diluted share.
With the sales and earnings that were well below our expectations, and no recovery in sight, it became apparent that we needed to test for a possible impairment in the value of Creative's intangible assets. Based on our assessments, we've recorded a pre-tax impairment charge of $24 million, which was $15.5 million or $1.25 per share after-tax.
We are in the process of finalizing the allocation of the valuation of each of Creative's assets in accordance with the requirements of FAS 142 which won't be completed until next quarter. When it is completed, an adjustment to the impairment charge may be required in the fourth quarter. More information on the impairment charge will be available in our Form-10Q which will be filed by August 7th.
Creative's operating performance and the impairment charge had a significant impact on Courier's third quarter results. Overall, sales were $73.4 million, even with last year's third quarter, with a net loss of $12.4 million or $1 per diluted share. Excluding the non-cash impairment charge, third quarter net income was $3.1 million or $0.25 per diluted share.