**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

** **

**FORM 10-Q**

 

**(MarkOne)**

 
| **x** | ** ** | **QUARTERLY REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|--------------------------------------------------------------------------------------------------------|

 

**For thequarterly period ended  December 27, 2008**

** **

**OR**

 
| **o** | ** ** | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |
|-------|------------|---------------------------------------------------------------------------------------------------------|

 

**For thetransition period from               to               **

** **

**Commission file number 0-7597**

 

**COURIER CORPORATION**

(Exact name of registrant 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’s telephone number, including area code)

 

**NO CHANGE**

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

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.

 
| Yes | x | No | o |   |
|-----|---|----|---|--------|

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer

or a smallerreporting company.  See the definitionsof “large accelerated filer,” “accelerated filer” and “smaller

reporting company”in Rule 12b-2 of 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 checkmark whether 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 January 30, 2009** | ** ** |
|----------------------------|------------|---------------------------------------------------------|------------|
| Common Stock, $1 par value |       | 11,888,077 shares                                       |       |

 

 

 

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COURIER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands except per share amounts)

 
| ** **                           | ** ** | **THREE MONTHS ENDED** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **December 27,**            | ** ** | **December 29,** | ** ** |
| ** **                           | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                 |       |                             |       |   |   |
| Net sales                            |       | $                                | 59,647     |   | $ | 62,863 |   |
| Cost of sales                        |       | 45,219                           |       | 46,122 |   |
|                                 |       |                             |       |   |   |
| Gross profit                         |       | 14,428                           |       | 16,741 |   |
|                                 |       |                             |       |   |   |
| Selling and  administrative expenses |       | 13,076                           |       | 14,216 |   |
|                                 |       |                             |       |   |   |
| Operating income                     |       | 1,352                            |       | 2,525 |   |
|                                 |       |                             |       |   |   |
| Interest  expense, net               |       | 227                              |       | 295 |   |
|                                 |       |                             |       |   |   |
| Pretax income                        |       | 1,125                            |       | 2,230 |   |
|                                 |       |                             |       |   |   |
| Income tax  provision (Note C)       |       | 422                              |       | 814 |   |
|                                 |       |                             |       |   |   |
| Net income                           |       | $                                | 703        |   | $ | 1,416 |   |
|                                 |       |                             |       |   |   |
| Net income per  share (Note D):      |       |                             |       |   |   |
|                                 |       |                             |       |   |   |
| Basic                                |       | $                                | 0.06       |   | $ | 0.11 |   |
|                                 |       |                             |       |   |   |
| Diluted                              |       | $                                | 0.06       |   | $ | 0.11 |   |
|                                 |       |                             |       |   |   |
| Cash dividends  declared per share   |       | $                                | 0.21       |   | $ | 0.20 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

2

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                                 | ** ** | **December 27,** | ** ** | **September 27,** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                 | ** ** | **2008**              | ** ** | **2008**               | ** ** |
|                                                                                                                                       |       |                  |       |                   |       |
| ASSETS                                                                                                                                     |       |                  |       |                   |       |
| Current assets:                                                                                                                            |       |                  |       |                   |       |
| Cash and cash  equivalents                                                                                                                 |       | $                     | 166        |                   | $          | 178 |   |
| Investments                                                                                                                                |       | 707                   |       | 820                    |       |
| Accounts  receivable, less allowance for uncollectible accounts of $1,689 at  December 27, 2008 and $1,611 at September 27, 2008 |       | 35,407                |       | 45,626                 |       |
| Inventories  (Note B)                                                                                                                      |       | 42,492                |       | 37,166                 |       |
| Deferred income  taxes                                                                                                                     |       | 4,681                 |       | 4,680                  |       |
| Other current  assets                                                                                                                      |       | 2,534                 |       | 1,528                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Total current  assets                                                                                                                      |       | 85,987                |       | 89,998                 |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Property, plant  and equipment, less accumulated depreciation: $157,600 at December 27,  2008 and $153,606 at September 27, 2008 |       | 94,172                |       | 95,692                 |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Goodwill (Note  A)                                                                                                                         |       | 39,912                |       | 39,912                 |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Other  intangibles, net (Note A)                                                                                                           |       | 3,870                 |       | 3,920                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Prepublication  costs, net (Note A)                                                                                                        |       | 9,530                 |       | 9,595                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Other assets                                                                                                                               |       | 1,366                 |       | 1,381                  |       |
|                                                                                                                                       |       |                  |       |                   |       |
| Total assets                                                                                                                               |       | $                     | 234,837    |                   | $          | 240,498 |   |

 

The accompanying notes are an integral part of the consolidatedfinancial statements.

 

3

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                                         | ** ** | **December 27,** | ** ** | **September 27,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|------------------------|------------|
| ** **                                                                                                                                         | ** ** | **2008**              | ** ** | **2008**               | ** ** |
|                                                                                                                                               |       |                  |       |                   |       |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                           |       |                  |       |                   |       |
| Current  liabilities:                                                                                                                              |       |                  |       |                   |       |
| Current  maturities of long-term debt                                                                                                              |       | $                     | 93         |                   | $          | 93 |   |
| Accounts payable                                                                                                                                   |       | 13,354                |       | 16,966                 |       |
| Accrued payroll                                                                                                                                    |       | 4,723                 |       | 6,587                  |       |
| Accrued taxes                                                                                                                                      |       | 743                   |       | 3,560                  |       |
| Other current  liabilities                                                                                                                         |       | 7,491                 |       | 5,970                  |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Total current  liabilities                                                                                                                         |       | 26,404                |       | 33,176                 |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Long-term debt                                                                                                                                     |       | 25,815                |       | 23,646                 |       |
| Deferred income  taxes                                                                                                                             |       | 5,126                 |       | 4,687                  |       |
| Other  liabilities                                                                                                                                 |       | 2,713                 |       | 2,765                  |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  liabilities                                                                                                                                 |       | 60,058                |       | 64,274                 |       |
|                                                                                                                                               |       |                  |       |                   |       |
| 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 11,878,000 at December 27,  2008 and 11,878,000 at September 27, 2008 |       | 11,878                |       | 11,878                 |       |
| Additional  paid-in capital                                                                                                                        |       | 15,134                |       | 14,788                 |       |
| Retained earnings                                                                                                                                  |       | 148,129               |       | 149,920                |       |
| Accumulated  other comprehensive loss                                                                                                              |       | (362                  | )          | (362                   | )          |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  stockholders’ equity                                                                                                                   |       | 174,779               |       | 176,224                |       |
|                                                                                                                                               |       |                  |       |                   |       |
| Total  liabilities and stockholders’ equity                                                                                                   |       | $                     | 234,837    |                   | $          | 240,498 |   |

 

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 27,**            | ** ** | **December 29,** | ** ** |
| ** **                                                                       | ** ** | **2008**                         | ** ** | **2007** | ** ** |
|                                                                             |       |                             |       |   |   |
| Operating  Activities:                                                           |       |                             |       |   |   |
| Net income                                                                       |       | $                                | 703        |   | $ | 1,416 |   |
| Adjustments to  reconcile net income to cash provided from operating activities: |       |                             |       |   |   |
| Depreciation and  amortization                                                   |       | 5,334                            |       | 5,174 |   |
| Stock-based  compensation                                                        |       | 383                              |       | 440 |   |
| Deferred income  taxes                                                           |       | 438                              |       | 691 |   |
| Changes in  assets and liabilities:                                              |       |                             |       |   |   |
| Accounts  receivable                                                             |       | 10,219                           |       | 9,444 |   |
| Inventory                                                                        |       | (5,326                           | )          | 439 |   |
| Accounts payable                                                                 |       | (3,612                           | )          | (7,027 | ) |
| Accrued taxes                                                                    |       | (2,817                           | )          | (1,193 | ) |
| Other elements  of working capital                                               |       | (1,349                           | )          | (1,345 | ) |
| Other long-term,  net                                                            |       | (94                              | )          | (169 | ) |
|                                                                             |       |                             |       |   |   |
| Cash provided  from operating activities                                         |       | 3,879                            |       | 7,870 |   |
|                                                                             |       |                             |       |   |   |
| Investment  Activities:                                                          |       |                             |       |   |   |
| Capital  expenditures                                                            |       | (2,479                           | )          | (2,192 | ) |
| Prepublication  costs                                                            |       | (1,200                           | )          | (1,228 | ) |
| Short-term investments                                                           |       | 113                              |       | — |   |
|                                                                             |       |                             |       |   |   |
| Cash used for  investment activities                                             |       | (3,566                           | )          | (3,420 | ) |
|                                                                             |       |                             |       |   |   |
| Financing  Activities:                                                           |       |                             |       |   |   |
| Long-term debt  borrowings, net                                                  |       | 2,169                            |       | 772 |   |
| Cash dividends                                                                   |       | (2,494                           | )          | (2,523 | ) |
| Proceeds from  stock plans                                                       |       | —                           |       | 105 |   |
| Stock repurchases                                                                |       | —                           |       | (2,893 | ) |
| Excess tax  benefits from stock-based compensation                               |       | —                           |       | 50 |   |
|                                                                             |       |                             |       |   |   |
| Cash used for  financing activities                                              |       | (325                             | )          | (4,489 | ) |
|                                                                             |       |                             |       |   |   |
| Decrease in cash  and cash equivalents                                           |       | (12                              | )          | (39 | ) |
|                                                                             |       |                             |       |   |   |
| Cash and cash  equivalents at the beginning of the period                        |       | 178                              |       | 1,549 |   |
|                                                                             |       |                             |       |   |   |
| Cash and cash  equivalents at the end of the period                              |       | $                                | 166        |   | $ | 1,510 |   |

 

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

 

5

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** **

**COURIER CORPORATION**

** **

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)**

 

**A.****                                    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Unaudited Financial Statements**

 

The balance sheet as of December 27, 2008 and the statements ofincome and the statements of cash flows for the three-month periods ended December 27,2008 and December 29, 2007 are unaudited. In the opinion of management, all adjustments, consisting of normalrecurring items, considered necessary for a fair presentation of such financialstatements have been recorded.

 

Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (“generally acceptedaccounting principles”) have been condensed or omitted.  The balance sheet data as of September 27,2008 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 Form 10-Kand Annual Report for the year ended September 27, 2008.

 

**PrepublicationCosts**

 

Prepublication costs, associated with creating new titles in thespecialty publishing segment, are amortized to cost of sales using thestraight-line method over estimated useful lives of three to five years.

 

**Goodwill and Other Intangibles**

 

TheCompany evaluates possible impairment annually at the end of its fiscal year orwhenever events or changes in circumstances indicate that the carrying value ofthe assets may not be recoverable.  Therewere no such events or 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 are being amortized over 15-year and 10-year periods, respectively.  Amortization expense related to customerlists was approximately $50,000 and $200,000 in the first quarter of fiscal2009 and 2008, respectively.

 

**RecentAccounting Pronouncements**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised 2007), “BusinessCombinations,” (“SFAS No. 141R”), which replaces SFAS No. 141. Thisstatement retains the purchase method of accounting for business acquisitions,but requires a number of changes in the recognition of assets acquired andliabilities assumed as well as in the treatment of acquisition-relatedcosts.  SFAS No. 141R will beeffective at the beginning of the Company’s fiscal year 2010 and will applyprospectively to business combinations completed on or after that date.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”).SFAS No. 161 changes the disclosure requirements for derivativeinstruments and hedging activities and will also be effective at the beginningof the Company’s fiscal year 2010.

 

In April 2008,the FASB issued FASB Staff Position (“FSP”) 142-3, “Determining the Useful Lifeof Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to beconsidered in determining the useful life of intangible assets. Its intent isto improve the consistency between the useful life of an intangible asset andthe period of expected cash flows used to measure its fair value. FSP 142-3will be effective at the beginning of the Company’s fiscal year 2010.

 

The Company doesnot believe the adoption of SFAS No. 141R, SFAS No. 161 or FSP 142-3will have a material effect on its consolidated financial position, results ofoperations, or cash flows.

 

6

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**COURIERCORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(UNAUDITED)**

 

# **B.**                                    INVENTORIES

# ** **

Inventories are valued at the lower of cost or market.  Cost is determined using the last-in,first-out (LIFO) method for approximately 44% of the Company’s inventories atboth December 27, 2008 and September 27, 2008.  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 27,  2008**   | ** ** | **September 27,  2008** | ** ** |
| Raw materials   |       | $                             | 7,663      |   | $ | 5,263 |   |
| Work in process |       | 10,628                        |       | 8,091 |   |
| Finished goods  |       | 24,201                        |       | 23,812 |   |
| Total           |       | $                             | 42,492     |   | $ | 37,166 |   |

 

# **C.**                                    INCOMETAXES

# ** **

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

 
| ** **                            | ** ** | **(000’s Omitted)**    | ** ** |
|---------------------------------------|------------|----------------------------------|------------|
| ** **                            | ** ** | **Three Months Ended** | ** ** |
| ** **                            | ** ** | **December 27,****2008**    | ** ** | **December 29,  2007** | ** ** |
| Federal taxes at statutory rates      |       | $                                | 394        |   | 35.0 | % | $ | 781 |   | 35.0 | % |
| State taxes, net of federal benefit   |       | 45                               |       | 4.0 |   | 65 |   | 2.9 |   |
| Federal manufacturers’ deduction |       | (18                              | )          | (1.6 | ) | (34 | ) | (1.5 | ) |
| Other                                 |       | 1                                |       | 0.1 |   | 2 |   | 0.1 |   |
| Total                                 |       | $                                | 422        |   | 37.5 | % | $ | 814 |   | 36.5 | % |
|                                       |            |                                  |            |  |  |  |  |  |  |  |  |  |  |

# ** **

# **D.**                                    NETINCOME PER SHARE

# ** **

The following is areconciliation of the shares used in the calculation of basic and dilutedincome per share.  Potentially dilutiveshares, calculated using the treasury stock method,        consist of shares issuedunder the Company’s stock option plans.

 
| ** **                             | ** ** | **(000’s Omitted)**    | ** ** |
|----------------------------------------|------------|----------------------------------|------------|
| ** **                             | ** ** | **Three Months Ended** | ** ** |
| ** **                             | ** ** | **December 27,  2008**      | ** ** | **December 29,  2007** | ** ** |
|                                   |       |                             |       |   |   |
| Average shares outstanding for basic   |       | 11,827                           |       | 12,538 |   |
| Effect of potentially dilutive shares  |       | 4                                |       | 157 |   |
| Average shares outstanding for diluted |       | 11,831                           |       | 12,695 |   |

 

7

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# ** **

# **COURIER CORPORATION**

# ** **

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)**

 

# **E.**                                      BUSINESS SEGMENTS

# ** **

The Company has two businesssegments: book manufacturing and specialty publishing. The book manufacturingsegment offers a full range of services from production through storage anddistribution for religious, educational and specialty trade book publishers.The specialty publishing segment consists of Dover, REA and Creative Homeowner.

 

# **Segmentperformance is evaluated based on several factors, of which the primaryfinancial measure is operating income. Operating income is defined as gross profit (sales less cost of sales)less selling and administrative expenses, excluding stock-basedcompensation.  As such, segmentperformance is evaluated exclusive of interest, income taxes, stock-basedcompensation, intersegment profit elimination, and asset impairmentcharges.  The elimination of intersegmentsales and related profit represents sales from the book manufacturing segmentto the specialty publishing segment.**

# ** **

During the first quarter offiscal 2009, the Company changed to this current measure of reporting segmentperformance. Previously, reported segment results included an interestallocation.  The Company’s prior yearsegment information has been adjusted to conform to the current year’spresentation.  The following tableprovides segment information for the three-month periods ended December 27,2008 and December 29, 2007.

 
| ** **                                   | ** ** | **(000’s Omitted)**    | ** ** |
|----------------------------------------------|------------|----------------------------------|------------|
| ** **                                   | ** ** | **Three Months Ended** | ** ** |
| ** **                                   | ** ** | **December 27,****2008**    | ** ** | **December 29,  2007** | ** ** |
|                                         |       |                             |       |   |   |
| Net sales:                                   |       |                             |       |   |   |
| Book manufacturing                           |       | $                                | 50,882     |   | $ | 49,707 |   |
| Specialty publishing                         |       | 11,503                           |       | 15,256 |   |
| Elimination of intersegment sales            |       | (2,738                           | )          | (2,100 | ) |
| Total                                        |       | $                                | 59,647     |   | $ | 62,863 |   |
|                                         |       |                             |       |   |   |
| Pretax income:                               |       |                             |       |   |   |
| Book manufacturing operating income          |       | $                                | 3,588      |   | $ | 2,378 |   |
| Specialty publishing operating (loss) income |       | (1,927                           | )          | 485 |   |
| Stock-based compensation                     |       | (383                             | )          | (440 | ) |
| Elimination of intersegment profit           |       | 74                               |       | 102 |   |
| Interest expense, net                        |       | (227                             | )          | (295 | ) |
| Total                                        |       | $                                | 1,125      |   | $ | 2,230 |   |

# ** **

**F.****                                      STOCK-BASEDCOMPENSATION**

 

The Companyrecords stock-based compensation expense for the cost of stock options andstock grants as well as shares issued under the Company’s 1999 Employee StockPurchase Plan. The fair value of each option awarded is calculated on the dateof grant using the Black-Scholes option-pricing model. Stock-based compensationrecognized in selling and administrative expenses in the accompanying financialstatements in the first quarters of fiscal 2009 and 2008 was $383,000 and$440,000, respectively.  The related taxbenefit recognized in the first quarters of fiscal 2009 and 2008 was $125,000and $152,000, respectively. Unrecognized stock-based compensation cost at December 27,2008 was $1.8 million, to be recognized over a weighted-average period of 2.2years.

 

8

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**COURIER CORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)**

 

**StockIncentive Plan:** TheCompany’s stock incentive plan provides for the granting of stock options andstock grants up to a total of 2,064,375 shares. Under the plan provisions, both non-qualified and incentive stockoptions to purchase shares of the Company’s common stock may be granted to keyemployees.  The option price per sharemay not be less than the fair market value of stock at the time the option isgranted and incentive stock options must expire not later than ten years fromthe date of grant.  The Company annuallyissues a combination of stock options and stock grants to its key employees.Stock options and stock grants generally vest over 3 years.

 

Therewas no stock option or non-vested stock grant activity under this plan in thefirst quarter of fiscal 2009.  There were429,466 option shares outstanding at December 27, 2008 with a weightedaverage exercise price of $25.86, a weighted average remaining term of 2.9years, and no aggregate intrinsic value. Of these option shares, 268,773 wereexercisable at December 27, 2008 with a weighted average exercise price of$25.51, a weighted average remaining term of 2.0 years, and no aggregateintrinsic value.  At December 27,2008, there were 51,159 non-vested stock grants outstanding with aweighted-average fair value of $30.99. There were 261,711 shares available forfuture grants under this plan at December 27, 2008.

 

**Directors’Option Plans:** In January 2005,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 fiscal2009, no options were issued or exercised under these plans and 22,500 optionswith an exercise price of $20.97 expired.  At December 27, 2008, 141,120 optionshares were outstanding and exercisable with a weighted average exercise priceof $33.33, a weighted average remaining term of 2.6 years and no aggregateintrinsic value.  Directors may also electto receive their annual retainer and committee chair fees as shares of stock inlieu of cash; no such shares were issued in the first quarter of fiscal2009.  At December 27, 2008, therewere 60,610 shares available for future grants under the 2005 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 2009, no shares were issued under theESPP. At December 27, 2008, there were 52,336 shares available for futureissuances.

 

**G.****                         SUBSEQUENTEVENT**

 

On January 12, 2009,the Company announced its decision to close Book-mart Press, Inc., ashort-run manufacturing subsidiary in North Bergen, New Jersey, and consolidateits one-color printing operations into other existing book manufacturingfacilities.  The Company estimates thatseverance costs and other expenses to be incurred in the second and thirdquarters of fiscal 2009 related to the closing will total approximately $2million.

 

9

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| **Item 2.** | ** ** | **COURIER CORPORATION** |   |   |   |
|-------------|------------|-------------------------|--------|--------|--------|

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**Critical Accounting Policies and Estimates:**

 

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 Other Intangibles  Other intangibles include customer listswhich are amortized on a straight-line basis over periods ranging from ten tofifteen years. The Company evaluates possible impairment of goodwill and otherintangibles at the reporting unit level, or one level below the operatingsegment, on an annual basis or whenever events or changes in circumstancesindicate that the carrying value of the assets may not be recoverable.  The Company completed its annual impairmenttest at September 27, 2008 resulting in no change to the nature orcarrying amounts of its intangible assets in the book manufacturingsegment.  An impairment charge wasrecorded in the third quarter of fiscal 2008 in the specialty publishingsegment related to Creative Homeowner. Changes in market conditions, furtherdeclines in operating results or cash flows, or deterioration in the marketvalue of the Company or its peers, could result in an impairment charge in thefuture.  However, the Company continues tomonitor the value of its intangible assets closely in each of itssegments.  Continued disruption in thecredit markets may contribute to possible future impairment charges.

 

Prepublication Costs   The Company capitalizes prepublicationcosts, which include the costs of acquiring rights to publish a work and costsassociated with bringing a manuscript to publication such as artwork andeditorial efforts. Prepublication costs are amortized on a straight-line basisover periods ranging from three to five years. Management regularly evaluates the sales and profitability of theproducts based upon historical and forecasted demand.  If actual market conditions are lessfavorable than those projected by management, additional amortization expensemay be required.

 

Income Taxes   The income tax provision and related accruedtaxes are based on amounts reported on the Company’s tax returns and changes indeferred taxes.  Deferred income tax liabilities and assets are determined based uponthe differences between the financial statement and tax bases of assets andliabilities.  Changes in therecoverability of the Company’s deferred tax assets or audits by taxauthorities could result in future charges or credits to income tax expense,and related accrued and deferred taxes.

 

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**Overview:**

 

Courier Corporation, founded in1824, is one of America’s leading book manufacturers and specialtypublishers.  The Company has two businesssegments: book manufacturing and specialty publishing.  The book manufacturing segment streamlinesthe process of bringing books from the point of creation to the point ofuse.  Based on sales, Courier is thethird largest book manufacturer in the United States, offering services fromprepress and production, through storage and distribution.  The specialty publishing segment consists ofDover Publications, Inc. (“Dover”), Research & EducationAssociation, Inc. (“REA”), and Federal Marketing Corporation, d/b/aCreative Homeowner (“Creative Homeowner”). Dover publishes over 9,000 titles in more than 30 specialty categoriesranging from literature to paper dolls, and from music scores to clip art.  REA publishes test preparation andstudy-guide books and software for high school, college and graduate students,as well as professionals.  CreativeHomeowner publishes books on home design, decorating, landscaping, andgardening, and sells home plans.

 

**Results of Operations:**

 

## FINANCIAL HIGHLIGHTS

## (dollars in thousands except per share amounts)

 
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **December 27,  2008**      | ** ** | **December 29,  2007** | ** ** | **%  Change** | ** ** |
|                                |       |                             |       |   |   |   |   |
| Net sales                           |       | $                                | 59,647     |   | $ | 62,863 |   | -5 | % |
| Cost of sales                       |       | 45,219                           |       | 46,122 |   | -2 | % |
| Gross profit                        |       | 14,428                           |       | 16,741 |   | -14 | % |
| As a percentage of sales            |       | 24.2                             | %          | 26.6 | % |   |   |
| Selling and administrative expenses |       | 13,076                           |       | 14,216 |   | -8 | % |
| Operating income                    |       | 1,352                            |       | 2,525 |   | -46 | % |
| Interest expense, net               |       | 227                              |       | 295 |   | -23 | % |
| Pretax income                       |       | 1,125                            |       | 2,230 |   | -50 | % |
| Provision for income taxes          |       | 422                              |       | 814 |   | -48 | % |
| Net income                          |       | $                                | 703        |   | $ | 1,416 |   | -50 | % |
|                                |       |                             |       |   |   |   |   |   |   |
| Net income per diluted share        |       | $                                | 0.06       |   | $ | 0.11 |   | -45 | % |

# ** **

# **Revenues in the firstquarter of fiscal 2009 decreased 5% to $59.6 million compared to the sameperiod last year.  Book manufacturingsegment revenues grew by 2% to $50.9 million due to an increase in sales offour-color textbooks and trade books as well as modest growth in religioussales.  In the specialty publishingsegment, revenues decreased 25% to $11.5 million in the first quarter of fiscal2009 compared to the prior year period with sales declines in all three of theCompany’s publishing businesses, reflecting reduced spending by both retailersand consumers as the United States economy continued to slow.**

# ** **

# **Net income forthe quarter was $0.7 million, down from $1.4 million in the first quarter offiscal 2008, primarily due to the sales shortfall in the specialty publishingsegment.**

 

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# ** **

*Book Manufacturing Segment*

 

## SEGMENT HIGHLIGHTS

## (dollars in thousands)

 
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **December 27,  2008**      | ** ** | **December 29,  2007** | ** ** | **%  Change** | ** ** |
|                                |       |                             |       |   |   |   |   |
| Net sales                           |       | $                                | 50,882     |   | $ | 49,707 |   | 2 | % |
| Cost of sales                       |       | 40,270                           |       | 39,316 |   | 2 | % |
| Gross profit                        |       | 10,612                           |       | 10,391 |   | 2 | % |
| As a percentage of sales            |       | 20.9                             | %          | 20.9 | % |   |   |
| Selling and administrative expenses |       | 7,024                            |       | 8,013 |   | -12 | % |
| Operating income                    |       | $                                | 3,588      |   | $ | 2,378 |   | 51 | % |

 

Within the book manufacturing segment, the Company focuses on three keymarkets: education, religious and specialty trade. In the first quarter offiscal 2009, sales to the education market rose 4% to $17.3 million, primarilyfrom sales of four-color textbooks to colleges and universities. However, salesof elementary and high school books, both four-color textbooks and one- andtwo-color workbooks, declined due to pressure on state and local schoolbudgets. Sales to the specialty trade market were up 10% to $15.0 million forthe first quarter of fiscal 2009 compared to last year due to growth infour-color sales as well as a number of new customers.  Sales to the religious market were up 1% to$16.4 million from last year’s first quarter, which is in line with long-termhistorical growth trends.

 

Growth in four-color sales in this segment was partly offset by acontinuing decline in demand for one- and two-color books, resulting in reducedcapacity utilization at some the Company’s manufacturing plants.  In response, faced with the weak economy andthe need for cost reductions, the Company announced on January 12, 2009that it would close Book-mart Press, Inc. (“Book-mart”), a businessdedicated to short-run, one-color production. Book-mart had 72 employees andsales of approximately $7 million annually. The Company estimates that over the next two fiscal quarters, severancecosts and other expenses related to the closing and to consolidating theoperations into other existing book manufacturing facilities will total approximately $2 million.

 

Cost of sales in the book manufacturing segment increased by 2% to $40.3million for the quarter compared to the same period last year.  Gross profit in this segment also increasedby 2% to $10.6 million for the quarter, and as a percentage of sales, was20.9%, the same as last year’s first quarter. The sales growth and improved capacity utilization were offset in partby increased depreciation expense as well as continued industry-widecompetitive pricing pressures.

 

Selling and administrative expenses for the segment decreased 12% in thefirst quarter to $7.0 million and, as a percentage of sales, decreased to 13.8%from 16.1% last year.  This decreaseresulted from reductions in staffing and other cost saving initiatives alongwith reduced variable compensation.

 

First quarter operating income in this segment increased 51% to $3.6million, compared to the same period last year, reflecting the growth in salesand results of cost saving initiatives.

 

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*Specialty Publishing Segment*

 

## SEGMENT HIGHLIGHTS

## (dollars in thousands)

 
| ** **                          | ** ** | **Three Months Ended** | ** ** |
|-------------------------------------|------------|----------------------------------|------------|
| ** **                          | ** ** | **December 27,  2008**      | ** ** | **December 29,  2007** | ** ** | **%  Change** | ** ** |
|                                |       |                             |       |   |   |   |   |
| Net sales                           |       | $                                | 11,503     |   | $ | 15,256 |   | -25 | % |
| Cost of sales                       |       | 7,761                            |       | 9,009 |   | -14 | % |
| Gross profit                        |       | 3,742                            |       | 6,247 |   | -40 | % |
| As a percentage of sales            |       | 32.5                             | %          | 40.9 | % |   |   |
| Selling and administrative expenses |       | 5,669                            |       | 5,762 |   | -2 | % |
| Operating income (loss)             |       | $                                | (1,927     | ) | $ | 485 |   |   |   |

 

The Company’s specialtypublishing segment reported first quarter sales of $11.5 million, down 25% fromlast year’s first quarter, primarily due to the weak economy and reducedconsumer spending.  Sales at CreativeHomeowner decreased 41% to $3.1 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 November 2008, the Companyannounced that Creative Homeowner would cease its book distribution service forone nationwide retailer, which was accomplished at the end of December 2008.  This will allow Creative Homeowner to focuson its core publishing business. Dover’s sales decreased 13% to $7.1 millioncompared to the first quarter last year, reflecting a weak holiday season formajor book retailers as well as a decrease in direct-to-consumer sales.  REA’s sales declined 27% in the first quarterto $1.3 million compared to the prior year period, reflecting a softening inthe market for test preparation books and study guides and greater competitionfor retail shelf space.

 

Cost of sales in the specialty publishing segment decreased 14% to $7.8million for the first three months of fiscal 2009 due to the lower sales volumecompared to the prior year period.  Grossprofit as a percentage of sales for the segment decreased in the quarter to32.5% from 40.9% in the corresponding period last year. Despite productivitygains and cost reductions, gross profit percentages for all three publishers inthis segment were lower than the first quarter of last year because of the dropin sales, most notably at Creative Homeowner when coupled with the lower margindistribution service.  Creative Homeowner’smargins are expected to improve beginning in the second quarter of fiscal 2009after ceasing its distribution service.

 

Selling andadministrative expenses in this segment decreased 2% to $5.7 million in thefirst quarter compared to the same period last year.  Selling and administrative expenses in thefirst three months of fiscal 2009 include approximately $250,000 in severancepay and other costs related to Creative Homeowner ending its distributionservice.

 

The operating loss for the specialty publishing segment for the firstquarter was $1.9 million, compared to operating income of $0.5 million in lastyear’s first quarter.  This decline waslargely due to the sales shortfall for all three publishing businessesresulting from reduced spending by both retailers and consumers.  Creative Homeowner’s operating loss in thefirst quarter was $1.5 million, compared to a loss of $0.3 million in the firstthree months last year.

 

*Total Consolidated Company*

 

Interest expense, net of interest income, was $227,000 in the firstquarter of fiscal 2009, compared to $295,000 of net interest expense in thefirst three months of last year.  Averagedebt under the revolving credit facility in the first quarter of fiscal 2009was approximately $25.2 million at an average annual interest rate of 3.1%,generating interest expense of approximately $190,000.  Average debt under the revolving creditfacility in the first quarter of last year was approximately $18.3 million atan average annual interest rate of 5.5%, generating interest expense ofapproximately $250,000.  Interest expensealso includes commitment fees and other costs associated with maintaining theCompany’s $100 million

 

13

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revolving credit facility. Interest capitalized in the first three months of fiscal 2008 wasapproximately $52,000; no interest was capitalized in the first quarter offiscal 2009.

 

The Company’s effective taxrate for the first quarter of fiscal 2009 was 37.5% compared to 36.5% for thesame period last year with the increase primarily due to higher state incometaxes.

 

For purposes of computing net income per diluted share, weighted averageshares outstanding decreased by approximately 864,000 shares from last year’sfirst quarter, primarily due to the Company’s repurchase of approximately856,000 shares during fiscal 2008.

 

**Liquidity and Capital Resources:**

 

During the first three monthsof fiscal 2009, operations provided $3.9 million of cash.  Net income was $0.7 million and depreciationand amortization were $5.3 million. Working capital increased by $2.9 million in the quarter, with adecrease in accounts receivable of $10.2 million more than offset by anincrease in inventories of $5.3 million and a decrease in accounts payable andaccrued taxes of $6.4 million.

 

Investment activities in thefirst quarter of fiscal 2009 used $3.6 million of cash. Capital expenditureswere $2.5 million.  For the entire fiscalyear, capital expenditures are expected to be approximately $13 to $16 million,including approximately $4 million for the completion of a 150,000 square footwarehouse to support the expanded capacity at the Kendallville, Indianafacility.  Prepublication costs were $1.2million, comparable to the first three months last year.  For the full fiscal year, prepublicationcosts are projected to be slightly below last year’s $5 million.

 

Financing activities for the first three months of fiscal 2009 usedapproximately $0.3 million of cash.  Cashdividends of $2.5 million were paid and borrowings increased by $2.2 millionduring the first quarter of fiscal 2009. The Company has a $100 million long-term revolving credit facility inplace under which the Company can borrow at a rate not to exceed LIBOR plus1.5%.  At December 27, 2008, theCompany had $25.7 million in borrowings under this facility at an interest rateof 1.0%.  The revolving credit facility,which matures in 2013, contains restrictive covenants including provisionsrelating to the maintenance of working capital, the incurrence of additionalindebtedness and a quarterly test of EBITDA to debt service. The facility alsoprovides for a commitment fee not to exceed 3/8% per annum on the unusedportion.  The revolving credit facilityis used by the Company for both its long-term and short-term financingneeds.  The Company believes that itscash on hand, cash from operations and the available credit facility will besufficient to meet its cash requirements through 2009.

 

**RecentAccounting Pronouncements:**

 

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised 2007), “BusinessCombinations,” (“SFAS No. 141R”), which replaces SFAS No. 141. Thisstatement retains the purchase method of accounting for business acquisitions,but requires a number of changes in the recognition of assets acquired andliabilities assumed as well as in the treatment of acquisition-relatedcosts.  SFAS No. 141R will beeffective at the beginning of the Company’s fiscal year 2010 and will applyprospectively to business combinations completed on or after that date.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”).SFAS No. 161 changes the disclosure requirements for derivativeinstruments and hedging activities and will also be effective at the beginningof the Company’s fiscal year 2010.

 

In April 2008,the FASB issued FASB Staff Position (“FSP”) 142-3, “Determining the Useful Lifeof Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to beconsidered in determining the useful life of intangible assets. Its intent isto improve the consistency between the useful life of an intangible asset andthe period of expected cash flows used to measure its fair value. FSP 142-3will be effective at the beginning of the Company’s fiscal year 2010.

 

The Company doesnot believe the adoption of SFAS No. 141R, SFAS No. 161 or FSP 142-3will have a material effect on its consolidated financial position, results ofoperations, or cash flows.

 

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**Forward-Looking Information:**

 

ThisQuarterly Report on Form 10-Q includes forward-looking statements.  Statements that describe future expectations,plans or strategies are considered “forward-looking statements” as that term isdefined under the Private Securities Litigation Reform Act of 1995 and releasesissued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,” “intend,”“estimate” and other expressions which are predictions of or indicate futureevents and trends and which do not relate to historical matters identifyforward-looking statements.  Suchstatements are subject to risks and uncertainties that could cause actualresults to differ materially from those currently anticipated.  Factors that could affect actual resultsinclude, among others, changes in customers’ demand for the Company’s products,including seasonal changes in customer orders and shifting orders to lower costregions, changes in market growth rates, changes in raw material costs andavailability, pricing actions by competitors and other competitive pressures inthe markets in which the Company competes, consolidation among customers andcompetitors, success in the execution of acquisitions and the performance andintegration of acquired businesses including carrying value of intangibleassets, restructuring and impairment charges required under generally acceptedaccounting principles, changes in operating expenses including medical andenergy costs, changes in technology including migration from paper-based booksto digital, difficulties in the start up of new equipment or informationtechnology systems, changes in copyright laws, changes in consumer productsafety regulations, changes in environmental regulations, changes in taxregulations, changes in the Company’s effective income tax rate and generalchanges in economic conditions, including currency fluctuations, changes ininterest rates, changes in consumer confidence, changes in the housing market,and tightness in the credit markets.* *Althoughthe Company believes that the assumptions underlying the forward-lookingstatements are reasonable, any of the assumptions could be inaccurate, andtherefore, there can be no assurance that the forward-looking statements willprove to be accurate.  Theforward-looking statements included herein are made as of the date hereof, andthe Company undertakes no obligation to update publicly such statements toreflect subsequent events or circumstances.

 

**Item 3.****                                   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUTMARKET RISK**

 

There have been no material changes from the information concerning theCompany’s “Quantitative and Qualitative Disclosures About Market Risk” aspreviously reported in the Company’s Annual Report on Form 10-K for theyear ended September 27, 2008.

 

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

#### ** **

**(a)****                     ****Evaluation of disclosure controls and procedures**

 

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 concludedthat the Company’s disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Company in the reports itfiles or submits under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported, within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.

 

**(b)****                     ****Changes in internal controls over financialreporting**

 

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.

 

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###### ** **

###### **COURIERCORPORATION**

###### ** **

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

#### ** **

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

 

None.

 

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

 

TheCompany’s consolidated results of operations, financial condition and cashflows can be adversely affected by various risks.  Our business is influenced by many factorsthat are difficult to predict, involve uncertainties that may materially affectactual results and are often beyond our control.  These risks include, but are not limited to,the principal factors listed below and the other matters set forth in thisQuarterly Report on Form 10-Q.  Youshould carefully consider all of these factors. For other factors that may cause actual results to differ materiallyfrom those indicated in any forward-looking statement contained in this report,see *Forward-Looking Information* in *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*.

 

**Highlycompetitive markets for our products and industry consolidation may createincreased pricing pressures.**

 

Thebook industry is extremely competitive. In the book manufacturing segment, consolidation over the past few yearsof both customers and competitors within the markets the Company competes hascaused downward pricing pressures.  Inaddition, excess capacity and competition from printing companies in lower costcountries may increase competitive pricing pressures.  Furthermore, some of our competitors havegreater sales, assets and financial resources than us, particularly those inforeign countries, who may derive significant advantages from localgovernmental regulation, including tax holidays and other subsidies.  All or any of these competitive pressurescould affect prices or customers’ demand for our products, impacting our profitmargins and/or resulting in a loss of customers and market share.

 

**Weneed to keep pace with rapid industry and technological change.**

 

Theprinting industry is in a period of rapid technological evolution.  Our future financial performance will depend,in part, upon the ability to anticipate and adapt to rapid industry andtechnological changes occurring in the industry and upon the ability to offer,on a timely basis, services that meet evolving industry standards.  We cannot assure investors that we will beable to adapt to such technological changes or offer these services on a timelybasis or establish or maintain a 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 moreof these factors will not vary unpredictably, which could have a materialadverse effect on us. In addition, we cannot assure investors, even if thesefactors turn out as we anticipate, that we will be able to implement ourstrategy or that the strategy will be successful in this rapidly evolvingmarket.

 

**Our operating results are dependent in part on unpredictableorder patterns.**

 

Our quarterly and annualoperating results have fluctuated in the past and are likely to fluctuate inthe future due to a variety of factors, some of which are outside of ourcontrol. Factors that may affect our future operating results include:

 

·                                          thetiming and size of the orders for our books;

 

·                                          theavailability of markets for sales or distribution by our major customers;

 

·                                          thelengthy and unpredictable sales cycles associated with sales of textbooks tothe elementary and high school market;

 

·                                          our customers’ willingness andsuccess in shifting orders from the peak textbook season to the off-peak seasonto even out our press load over the year;

 

·                                          fluctuationsin the currency market may make manufacturing in the United States more or lessattractive and make equipment more or less expensive for us to purchase;

 

16

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·                                          issuesthat might arise from the integration of acquired businesses, including theirinability to achieve expected results; and

 

·                                          tightnessin credit markets affecting the availability of capital for ourselves and/orour customers.

 

As a result of these andother factors, period-to-period comparisons of our operating results are notnecessarily meaningful or indicative of future performance. In addition, thefactors noted above may make it difficult for us to forecast and provide in atimely manner public guidance (including updates to prior guidance) related toour projected financial performance. Furthermore, it is possible that in somefuture quarters our operating results will fall below the expectations ofsecurities analysts or investors. If this occurs, the trading price of ourcommon stock could decline.

 

**Fluctuationsin the cost and availability of paper and other raw materials may causedisruption and impact margins.**

 

Purchasesof paper and other 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.

 

Availabilityof paper is important 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.

 

Fluctuationsin the costs and availability of other raw materials could adversely affectoperating costs or customer demand and thereby negatively impact our operatingresults, financial condition or cash flows.

 

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.

 

**Energycosts and availability may negatively impact our financial results.**

 

Energycosts are incurred directly to run production equipment and facilities andindirectly through 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 customer demand.  In addition, interruption in the availabilityof energy could disrupt operations, adversely impacting operating results.

 

**Wemay not be able to continue to improve our operating efficiencies.**

 

Becausethe markets in which we operate are highly competitive, we must continue toimprove our operating efficiency in order to maintain or improve ourprofitability.  Although we have beenable to expand our capacity, improve our productivity and reduce costs in thepast, there is no assurance 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.

 

**Inadequateintellectual property protection for our publications could negatively impactour 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 of worksin the public domain, for

 

17

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which there is nearly nointellectual property protection.  Ouroperating results may be adversely affected by the increased availability ofsuch works elsewhere, including on the Internet, either for free or for a lowerprice.

 

**Wehave a high degree of customer concentration.**

 

We derived approximately 50% ofour fiscal 2008 revenues from three major customers, and in fiscal 2007 and2006 we derived approximately 35% and 40%, respectively, of our revenues fromtwo major customers.  We expect similarconcentrations in fiscal 2009.  Asignificant reduction in order volumes or price levels from any of thesecustomers could have a material adverse effect on the Company.

 

**Declines ingeneral economic conditions may adversely impact our business.**

 

Economicconditions have the potential to impact our financial resultssignificantly.  Within the bookmanufacturing and specialty publishing segments, we may be adversely affectedby the current worldwide economic downturn, including as a result of changes ingovernment, business and consumer spending. Examples of how our financial results may be impacted include:

 

·                                          Fluctuations in federal orstate government spending on education, including a reduction in tax revenuesdue to the current economic environment, could lead to a corresponding decreaseor increase in the demand for educational materials, which are produced in ourbook manufacturing segment and comprise a portion of our publishing products.

 

·                                          Consumer demand for books canbe impacted by reductions in disposable income when costs such as electricityand gasoline reduce discretionary spending.

 

·                                          Tightness in credit markets mayresult in customers delaying orders to reduce inventory levels and may impacttheir ability to pay their debts as they become due.

 

·                                          Changes in the housing marketmay impact the sale of Creative Homeowner’s products.

 

·                                          Reduced fundraising byreligious customers may decrease their order level.

 

·                                          A slowdown in book purchasesmay result in retailers returning an unusually large number of books topublishers who, in turn reduce their reorders.

 

**Thesubstitution of electronic delivery for printed materials may adversely affectour business.**

 

Electronicdelivery of documents and data, including the online distribution and hostingof media content, offers alternatives to traditional delivery of printeddocuments.  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 accept theseelectronic alternatives, demand for our printed products may be adverselyaffected.

 

**Changesin postal rates and postal regulations may adversely impact our business.**

 

Postalcosts are a significant component of our direct marketing cost structure andpostal rate changes 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.

 

**Ourfacilities are subject to stringent environmental laws and regulations, whichmay subject us to liability or increase our costs.**

 

We usevarious materials in our operations that contain substances consideredhazardous or toxic under environmental laws. In addition, our operations are subject to federal, state, and localenvironmental laws relating to, among other things, air emissions, wastegeneration, handling, management and disposal, waste water treatment anddischarge and remediation of soil and groundwater contamination.  Permits are required for the operation ofcertain of our businesses and these permits are subject 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 our own

 

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facilities.  Future changes to environmental laws andregulations may give rise to additional costs or liabilities that could have amaterial adverse impact on our financial position and results of operations.

 

**Wemay not be able to successfully integrate acquired businesses.**

 

Inrecent years, we have completed three acquisitions, including Moore Langen andCreative Homeowner in fiscal year 2006 and REA in fiscal 2004, and may continueto make acquisitions in the future.  Webelieve that these acquisitions provide strategic growth opportunities forus.  Achieving the anticipated benefitsof these acquisitions will depend in part upon our ability to integrate thesebusinesses in an efficient and effective manner.  The challenges involved in successfullyintegrating acquisitions include:

 

·                                          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 our business;

 

·                                          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 havea material adverse effect on our business, results of operations and financialcondition or cash flows, particularly in the case of a larger acquisition ormultiple acquisitions in a short period of time.  From time to time, we may enter intonegotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significantdiversion of management’s time from our business as well as significantout-of-pocket costs. Tightness in credit markets may also affect our ability toconsummate such acquisitions.

 

Theconsideration that we pay in connection with an acquisition could affect ourfinancial results.  If we were to proceedwith one or more significant acquisitions in which the consideration includedcash, we could be required to use a substantial portion of our available cashand credit facilities to consummate such acquisitions.  To the extent we issue shares of stock orother rights to purchase stock, including options or other rights, our existingstockholders may experience dilution in their share ownership in our companyand their earnings per share may decrease. In addition, acquisitions may result in the incurrence of debt, largeone-time write-offs and restructuring charges. They may also result in goodwill and other intangible assets that aresubject to impairment tests, which could result in future impairmentcharges.  Any of these factors may materiallyand adversely affect our business and operations.

 

**Our financial results could be negatively impacted byimpairments of goodwill or other intangible assets required by SFAS 142 and theapplication of future accounting policies or interpretations of existingpolicies.**

 

Inaccordance with SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS142”), we perform an annual assessment for impairment of goodwill and otherintangible assets at the end of our fiscal year or whenever events or changesin circumstances occur that would more likely than not reduce the fair value ofa reporting unit below it’s carrying value. A downward revision in the fair value of one of our acquired businessescould result in impairments of goodwill under SFAS 142 and non-cashcharges.  Any charge resulting from theapplication of SFAS 142 could have a significant negative effect on ourreported results of operations.  Inaddition, our financial results could be negatively impacted by the applicationof existing and future accounting policies or interpretations of existingaccounting policies, any continuing impact of SFAS 142 or any negative impactrelating to the application of SFAS No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets.”

 

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**Ourability to hire and train key executives and other qualified employees iscrucial.**

 

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 management.  If that were to occur, it could adverselyaffect our business.

 

**We needskilled employees to manufacture our products.**

 

If we experience problems hiring and retaining skilledemployees, our business may be negatively affected.  The timely manufacture and delivery of ourproducts requires an adequate supply of skilled employees, and the operatingcosts of our manufacturing facilities can be adversely affected by highturnover in skilled positions. Accordingly, our ability to increase sales, productivity and netearnings could be impacted by our ability to employ the skilled employeesnecessary to meet our requirements. Although our book manufacturing locations are geographically dispersed,individual locations may encounter strong competition with other manufacturersfor skilled employees.  There can be noassurance that we will be able to maintain an adequate skilled labor forcenecessary 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.

 

**Compliance with changing regulation of corporate governance, publicdisclosure and accounting matters may result in additional expenses.**

 

##### Changing laws, regulations andstandards relating to corporate governance and public disclosure, including theSarbanes-Oxley Act of 2002 and new rules subsequently implemented by theSecurities and Exchange Commission and The NASDAQ Stock Market, as well as newaccounting pronouncements, are creating uncertainty and additional complexitiesfor companies.  To maintain highstandards of corporate governance and public disclosure, we continue to investresources to comply with evolving standards. This investment may result in increased general and administrativeexpenses and a diversion of management time and attention from revenuegenerating and cost management activities.

#####  

**We aresubject to various laws and regulations where we operate our business.**

 

We are subject tofederal, state and local laws and regulations affecting our business, includingthose promulgated under the Consumer Product Safety Act, the rules andregulations of the Consumer Products Safety Commission as well as laws andregulations relating to personal information. We may be required to make significant expenditures to comply with suchgovernmental laws and regulations and any amendments thereto. Complying withexisting or future laws or regulations may materially limit our business andincrease our costs.  Failure to complywith such laws may expose us to potential liability and have a material adverseeffect on our results of operations.

 

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**Item 2.****                                   Unregistered Sales of Equity Securities and Useof Proceeds**

 

None.

 

**Item 3.****                                   DefaultsUpon Senior Securities**

** **

None.

 

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

 

None.

 

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

 

There have been nomaterial changes to the procedures by which security holders may recommendnominees to the Company’s Board of Directors.

 

**Item 6.****                                   Exhibits**

** **
| **Exhibit No.** | ** ** | **Description**                          | ** ** |
|----------------------|------------|------------------------------------------|------------|
|                 |       |                                     |       |
| 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**

 

Pursuantto the requirements of the Securities Exchange Act of 1934, the Company hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 

**COURIER CORPORATION**

**(Registrant)**

 

 
| *  February 2, 2009* | * * | * * | By:    | *  s/James F. Conway III*                                                                  |
|-------------------------------------|----------|----------|--------|------------------------------------------------------------------------------------------------------|
| Date                                |     |     |   |         James F. Conway III                                  |
|                                |     |     |   |         Chairman,  President and   Chief Executive Officer   |
|                                |     |     |   |                                                                                                 |
|                                |     |     |   |                                                                                                 |
| *  February 2, 2009* | * * | * * | By:    | *  s/Peter M. Folger*                                                                      |
| Date                                |     |     |   |         Peter M. Folger                                      |
|                                |     |     |   |         Senior  Vice President and   Chief Financial Officer |
|                                |     |     |   |                                                                                                 |
|                                |     |     |   |                                                                                                 |
| *  February 2, 2009* | * * | * * | By:    | *  s/Kathleen M. Leon*                                                                     |
| Date                                |     |     |   |         Kathleen M. Leon                                     |
|                                |     |     |   |         Vice  President and   Controller                     |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                              |
|----------------------|------------|----------------------------------------------|
|                 |       |                                         |
| 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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