**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

 

**x****      QUARTERLY REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For thequarterly period ended December 26, 2009**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934**

 

**For thetransition period from                      to               **

 

**Commissionfile number 0-7597**

 

**COURIERCORPORATION**

(Exact name ofregistrant 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’stelephone number, including area code)

 

**NO CHANGE**

(Former name,former address and former fiscal year, if changed since last report)

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 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 suchreports), and (2) has been subject to such filing requirements for thepast 90 days. Yes  x  No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted 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 registrantwas required to submit and post such files). Yes  o  Noo

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of 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 markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes  o  No x

 

Indicate the number ofshares outstanding of each of the registrant’s classes of common stock, as ofthe latest practicable date.

 

| **Class**                   | ** ** | **Outstanding  at February 1, 2010** |
|-----------------------------|------------|-------------------------------------------|
| Common Stock, $1  par value |       | 11,983,040  shares                        |

 

 

 

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COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS(UNAUDITED)

(Dollars in thousands except per share amounts)

 
| ** **                           | ** ** | **THREE MONTHS ENDED** | ** ** |
|--------------------------------------|------------|------------------------|------------|
| ** **                           | ** ** | **December 26,**  | ** ** | **December 27,** | ** ** |
| ** **                           | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                 |       |                   |       |   |   |
| Net  sales                           |       | $                      | 63,104     |   | $ | 59,647 |   |
| Cost  of sales                       |       | 45,808                 |       | 45,219 |   |
|                                 |       |                   |       |   |   |
| Gross  profit                        |       | 17,296                 |       | 14,428 |   |
|                                 |       |                   |       |   |   |
| Selling  and administrative expenses |       | 12,651                 |       | 13,076 |   |
|                                 |       |                   |       |   |   |
| Operating  income                    |       | 4,645                  |       | 1,352 |   |
|                                 |       |                   |       |   |   |
| Interest  expense, net               |       | 118                    |       | 227 |   |
|                                 |       |                   |       |   |   |
| Pretax  income                       |       | 4,527                  |       | 1,125 |   |
|                                 |       |                   |       |   |   |
| Income  tax provision (Note C)       |       | 1,743                  |       | 422 |   |
|                                 |       |                   |       |   |   |
| Net  income                          |       | $                      | 2,784      |   | $ | 703 |   |
|                                 |       |                   |       |   |   |
| Net  income per share (Note G):      |       |                   |       |   |   |
|                                 |       |                   |       |   |   |
| Basic                                |       | $                      | 0.23       |   | $ | 0.06 |   |
|                                 |       |                   |       |   |   |
| Diluted                              |       | $                      | 0.23       |   | $ | 0.06 |   |
|                                 |       |                   |       |   |   |
| Cash  dividends declared per share   |       | $                      | 0.21       |   | $ | 0.21 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

 

2

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                                 | ** ** | **December 26,** | ** ** | **September 26,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                 | ** ** | **2009**              | ** ** | **2009**               | ** ** |
| ASSETS                                                                                                                                     |       |                  |       |                   |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Current  assets:                                                                                                                           |       |                  |       |                   |       |
| Cash  and cash equivalents                                                                                                                 |       | $                     | 488        |                   | $          | 492 |   |
| Investments                                                                                                                                |       | 1,080                 |       | 1,017                  |       |
| Accounts  receivable, less allowance for uncollectible accounts of $1,691 at  December 26, 2009 and $1,600 at September 26, 2009 |       | 34,189                |       | 34,176                 |       |
| Inventories  (Note B)                                                                                                                      |       | 37,793                |       | 38,026                 |       |
| Deferred  income taxes                                                                                                                     |       | 4,461                 |       | 4,462                  |       |
| Other  current assets                                                                                                                      |       | 1,135                 |       | 1,404                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Total  current assets                                                                                                                      |       | 79,146                |       | 79,577                 |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Property,  plant and equipment, less accumulated depreciation: $159,948 at  December 26, 2009 and $160,783 at September 26, 2009 |       | 86,623                |       | 89,754                 |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Goodwill  (Note A)                                                                                                                         |       | 24,980                |       | 24,980                 |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Other  intangibles, net (Note A)                                                                                                           |       | 3,669                 |       | 3,720                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Prepublication  costs, net (Note A)                                                                                                        |       | 8,924                 |       | 9,194                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Other  assets                                                                                                                              |       | 1,284                 |       | 1,212                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Total  assets                                                                                                                              |       | $                     | 204,626    |                   | $          | 208,437 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

 

3

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                                         | ** ** | **December 26,** | ** ** | **September 26,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                         | ** ** | **2009**              | ** ** | **2009**               | ** ** |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                         |       |                  |       |                   |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Current  liabilities:                                                                                                                              |       |                  |       |                   |       |
| Current  maturities of long-term debt                                                                                                              |       | $                     | 96         |                   | $          | 96 |   |
| Accounts  payable                                                                                                                                  |       | 10,108                |       | 10,974                 |       |
| Accrued  payroll                                                                                                                                   |       | 6,353                 |       | 5,950                  |       |
| Accrued  taxes                                                                                                                                     |       | 2,342                 |       | 3,032                  |       |
| Other  current liabilities                                                                                                                         |       | 9,145                 |       | 7,098                  |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  current liabilities                                                                                                                         |       | 28,044                |       | 27,150                 |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Long-term  debt                                                                                                                                    |       | 8,432                 |       | 13,514                 |       |
| Deferred  income taxes                                                                                                                             |       | 300                   |       | 177                    |       |
| Other  liabilities                                                                                                                                 |       | 2,729                 |       | 3,006                  |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  liabilities                                                                                                                                 |       | 39,505                |       | 43,847                 |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Stockholders’  equity (Note F):                                                                                                               |       |                  |       |                   |       |
| Preferred  stock, $1 par value - authorized 1,000,000 shares; none issued                                                                          |       |                  |       |                   |       |
| Common  stock, $1 par value - authorized 18,000,000 shares; issued 11,956,000 at December 26,  2009 and 11,956,000 at September 26, 2009 |       | 11,956                |       | 11,956                 |       |
| Additional  paid-in capital                                                                                                                        |       | 16,737                |       | 16,479                 |       |
| Retained  earnings                                                                                                                                 |       | 137,055               |       | 136,782                |       |
| Accumulated  other comprehensive loss                                                                                                              |       | (627                  | )          | (627                   | )          |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  stockholders’ equity                                                                                                                   |       | 165,121               |       | 164,590                |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  liabilities and stockholders’ equity                                                                                                   |       | $                     | 204,626    |                   | $          | 208,437 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

 

4

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COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                       | ** ** | **THREE MONTHS ENDED** | ** ** |
|----------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                       | ** ** | **December 26,**  | ** ** | **December 27,** | ** ** |
| ** **                                                                       | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                                                             |       |                   |       |   |   |
| Operating  Activities:                                                           |       |                   |       |   |   |
| Net  income                                                                      |       | $                      | 2,784      |   | $ | 703 |   |
| Adjustments  to reconcile net income to cash provided from operating activities: |       |                   |       |   |   |
| Depreciation  and amortization                                                   |       | 5,130                  |       | 5,334 |   |
| Stock-based  compensation                                                        |       | 349                    |       | 383 |   |
| Deferred  income taxes                                                           |       | 124                    |       | 438 |   |
| Gain  on disposition of assets                                                   |       | (183                   | )          | — |   |
| Changes  in assets and liabilities:                                              |       |                   |       |   |   |
| Accounts  receivable                                                             |       | (13                    | )          | 10,219 |   |
| Inventory                                                                        |       | 233                    |       | (5,326 | ) |
| Accounts  payable                                                                |       | (866                   | )          | (3,612 | ) |
| Accrued  taxes                                                                   |       | (690                   | )          | (2,817 | ) |
| Other  elements of working capital                                               |       | 2,719                  |       | (1,349 | ) |
| Other  long-term, net                                                            |       | (469                   | )          | (94 | ) |
|                                                                             |       |                   |       |   |   |
| Cash  provided from operating activities                                         |       | 9,118                  |       | 3,879 |   |
|                                                                             |       |                   |       |   |   |
| Investment  Activities:                                                          |       |                   |       |   |   |
| Capital  expenditures                                                            |       | (1,020                 | )          | (2,479 | ) |
| Prepublication  costs                                                            |       | (1,036                 | )          | (1,200 | ) |
| Proceeds  on disposition of assets                                               |       | 590                    |       | — |   |
| Short-term  investments                                                          |       | (63                    | )          | 113 |   |
|                                                                             |       |                   |       |   |   |
| Cash  used for investment activities                                             |       | (1,529                 | )          | (3,566 | ) |
|                                                                             |       |                   |       |   |   |
| Financing  Activities:                                                           |       |                   |       |   |   |
| Long-term  debt (repayments) borrowings                                          |       | (5,082                 | )          | 2,169 |   |
| Cash  dividends                                                                  |       | (2,511                 | )          | (2,494 | ) |
|                                                                             |       |                   |       |   |   |
| Cash  used for financing activities                                              |       | (7,593                 | )          | (325 | ) |
|                                                                             |       |                   |       |   |   |
| Decrease  in cash and cash equivalents                                           |       | (4                     | )          | (12 | ) |
|                                                                             |       |                   |       |   |   |
| Cash  and cash equivalents at the beginning of the period                        |       | 492                    |       | 178 |   |
|                                                                             |       |                   |       |   |   |
| Cash  and cash equivalents at the end of the period                              |       | $                      | 488        |   | $ | 166 |   |

 

The accompanying notes are an integral part of theconsolidated financial statements.

 

5

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**COURIER CORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS (UNAUDITED)**

 

**A.            SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Unaudited Financial Statements**

The consolidated condensed balance sheet as of December26, 2009, and the consolidated condensed statements of operations andstatements of cash flows for the three-month periods ended December 26, 2009and December 27, 2008 are unaudited.  Inthe opinion of management, all adjustments, consisting of normal recurringitems, considered necessary for a fair presentation of such financialstatements have been recorded.  TheCompany considers events or transactions that occur after the balance sheetdate but before the financial statements are issued to provide additionalevidence relative to certain estimates or to identify matters that requireadditional disclosure. Such events were evaluated through February 3, 2010, theday before financial statement issuance (see Notes F and H).

 

Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States of America (“generallyaccepted accounting principles”) have been condensed or omitted.  The balance sheet data as of September 26,2009 was derived from audited year-end financial statements, but does notinclude disclosures required by generally accepted accounting principles.  It is suggested that these interim financialstatements be read in conjunction with the Company’s most recent Annual Reporton Form 10-K for the year ended September 26, 2009.

 

**Goodwilland Other Intangibles**

The Company evaluates possible impairment annually at the end of itsfiscal year or whenever events or changes in circumstances indicate that thecarrying value of the assets may not be recoverable. There were no such eventsor changes in circumstances in the period presented.  “Other intangibles” includes customer listsrelated to Federal Marketing Corporation, d/b/a Creative Homeowner (“CreativeHomeowner”) and Moore-Langen Printing Company, Inc. (“Moore Langen”), which arebeing amortized over 15-year and 10-year periods, respectively.  Amortization expense related to customerlists was approximately $50,000 in the first quarters of both fiscal 2010 and2009.

 

**Fair Value of Financial Instruments**

Financial instruments consist primarily of cash, investments in mutualfunds, accounts receivable, accounts payable and debt obligations.  At December 26, 2009 and September 26, 2009,the fair value of the Company’s financial instruments approximated theircarrying values.  The fair value of theCompany’s revolving credit facility approximates its carrying value due to thevariable interest rate and the Company’s current rate standing.

 

**PrepublicationCosts**

Prepublication costs, associated with creatingnew titles in the specialty publishing segment, are amortized to cost of salesusing the straight-line method over estimated useful lives of three to fiveyears.

 

**Recent Accounting Pronouncements****:**

At the beginningof fiscal 2010, the Company****adopted the provisions of the Financial Accounting Standards Board (“FASB”)authoritative literature on business combinations, which expands the definitionof a business combination and changes the manner in which the Company accountsfor business combinations. Significant changes include the capitalization ofIPR&D as an indefinite-lived asset, the recognition of certain acquiredcontingent assets and liabilities at fair value, the expensing ofacquisition-related restructuring actions and transaction costs, and therecognition of contingent purchase price consideration at fair value on theacquisition date. In addition, post-acquisition changes in deferred tax assetvaluation allowances and acquired income tax uncertainties will be recognized asincome tax expense or benefit. The accounting treatment for taxes will beapplicable to acquisitions that close both prior and subsequent to the adoptionof this guidance. The Company will apply this standard to the acquisitiondescribed in Note H. There was no material impact upon adoption of thisguidance; however, this guidance may materially affect the accounting forfuture business combinations.

 

6

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**COURIER CORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS (UNAUDITED)**

 

# **B.            INVENTORIES**

 

Inventories are valued at the lower of cost ormarket.  Cost is determined using thelast-in, first-out (LIFO) method for approximately 50% and 53% of the Company’sinventories at December 26, 2009 and September 26, 2009, respectively.  Other inventories, primarily in the specialtypublishing segment, are determined on a first-in, first-out (FIFO) basis.  Inventories consisted of the following:

 
| ** **      | ** ** | **(000’s Omitted)** | ** ** |
|-----------------|------------|--------------------------|------------|
| ** **      | ** ** | **December 26,****2009** | ** ** | **September 26,****2009** | ** ** |
| Raw materials   |       | $                        | 4,085      |   | $ | 4,384 |   |
| Work in process |       | 9,842                    |       | 8,286 |   |
| Finished goods  |       | 23,866                   |       | 25,356 |   |
| Total           |       | $                        | 37,793     |   | $ | 38,026 |   |

 

# **C.            INCOMETAXES**

 

The provision for income taxesdiffers from that computed using the statutory federal income tax rates for thefollowing reasons:

 
| ** **                               | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|
| ** **                               | ** ** | **Quarter Ended**        | ** ** |
| ** **                               | ** ** | **December 26,****2009** | ** ** | **December 27,****2008** | ** ** |
| Federal taxes at statutory  rates        |       | $                        | 1,584      |   | 35.0 | % | $ | 394 |   | 35.0 | % |
| State taxes, net of federal  tax benefit |       | 227                      |       | 5.0 |   | 45 |   | 4.0 |   |
| Federal manufacturer’s  deduction   |       | (79                      | )          | (1.7 | ) | (18 | ) | (1.6 | ) |
| Other                                    |       | 11                       |       | 0.2 |   | 1 |   | 0.1 |   |
| Total                                    |       | $                        | 1,743      |   | 38.5 | % | $ | 422 |   | 37.5 | % |

 

# **D.            BUSINESSSEGMENTS**

 

The Company has two business segments: book manufacturing andspecialty publishing. The book manufacturing segment offers a full range of servicesfrom production through storage and distribution for religious, educational andspecialty trade book publishers. The specialty publishing segment consists ofDover, Creative Homeowner and Research & Education Association, Inc. (“REA”).

 

# **Segment performanceis evaluated based on several factors, of which the primary financial measureis operating income.  Operating income isdefined as gross profit (sales less cost of sales) less selling andadministrative expenses, and includes severance and other restructuring costsbut excludes stock-based compensation. As such, segment performance is evaluated exclusive of interest, incometaxes, stock-based compensation, intersegment profit elimination, andimpairment charges.  The elimination ofintersegment sales and related profit represents sales from the bookmanufacturing segment to the specialty publishing segment.**

 

7

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# **COURIER CORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS (UNAUDITED)**

 

The following table provides segment information for thethree-month periods ended December 26, 2009 and December 27, 2008.

 
| ** **                           | ** ** | **(000’s Omitted)** | ** ** |
|--------------------------------------|------------|--------------------------|------------|
| ** **                           | ** ** | **Three Months Ended**   | ** ** |
| ** **                           | ** ** | **December 26,****2009** | ** ** | **December 27,****2008** | ** ** |
| Net sales:                           |       |                     |       |   |   |
| Book manufacturing                   |       | $                        | 54,841     |   | $ | 50,882 |   |
| Specialty publishing                 |       | 11,561                   |       | 11,503 |   |
| Elimination of intersegment  sales   |       | (3,298                   | )          | (2,738 | ) |
| Total                                |       | $                        | 63,104     |   | $ | 59,647 |   |
|                                 |       |                     |       |   |   |
| Pretax income:                       |       |                     |       |   |   |
| Book manufacturing operating  income |       | $                        | 5,701      |   | $ | 3,588 |   |
| Specialty publishing  operating loss |       | (514                     | )          | (1,927 | ) |
| Stock-based compensation             |       | (349                     | )          | (383 | ) |
| Elimination of intersegment  profit  |       | (193                     | )          | 74 |   |
| Interest expense, net                |       | (118                     | )          | (227 | ) |
| Total                                |       | $                        | 4,527      |   | $ | 1,125 |   |

 

**E.**          **RESTRUCTURING COSTS**

 

Duringfiscal year 2009, the Company recorded restructuring costs of $4.8 millionassociated with winding down Creative Homeowner’s distribution services andclosing and consolidating the Book-mart Press manufacturing facility during thesecond quarter of fiscal 2009, as well as employee severance expenses relatedto additional cost saving actions taken in both of the Company’s segments.Overall, total headcount was reduced by approximately 12% during fiscal 2009.

 

The following table depicts the remaining accrualbalances for these restructuring costs as of September 26, 2009 and December 26,2009, which relate to closing and consolidating the Book-mart Pressmanufacturing facility.

 
| ** **                                   | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|
| ** **                                   | ** ** | **Accrual at**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Accrual at** | ** ** |
| ** **                                   | ** ** | **September 26,**        | ** ** | **Additional** | ** ** | **Cash** | ** ** | **December 26,** | ** ** |
| ** **                                   | ** ** | **2009**                 | ** ** | **Charges** | ** ** | **Paid** | ** ** | **2009** | ** ** |
| Employee severance and benefit costs         |       | $                        | 495        |   | $ | — |   | $ | (21 | ) | $ | 474 |   |
| Lease termination and facility closure costs |       | 546                      |       | 140 |   | (125 | ) | 561 |   |
|                                         |       |                     |       |   |   |   |   |   |   |
| Total                                        |       | $                        | 1,041      |   | $ | 140 |   | $ | (146 | ) | $ | 1,035 |   |

 

In addition to the above, the Company recorded again on the disposition of Book-mart Press assets in the first quarter offiscal 2010 of $140,000.  Amounts accruedfor restructuring costs at December 26, 2009 and September 26, 2009 areincluded in “Other current liabilities” in the accompanying consolidatedbalance sheet.  The Company anticipates that payments associated with Book-mart Press,including rental payments related to the lease obligation and closing costsassociated with the termination of the lease, will be substantially completedby July 2010.

 

8

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**COURIERCORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS (UNAUDITED)**

 

**F.**          **STOCK-BASED COMPENSATION**

 

The Company records stock-based compensation expense for the cost ofstock options and stock grants as well as shares issued under the Company’s1999 Employee Stock Purchase Plan. The fair value of each option awarded iscalculated on the date of grant using the Black-Scholes option-pricing model.Stock-based compensation recognized in selling and administrative expenses inthe accompanying financial statements in the first quarters of fiscal 2010 and2009 was $349,000 and $383,000, respectively. The related tax benefit recognized in the first quarters of both fiscal2010 and 2009 was $125,000.  Unrecognizedstock-based compensation cost at December 26, 2009 was $1.6 million, to berecognized over a weighted-average period of 2.2 years.

 

**Stock Incentive Plan:** TheCompany’s Amended and Restated 1993 Stock Incentive Plan provides for thegranting of stock options and stock grants up to a total of 2,064,375shares.  Under the plan provisions, bothnon-qualified and incentive stock options to purchase shares of the Company’scommon stock may be granted to key employees. The option price per share may not be less than the fair market value ofstock at the time the option is granted and incentive stock options must expirenot later than ten years from the date of grant.  The Company annually issues a combination ofstock options and stock grants to its key employees. Stock options and stockgrants generally vest over 3 years.

 

There was no stock option activity under this plan inthe first quarter of fiscal 2010.  Therewere 463,886 option shares outstanding at December 26, 2009 with a weightedaverage exercise price of $24.74, a weighted average remaining term of 3.0years, and no aggregate intrinsic value. Of these option shares, 257,553 wereexercisable at December 26, 2009 with a weighted average exercise price of$28.87, a weighted average remaining term of 2.0 years, and no aggregateintrinsic value.  During the firstquarter of fiscal 2010, 4,100 stock grants vested with a weighted-average fairvalue of $38.32 per share. At December 26, 2009, there were 62,061 non-vestedstock grants outstanding with a weighted-average fair value of $22.88. Therewere 198,477 shares available for future grants under this plan at December 26,2009.

 

**Directors’ Option Plans:** In January2005, stockholders approved the Courier Corporation 2005 Stock Equity Plan forNon-Employee Directors (the “2005 Plan”). Under the 2005 Plan provisions,non-qualified stock options to purchase shares of the Company’s common stockmay be granted to non-employee directors up to a total of 225,000 shares.  The option price per share is the fair marketvalue of stock at the time the option is granted.  The options are immediately exercisable andhave a term of five years.  The 2005 Planreplaced the previous non-employee directors’ plan, which had been adopted in1989.  In the first quarter of fiscal2010, no options were issued or exercised under these plans and 6,000 optionswith an exercise price of $24.39 expired. At December 26, 2009, 180,687 option shares were outstanding andexercisable with a weighted average exercise price of $29.04, a weightedaverage remaining term of 2.4 years and no aggregate intrinsic value.  Directors may also elect to receive theirannual retainer and committee chair fees as shares of stock in lieu of cash; nosuch shares were issued in the first quarter of fiscal 2010.  At December 26, 2009, there were 4,501 sharesavailable for future grants under the 2005 Plan.

 

On January 20, 2010, stockholders approved the CourierCorporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”),replacing the 2005 Plan. The 2010 Plan makes 300,000 shares of common stockavailable for future grants under the plan.

 

**Employee Stock Purchase Plan:** The Company’s 1999 Employee Stock Purchase Plan (“ESPP”), as amended,covers an aggregate of 337,500 shares of Company common stock for issuanceunder the plan.  Eligible employees maypurchase shares of Company common stock at not less than 85% of fair marketvalue at the end of the grant period. During the first quarter of fiscal 2010, no shares were issued under theESPP.  At December 26, 2009, there were11,776 shares available for future issuances.

 

On January 20, 2010, stockholders approved anamendment to the ESPP increasing the shares authorized under the plan by300,000 to an aggregate of 637,500 shares of Company common stock available forissuance under the plan.

 

9

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**COURIERCORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSEDFINANCIAL STATEMENTS (UNAUDITED)**

 

**G.**         **NET INCOME PER SHARE**

 

The following is a reconciliation of theoutstanding shares used in the calculation of basic and diluted net income pershare.  Potentially dilutive shares,calculated using the treasury stock method, consist of shares issued under theCompany’s stock option plans.

 
| ** **                             | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | **Three Months Ended**   | ** ** |
| ** **                             | ** ** | **December 26,****2009** | ** ** | **December 27,****2008** | ** ** |
|                                   |       |                     |       |   |   |
| Weighted average shares for  basic     |       | 11,892                   |       | 11,827 |   |
| Effect of potentially  dilutive shares |       | 17                       |       | 4 |   |
| Weighted average shares for  diluted   |       | 11,909                   |       | 11,831 |   |

 

**H.**            **SUBSEQUENT EVENT**

 

OnJanuary 15, 2010, the Company announced theacquisition of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-based providerof software and solutions that streamline the production of customizedtextbooks for use in colleges, universities and businesses.  The $3 million cash acquisition, which has anadditional future “earn out” potential payment of up to $1.2 million, will be accounted for as a purchase, andaccordingly, Highcrest Media’s financial results will be included in theconsolidated financial statements from the date of acquisition.  Highcrest Media operations will be includedin the book manufacturing segment.  Dueto the timing of the acquisition, the initial accounting of the value of theacquired assets and liabilities is not complete.

 

10

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| **Item 2****.** | **MANAGEMENT’S  DISCUSSION AND ANALYSIS OF** |   |
|-----------------|---------------------------------------------------|--------|
|            | **FINANCIAL CONDITION AND RESULTS OF OPERATIONS** |   |

 

**Critical Accounting Policies andEstimates****:**

 

The Company’s consolidatedcondensed financial statements have been prepared in accordance with generallyaccepted accounting principles.  Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the amounts reported in these financial statementsand accompanying notes.  On an ongoingbasis, management evaluates its estimates and judgments, including thoserelated to collectibility of accounts receivable, recovery of inventories,impairment of goodwill and other intangibles, prepublication costs and incometaxes.  Management bases its estimatesand judgments on historical experience and various other factors believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying value of assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the periods presented.  Actualresults may differ from these estimates. The significant accounting policies which management believes are mostcritical to aid in fully understanding and evaluating the Company’s reportedfinancial results include the following:

 

# **AccountsReceivable.**   Management performs ongoing creditevaluations of the Company’s customers and adjusts credit limits based uponpayment history and the customer’s current creditworthiness.  Collections and payments from customers arecontinuously monitored.  A provision forestimated credit losses is determined based upon historical experience and anyspecific customer collection issues that have been identified.  If the financial condition of the Company’scustomers were to deteriorate, it may result in their inability to makepayments, and such events could possibly lead to their insolvency, andtherefore additional allowances may be required.

# ** **

Inventories.   Managementrecords reductions in the cost basis of inventory for excess and obsoleteinventory based primarily upon historical and forecasted product demand.  If actual market conditions are lessfavorable than those projected by management, additional inventory charges maybe required.

 

Goodwill and OtherIntangibles.  Otherintangibles include customer lists which are amortized on a straight-line basisover periods ranging from ten to fifteen years. The Company evaluates possibleimpairment of goodwill and other intangibles at the reporting unit level, whichis the operating segment or one level below the operating segment, on an annualbasis or whenever events or changes in circumstances indicate that the carryingvalue of the assets may not be recoverable. The Company completed its annual impairment test at September 26,2009 resulting in no change to the nature or carrying amounts of its intangibleassets.  An impairment charge had beenrecorded in the second quarter of fiscal 2009 in the specialty publishingsegment related to Dover Publications, Inc. The Company continues tomonitor the value of its intangible assets closely in each of itssegments.  Changes in market conditionsor poor operating results could result in a decline in the value of the Company’sgoodwill and other intangible assets thereby potentially requiring anadditional impairment charge in the future.

#####  

PrepublicationCosts.   The Company capitalizesprepublication costs, which include the costs of acquiring rights to publish awork and costs associated with bringing a manuscript to publication such asartwork and editorial efforts. Prepublication costs are amortized on astraight-line basis over periods ranging from three to five years.  Management regularly evaluates the sales andprofitability of the products based upon historical and forecasted demand.  If actual market conditions are lessfavorable than those projected by management, additional amortization expensemay be required.

 

IncomeTaxes.   The income tax provision andrelated accrued taxes are based on amounts reported on the Company’s taxreturns and changes in deferred taxes. Deferred income tax liabilities andassets are determined based upon the differences between the financialstatement and tax bases of assets and liabilities.  Changes in the recoverability of the Company’sdeferred tax assets or audits by tax authorities could result in future chargesor credits to income tax expense, and related accrued and deferred taxes.

 

11

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**Overview:**

Courier Corporation, founded in 1824, is one of America’sleading book manufacturers and specialty publishers.  The Company has two business segments: bookmanufacturing and specialty publishing. The book manufacturing segment streamlines the process of bringing booksfrom the point of creation to the point of use. Based on sales, Courier is the third largest book manufacturer in theUnited States, offering services from prepress and production, through storageand distribution.  The specialtypublishing segment consists of Dover Publications, Inc. (“Dover”),Research & Education Association, Inc. (“REA”), and FederalMarketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”).  Dover publishes over 9,000 titles in morethan 30 specialty categories ranging from literature to paper dolls, and frommusic scores to clip art.  REA publishestest preparation and study-guide books and software for high school, collegeand graduate students, as well as professionals.  Creative Homeowner publishes books on homedesign, decorating, landscaping, and gardening, and sells home plans.

 

**Results of Operations:**

** **

## FINANCIAL HIGHLIGHTS

## (dollars inthousands except per share amounts)

 
| ** **                           | ** ** | **Three Months Ended**        | ** ** |
|--------------------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | **December 26,****2009** | ** ** | **December 27,****2008** | ** ** | **%   Change** | ** ** |
|                                 |       |                          |       |   |   |   |   |
| Net sales                            |       | $                             | 63,104     |   | $ | 59,647 |   | 6 | % |
| Cost of sales                        |       | 45,808                        |       | 45,219 |   | 1 | % |
| Gross profit                         |       | 17,296                        |       | 14,428 |   | 20 | % |
| As a percentage of sales             |       | 27.4                          | %          | 24.2 | % |   |   |
| Selling and administrative  expenses |       | 12,651                        |       | 13,076 |   | -3 | % |
| Operating income                     |       | 4,645                         |       | 1,352 |   | 244 | % |
| Interest expense, net                |       | 118                           |       | 227 |   | -48 | % |
| Pretax income                        |       | 4,527                         |       | 1,125 |   | 302 | % |
| Provision for income taxes           |       | 1,743                         |       | 422 |   | 313 | % |
| Net income                           |       | $                             | 2,784      |   | $ | 703 |   | 296 | % |
|                                 |       |                          |       |   |   |   |   |
| Net income per diluted share         |       | $                             | 0.23       |   | $ | 0.06 |   | 283 | % |

 

# **Revenues in the firstquarter of fiscal 2010 increased 6% to $63.1 million compared to the sameperiod last year.  Book manufacturingsegment revenues grew by 8% to $54.8 million due to an increase in sales offour-color textbooks and religious scriptures. In the specialty publishing segment, revenues increased slightly fromthe first quarter of last year to $11.6 million with strong sales growth atboth Dover and REA largely offset by a decline in sales at Creative Homeowner.The winding down of Creative Homeowner’s book distribution services in thesecond quarter of fiscal 2009 also contributed to its sales decline compared tothe first quarter of last year.**

# ** **

Netincome for the quarter was $2.8 million, compared to $0.7 million in the firstquarter of fiscal 2009, primarily due to the improvement in sales as well asprior cost reductions.

 

*Restructuring Costs*

Duringfiscal year 2009, the Company recorded restructuring costs of $4.8 millionassociated with ceasing Creative Homeowner’s distribution services and closingand consolidating the Book-mart Press manufacturing facility during the secondquarter of fiscal 2009, as well as employee severance expenses related toadditional cost saving actions taken in both of the Company’s segments.  Overall, total headcount was reduced byapproximately 12% during fiscal 2009.

 

12

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The following table depicts the remaining accrualbalances for these restructuring costs as of September 26, 2009 and December 26,2009, which relate to closing and consolidating the Book-mart Pressmanufacturing facility.

 
| ** **                                   | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|
| ** **                                   | ** ** | **Accrual at**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Accrual at** | ** ** |
| ** **                                   | ** ** | **September 26,**   | ** ** | **Additional** | ** ** | **Cash** | ** ** | **December 26,** | ** ** |
| ** **                                   | ** ** | **2009**                 | ** ** | **Charges** | ** ** | **Paid** | ** ** | **2009** | ** ** |
| Employee severance and benefit costs         |       | $                        | 495        |   | $ | — |   | $ | (21 | ) | $ | 474 |   |
| Lease termination and facility closure costs |       | 546                      |       | 140 |   | (125 | ) | 561 |   |
|                                         |       |                     |       |   |   |   |   |   |   |
| Total                                        |       | $                        | 1,041      |   | $ | 140 |   | $ | (146 | ) | $ | 1,035 |   |

 

###### **In addition to the above, the Company recorded again on the disposition of Book-mart Press assets in the first quarter offiscal 2010 of $140,000.  Amounts accruedfor restructuring costs at December 26, 2009 and September 26, 2009are included in “Other current liabilities” in the accompanying consolidatedbalance sheet.  The Company anticipatesthat payments associated with Book-mart Press, including rental paymentsrelated to the lease obligation and closing costs associated with thetermination of the lease, will be substantially completed by July 2010.**

###### ** **

*Book Manufacturing Segment*

 

## SEGMENT HIGHLIGHTS

## (dollars inthousands)

 
| ** **                           | ** ** | **Three Months Ended**        | ** ** |
|--------------------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | **December 26,****2009** | ** ** | **December 27,   2008** | ** ** | **%   Change** | ** ** |
|                                 |       |                          |       |   |   |   |   |
| Net sales                            |       | $                             | 54,841     |   | $ | 50,882 |   | 8 | % |
| Cost of sales                        |       | 41,766                        |       | 40,270 |   | 4 | % |
| Gross profit                         |       | 13,075                        |       | 10,612 |   | 23 | % |
| As a percentage of sales             |       | 23.8                          | %          | 20.9 | % |   |   |
| Selling and administrative  expenses |       | 7,374                         |       | 7,024 |   | 5 | % |
| Operating income                     |       | $                             | 5,701      |   | $ | 3,588 |   | 59 | % |

 

Within the book manufacturing segment, theCompany focuses on three key markets: education, religious and specialtytrade.  In the first quarter of fiscal2010, sales to the education market rose 15% to $19.8 million, primarily fromsales of four-color textbooks to colleges and universities. However, sales ofelementary and high school books were down reflecting continued pressure onstate and local school budgets. Sales to the specialty trade market werecomparable to the first quarter last year at $14.9 million, with growth infour-color sales as well as a number of new customers.  Sales to the religious market were up 12% to$18.3 million compared to the prior year’s first quarter, primarily from highersales to the Company’s largest customer after a decline in sales in recentquarters.

 

Cost of sales in the book manufacturing segmentincreased by 4% to $41.8 million for the quarter compared to the same periodlast year, reflecting the increased sales volume offset in part by costreductions achieved in fiscal 2009. Gross profit increased by 23% to $13.1 million for the quarter, and as apercentage of sales, was 23.8% compared to 20.9% in last year’s firstquarter.  The improvement in gross profitreflects the growth in sales, improved capacity utilization and a favorablesales mix, offset in part by continued industry-wide competitive pricingpressures.

 

13

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Selling and administrative expenses for thesegment increased 5% in the first quarter to $7.4 million compared to the sameperiod last year.  Cost savings fromstaff reductions in fiscal 2009 were offset by an increase in variablecompensation tied to this year’s increased sales and income.

 

First quarter operating income in this segmentincreased 59% to $5.7 million, compared to the same period last year,reflecting the growth in sales and gross profit.

 

OnJanuary 15, 2010, the Company announced the acquisition of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-basedprovider of software and solutions that streamline the production ofcustomized textbooks for use in colleges, universities and businesses.  The $3 million cash acquisition, which has anadditional future “earn out” potential payment of up to $1.2 million, will be accounted for as a purchase, andaccordingly, Highcrest Media’s financial results will be included in theconsolidated financial statements from the date of acquisition.  Highcrest Media operations will be includedin the book manufacturing segment.  Dueto the timing of the acquisition, the initial accounting of the value of theacquired assets and liabilities is not complete.

 

*Specialty Publishing Segment*

 

## SEGMENT HIGHLIGHTS

## (dollars inthousands)

 
| ** **                           | ** ** | **Three Months Ended**        | ** ** |
|--------------------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | **December 26,****2009** | ** ** | **December 27,****2008** | ** ** | **%   Change** | ** ** |
|                                 |       |                          |       |   |   |   |   |
| Net sales                            |       | $                             | 11,561     |   | $ | 11,503 |   | 1 | % |
| Cost of sales                        |       | 7,148                         |       | 7,761 |   | -8 | % |
| Gross profit                         |       | 4,413                         |       | 3,742 |   | 18 | % |
| As a percentage of sales             |       | 38.2                          | %          | 32.5 | % |   |   |
| Selling and administrative  expenses |       | 4,927                         |       | 5,669 |   | -13 | % |
| Operating income (loss)              |       | $                             | (514       | ) | $ | (1,927 | ) |   |   |

 

The Company’s specialty publishing segment reported firstquarter sales of $11.6 million, up slightly from last year’s firstquarter.  Sales were up 18% at Dover to$8.4 million, reflecting strong sales in a wide range of categories as well asan increase in direct-to-consumer sales resulting from enhanced marketingactivity and promotional programs. Sales at REA increased 48% over last year’sfirst quarter to $1.9 million as a result of their most significant quarterlylaunch of new titles.  Sales at CreativeHomeowner decreased 61% to $1.2 million, reflecting the persistent weakness inthe nation’s housing sector, which has reduced store traffic and sales in thehome center market, its largest channel. In addition, Creative Homeowner’ssales to book distributors declined as distributors continue to reduce theirinventories. The sales decrease also reflects the cessation of CreativeHomeowner’s book distribution services early in the second quarter of fiscal2009, which supported one nationwide retailer and contributed approximately$1.2 million of revenue in last year’s first quarter. The Company anticipatesan improvement in sales at Creative Homeowner with the upcoming spring andsummer seasons.

 

Cost of sales in the specialty publishing segmentdecreased 8% to $7.1 million for the first three months of fiscal 2010 comparedto the corresponding prior year period primarily due to the cost reductionsinitiated in fiscal 2009.  Gross profitincreased 18% to $4.4 million in the quarter and, as a percentage of sales, increased to 38.2%from 32.5%% in the corresponding period last year. This improvement reflectshigher sales volume at Dover and REA as well as the benefit of cost reductionsin the prior year.

 

Selling and administrative expenses in this segment decreased 13% to$4.9 million in the first quarter compared to the same period last year.  Selling and administrative expenses in thefirst three months of last year included approximately $200,000 in severance payand other costs related to Creative Homeowner ending its distribution service.

 

14

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The operating loss for the specialty publishingsegment for the first quarter was $0.5 million, compared to an operating lossof $1.9 million in last year’s first quarter. Creative Homeowner’s operating loss in the quarter was $1.2 million,compared to a loss of $1.5 million in the first three months last year.  Combined operating income for Dover and REAincreased by $1.1 million over the prior year’s first quarter reflecting theirgrowth in revenue.

 

*Total Consolidated Company*

Interest expense, net of interest income, was$118,000 in the first quarter of fiscal 2010, compared to $227,000 of netinterest expense in the first three months of last year.  Average debt under the revolving creditfacility in the first quarter of fiscal 2010 was approximately $11.9 million atan average annual interest rate of 0.7%, generating interest expense ofapproximately $22,000.  Average debtunder the revolving credit facility in the first quarter of last year wasapproximately $25.2 million at an average annual interest rate of 3.1%,generating interest expense of approximately $190,000.  Interest expense also includes commitmentfees and other costs associated with maintaining the Company’s $100 millionrevolving credit facility.

 

The Company’s effective tax rate for the first quarter offiscal 2010 was 38.5% compared to 37.5% for the same period last year with theincrease primarily due to higher state income taxes.

 

For purposes of computing net income perdiluted share, weighted average shares outstanding increased by approximately78,000 shares from last year’s first quarter, reflecting options exercised andshares issued under the Company’s stock plans.

 

**Liquidity and Capital Resources****:**

During the first three months of fiscal 2010, operationsprovided $9.1 million of cash, compared to $3.9 million in the first quarter oflast year.  Net income was $2.8 millionand depreciation and amortization were $5.1 million.  Working capital decreased by $1.4 million inthe first quarter.

 

Investment activities in the first quarter of fiscal 2009used $1.5 million of cash. Capital expenditures were $1.0 million.  For the entire fiscal year, capital expendituresare expected to be approximately $12 to $14 million, with approximately half ofthe spending relating to a new digital print operation.  The Company is currently negotiating acapital lease of up to $8 million for the digital print operation assets.  Proceeds of approximately $0.6 million werereceived on the disposition of assets, including equipment from the Book-martPress manufacturing facility. Prepublication costs were $1.0 million, compared to $1.2 million in thefirst three months last year.  For thefull fiscal year, prepublication costs are projected to be approximately $5million.

 

Financing activities for the first three monthsof fiscal 2010 used approximately $7.6 million of cash.  Cash dividends of $2.5 million were paid andborrowings decreased by $5.1 million during the first quarter of fiscal2010.  The Company has a $100 millionlong-term revolving credit facility in place under which the Company can borrowat a rate not to exceed LIBOR plus 1.5%. At December 26, 2009, the Company had $8.4 million in borrowingsunder this facility at an interest rate of 0.7%.  The revolving credit facility, which maturesin 2013, contains restrictive covenants including provisions relating to themaintenance of working capital, the incurrence of additional indebtedness and aquarterly test of EBITDA to debt service. The Company was in compliance with all such covenants at December 26,2009.  The facility also provides for acommitment fee not to exceed 3/8% per annum on the unused portion.  The revolving credit facility is used by theCompany 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 tomeet its cash requirements through 2010.

 

15

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**Recent Accounting Pronouncements:**

At the beginning of fiscal 2010, the Company****adopted the provisions of the Financial AccountingStandards Board (“FASB”) authoritative literature on business combinations,which expands the definition of a business combination and changes the mannerin which the Company accounts for business combinations. Significant changesinclude the capitalization of IPR&D as an indefinite-lived asset, therecognition of certain acquired contingent assets and liabilities at fairvalue, the expensing of acquisition-related restructuring actions andtransaction costs, and the recognition of contingent purchase priceconsideration at fair value on the acquisition date. In addition,post-acquisition changes in deferred tax asset valuation allowances andacquired income tax uncertainties will be recognized as income tax expense orbenefit. The accounting treatment for taxes will be applicable to acquisitionsthat close both prior and subsequent to the adoption of this guidance. TheCompany will apply this standard to the acquisition of Highcrest Media in January 2010.There was no material impact upon adoption of this guidance; however, thisguidance may materially affect the accounting for future business combinations.

 

**Forward-Looking Information****:**

This Quarterly Report on Form 10-Q includes forward-lookingstatements.  Statements that describe future expectations, plans or strategies areconsidered “forward-looking statements” as that term is defined under thePrivate Securities Litigation Reform Act of 1995 and releases issued by theSecurities and Exchange Commission.  Thewords “believe,” “expect,” “anticipate,” “intend,” “estimate” and otherexpressions which are predictions of or indicate future events and trends andwhich do not relate to historical matters identify forward-lookingstatements.  Such statements are subjectto risks and uncertainties that could cause actual results to differ materiallyfrom those currently anticipated.  Someof the factors that could affect actual results are discussed in Item 1A ofthis Form 10-Q and include, among others, changes in customers’ demand forthe Company’s products, including seasonal changes in customer orders andshifting orders to lower cost regions, changes in market growth rates, changesin raw material costs and availability, pricing actions by competitors andother competitive pressures in the markets in which the Company competes,consolidation among customers and competitors, success in the execution ofacquisitions and the performance and integration of acquired businessesincluding carrying value of intangible assets, restructuring and impairmentcharges required under generally accepted accounting principles, changes in operatingexpenses including medical and energy costs, changes in technology includingmigration from paper-based books to digital, difficulties in the start up ofnew equipment or information technology systems, changes in copyright laws,changes in consumer product safety regulations, changes in environmentalregulations, changes in tax regulations, changes in the Company’s effectiveincome tax rate and general changes in economic conditions, including currencyfluctuations, changes in interest rates, changes in consumer confidence,changes in the housing market, and tightness in the credit markets.  Although the Company believes that theassumptions underlying the forward-looking statements are reasonable, any ofthe assumptions could be inaccurate, and therefore, there can be no assurancethat the forward-looking statements will prove to be accurate.  The forward-looking statements includedherein are made as of the date hereof, and the Company undertakes no obligationto update publicly such statements to reflect subsequent events orcircumstances.

 

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**Item 3****.            QUANTITATIVE ANDQUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

There have been no material changes from theinformation concerning the Company’s “Quantitative and Qualitative DisclosuresAbout Market Risk” as previously reported in the Company’s Annual Report on Form 10-Kfor the year ended September 26, 2009.

 

#### **Item 4**.                                   CONTROLS AND PROCEDURES

#### ** **

**(a)       Evaluation of disclosure controls andprocedures**

 

As required by Rule 13a-15under the Securities Exchange Act of 1934, as of the end of the period coveredby this Quarterly Report, the Company carried out an evaluation under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures.  Based upon thatevaluation, the Chief Executive Officer and Chief Financial Officer concluded thatthe Company’s disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by the Company in the reports it files orsubmits under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms.

 

**(b)       Changes in internal controls overfinancial reporting**

 

There was no change in theCompany’s internal control over financial reporting that occurred during theperiod covered by this Quarterly Report that has materially affected, or thatis reasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

#### **PART II.  OTHER INFORMATION**

#### ** **

**Item 1****.****          ****Legal Proceedings**

 

None.

 

**Item 1A****.****       ****Risk Factors**

 

The Company’s consolidatedresults of operations, financial condition and cash flows can be adverselyaffected by various risks.  Our businessis influenced by many factors that are difficult to predict, involveuncertainties that may materially affect actual results and are often beyondour control.  These risks include, butare not limited to, the principal factors listed below and the other mattersset forth in this Quarterly Report on Form 10-Q.  You should carefully consider all of thesefactors.  For other factors that maycause actual results to differ materially from those indicated in anyforward-looking statement contained in this report, see *Forward-LookingInformation* in *Management’s Discussionand Analysis of Financial Condition and Results of Operations*.

 

**Industrycompetition and consolidation may increase pricing pressures and adverselyimpact our margins or result in a loss of customers.**

 

The book industry isextremely competitive.  In the bookmanufacturing segment, consolidation over the past few years of both customersand competitors within the markets in which the Company competes has causeddownward pricing pressures.  In addition,excess capacity and competition from printing companies in lower cost countriesmay increase competitive pricing pressures. Furthermore, some of our competitors have greater sales, assets andfinancial resources than us, particularly those in foreign countries, who mayderive significant advantages from local governmental regulation, including taxholidays and other subsidies.  All or anyof these competitive pressures could affect prices or customers’ demand for ourproducts, impacting our profit margins and/or resulting in a loss of customersand market share.

 

17

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**A reduction inorders or pricing from, or the loss of, any of our significant customers mayadversely impact our operating results.**

 

We derived approximately 44% ofour fiscal 2009 revenues from two major customers.  In fiscal 2008, we derived approximately 50%of our revenues from three major customers. We expect similar concentrations in fiscal 2010.  We do business with these customers on a purchaseorder basis and they are not bound to purchase at particular volume or pricinglevels.  As a result, any of thesecustomers could determine to reduce their order volume with us or demandreduced pricing.  A significant reductionin order volumes or price levels with, or the loss of, any of these customerscould have a material adverse effect on our results of operations and financialcondition.

 

**The substitutionof electronic delivery for printed materials may adversely affect our business.**

 

Electronic delivery ofdocuments and data, including the online distribution and hosting of mediacontent, offers alternatives to traditional delivery of printed documents.  Widespread consumer acceptance of electronicdelivery of books is uncertain, as is the extent to which consumers are willingto replace print materials with online hosted media content.  To the extent that our customers’ acceptanceof these electronic alternatives should continue to grow, demand for ourprinted products may be adversely affected.

 

**Declines in general economic conditions mayadversely impact our business.**

 

Economic conditions havethe potential to impact our financial results significantly.  Within the book manufacturing and specialtypublishing segments, we may be adversely affected by the current worldwideeconomic downturn, including as a result of changes in government, business andconsumer spending.  Examples of how ourfinancial results may be impacted include:

 

·                  Fluctuations in federal or state governmentspending on education, including a reduction in tax revenues due to the currenteconomic environment, could lead to a corresponding decrease in the demand foreducational materials, which are produced in our book manufacturing segment andcomprise a portion of our publishing products.

 

·                  Consumer demand for books can be impactedby reductions in disposable income when costs such as electricity and gasolinereduce discretionary spending.

 

·                  Tightness in credit markets may result incustomers delaying orders to reduce inventory levels and may impact theirability to pay their debts as they become due and may disrupt supplies fromvendors.

 

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

 

·                  Reduced fundraising by religious customersmay decrease their order levels.

 

·                  A slowdown in book purchases may result inretailers returning an unusually large number of books to publishers who, inturn reduce their reorders.

 

**A failure tokeep pace with rapid industrial and technological change may have an adverseimpact on our business.**

 

The printing industry isin a period of rapid technological evolution. Our future financial performance will depend, in part, upon the abilityto anticipate and adapt to rapid industrial and technological changes occurringin the industry and upon the ability to offer, on a timely basis, services thatmeet evolving industry standards.  If weare unable to adapt to such technological changes, we may lose customers andmay not be able to maintain our competitive position.  We are unable to predict which of the manypossible future product and service offerings will be important to establishand maintain a competitive position or what expenditures will be required todevelop and provide these products and services.  We cannot assure investors that one or more ofthese factors will not vary unpredictably, which could have a material adverseeffect on us. In addition, we cannot assure investors, even if these factorsturn out as we anticipate, that we will be able to implement our strategy orthat the strategy will be successful in this rapidly evolving market.

 

18

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**Our operating results are unpredictable and fluctuatesignificantly, which may adversely affect our stock price.**

 

Ourquarterly and annual operating results have fluctuated in the past and are likelyto fluctuate in the future due to a variety of factors, some of which areoutside of our control. Factors that may affect our future operating resultsinclude:

 

·                  the timing and size of the orders for ourbooks;

 

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

 

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

 

·                  our customers’ willingness and success inshifting orders from the peak textbook season to the off-peak season to evenout our manufacturing load over the year;

 

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

 

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

 

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

 

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

 

**Our financialresults could be negatively impacted by impairments of goodwill or otherintangible assets.**

 

Weperform an annual assessment for impairment of goodwill and other intangibleassets at the end of our fiscal year or whenever events or changes incircumstances occur that would more likely than not reduce the fair value of areporting unit below it’s carrying value. A downward revision in the fair value of one of our acquired businessescould result in impairments of goodwill and non-cash charges.  Any impairment charge could have asignificant negative effect on our reported results of operations.  For example, in the second quarter of fiscal2009, due to a decline in sales and profits at Dover resulting from thecontinued downturn in the economic environment and in consumer spending, theCompany recorded a non-cash, pre-tax impairment charge of $15.6 million, whichrepresented 100% of Dover’s goodwill.

 

**Fluctuations inthe cost and availability of paper and other raw materials may cause disruptionand impact margins.**

 

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

 

Availability of paper isimportant to both our book manufacturing and specialty publishingsegments.  Although we generally have notexperienced difficulty in obtaining adequate supplies of paper, unexpectedchanges in the paper markets could result in a shortage of supply.  If this were to occur in the future, it couldcause disruption to the business or increase paper costs, adversely impactingeither or both net sales or profits.

 

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

 

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Inaddition, fluctuations in the markets for paper and raw materials may adverselyaffect the market for our waste byproducts, including recycled paper, usedplates and used film, and therefore adversely affect our income from suchsales.

 

**Energy costs andavailability may negatively impact our financial results.**

 

Energy costs areincurred directly to run production equipment and facilities and indirectlythrough 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 ableto be passed through to customers through price increases or mitigated throughother means.  In such instances,increased energy costs could adversely impact operating costs or customerdemand.  In addition, interruption in theavailability of energy could disrupt operations, adversely impacting operatingresults.

 

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

 

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

 

**A failure tomaintain or improve our operating efficiencies could adversely impact ourprofitability.**

 

Because the markets inwhich we operate are highly competitive, we must continue to improve ouroperating efficiency in order to maintain or improve our profitability.  Although we have been able to expand ourcapacity, improve our productivity and reduce costs in the past, there is noassurance that we will be able to do so in the future.  In addition, reducing operating costs in thefuture may require significant initial costs to reduce headcount, close orconsolidate operations, or upgrade equipment and technology.

 

**Changes inpostal rates and postal regulations may adversely impact our business.**

 

Postal costs are asignificant component of our direct marketing cost structure and postal ratechanges can influence the number of catalogs that we may mail.  In addition, increased postal rates canimpact the cost of delivering our products to customers.  The occurrence of either of these eventscould adversely affect consumer demand and our results of operations.

 

**Our facilitiesare subject to stringent environmental laws and regulations, which may subjectus to liability or increase our costs.**

 

We use various materialsin our operations that contain substances considered hazardous or toxic underenvironmental laws.  In addition, ouroperations are subject to federal, state, and local environmental laws relatingto, among other things, air emissions, waste generation, handling, managementand disposal, waste water treatment and discharge and remediation of soil andgroundwater contamination.  Permits arerequired for the operation of certain of our businesses and these permits aresubject to renewal, modification and in some circumstances, revocation.  Under certain environmental laws, includingthe Comprehensive Environmental Response, Compensation and Liability Act, asamended (“CERCLA,” commonly referred to as “Superfund”), and similar state lawsand regulations, we may be liable for costs and damages relating to soil andgroundwater contamination at off-site disposal locations or at ourfacilities.  Future changes toenvironmental laws and regulations may give rise to additional costs orliabilities that could have a material adverse impact on our financial positionand results of operations.

 

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**Afailure to successfully integrate acquired businesses may have a materialadverse effect on our business or operations.**

 

Overthe past several years, we have completed four acquisitions, including MooreLangen and Creative Homeowner in fiscal year 2006, REA in fiscal 2004 andHighcrest Media in fiscal 2010, and may continue to make acquisitions in thefuture.  We believe that theseacquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of theseacquisitions will depend in part upon our ability to integrate these businessesin an efficient and effective manner. The challenges involved in successfully integrating acquisitionsinclude:

 

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

 

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

 

·                  we may havedifficulty incorporating and integrating acquired technologies into ourbusiness;

 

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

 

·                  we may havedifficulty maintaining uniform standards, controls, procedures and policiesacross locations;

 

·                  anacquisition may result in litigation from terminated employees of the acquiredbusiness or third parties; and

 

·                  we mayexperience significant problems or liabilities associated with technology andlegal contingencies of the acquired business.

 

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

 

The consideration that we pay in connection with anacquisition could affect our financial results. If we were to proceed with one or more significant acquisitions in whichthe consideration included cash, we could be required to use a substantialportion of our available cash and credit facilities to consummate suchacquisitions.  To the extent we issueshares of stock or other rights to purchase stock, including options or otherrights, our existing stockholders may experience dilution in their shareownership in our company and their earnings per share may decrease.  In addition, acquisitions may result in theincurrence of debt, large one-time write-offs and restructuring charges.  They may also result in goodwill and otherintangible assets that are subject to impairment tests, which could result infuture impairment charges.  Any of thesefactors may materially and adversely affect our business and operations.

 

**Afailure to hire and train key executives and other qualified employees couldadversely affect our business.**

 

Oursuccess depends, in part, on our ability to continue to retain our executiveofficers 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 andpublishing industries.  There can be noassurance that we can continue to attract and retain the necessary talentedemployees, including executive officers and other key members of managementand, if we fail to do so, it could adversely affect our business.

 

**A lack of skilled employees to manufacture our products mayadversely affect our business.**

 

If we experience problemshiring and retaining skilled employees, our business may be negativelyaffected.  The timely manufacture anddelivery of our products requires an adequate supply of skilled employees, andthe operating costs of our manufacturing facilities can be adversely affectedby high turnover in skilled positions. Accordingly, our ability to increase sales, productivity and netearnings could

 

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be impacted by our abilityto employ the skilled employees necessary to meet our requirements.  Although our book manufacturing locations aregeographically dispersed, individual locations may encounter strong competitionwith other manufacturers for skilled employees. There can be no assurance that we will be able to maintain an adequateskilled labor force necessary to efficiently operate our facilities.  In addition, unions represent certain groupsof employees at two of our locations, and periodically, contracts with thoseunions come up for renewal.  The outcomeof those negotiations could have an adverse affect on our operations at thoselocations.  Also, changes in federaland/or state laws may facilitate the organization of unions at locations thatdo not currently have unions, which could have an adverse affect on ouroperations.

 

**We are subject to various laws and regulations that mayrequire significant expenditures.**

 

Weare subject to federal, state and local laws and regulations affecting ourbusiness, including those promulgated under the Consumer Product Safety Act,the rules and regulations of the Consumer Products Safety Commission aswell as laws and regulations relating to personal information.  We may be required to make significantexpenditures to comply with such governmental laws and regulations and anyamendments thereto. Complying with existing or future laws or regulations maymaterially limit our business and increase our costs.  Failure to comply with such laws may exposeus to potential liability and have a material adverse effect on our results ofoperations.

 

**Item 2****.****                  ****Unregistered Sales of Equity Securities and Use ofProceeds**

 

None.

 

### **Item 3**.                   Defaults Upon Senior Securities

### ** **

None.

 

**Item 4****.****                  ****Submission of Matters to a Vote of SecurityHolders**

 

None.

 

**Item 5****.****                  ****Other Information**

 

Therehave been no material changes to the procedures by which security holders mayrecommend nominees to the Company’s Board of Directors.

 

### **Item 6**.                   Exhibits

### ** **

| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                           |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10.1                 |       | Courier  Corporation 2010 Stock Equity Plan for Non-Employee Directors (filed as Exhibit B  to the Company’s Definitive Proxy Statement, as filed on December 4,  2009, and incorporated herein by reference).             |
|                 |       |                                                                                                                                                                                                                                      |
| 10.2                 |       | Amendment  No. 1 to the Courier Corporation 1999 Employee Stock Purchase Plan  (filed as Exhibit A to the Company’s Definitive Proxy Statement, as  filed on December 4, 2009, and incorporated herein by reference). |
|                 |       |                                                                                                                                                                                                                                      |
| 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                                                                                                                                                                                                 |

 

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* Filed herewith.

 

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**SIGNATURES**

 

Pursuant to the requirements of the SecuritiesExchange Act of 1934, the Company has duly caused this report to be signed onits behalf by the undersigned thereunto duly authorized.

 

**COURIER CORPORATION**

**(Registrant)**

 

 
| *February 4, 2010* | * * | By:    | *s/James F. Conway III*                            |
|-------------------------|----------|--------|----------------------------------------------------|
| Date                    |     |   | James F. Conway III                                |
|                    |     |   | Chairman, President and  Chief Executive Officer   |
|                    |     |   |                                               |
|                    |     |   |                                               |
| *February 4, 2010* | * * | By:    | *s/Peter M. Folger*                                |
| Date                    |     |   | Peter M. Folger                                    |
|                    |     |   | Senior Vice President and  Chief Financial Officer |
|                    |     |   |                                               |
|                    |     |   |                                               |
| *February 4, 2010* | * * | By:    | *s/Kathleen M. Leon*                               |
| Date                    |     |   | Kathleen M. Leon                                   |
|                    |     |   | Vice  President and  Controller                    |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                           |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                      |
| 10.1                 |       | Courier  Corporation 2010 Stock Equity Plan for Non-Employee Directors (filed as Exhibit B  to the Company’s Definitive Proxy Statement, as filed on December 4,  2009, and incorporated herein by reference).             |
|                 |       |                                                                                                                                                                                                                                      |
| 10.2                 |       | Amendment  No. 1 to the Courier Corporation 1999 Employee Stock Purchase Plan  (filed as Exhibit A to the Company’s Definitive Proxy Statement, as  filed on December 4, 2009, and incorporated herein by reference). |
|                 |       |                                                                                                                                                                                                                                      |
| 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                                                                                                                                                                                                 |

 

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* Filed herewith.

 

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