**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.  20549**

 

**FORM 10-Q**

**(Mark One)**

 

| **ý**                                                                                                                                                                                                                                                                                                                                                                                                                                                      |   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934**  |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |   |                                                                                          |
| **For the  quarterly period ended                                           December  27, 2003**                                                                                                                                                   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **OR**                                                                                                                                                                                                                                                                                                                                                                                                                                                          |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **o**                                                                                                                                                                                                                                                                                                                                                                                                                                                           |   | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE SECURITIES EXCHANGE ACT OF 1934** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **For the  transition period from                                    to                                  ** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                            |
| **Commission  file number                                                              0-7597**                                           |

 

| **COURIER  CORPORATION**                                                            |
|-------------------------------------------------------------------------------------|
| (Exact name of registrant as specified in  its charter)                             |
|                                                                                |
| **Massachusetts**                                                                   |
| (State or other jurisdiction  of incorporation or organization)                     |
|                                                                                |
| **04-2502514**                                                                      |
| (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 since last report) |

 

Indicate by check mark whether the registrant(1) has filed all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or for suchshorter period that the registrant was required to file such reports), and (2)has been subject to such filing requirements for the past 90 days.

 

Yes         ý            No           o

 

Indicate by check mark whether the registrantis an accelerated filer (as defined in Exchange Act Rule 12b-2).

Yes         ý            No           o

 

Indicate the number of shares outstanding ofeach of the issuer’s classes of common stock, as of the latest practicabledate.

 

| **Class**                  |   | **Outstanding at February  6, 2004** |
|----------------------------|--------|--------------------------------------|
| Common Stock, $1 par value |   | 7,936,747 Shares                     |

 

 

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COURIER CORPORATIONCONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)(Dollars in thousands except per share amounts)

 
|                                 |   | **THREE MONTHS ENDED** |   |
|--------------------------------------|--------|------------------------|--------|
|                                 |   | **December 27,  2003** |   | **December 28,  2002** |   |
|                                 |   |                   |   |   |   |
| Net sales                            |   | $                      | 46,819 |   | $ | 48,782 |   |
| Cost of  sales                       |   | 31,190                 |   | 33,394 |   |
|                                 |   |                   |   |   |   |
| Gross  profit                        |   | 15,629                 |   | 15,388 |   |
|                                 |   |                   |   |   |   |
| Selling  and administrative expenses |   | 9,638                  |   | 9,698 |   |
| Interest  (income) expense           |   | (27                    | )      | 42 |   |
|                                 |   |                   |   |   |   |
| Income  before taxes                 |   | 6,018                  |   | 5,648 |   |
|                                 |   |                   |   |   |   |
| Provision  for income taxes (Note C) |   | 2,106                  |   | 1,899 |   |
|                                 |   |                   |   |   |   |
| Income  from continuing operations   |   | $                      | 3,912  |   | $ | 3,749 |   |
|                                 |   |                   |   |   |   |
| Discontinued  operations (Note E):   |   |                   |   |   |   |
| Loss from  operations, net of tax    |   | —                 |   | (65 | ) |
| Gain on  disposal, net of tax        |   | —                 |   | 828 |   |
|                                 |   |                   |   |   |   |
| Net  income                          |   | $                      | 3,912  |   | $ | 4,512 |   |
|                                 |   |                   |   |   |   |
| Income  per basic share (Note D):    |   |                   |   |   |   |
| Continuing  operations               |   | $                      | 0.49   |   | $ | 0.48 |   |
| Discontinued  operations (Note E):   |   |                   |   |   |   |
| Loss from  operations                |   | —                 |   | (0.01 | ) |
| Gain on  disposal                    |   | —                 |   | 0.11 |   |
|                                 |   |                   |   |   |   |
| Net  income per basic share          |   | $                      | 0.49   |   | $ | 0.58 |   |
|                                 |   |                   |   |   |   |
| Income  per diluted share (Note D):  |   |                   |   |   |   |
| Continuing  operations               |   | $                      | 0.48   |   | $ | 0.46 |   |
| Discontinued  operations (Note E):   |   |                   |   |   |   |
| Loss from  operations                |   | —                 |   | (0.01 | ) |
| Gain on  disposal                    |   | —                 |   | 0.10 |   |
|                                 |   |                   |   |   |   |
| Net  income per diluted share        |   | $                      | 0.48   |   | $ | 0.56 |   |
|                                 |   |                   |   |   |   |
| Cash dividends  declared per share   |   | $                      | 0.0875 |   | $ | 0.075 |   |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

2

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COURIERCORPORATIONCONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)(Dollars in thousands)

 
|                                                                                                                             |   | **December 27,2003** |    | **September 27,2003** |   |
|----------------------------------------------------------------------------------------------------------------------------------|--------|----------------------|---------|-----------------------|--------|
| ASSETS                                                                                                                           |   |                 |    |                  |   |
|                                                                                                                             |   |                 |    |                  |   |
| Current  assets:                                                                                                                 |   |                 |    |                  |   |
| Cash and  cash equivalents                                                                                                       |   | $                    | 22,838  |                  | $      | 23,824 |   |
| Accounts  receivable, less allowance for uncollectible accounts of $1,810 at December 27,  2003 and $1,741 at September 27, 2003 |   | 26,346               |    | 29,174                |   |
| Inventories  (Note B)                                                                                                            |   | 23,270               |    | 20,681                |   |
| Deferred  income taxes                                                                                                           |   | 3,184                |    | 3,164                 |   |
| Other  current assets                                                                                                            |   | 558                  |    | 830                   |   |
|                                                                                                                             |   |                 |    |                  |   |
| Total  current assets                                                                                                            |   | 76,196               |    | 77,673                |   |
|                                                                                                                             |   |                 |    |                  |   |
| Property,  plant and equipment, less accumulated depreciation: $103,480 at December 27,  2003 and $101,356 at September 27, 2003 |   | 45,699               |    | 43,342                |   |
|                                                                                                                             |   |                 |    |                  |   |
| Goodwill  (Note A)                                                                                                               |   | 24,847               |    | 24,847                |   |
|                                                                                                                             |   |                 |    |                  |   |
| Prepublication  costs (Note A)                                                                                                   |   | 3,910                |    | 3,810                 |   |
|                                                                                                                             |   |                 |    |                  |   |
| Other  assets                                                                                                                    |   | 1,439                |    | 1,429                 |   |
|                                                                                                                             |   |                 |    |                  |   |
| Total  assets                                                                                                                    |   | $                    | 152,091 |                  | $      | 151,101 |   |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

3

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|                                                                                                    |   | **December 27,  2003** |    | **September 27,  2003** |   |
|---------------------------------------------------------------------------------------------------------|--------|------------------------|---------|-------------------------|--------|
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                              |   |                   |    |                    |   |
|                                                                                                    |   |                   |    |                    |   |
| Current  liabilities:                                                                                   |   |                   |    |                    |   |
| Current  maturities of long-term debt                                                                   |   | $                      | 81      |                    | $      | 81 |   |
| Accounts  payable                                                                                       |   | 6,050                  |    | 6,494                   |   |
| Accrued  payroll                                                                                        |   | 4,439                  |    | 8,031                   |   |
| Accrued  taxes                                                                                          |   | 5,643                  |    | 6,521                   |   |
| Other  current liabilities                                                                              |   | 7,211                  |    | 5,686                   |   |
|                                                                                                    |   |                   |    |                    |   |
| Total  current liabilities                                                                              |   | 23,424                 |    | 26,813                  |   |
|                                                                                                    |   |                   |    |                    |   |
| Long-term  debt                                                                                         |   | 573                    |    | 593                     |   |
| Deferred  income taxes                                                                                  |   | 6,153                  |    | 5,597                   |   |
| Other  liabilities                                                                                      |   | 2,839                  |    | 2,678                   |   |
|                                                                                                    |   |                   |    |                    |   |
| Total  liabilities                                                                                      |   | 32,989                 |    | 35,681                  |   |
|                                                                                                    |   |                   |    |                    |   |
| Stockholders’  equity:                                                                             |   |                   |    |                    |   |
| Preferred  stock, $1 par value - authorized 1,000,000 shares; none issued                               |   |                   |    |                    |   |
| Common  stock, $1 par value - authorized 18,000,000 shares; issued 8,088,000 shares                     |   | 8,088                  |    | 8,088                   |   |
| Additional  paid-in capital                                                                             |   | 1,042                  |    | 650                     |   |
| Retained  earnings                                                                                      |   | 112,035                |    | 108,827                 |   |
| Unearned  compensation                                                                                  |   | (301                   | )       | (350                    | )      |
| Treasury  stock, at cost: 154,000 shares at December 27, 2003 and 157,000 shares at  September 27, 2003 |   | (1,762                 | )       | (1,795                  | )      |
|                                                                                                    |   |                   |    |                    |   |
| Total  stockholders’ equity                                                                        |   | 119,102                |    | 115,420                 |   |
|                                                                                                    |   |                   |    |                    |   |
| Total  liabilities and stockholders’ equity                                                        |   | $                      | 152,091 |                    | $      | 151,101 |   |

 

Theaccompanying notes are an integral part of the consolidated financialstatements.

 

4

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COURIER CORPORATIONCONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)(Dollars in thousands)

 
|                                                                             |   | **THREE MONTHS ENDED** |   |
|----------------------------------------------------------------------------------|--------|------------------------|--------|
|                                                                             |   | **December 27,  2003** |   | **December 28,  2002** |   |
|                                                                             |   |                   |   |   |   |
| Operating  Activities:                                                           |   |                   |   |   |   |
| Net  income                                                                      |   | $                      | 3,912  |   | $ | 4,512 |   |
| Adjustments  to reconcile net income to cash provided from operating activities: |   |                   |   |   |   |
| Depreciation  and amortization                                                   |   | 2,590                  |   | 2,522 |   |
| Deferred  income taxes                                                           |   | 536                    |   | 263 |   |
| Changes  in assets and liabilities:                                              |   |                   |   |   |   |
| Accounts  receivable                                                             |   | 2,828                  |   | 2,497 |   |
| Inventory                                                                        |   | (2,589                 | )      | (661 | ) |
| Accounts  payable                                                                |   | (444                   | )      | 265 |   |
| Accrued  taxes                                                                   |   | (878                   | )      | (1,169 | ) |
| Other  elements of working capital                                               |   | (1,795                 | )      | (1,641 | ) |
| Gain on  sale of discontinued operation (Note E)                                 |   | —                 |   | (828 | ) |
| Other,  net                                                                      |   | 580                    |   | 42 |   |
|                                                                             |   |                   |   |   |   |
| Cash  provided from operating activities                                         |   | 4,740                  |   | 5,802 |   |
|                                                                             |   |                   |   |   |   |
| Investment  Activities:                                                          |   |                   |   |   |   |
| Capital  expenditures                                                            |   | (4,481                 | )      | (690 | ) |
| Prepublication  costs                                                            |   | (563                   | )      | (490 | ) |
| Proceeds  from sale of discontinued operation (Note E)                           |   | —                 |   | 1,500 |   |
|                                                                             |   |                   |   |   |   |
| Cash  provided from (used for) investment activities                             |   | (5,044                 | )      | 320 |   |
|                                                                             |   |                   |   |   |   |
| Financing  Activities:                                                           |   |                   |   |   |   |
| Long-term  debt repayments                                                       |   | (20                    | )      | (20 | ) |
| Cash  dividends                                                                  |   | (704                   | )      | (587 | ) |
| Proceeds  from stock plans                                                       |   | 42                     |   | 38 |   |
|                                                                             |   |                   |   |   |   |
| Cash used  for financing activities                                              |   | (682                   | )      | (569 | ) |
|                                                                             |   |                   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                |   | (986                   | )      | 5,553 |   |
|                                                                             |   |                   |   |   |   |
| Cash and  cash equivalents at the beginning of the period                        |   | 23,824                 |   | 5,630 |   |
|                                                                             |   |                   |   |   |   |
| Cash and  cash equivalents at the end of the period                              |   | $                      | 22,838 |   | $ | 11,183 |   |

 

The accompanying notes are anintegral part of the consolidated financial statements.

 

5

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**COURIER CORPORATION**

 

**NOTES TO CONSOLIDATED CONDENSED FINANCIALSTATEMENTS (UNAUDITED)**

 

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

 

**UnauditedFinancial Statements**

The balance sheet as of December 27, 2003,the statements of income for the three-month periods ended December 27, 2003and December 28, 2002, and the statements of cash flows for the three-monthperiods ended December 27, 2003 and December 28, 2002 are unaudited. In theopinion of management, all adjustments necessary for a fair presentation ofsuch financial statements have been recorded. Such adjustments consisted only of normal recurring items. Certainamounts for fiscal 2003 have been reclassified in the accompanying financialstatements in order to be consistent with the current year’s classification.

 

Certain information and footnote disclosuresnormally included in financial statements prepared in accordance withaccounting principles generally accepted in the United States (“generallyaccepted accounting principles”) have been condensed or omitted.  The balance sheet data as of September 27,2003 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-K andAnnual Report for the year ended September 27, 2003.

 

**Prepublication Costs**

Prepublication costs, associated with thespecialty publishing segment, are amortized using the straight-line method overan estimated useful life of four years. Effective with the second quarter of fiscal 2003, amortization expenseof prepublication costs was reclassified to cost of sales from selling andadministrative expense.  Prior periodspresented in the accompanying financial statements have been reclassified inorder to be consistent with the current classification.

 

**Goodwill**

The Company accounts for goodwill in accordance with SFAS No. 142, “Accountingfor Goodwill and Other Intangible Assets.” There has been no change in the carrying amount of goodwill during theperiod or in the allocation of goodwill by reportable segment.

 

**StockSplit**

On November 6, 2003, the Company announced a three-for-two stock spliteffected in the form of a 50% stock dividend, except for treasury shares, whichwas distributed on December 5, 2003. Previously authorized but unissued shares were used to effect thedividend.  Weighted average sharesoutstanding and per share amounts presented in the accompanying financialstatements for periods prior to the stock split have been restated to giveeffect to the stock split.

 

**Stock-BasedCompensation**

Pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation,” asamended by SFAS No. 148, the Company applies the recognition and measurementprinciples of APB Opinion No. 25, “Accounting for Stock Issued to Employees”and related interpretations. Accordingly, because the number of shares is fixed and the exerciseprice of the stock options equals the market price of the underlying stock onthe date of grant, no compensation expense has been recognized.

 

6

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Had compensation cost for stock options, and grants under the EmployeeStock Purchase Plan, been determined under the provisions of SFAS No. 123, theCompany’s net income would have been as follows:

 
|                                                                                                |   | **(000’s  Omitted)  Three Months Ended** |   |
|-----------------------------------------------------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                                                                |   | **December  27,  2003**                       |   | **December  28,  2002** |   |
|                                                                                                |   |                                          |   |   |   |
| Net income as reported                                                                              |   | $                                             | 3,912  |   | $ | 4,512 |   |
| Deduct: Stock-based compensation expense  determined under SFAS No. 123, net of related tax effects |   | (349                                          | )      | (237 | ) |
| Pro forma net income                                                                                |   | $                                             | 3,563  |   | $ | 4,275 |   |
|                                                                                                |   |                                          |   |   |   |
| Net income per share as reported:                                                                   |   |                                          |   |   |   |
| Basic                                                                                               |   | $                                             | 0.49   |   | $ | 0.58 |   |
| Diluted                                                                                             |   | 0.48                                          |   | 0.56 |   |
|                                                                                                |   |                                          |   |   |   |
| Pro forma net income per share:                                                                     |   |                                          |   |   |   |
| Basic                                                                                               |   | $                                             | 0.45   |   | $ | 0.55 |   |
| Diluted                                                                                             |   | 0.44                                          |   | 0.53 |   |

 

**B.           INVENTORIES**

 

Inventories are valued at the lower of costor market.  Cost is determined using thelast-in, first-out (LIFO) method for approximately 42% and 44% of the Company’sinventories at December 27, 2003 and September 27, 2003, respectively.  Other inventories, primarily at Dover, aredetermined on a first-in, first-out (FIFO) basis.  Inventories consisted of the following:

 
|             |   | **(000’s Omitted)** |   |
|------------------|--------|--------------------------|--------|
|             |   | **December 27,  2003**   |   | **September 27,  2003** |   |
| Raw materials    |   | $                        | 3,439  |   | $ | 1,704 |   |
| Work in  process |   | 4,587                    |   | 3,833 |   |
| Finished goods   |   | 15,244                   |   | 15,144 |   |
| Total            |   | $                        | 23,270 |   | $ | 20,681 |   |

 

**C.            INCOME TAXES**

 

The provision for income taxes fromcontinuing operations differs from that computed using the statutory federalincome tax rates for the following reasons:

 
|                                                   |   | **(000’s  Omitted)  Three Months Ended** |   |
|--------------------------------------------------------|--------|-----------------------------------------------|--------|
|                                                   |   | **December 27,****2003**                      |   | **December 28,  2002** |   |
| Federal taxes  at statutory rates                      |   | $                                             | 2,106  |   | $ | 1,965 |   |
| State taxes, net  of federal benefit                   |   | 153                                           |   | 117 |   |
| Foreign sales  corporation (FSC) export related income |   | (162                                          | )      | (174 | ) |
| Other                                                  |   | 9                                             |   | (9 | ) |
| Total                                                  |   | $                                             | 2,106  |   | $ | 1,899 |   |

 

7

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**D.            NET INCOME PER SHARE**

 

Following is a reconciliationof the shares used in the calculation of basic and diluted income pershare.  Potentially dilutive shares,calculated using the treasury stock method,   consistof shares issued under the Company’s stock option plans.  These shares have been adjusted to reflectthe three-for-two stock split effected in the form of a dividend distributed onDecember 5, 2003 (see Note A).

 
|                                    |   | **(000’s Omitted)  Three Months Ended** |   |
|-----------------------------------------|--------|----------------------------------------------|--------|
|                                    |   | **December 27,  2003**                       |   | **December 28,  2002** |   |
|                                    |   |                                         |   |   |   |
| Average shares  outstanding for basic   |   | 7,933                                        |   | 7,822 |   |
| Effect of  potentially dilutive shares  |   | 256                                          |   | 251 |   |
| Average shares  outstanding for diluted |   | 8,189                                        |   | 8,073 |   |

 

**E.             DISCONTINUED OPERATIONS**

 

OnDecember 17, 2002, the Company sold the assets of its whollyowned subsidiary, Courier Custom Publishing, Inc., which comprised all of theactivities of the customized education segment.  The customized education segment provided customized coursepacksand textbooks. Financial results of this discontinued operation for the firstquarter of fiscal 2003 was a loss, net of tax, of $65,000 or $.01 per dilutedshare.  Proceeds from the sale were $1.5million resulting in an after-tax gain of approximately $0.8 million, or$.10 per diluted share, in the first quarter of fiscal 2003.

 

**F.             BUSINESS SEGMENTS**

 

TheCompany has two business segments: full-service book manufacturing andspecialty publishing. The book manufacturing segment offers a full range ofservices from production through storage and distribution for religious,educational and specialty trade book publishers. The specialty publishingsegment consists of Dover Publications, Inc. and, beginning in the secondquarter, REA (see Note G).

 

In evaluating segmentperformance, management primarily focuses on income or loss before taxes andother income.  The elimination ofintersegment sales and related profit represents sales from the bookmanufacturing segment to the specialty publishing segment.  Corporate expenses that are allocated to thesegments include various support functions such as information technologyservices, finance, human resources and engineering, and include depreciationand amortization expense related to corporate assets*.*

 

8

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The following table provides segment information for the three-month periodsended December 27, 2003 and December 28, 2002. Information relatingto the discontinued customized education segment is not included (see Note E).

 
|                                |   | **(000’s) Omitted)****Three  Months Ended** |   |
|-------------------------------------|--------|--------------------------------------------------|--------|
|                                |   | **December 27,  2003**                      |   | **December 28,  2002** |   |
| Net sales:                          |   |                                             |   |   |   |
| Book  manufacturing                 |   | $                                                | 39,657 |   | $ | 41,840 |   |
| Specialty  publishing               |   | 9,067                                            |   | 8,365 |   |
| Elimination of  intersegment sales  |   | (1,905                                           | )      | (1,423 | ) |
| Total for  continuing operations    |   | $                                                | 46,819 |   | $ | 48,782 |   |
|                                |   |                                             |   |   |   |
| Income before  taxes:               |   |                                             |   |   |   |
| Book  manufacturing                 |   | $                                                | 4,823  |   | $ | 4,714 |   |
| Specialty  publishing               |   | 1,313                                            |   | 1,061 |   |
| Elimination of  intersegment profit |   | (118                                             | )      | (127 | ) |
| Total for  continuing operations    |   | $                                                | 6,018  |   | $ | 5,648 |   |

 

**G.****                                    SUBSEQUENTEVENT**

 

On January 6, 2004, the Companyannounced the completion of its acquisition of Research & EducationAssociation (REA), for approximately $12 million.  REA, a privately held publisher of test preparation and studyguide books and software for high school, college, graduate students, and professionals,has total annual sales of approximately $6 million.  The acquisition will be accounted for as a purchase, andaccordingly, REA’s financial results will be included in the consolidatedfinancial statements from the date of acquisition.  REA will be included in the specialty publishing segment.

 

9

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

 

**CriticalAccounting Policies and Estimates:**

 

The Company’s consolidated condensedfinancial statements have been prepared in accordance with generally acceptedaccounting principles.  The preparationof these financial statements requires management to make estimates andassumptions that affect the amounts reported in these financial statements andaccompanying notes.   On an ongoingbasis, management evaluates its estimates and judgments, including thoserelated to collectibility of accounts receivable, recovery of inventories,impairment of goodwill, prepublication costs and income taxes.  Management bases its estimates and judgmentson historical experience and various other factors believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying value of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe periods presented.  Actual resultsmay differ from these estimates.  Thesignificant accounting policies which management believes are most critical toaid in fully understanding and evaluating the Company’s reported financialresults include the following:

 

AccountsReceivable  Management performs ongoing credit evaluations of the Company’scustomers and adjusts credit limits based upon payment history and thecustomer’s current creditworthiness. Collections and payments from customers are continuously monitored.  A provision for estimated credit losses isdetermined based upon historical experience and any specific customercollection issues that have been identified. If the financial condition of the Company’s customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.

 

Inventories  Management records reductions in thecost basis of inventory for excess and obsolete inventory based primarily uponhistorical and forecasted product demand. If actual market conditions are less favorable than those projected bymanagement, additional inventory charges may be required.

 

Goodwill. The Company accounts for goodwill in accordance with SFAS No. 142,“Accounting for Goodwill and Other Intangible Assets”.  Accordingly, the Company evaluates possibleimpairment annually or whenever events or circumstances indicate that thecarrying value of the assets may not be recoverable.  The Company completed the annual impairment test required by SFASNo. 142 at September 27, 2003 resulting in no change to the nature orcarrying amounts of its intangible assets. Changes in market conditions or poor operating results could result in adecline in value thereby potentially requiring an impairment charge in thefuture.

 

Prepublication Costs   The Company capitalizes prepublication costs, which include thecosts of acquiring rights to publish a work and costs associated with bringinga manuscript to publication such as artwork and editorial efforts.Prepublication costs are amortized on a straight-line basis over a four-yearperiod.  Management regularly evaluatesthe sales and profitability of the products based upon historical andforecasted demand.  Based upon thisevaluation, adjustments may be required to amortization expense.

 

Income Taxes  The income tax provision and related accrued taxes are based on amountsreported on the Company’s tax returns and changes in deferred taxes.  Deferred income tax liabilities and assets are determined based upon the differences betweenthe financial statement and tax bases of assets and liabilities.  Changes in the recoverability of theCompany’s deferred tax assets or audits by tax authorities could result infuture charges or credits to income tax expense, and related accrued anddeferred taxes.

 

10

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**Resultsof Operations:**

For the first quarter of fiscal2004, the Company’s income from continuing operations was $3.9 million, or $.48per diluted share, an increase of 4% over last year’s first quarter results of$3.7 million, or $.46 per diluted share. Sales for the first three months of fiscal 2004 were $46.8 million, down4% from $48.8 million in the corresponding period last year.  Despite the decline in sales, gross profitincreased to $15.6 million in the first quarter compared to $15.4 million inthe same period last year, and, as a percentage of sales, increased to 33.4%compared to 31.5% in the prior year. These results do not include the results of a discontinued operation(see section below on Discontinued Operation).

 

**ContinuingOperations**

 

*BookManufacturing Segment*

Sales from the Company’s book manufacturingsegment were $39.7 million, a decrease of 5% from the first quarter of fiscal2003.  Within this segment, the Companyfocuses on three key markets: education, religious and specialty trade.  Sales in the education market were down 3%in the first quarter compared to the prior year with small decreases at theelementary, high school and college levels.  Sales to the religious market increased 1% in the quarter, despite softdemand among religious trade publishers. Sales to the specialty trade market were down by 9% in the first quartercompared to the corresponding period last year, as publishers remained cautiousabout inventory levels in an uncertain economy.  Despite the decline in sales, gains in market share were obtainedduring the quarter within the education and religious trade markets.  Also, the Company is expanding itsfour-color capabilities with a major new four-color press scheduled to beinstalled at the Kendallville, Indiana facility in the spring.

 

Gross profit as a percentage of sales in thebook manufacturing segment increased by 80 basis points to 28.6% in the firstquarter from 27.8% in the same quarter last year.  The increase was the result of tight control of costs, afavorable shift in sales mix, and continuing gains in productivity due to newequipment and increased employee training.

 

Selling and administrative expenses in thefirst three months of fiscal 2004 decreased by 6% to $6.6 million compared tothe same period in the prior year.  As apercentage of sales, selling and administrative expenses were 17%, comparableto last year’s first quarter.

 

Interest income allocated to the bookmanufacturing segment of $74,000 was comparable to the corresponding periodlast year.

 

First quarter pretax income in this segmentincreased 2% to $4.8 million, or $.39 per diluted share, compared to thecorresponding quarter last year.  As apercentage of sales, pretax income increased to 12% in the quarter from 11%last year.

 

*SpecialtyPublishing Segment*

Sales from the Company’s specialty publishingsegment, which is comprised of Dover Publications, Inc. (“Dover”), were $9.1million in the first three months of fiscal 2004, an increase of 8% over thesame period last year.  Sales increasesto major booksellers resulted in a 7% growth in sales to domestic retailerscompared to the first quarter last year. International sales increased by 29% in the quarter.  This improvement in the quarter reflects astrong flow of new titles, growing experience in electronic marketing and animproving retail environment.

 

Gross profit as a percent of sales in the specialty publishing segmentincreased to 48.6% in the first quarter compared to 46.4% in the same periodlast year. The improvement in the gross profit percentage reflects the increasein sales volume as well as operating efficiencies and price increases.

 

Selling and administrativeexpenses in this segment were $3.0 million in the first quarter, an increase of13% over the corresponding prior year period primarily due to higher sales andmarketing expenses.

 

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Interest expense is allocated to thespecialty publishing segment based on the debt incurred to acquire Dover.  Such interest expense for the first quarterof fiscal 2004 was $47,000 compared to $119,000 in the prior year.  The decrease was primarily attributable tocash generated by Dover.

 

Pretax income in the specialty publishingsegment was $1.3 million, or $.10 per diluted share, a 24% increase over lastyear’s first quarter, reflecting the increase in sales and improvement in grossprofit margins.

 

On January 6, 2004, the Companyannounced the completion of its acquisition of Research & EducationAssociation (REA), for approximately $12 million.  REA, a privately held publisher of test preparation and studyguide books and software for high school, college, graduate students, andprofessionals, has total annual sales of approximately $6 million.  The acquisition will be accounted for as apurchase, and accordingly, REA’s financial results will be included in theconsolidated financial statements from the date of acquisition.  REA will be included in the specialtypublishing segment beginning with the second quarter.  The Company expects REA to be neutral to fiscal 2004 earnings andto contribute positively in 2005 and beyond.

 

*TotalConsolidated Company*

Interest income, net of interest expense, was$27,000 in the first quarter of fiscal 2004 compared to interest expense of$42,000 in the same period of fiscal 2003. There were no borrowings under the Company’s $60 million revolvingcredit facility in the first quarter of either year, however, interest expenseincludes commitment fees and other costs associated with maintaining thiscredit facility.  Cash investments inthe first quarter of fiscal 2004 averaged approximately $26.6 million investedat an average annual interest rate of 1.0% generating interest income ofapproximately $67,000.  For the sameperiod last year, the Company’s average cash investments were $12.0 millioninvested at an average interest rate of 1.4%, resulting in approximately$43,000 of interest income.  Inaddition, capitalized interest was $23,000 in the first quarter of fiscal 2004;no such interest was capitalized in the prior year period.

 

The Company’s effective tax ratefor the first quarter of fiscal 2004 was 35% compared to 34% for the firstthree months last year, reflecting a higher effective state tax rate and areduced benefit from export related income.

 

For purposes of computing netincome per diluted share, weighted average shares outstanding increased byapproximately 116,000 shares over last year’s first quarter.  The increase was largely due to optionsexercised. On November 6, 2003, the Company announced a three-for-twostock split effected in the form of a 50% stock dividend, except for treasuryshares, which was distributed on December 5, 2003.  Weighted average shares outstanding and pershare amounts presented in the accompanying financial statements for periodsprior to the stock split have been restated to give effect to the stock split.

 

**DiscontinuedOperation**

 

On December 17, 2002, theCompany sold the assets of its wholly owned subsidiary, Courier CustomPublishing, Inc., which comprised all of the activities of the CustomizedEducation segment. The Customized Education segment provided customizedcoursepacks and textbooks.  Results forthe first quarter of fiscal 2003 were a loss of $65,000, or $.01 per dilutedshare.  Proceeds from the sale ofCourier Custom Publishing were $1.5 million, resulting in an after tax gain ofapproximately $0.8 million, or $.10 per diluted share, in the first quarter offiscal 2003.

 

**Liquidityand Capital Resources:**

During the first three monthsof fiscal 2004, operations provided approximately $4.7 million of cash.  Income from continuing operations was $3.9million and depreciation and amortization were $2.6 million.  Working capital used approximately $2.9million of cash, primarily a result of an increase in inventories.

 

Investment activities in the first quarter offiscal 2004 used approximately $5.0 million of cash. Capital expenditures wereapproximately $4.5 million, primarily for deposits on a major new pressscheduled for delivery in the spring to expand the Company’s four-colorprinting capacity.  For the entirefiscal year, capital expenditures are expected to be approximately $14 to $16million, including approximately $10 million for the new press project.Prepublication costs for the full fiscal year are projected to be approximately$2 million.

 

12

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In March 2003, the Company announcedan agreement to sell approximately 200,000 square feet of unoccupied andunderutilized portions of its multi-building manufacturing complex in Westford,Massachusetts for $1.7 million.  TheCompany will continue its current levels of book manufacturing at thesite.  The agreement contains a numberof significant contingencies. Assuming these contingencies can be resolved, thesale is anticipated to close in fiscal 2004. Although the carrying value of the property is nominal, the agreementrequires that the Company incur certain costs to complete the transaction, suchas the separation of all utilities within the complex.  Although these costs could be significant,if the transaction is completed, the Company anticipates realizing a small gainon the sale.

 

Financing activities for the first threemonths of fiscal 2004 used approximately $0.7 million of cash, primarily fordividend payments.  At December 27,2003, the Company had $23 million in cash and no borrowings under its $60million long-term revolving credit facility, which bears interest at a floatingrate.  The revolving credit facility isused by the Company for both its long-term and short-term financing needs.  The acquisition of REA on January 6,2004 utilized approximately $12 million of cash.  The Company believes that its cash from operations and availablecredit facilities will be sufficient to meet its cash requirements throughfiscal 2004.

 

The following table summarizes the Company’scontractual obligations and commitments at September 27, 2003 to makefuture payments as well as its existing commercial commitments.

 
|                         |   | **(000’s omitted)**   |   |
|------------------------------|--------|----------------------------|--------|
|                         |   | **Payments due by period** |   |
|                         |   | **Total**                  |   | **Less than  1 Year** |   | **1 to 3  Years** |   | **4 to 5  Years** |   | **After 5  Years** |   |
| Contractual  Payments:       |   |                       |   |   |   |   |   |   |   |   |   |
| Long-Term Debt               |   | $                          | 674    |   | $ | 81 |   | $ | 168 |   | $ | 179 |   | $ | 246 |   |
| Operating  Leases            |   | $                          | 9,654  |   | $ | 3,679 |   | $ | 4,033 |   | $ | 1,942 |   | $ | — |   |
| Purchase  Obligations (1)    |   | $                          | 3,607  |   | $ | 3,607 |   | $ | — |   | $ | — |   | $ | — |   |
| Other  Long-Term Liabilities |   | $                          | 2,678  |   | $ | — |   | $ | 1,294 |   | $ | 360 |   | $ | 1,024 |   |

 

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(1)                                  Representamounts at December 27, 2003 for capital commitments for new four-colorpress and other projects.

 

**Forward-LookingInformation:**

This Quarterly Report on Form 10-Q and the Company’s Annual Report forthe year ended September 27, 2003 on Form 10-K include forward-lookingstatements.  Statements that describefuture expectations, plans or strategies are considered “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995 and releases issued by the Securities and ExchangeCommission.  The words “believe,”“expect,” “anticipate,” “intend,” “estimate” and other expressions which arepredictions of or indicate future events and trends and which do not relate tohistorical matters identify forward-looking statements.  Such statements are subject to risks anduncertainties that could cause actual results to differ materially from thosecurrently anticipated.  Factors thatcould affect actual results include, among others, changes in customers’ demandfor the Company’s products, including seasonal changes in customers’ orders,changes in raw material costs, pricing actions by competitors, consolidationamong customers and competitors, success in the integration of acquiredbusinesses, unanticipated changes in operating expenses, changes in technology,changes in copyright laws, changes in tax policy including export credits, andgeneral changes in economic conditions. Although the Company believes that the assumptions underlying theforward-looking statements are reasonable, any of the assumptions could beinaccurate, and therefore, there can be no assurance that the forward-lookingstatements will prove to be accurate. The forward-looking statements included herein are made as of the datehereof, and the Company undertakes no obligation to update publicly suchstatements to reflect subsequent events or circumstances.

 

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**COURIER CORPORATION**

 

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

 

There have been no material changes from theinformation concerning the Company’s “Quantitative and Qualitative DisclosuresAbout Market Risk” as previously reported in the Company’s Annual Report onForm 10-K for the year ended September 27, 2003.   

 

**Item 4.****                                   CONTROLSAND PROCEDURES**

 

**(a)****                                  Evaluationof disclosure controls and procedures**

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934,as of the end of the period covered by this quarterly report, the Companycarried out an evaluation under the supervision and with the participation ofthe Company’s management, including the Company’s Chief Executive Officer andChief Financial Officer, of the effectiveness of the design and operation ofthe Company’s disclosure controls and procedures.  Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Company in the reports it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.  The Company continually reviews itsdisclosure controls and procedures, and its internal controls over financialreporting, and may from time to time make changes aimed at enhancing theireffectiveness and to ensure that its systems evolve with its business.  In designing and evaluating the disclosurecontrols and procedures, the Company’s management recognized that any controlsand procedures, no matter how well designed and operated can provide onlyreasonable assurances of achieving the desired control objectives, and managementnecessarily was required to apply its judgment in designing and evaluating thecontrols and procedures.

 

(b)                                 **Changes in internal controls over financial reporting**

 

There was no change in the Company’s internal control over financialreporting that occurred during the period covered by this quarterly report thathas materially affected, or that is reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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**COURIER CORPORATION**

** **

**PART II. OTHER INFORMATION**

 
| **Item  1.** |   | **Legal  Proceedings**                                   |
|--------------|--------|----------------------------------------------------------|
|         |   |                                                     |
|         |   | None.                                                    |
|         |   |                                                     |
| **Item  2.** |   | **Changes  in Securities and Use of Proceeds**           |
|         |   |                                                     |
|         |   | None.                                                    |
|         |   |                                                     |
| **Item 3.**  |   | **Defaults Upon Senior Securities**                      |
|         |   |                                                     |
|         |   | None.                                                    |
|         |   |                                                     |
| **Item  4.** |   | **Submission  of Matters to a Vote of Security Holders** |
|         |   |                                                     |
|         |   | None.                                                    |
|         |   |                                                     |
| **Item  5.** |   | **Other  Information**                                   |
|         |   |                                                     |
|         |   | None.                                                    |
|         |   |                                                     |
| **Item 6.**  |   | **Exhibits and Reports on Form 8-K**                     |
|         |   |                                                     |
|         |   | (a)   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      |

 
|   |   | (b)  Reports on Form 8-K                                                                                                                                               |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                             |
|   |   | Filed November 6, 2003, reporting under  Item 12 a press release dated November 6, 2003 reporting financial results  for the quarter and year ended September 27, 2003.          |
|   |   |                                                                                                                                                                             |
|   |   | Filed December 15, 2003, reporting under  Item 5 a press release dated December 15, 2003 announcing an agreement to  acquire the assets of Research & Education Association. |

 

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**SIGNATURES**

 

Pursuant to the requirements of theSecurities Exchange Act of 1934, the Company has duly caused this report to besigned on its behalf by the undersigned thereunto duly authorized.

 

 
|                           | **COURIER  CORPORATION** |                                                |
|--------------------------------|--------------------------|-----------------------------------------------------|
|                           | **(Registrant)**         |
|                           |                     |
|                           |                     |                                                |
| *  February 9, 2004* |                     | By:                                                 | *  s/James F. Conway III* |   |
| Date                           |                     |                                                | James F.  Conway III |
|                           |                     | Chairman,  President and  Chief Executive Officer   |
|                           |
|                           |
| *  February 9, 2004* |                     | By:                                                 | *  s/Robert P. Story, Jr.* |   |
| Date                           |                     |                                                | Robert P.  Story, Jr. |
|                           |                     | Senior Vice  President and  Chief Financial Officer |
|                           |
|                           |
| *  February 9, 2004* |                     | By:                                                 | *  s/Peter M. Folger* |   |
| Date                           |                     |                                                | Peter M.  Folger |
|                           |                     | Vice President  and  Chief Accounting Officer       |
|                                |                          |                                                     |  |  |  |  |  |

 

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