** **

**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 24, 2005**                                                                                                                                           |
|                                                                                                                                                                                                 |   |   |   |   |
| **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 ororganization)

 

**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 allreports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days.

 

Yes  ý    No  o

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer or a non-accelerated filer (as defined in Exchange Act Rule 12b-2).

 
| Large  accelerated filer | o | Accelerated  filer | ý | Non-accelerated filer | o |
|--------------------------|---|--------------------|--------|-----------------------|---|

 

Indicate by check mark whether the registrant is a shell company (asdefined in Exchange Act Rule 12b-2).

 

Yes  o    No  ý

 

Indicatethe number of shares outstanding of each of the issuer’s classes of commonstock, as of the latest practicable date.

 
| **Class**                  | ** ** | **Outstanding at February 1,  2006** | ** ** |
|----------------------------|------------|-------------------------------------------|------------|
| Common Stock, $1 par value |       | 12,331,268 shares                         |       |

 

 

----

 

COURIER CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

 
| ** **                           | ** ** | **THREE MONTHS ENDED**      | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **December 24,  2005** | ** ** | **December 25,  2004** | ** ** |
|                                 |       |                        |       |   |   |
| Net sales                            |       | $                           | 57,684     |   | $ | 51,269 |   |
| Cost of sales                        |       | 39,153                      |       | 34,462 |   |
|                                 |       |                        |       |   |   |
| Gross profit                         |       | 18,531                      |       | 16,807 |   |
|                                 |       |                        |       |   |   |
| Selling and  administrative expenses |       | 11,680                      |       | 10,773 |   |
| Interest income,  net                |       | (148                        | )          | (27 | ) |
|                                 |       |                        |       |   |   |
| Pretax income                        |       | 6,999                       |       | 6,061 |   |
|                                 |       |                        |       |   |   |
| Provision for  income taxes (Note C) |       | 2,512                       |       | 2,259 |   |
|                                 |       |                        |       |   |   |
| Net income                           |       | $                           | 4,487      |   | $ | 3,802 |   |
|                                 |       |                        |       |   |   |
| Net income per  share (Note D):      |       |                        |       |   |   |
|                                 |       |                        |       |   |   |
| Basic                                |       | $                           | 0.37       |   | $ | 0.32 |   |
|                                 |       |                        |       |   |   |
| Diluted                              |       | $                           | 0.36       |   | $ | 0.31 |   |
|                                 |       |                        |       |   |   |
| Cash dividends  declared per share   |       | $                           | 0.12       |   | $ | 0.067 |   |

 

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

 

2

----

 

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| **ASSETS**                                                                                                                                 | ** ** | **December 24,  2005** | ** ** | **September 24,  2005** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
|                                                                                                                                       |       |                        |       |                         |       |
| Current assets:                                                                                                                            |       |                        |       |                         |       |
| Cash and cash equivalents                                                                                                                  |       | $                           | 20,092     |                         | $          | 34,038 |   |
| Accounts receivable, less allowance for  uncollectible accounts of $1,260 at December 24, 2005 and $1,139 at September 24,  2005 |       | 33,231                      |       | 34,207                       |       |
| Inventories (Note B)                                                                                                                       |       | 25,268                      |       | 25,451                       |       |
| Deferred income taxes                                                                                                                      |       | 2,972                       |       | 2,945                        |       |
| Other current assets                                                                                                                       |       | 760                         |       | 962                          |       |
|                                                                                                                                       |       |                        |       |                         |       |
| Total current assets                                                                                                                       |       | 82,323                      |       | 97,603                       |       |
|                                                                                                                                       |       |                        |       |                         |       |
| Property, plant and equipment, less accumulated  depreciation: $120,931 at December 24, 2005 and $118,285 at September 24,  2005 |       | 71,176                      |       | 59,115                       |       |
|                                                                                                                                       |       |                        |       |                         |       |
| Goodwill (Note  A)                                                                                                                         |       | 38,706                      |       | 33,255                       |       |
|                                                                                                                                       |       |                        |       |                         |       |
| Prepublication  costs (Note A)                                                                                                             |       | 5,454                       |       | 5,399                        |       |
|                                                                                                                                       |       |                        |       |                         |       |
| Other assets                                                                                                                               |       | 1,704                       |       | 1,593                        |       |
|                                                                                                                                       |       |                        |       |                         |       |
| Total assets                                                                                                                               |       | $                           | 199,363    |                         | $          | 196,965 |   |

 

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

 

3

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| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                      | ** ** | **December 24,  2005** | ** ** | **September 24,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|------------|------------------------------|------------|
|                                                                                                                                               |       |                        |       |                         |       |
| Current  liabilities:                                                                                                                              |       |                        |       |                         |       |
| Current maturities of long-term debt                                                                                                               |       | $                           | 85         |                         | $          | 85 |   |
| Accounts payable                                                                                                                                   |       | 8,664                       |       | 10,534                       |       |
| Accrued payroll                                                                                                                                    |       | 5,444                       |       | 7,799                        |       |
| Accrued taxes                                                                                                                                      |       | 6,685                       |       | 5,770                        |       |
| Other current liabilities                                                                                                                          |       | 8,469                       |       | 6,474                        |       |
|                                                                                                                                               |       |                        |       |                         |       |
| Total current liabilities                                                                                                                          |       | 29,347                      |       | 30,662                       |       |
|                                                                                                                                               |       |                        |       |                         |       |
| Long-term debt                                                                                                                                     |       | 404                         |       | 425                          |       |
| Deferred income  taxes (Note F)                                                                                                                    |       | 6,531                       |       | 6,398                        |       |
| Other  liabilities                                                                                                                                 |       | 3,150                       |       | 3,020                        |       |
|                                                                                                                                               |       |                        |       |                         |       |
| Total liabilities                                                                                                                                  |       | 39,432                      |       | 40,505                       |       |
|                                                                                                                                               |       |                        |       |                         |       |
| Stockholders’ equity  (Notes A and F):                                                                                                        |       |                        |       |                         |       |
| Preferred stock, $1 par value - authorized 1,000,000  shares; none issued                                                                          |       |                        |       |                         |       |
| Common stock, $1 par value - authorized 18,000,000  shares; issued 12,321,000 at December 24, 2005 and 12,313,000 at September 24,  2005 |       | 12,321                      |       | 12,313                       |       |
| Additional paid-in capital                                                                                                                         |       | 5,765                       |       | 5,311                        |       |
| Retained earnings                                                                                                                                  |       | 141,845                     |       | 138,836                      |       |
|                                                                                                                                               |       |                        |       |                         |       |
| Total stockholders’ equity                                                                                                                    |       | 159,931                     |       | 156,460                      |       |
|                                                                                                                                               |       |                        |       |                         |       |
| Total  liabilities and stockholders’ equity                                                                                                   |       | $                           | 199,363    |                         | $          | 196,965 |   |

 

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

 

4

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COURIER CORPORATION

CONSOLIDATED CONDENSEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                       | ** ** | **THREE MONTHS ENDED**      | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **December 24,  2005** | ** ** | **December 25,  2004** | ** ** |
|                                                                             |       |                        |       |   |   |
| Operating  Activities:                                                           |       |                        |       |   |   |
| Net income                                                                       |       | $                           | 4,487      |   | $ | 3,802 |   |
| Adjustments to reconcile net income to cash provided  from operating activities: |       |                        |       |   |   |
| Depreciation and amortization                                                    |       | 3,370                       |       | 2,966 |   |
| Stock based compensation                                                         |       | 336                         |       | 467 |   |
| Deferred income taxes                                                            |       | 159                         |       | (32 | ) |
| Changes in assets and liabilities:                                               |       |                        |       |   |   |
| Accounts receivable                                                              |       | 2,537                       |       | 5,393 |   |
| Inventory                                                                        |       | 526                         |       | (821 | ) |
| Accounts payable                                                                 |       | (2,032                      | )          | (3,451 | ) |
| Accrued taxes                                                                    |       | 915                         |       | (1,172 | ) |
| Other elements of working capital                                                |       | (639                        | )          | (1,323 | ) |
| Other, net                                                                       |       | 82                          |       | 37 |   |
|                                                                             |       |                        |       |   |   |
| Cash provided from operating activities                                          |       | 9,741                       |       | 5,866 |   |
|                                                                             |       |                        |       |   |   |
| Investment Activities:                                                           |       |                        |       |   |   |
| Capital expenditures                                                             |       | (7,408                      | )          | (6,224 | ) |
| Business acquisition, net of cash acquired                                       |       | (14,163                     | )          | — |   |
| Prepublication costs                                                             |       | (777                        | )          | (680 | ) |
|                                                                             |       |                        |       |   |   |
| Cash used for investment activities                                              |       | (22,348                     | )          | (6,904 | ) |
|                                                                             |       |                        |       |   |   |
| Financing  Activities:                                                           |       |                        |       |   |   |
| Long-term debt repayments                                                        |       | (21                         | )          | (20 | ) |
| Cash dividends                                                                   |       | (1,479                      | )          | (804 | ) |
| Proceeds from stock plans                                                        |       | 161                         |       | 566 |   |
| Tax benefits from stock-based compensation                                       |       | —                      |       | 217 |   |
|                                                                             |       |                        |       |   |   |
| Cash used for  financing activities                                              |       | (1,339                      | )          | (41 | ) |
|                                                                             |       |                        |       |   |   |
| Decrease in cash  and cash equivalents                                           |       | (13,946                     | )          | (1,079 | ) |
|                                                                             |       |                        |       |   |   |
| Cash and cash  equivalents at the beginning of the period                        |       | 34,038                      |       | 23,965 |   |
|                                                                             |       |                        |       |   |   |
| Cash and cash  equivalents at the end of the period                              |       | $                           | 20,092     |   | $ | 22,886 |   |

 

The accompanyingnotes are an integral part of the consolidated financial statements.

 

5

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**COURIER CORPORATION**

** **

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

 

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

 

**Unaudited Financial Statements**

 

Thebalance sheet as of December 24, 2005, the statements of income for thethree-month periods ended December 24, 2005 and December 25, 2004,and the statements of cash flows for the three-month periods ended December 24,2005 and December 25, 2004 are unaudited. In the opinion of management, all adjustments necessary for a fairpresentation of such financial statements have been recorded.  Such adjustments consisted only of normalrecurring items. Certain amounts for fiscal 2005 have been reclassified in theaccompanying financial statements in order to be consistent with the currentyear’s classification and to reflect adoption of SFAS 123R, as discussed below.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States (“generally accepted accounting principles”) have been condensedor omitted.  The balance sheet data as ofSeptember 24, 2005 was derived from audited year-end financial statements,but does not include disclosures required by generally accepted accountingprinciples.  It is suggested that theseinterim financial statements be read in conjunction with the Company’s mostrecent Form 10-K and Annual Report for the year ended September 24,2005.

 

**Prepublication Costs**

 

Prepublicationcosts, associated with the specialty publishing segment, are amortized usingthe straight-line method over an estimated useful life of four years for DoverPublications, Inc. (“Dover”) and three years for Research &Education Association, Inc. (“REA”).

 

**Goodwill**

 

The Company evaluatespossible impairment annually or whenever events or circumstances indicate thatthe carrying value of the assets may not be recoverable. There were no suchevents or circumstances in the period presented.  In the first quarter of fiscal 2006, goodwillincreased by approximately $5.5 million for the acquisition of Moore-LangenPrinting Company, Inc. (Note G).

 

**Stock Split**

 

On May 27,2005, the Company distributed a three-for-two stock split, effected in the formof a 50% stock dividend.  Previouslyauthorized but unissued shares were used to effect the dividend.  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 splits.

 

**Change in Accounting Principle**

 

Asmore fully discussed in Note F below, the Company adopted Statement ofFinancial Accounting Standards No. 123R, “Share-Based Payment” (“SFAS 123R”).  The effective date of this new standard isthe beginning of the first fiscal year beginning after June 15, 2005 and,accordingly, the Company implemented this new standard on a retrospective basisin its first quarter of fiscal year 2006.** **Under this new standard, companiesare required to account for stock-based compensation transactions using a fair-valuemethod and to recognize the expense over the service period.

 

6

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**B.****                                    INVENTORIES**

 

Inventoriesare valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method forapproximately 42% and 41% of the Company’s inventories at December 24,2005 and September 24, 2005, respectively. Other inventories, primarily at Dover and REA, are determined on afirst-in, first-out (FIFO) basis. Inventories consisted of the following:

 
| ** **      | ** ** | **(000’s  Omitted)**   | ** ** |
|-----------------|------------|-----------------------------|------------|
| ** **      | ** ** | **December 24,  2005** | ** ** | **September 24,****2005** | ** ** |
| Raw materials   |       | $                           | 2,963      |   | $ | 2,319 |   |
| Work in process |       | 6,655                       |       | 6,276 |   |
| Finished goods  |       | 15,650                      |       | 16,856 |   |
| Total           |       | $                           | 25,268     |   | $ | 25,451 |   |

 

**C.****                                    INCOMETAXES**

 

Theprovision for income taxes differs from that computed using the statutoryfederal income tax rates for the following reasons:

 
| ** **                            | ** ** | **(000’s Omitted)**      | ** ** |
|---------------------------------------|------------|-------------------------------|------------|
| ** **                            | ** ** | **Three Months Ended**        | ** ** |
| ** **                            | ** ** | **December 24,****2005** | ** ** | **December 25,  2004** | ** ** |
| Federal taxes at statutory rates      |       | $                             | 2,450      |   | 35.0 | % | $ | 2,121 |   | 35.0 | % |
| State taxes, net of federal benefit   |       | 207                           |       | 3.0 |   | 187 |   | 3.1 |   |
| Federal manufacturers’ deduction |       | (73                           | )          | (1.1 | ) | — |   | — |   |
| Tax benefit of export related income  |       | (112                          | )          | (1.6 | ) | (139 | ) | (2.3 | ) |
| Stock-based compensation (Note F)     |       | 37                            |       | 0.5 |   | 77 |   | 1.3 |   |
| Other                                 |       | 3                             |       | 0.1 |   | 13 |   | 0.2 |   |
| Total                                 |       | $                             | 2,512      |   | 35.9 | % | $ | 2,259 |   | 37.3 | % |

 

**D.****                                    NETINCOME PER SHARE**

 

Following is a reconciliation of the shares used in thecalculation of basic and diluted income per share.  Potentially dilutive shares, calculated usingthe treasury stock method, consist of shares issued under the Company’s stockoption plans. These shares have been adjusted to reflect the three-for-twostock split effected in the form of a dividend distributed on May 27, 2005(Note A) and the implementation of SFAS 123R (Note A).

 
| ** **                             | ** ** | **(000’s Omitted)**    | ** ** |
|----------------------------------------|------------|-----------------------------|------------|
| ** **                             | ** ** | **Three Months Ended**      | ** ** |
| ** **                             | ** ** | **December 24,  2005** | ** ** | **December 25,  2004** | ** ** |
|                                   |       |                        |       |   |   |
| Average shares outstanding for basic   |       | 12,289                      |       | 12,029 |   |
| Effect of potentially dilutive shares  |       | 262                         |       | 389 |   |
| Average shares outstanding for diluted |       | 12,551                      |       | 12,418 |   |

 

7

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**E.****                                      BUSINESSSEGMENTS**

 

TheCompany has two business segments: book manufacturing and specialty publishing.The book manufacturing segment offers a full range of services from productionthrough storage and distribution for religious, educational and specialty tradebook publishers. The specialty publishing segment consists of Dover and REA.

 

Inevaluating segment performance, management primarily focuses on income or lossbefore taxes, stock-based compensation and other income.  The elimination of intersegment sales andrelated profit represents sales from the book manufacturing segment to thespecialty publishing segment.  Corporateexpenses that are allocated to the segments include various support functionssuch as information technology services, finance, human resources andengineering, and include depreciation and amortization expense related tocorporate assets*.*

 

Thefollowing table provides segment information for the three-month periods ended December 24,2005 and December 25, 2004.

 
| ** **                         | ** ** | **(000’s Omitted)**    | ** ** |
|------------------------------------|------------|-----------------------------|------------|
| ** **                         | ** ** | **Three Months Ended**      | ** ** |
| ** **                         | ** ** | **December 24,  2005** | ** ** | **December 25,****2004** | ** ** |
|                               |       |                        |       |   |   |
| Net sales:                         |       |                        |       |   |   |
| Book manufacturing                 |       | $                           | 48,234     |   | $ | 42,923 |   |
| Specialty publishing               |       | 10,921                      |       | 10,270 |   |
| Elimination of intersegment sales  |       | (1,471                      | )          | (1,924 | ) |
| Total                              |       | $                           | 57,684     |   | $ | 51,269 |   |
|                               |       |                        |       |   |   |
| Income before taxes:               |       |                        |       |   |   |
| Book manufacturing                 |       | $                           | 6,163      |   | $ | 5,628 |   |
| Specialty publishing               |       | 1,085                       |       | 1,072 |   |
| Stock-based compensation           |       | (336                        | )          | (467 | ) |
| Elimination of intersegment profit |       | 87                          |       | (172 | ) |
| Total                              |       | $                           | 6,999      |   | $ | 6,061 |   |

 

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

 

In the first quarter offiscal 2006, the Company adopted the provisions of SFAS 123R.  All prior periods presented have beenrestated on a retrospective basis consistent with the pro forma disclosuresrequired for those periods by SFAS No. 123, “Accounting for Stock-BasedCompensation” (“SFAS 123”).  Prior to theadoption of SFAS 123R, the Company applied APB 25 to account for itsstock-based awards.  Under APB 25, theCompany generally only recorded stock-based compensation expense for thevesting of stock grants as well as shares issued to directors in lieu of cashfor annual retainer fees.  Under theprovisions of APB 25, the Company was not required to recognize compensationexpense for the cost of stock options or for shares issued under the Company’sEmployee Stock Purchase Plan (“ESPP”). Beginning with its 2006 fiscal year, with the adoption of SFAS 123R, theCompany recorded stock-based compensation expense for the cost of stockoptions, stock grants, and shares issued under the ESPP. The fair value of eachoption awarded was calculated on the date of grant using the Black-Scholesoption-pricing model.

 

8

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Stock-based compensationrecognized in selling and administrative expenses in the accompanying financialstatements in the first quarter of fiscal 2006 and 2005 was $336,000 and$467,000, respectively.  The related taxbenefit recognized in the first quarter of fiscal 2006 and 2005 was $80,000 and$83,000, respectively. Unrecognized stock-based compensation cost at December 24,2005 was $1.1 million to be recognized over a weighted-average period of 2.0years.  No stock-based awards were issuedby the Company in the first quarter of fiscal 2006.

 

The following tablesprovide information on the impact on the accompanying income statements ofadopting SFAS 123R on a retrospective basis.

 
| ** **                      | ** ** | **(000’s Omitted)**      | ** ** |
|---------------------------------|------------|-------------------------------|------------|
| ** **                      | ** ** | **Three Months Ended**        | ** ** |
| ** **                      | ** ** | **December 24, 2005**    | ** ** | **December 25, 2004** | ** ** |
| ** **                      | ** ** | **Stock-Based  Compensation** | ** ** | **Tax  Benefit** | ** ** | **After-Tax  Cost** | ** ** | **Stock-Based  Compensation** | ** ** | **Tax  Benefit** | ** ** | **After-Tax  Cost** | ** ** |
| Stock grants                    |       | $                             | 97         |   | $ | 34 |   | $ | 63 |   | $ | 84 |   | $ | 29 |   | $ | 55 |   |
| Incremental SFAS 123R costs     |       | 239                           |       | 46 |   | 193 |   | 383 |   | 54 |   | 329 |   |
| Total  stock-based compensation |       | $                             | 336        |   | $ | 80 |   | $ | 256 |   | $ | 467 |   | $ | 83 |   | $ | 384 |   |

 
| ** **                           | ** ** | **(000’s Omitted)**    | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **Three Months Ended**      | ** ** |
| ** **                           | ** ** | **December 24,  2005** | ** ** | **December 25,  2004** | ** ** |
| Reported net  income                 |       | $                           | 4,487      |   | $ | 3,802 |   |
| Add: Total  Stock-Based Compensation |       | 256                         |       | 384 |   |
| Less: Stock  grants                  |       | (63                         | )          | (55 | ) |
| Pro forma net  income                |       | $                           | 4,680      |   | $ | 4,131 |   |
|                                 |       |                        |       |   |   |
| Net income per  diluted share:       |       |                        |       |   |   |
| As reported                          |       | $                           | 0.36       |   | $ | 0.31 |   |
| Pro forma                            |       | $                           | 0.37       |   | $ | 0.33 |   |

 

The cumulative effect ofthe adoption of SFAS 123R on the Company’s consolidated balance sheet at September 24,2005 resulted in an increase in additional paid-in capital of $3,858,000, areduction in retained earnings of $3,909,000, elimination of unearnedcompensation of $577,000, and a reduction in deferred income tax liabilities of$526,000.

 

**Stock Incentive Plan:** The Company’s stock incentive plan provides for the granting of stockoptions and stock grants up to a total of 2,064,375 shares.  Under the plan provisions, both non-qualifiedand incentive stock options to purchase shares of the Company’s common stockmay be granted to key employees.  Theoption price per share may not be less than the fair market value of stock atthe time the option is granted and incentive stock options must expire notlater than ten years from the date of grant. The Company annually issues a combination of stock options and stockgrants to its key employees.  Prior to2004, stock-based awards to key employees consisted primarily of stockoptions.  Beginning in 2004, the Companyreduced the number of stock options granted and added restricted stock awards.Stock options awarded in 2004 vested in one year.  Stock options awarded in 2005 vest over threeyears.  Stock grants generally vest over3 years.  At September 24, 2005 and December 24,2005, non-vested stock grants outstanding were 26,078 shares with aweighted-average grant-date fair value of $26.65.

 

9

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Thefollowing table provides activity under this plan in the first quarter offiscal 2006.

 
| ** **                             | ** ** | **Stock Incentive Plan** | ** ** |
|----------------------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | ** **               | ** ** | **Weighted Average** | ** ** | **Aggregate  Intrinsic  Value** | ** ** |
| ** **                             | ** ** | **Option  Shares**       | ** ** | **Exercise  Price** | ** ** | **Remaining  Term (yrs)** | ** ** |
| Outstanding at September 24, 2005 |       | 426,037                  |       | $ | 18.66 |   |   |   |   |   |
| Issued                                 |       | —                   |       | — |   |   |   |   |   |
| Exercised                              |       | (8,613                   | )          | 18.67 |   |   |   | $ | 152,000 |   |
| Cancelled                              |       | —                   |       | — |   |   |   |   |   |
| Outstanding at December 24, 2005  |       | 417,424                  |       | $ | 18.66 |   | 3.8 |   | $ | 7,387,000 |   |
|                                   |       |                     |       |   |   |   |   |   |   |
| Exercisable at December 24, 2005  |       | 263,087                  |       | $ | 15.38 |   | 3.3 |   | $ | 5,521,000 |   |

 

**Directors’ Option Plan:** In January 2005, stockholders approved the Courier Corporation 2005Stock Equity Plan for Non-Employee Directors (the “2005 Plan”). Under the planprovisions, non-qualified stock options to purchase shares of the Company’scommon stock may be granted to non-employee directors up to a total of 225,000shares.  The option price per share isthe fair market value 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 (the “1989 Plan”).  The 1989 Planallowed directors to make an election to apply their annual retainer fee towardthe granting of stock options at a price per share that was $5 below the fairmarket value at the time of the option award. In the first quarter of fiscal 2005, 9,000 options were granted underthe 1989 Plan. No further options will be granted under the 1989 Plan.  At September 24, 2005 and December 24,2005, 174,176 options were outstanding and exercisable under the directors’option plans.  These options had aweighted-average exercise price of $19.64 per share and a weighted-averageremaining life of 2.5 years at December 24, 2005. The aggregate intrinsicvalue of the 174,176 options outstanding at December 24, 2005 was$2,912,000.

 

**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. Prior to 2005, the purchase price wasdetermined based upon 85% of fair market value at the beginning or end of thegrant period.

 

**G.****                                    BUSINESSACQUISITION**

 

On October 17,2005, the Company acquired Moore-Langen Printing Company, Inc. (“MooreLangen”), an Indianapolis-based printer specializing in book covers, in a $15million cash transaction.  Theacquisition was accounted for as a purchase, and accordingly, Moore Langen’sfinancial results were included in the book manufacturing segment in theconsolidated financial statements from the date of acquisition.  The initial allocation of the purchase priceto assets acquired included, in the accompanying financial statements,approximately $5.5 million to goodwill. This allocation will be finalized later in this fiscal year.

 

10

----

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

 

**Critical Accounting Policies and Estimates:**

 

The Company’sconsolidated condensed financial statements have been prepared in accordancewith generally accepted accounting principles. The preparation of these financial statements requires management tomake estimates and assumptions that affect the amounts reported in thesefinancial statements and accompanying notes.  On an ongoing basis, management evaluates its estimates and judgments,including those related to collectibility of accounts receivable, recovery ofinventories, impairment of goodwill, 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  Managementperforms ongoing credit evaluations of the Company’s customers and adjustscredit limits based upon payment history and the customer’s currentcreditworthiness.  Collections andpayments 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   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  The Company evaluates possible impairmentannually or whenever events or circumstances indicate that the carrying valueof the assets may not be recoverable. The Company completed the annual impairment test at September 24,2005 resulting in no change to the nature or carrying amounts of its intangibleassets.  Changes in market conditions orpoor operating results could result in a decline in value thereby potentiallyrequiring an impairment charge in the future.

 

PrepublicationCosts   The Companycapitalizes prepublication costs, which include the costs of acquiring rightsto publish a work and costs associated with bringing a manuscript topublication such as artwork and editorial efforts. Prepublication costs areamortized on a straight-line basis over periods ranging from three to fouryears.  Management regularly evaluatesthe sales and profitability of the products based upon historical andforecasted demand.  Based upon this evaluation,adjustments may be required to amortization expense.

 

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.

 

11

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**Overview:**

 

Courier Corporation,founded in 1824, 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 of use.  Based on sales, Courier is the fifth largestbook manufacturer in the United States and largest in the Northeast, offeringservices from prepress and production through storage and distribution.  The specialty publishing segment consists ofDover Publications, Inc. (“Dover”) as well as Research &Education Association, Inc. (“REA”). Dover publishes over 9,000 titles in more than 30 specialty categoriesranging from literature and poetry classics to paper dolls, and from musicscores to clip art.  REA publishes testpreparation and study-guide books and software for high school, college andgraduate students, and professionals.

 

**Results of Operations:**

 

## FINANCIAL HIGHLIGHTS

(dollars in thousandsexcept per share amounts)

 
| ** **                          | ** ** | **Three Months Ended**        | ** ** |
|-------------------------------------|------------|-------------------------------|------------|
| ** **                          | ** ** | **December 24,****2005** | ** ** | **December 25,  2004** | ** ** | **%  Change** | ** ** |
|                                |       |                          |       |   |   |   |   |
| Net sales                           |       | $                             | 57,684     |   | $ | 51,269 |   | 12.5 | % |
| Gross profit                        |       | 18,531                        |       | 16,807 |   | 10.3 | % |
| As a percentage of sales            |       | 32.1                          | %          | 32.8 | % |   |   |
| Selling and administrative expenses |       | 11,680                        |       | 10,773 |   | 8.4 | % |
| Interest income, net                |       | (148                          | )          | (27 | ) |   |   |
| Pretax income                       |       | 6,999                         |       | 6,061 |   | 15.5 | % |
| Net income                          |       | $                             | 4,487      |   | $ | 3,802 |   | 18.0 | % |
|                                |       |                          |       |   |   |   |   |
| Net income per diluted share        |       | $                             | 0.36       |   | $ | 0.31 |   | 16.1 | % |

 

Revenues in the firstquarter of fiscal 2006 increased in both of the Company’s operating segmentscompared to the same period last year. Book manufacturing revenues were up 12% on higher textbook sales and theMoore Langen acquisition.  ExcludingMoore Langen, first-quarter sales in this segment were up 9%.  Sales in the specialty publishing segmentwere up 6%, reflecting growth in domestic and international trade sales and thecompletion of technology and distribution upgrades begun in fiscal 2005.

 

*BusinessAcquisition*

 

On October 17, 2005,the Company acquired Moore-Langen Printing Company, Inc. (“Moore Langen”)an Indianapolis-based printer specializing in book covers.  The acquisition was accounted for as apurchase, and accordingly, Moore Langen’s financial results were included inthe book manufacturing segment from the date of acquisition.

 

*Stock-BasedCompensation*

 

In the first quarter offiscal 2006, the Company adopted the provisions of SFAS 123R, “Share-BasedPayment” (“SFAS 123R”), an accounting rule requiring the expensing ofstock options.  All prior periodspresented have been restated on a retrospective basis consistent with the proforma disclosures required for those periods by SFAS No. 123, “Accountingfor Stock-Based Compensation” (“SFAS 123”). Prior to the adoption of SFAS 123R, the Company applied APB 25 toaccount for its stock-based awards. Under APB 25, the Company generally only recorded stock-basedcompensation expense for the vesting of stock grants as well as shares issuedto directors in lieu of cash for annual retainer fees.  Under the provisions of APB 25, the Companywas not required to recognize compensation expense for the cost of stockoptions or for shares issued under the Company’s Employee Stock Purchase Plan (“ESPP”).  Beginning with its 2006 fiscal year, with theadoption of

 

12

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SFAS 123R, the Companyrecorded stock-based compensation expense for the cost of stock options (usingthe Black-Scholes option-pricing model), stock grants, and shares issued underthe ESPP. The incremental impact of adoption of this standard was a reductionof first-quarter net income by approximately $193,000 in fiscal 2006 and$329,000 in fiscal 2005. Total stock-based compensation recognized in theaccompanying financial statements in the first quarter of fiscal 2006 and 2005was $336,000 and $467,000, respectively. The related tax benefit recognized inthe first quarter of fiscal 2006 and 2005 was $80,000 and $83,000,respectively.

 

The following tableprovides information on the impact on the accompanying income statements ofadopting SFAS 123R on a retrospective basis.

 
| ** **                           | ** ** | **(000’s Omitted)**    | ** ** |
|--------------------------------------|------------|-----------------------------|------------|
| ** **                           | ** ** | **Three Months Ended**      | ** ** |
| ** **                           | ** ** | **December 24,  2005** | ** ** | **December 25,  2004** | ** ** |
| Reported net  income                 |       | $                           | 4,487      |   | $ | 3,802 |   |
| Add: Total  Stock-Based Compensation |       | 256                         |       | 384 |   |
| Less: Stock  grants                  |       | (63                         | )          | (55 | ) |
| Pro forma net  income                |       | $                           | 4,680      |   | $ | 4,131 |   |
|                                 |       |                        |       |   |   |
| Net income per  diluted share:       |       |                        |       |   |   |
| As reported                          |       | $                           | 0.36       |   | $ | 0.31 |   |
| Pro forma                            |       | $                           | 0.37       |   | $ | 0.33 |   |

 

Unrecognized compensationcost at December 24, 2005 was $1.1 million to be recognized over aweighted-average period of 2.0 years. The cumulative effect of adoption of SFAS 123R on the Company’sconsolidated balance sheet at September 24, 2005 resulted in an increasein additional paid-in capital of $3,858,000, a reduction in retained earningsof $3,909,000, elimination of unearned compensation of $577,000, and a reductionin deferred income tax liabilities of $526,000.

 

TheCompany annually issues a combination of stock options and stock grants to itskey employees under its stock plans. Prior to 2004, stock-based awards to key employees consisted primarilyof stock options.  Beginning in 2004, theCompany reduced the number of stock options granted and added restricted stockawards. Stock options awarded in 2004 vested in one year.  Stock options awarded in 2005 vest over threeyears.  Stock grants generally vest over3 years.  Under the Company’s ESPP,eligible employees may purchase shares of stock for not less than 85% of fairmarket value at the end of the grant period. Prior to 2005, the purchase price was determined based upon 85% of fairmarket value at the beginning or end of the grant period. In January 2005,stockholders approved a new stock equity plan for non-employee directors (the “2005Plan”).  The option price per share isthe fair market value at the time the option is granted.  The 2005 Plan replaced a plan that hadallowed directors to make an election to apply their annual retainer fee towardthe granting of stock options at a price per share that was $5 below the fairmarket value at the time of the option award. No awards were issued under any of these plans in the first quarter of2006; 9,000 shares were issued in the first quarter of fiscal 2005 tonon-employee directors under the previous Directors Option Plan.

 

13

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*Book Manufacturing Segment*

 

## SEGMENT HIGHLIGHTS

(dollars in thousandsexcept per share amounts)

 
| ** **                          | ** ** | **Three Months Ended**        | ** ** |
|-------------------------------------|------------|-------------------------------|------------|
| ** **                          | ** ** | **December 24,****2005** | ** ** | **December 25,  2004** | ** ** | **%  Change** | ** ** |
|                                |       |                          |       |   |   |   |   |
| Net sales                           |       | $                             | 48,234     |   | $ | 42,923 |   | 12.4 | % |
| Gross profit                        |       | 13,564                        |       | 11,947 |   | 13.5 | % |
| As a percentage of sales            |       | 28.1                          | %          | 27.8 | % |   |   |
| Selling and administrative expenses |       | 7,600                         |       | 6,435 |   | 18.1 | % |
| Interest income                     |       | (199                          | )          | (116 | ) |   |   |
| Pretax income                       |       | $                             | 6,163      |   | $ | 5,628 |   | 9.5 | % |

 

Withinthis segment, the Company focuses on three key markets: education, religiousand specialty trade.  Sales to theeducation market rose 20% in the first quarter of fiscal 2006 compared to lastyear, with the greatest growth in four-color elementary and high schooltextbooks.  With a significant portion ofMoore Langen’s business being educational material, the acquisition contributed6% of the first quarter growth in this market. Sales to the religious market were down 3% from last year’s firstquarter, reflecting a decision last year to discontinue manufacturing certainlow-priced religious trade work.  Salesto the specialty trade market were up 12% for the first quarter, with a fewlarge one-time orders contributing most of the increase.

 

Grossprofit in this segment increased by 14% to $13.6 million for the quarter, andas a percentage of sales increased to 28.1% from 27.8% in last year’s firstquarter.  Margins improved despite asignificant increase in utility costs (up approximately $450,000 from lastyear), as well as higher medical costs and a major press startup completedduring this year’s first quarter.  Themargin increase reflects the strong growth in sales volume and a continuingimprovement in the overall mix of sales.

 

Sellingand administrative expenses for the segment increased 18% in the first quarterto $7.6 million and, as a percentage of sales, increased to 15.8% from 15.0%last year.  The increase was the resultof the acquisition of Moore Langen, costs associated with the increased salesvolume, such as selling and customer service, and compensation costs tieddirectly to improved profitability.

 

Intercompanyinterest income allocated to the book manufacturing segment in the firstquarter increased to $199,000 compared to $116,000 last year, reflecting thebenefit of both the cash generated by this segment and higher interest rates.

 

Firstquarter pretax income in this segment was $6.2 million, or $.32 per dilutedshare, up 10% from $5.6 million, or $.29 per diluted share in the correspondingquarter last year.

 

14

----

 

*Specialty Publishing Segment*

 

## SEGMENT HIGHLIGHTS

(dollars in thousandsexcept per share amounts)

 
| ** **                          | ** ** | **Three Months Ended**        | ** ** |
|-------------------------------------|------------|-------------------------------|------------|
| ** **                          | ** ** | **December 24,****2005** | ** ** | **December 25,  2004** | ** ** | **%  Change** | ** ** |
|                                |       |                          |       |   |   |   |   |
| Net sales                           |       | $                             | 10,921     |   | $ | 10,270 |   | 6.3 | % |
| Gross profit                        |       | 4,880                         |       | 5,031 |   | -3.0 | % |
| As a percentage of sales            |       | 44.7                          | %          | 49.0 | % |   |   |
| Selling and administrative expenses |       | 3,744                         |       | 3,870 |   | -3.3 | % |
| Interest expense                    |       | 51                            |       | 89 |   |   |   |
| Pretax income                       |       | $                             | 1,085      |   | $ | 1,072 |   | 1.2 | % |

 

The Company’s specialtypublishing segment reported first quarter sales of $10.9 million, up 6% from$10.3 million in last year’s first quarter. The increase was primarily from domestic and international traderetailers.  During the first quarter,Dover completed two major projects begun in fiscal 2005; specifically, awarehouse consolidation and the implementation of SAP, an enterprise-wideinformation system, resulting in significant improvements to bothinfrastructure and service levels. Consequently, previous delays in filling orders during last year’sfourth quarter cleared in the first quarter of fiscal 2006, which contributedto the sales increase.

 

Gross profit as apercentage of sales for the segment decreased in the quarter to 44.7% from49.0% in the corresponding period last year. Additional labor and freight costs of approximately $200,000 related tothe warehouse consolidation and systems implementation were a major contributorto the decline.  With the completion ofthese projects, gross profit percentages are expected to return to prior yearlevels, starting in the second quarter of fiscal 2006.

 

Selling andadministrative expenses in this segment were $3.7 million in the first quarter,a decrease of 3% over the corresponding prior year period, primarily fromreductions in administrative costs.

 

Intercompanyinterest expense is allocated to the specialty publishing segment based on theacquisition costs of Dover and REA, reduced by cash generated by each businesssince acquisition.  Such interest expensefor the first quarter of fiscal 2006 was $51,000 compared to $89,000 lastyear.  The reduction reflects cashgenerated by the publishing operations over the past year.

 

Pretaxincome in the specialty publishing segment for the first quarter was $1.1million, or, on an after-tax basis, $.06 per diluted share, comparable to last year’sfirst quarter.

 

*Total Consolidated Company*

 

Interestincome, net of interest expense, was $148,000 in the first quarter of fiscal2006, compared to $27,000 in the same period of fiscal 2005.  There were no borrowings under the Company’srevolving credit facility in the first three months of either year; however,interest expense includes commitment fees and other costs associated withmaintaining this credit facility.  Cashinvestments in the first quarter of fiscal 2006 averaged approximately $23 millioninvested at an average annual interest rate of 3.6% generating interest incomeof approximately $0.2 million.  For thesame period last year, the Company’s average cash investments were $25 millioninvested at an average interest rate of 1.7% generating interest income ofapproximately $0.1 million.

 

15

----

 

The Company’s effectivetax rate for the first quarter of fiscal 2006 was 35.9% compared to 37.3% forthe same period last year.  The declinein the effective tax rate is in large part due to the impact of theretrospective adoption of SFAS 123R in the first quarter of fiscal 2006.  Although non-deductible stock compensationcosts increased the effective tax rate by 0.5% in the first quarter of fiscal2006, the impact was considerably higher at 1.3% in the first quarter of fiscal2005.  In addition, this year’s effectiverate reflects a federal tax benefit for manufacturers associated with theAmerican Jobs Creation Act of 2004.

 

For purposes ofcomputing net income per diluted share, weighted average shares outstandingincreased by approximately 133,000 shares over last year’s first quarter.  The increase was largely due to optionsexercised and shares issued under the Company’s stock plans.  On March 10, 2005, the Company announceda three-for-two stock split effected in the form of a 50% stock dividend, whichwas distributed on May 27, 2005 to stockholders of record on May 6,2005.  Weighted average sharesoutstanding and net income per share amounts have been restated to give effectto the stock split.

 

**Liquidity and Capital Resources:**

 

During the first threemonths of fiscal 2006, operations provided approximately $9.7 million ofcash.  Net income was $4.5 million anddepreciation and amortization were $3.4 million.  Working capital provided approximately $1.3million of cash, primarily from a reduction in accounts receivable.

 

Investmentactivities in the first quarter of fiscal 2006 used approximately $22.3 millionof cash, including $14.2 million, net of cash acquired, for the acquisition ofMoore Langen.  Capital expenditures wereapproximately $7.4 million, primarily for the four-color press that wasinstalled in December 2005 and deposits on another four-color press to beinstalled in early fiscal 2007.  Thispress is identical to the presses installed in April 2004 and December 2005.  For the entire fiscal year, capitalexpenditures are expected to be approximately $30 million.  This amount includes payments for the newfour-color presses as well as bindery and warehousing expansion to support theadditional four-color press capacity. Prepublication costs were $0.8 million and for the full fiscal year areprojected to be approximately $3 million.

 

Financingactivities for the first three months of fiscal 2006 used approximately $1.3million of cash.  Cash dividends were$1.5 million while proceeds from stock plans were $0.2 million, primarily fromthe exercise of stock options.  At December 24,2005, the Company had $20 million in cash and no borrowings under its $45million 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 Company believes that its cash on hand,cash from operations and the available credit facility will be sufficient tomeet its cash requirements through 2006.

 

The following tablesummarizes the Company’s contractual obligations and commitments at September 24,2005 to make future payments as well as its existing commercial commitments.

 
| ** **                  | ** ** | ** ** | ** ** | **(000’s  Omitted)**   | ** ** |
|-----------------------------|------------|------------|------------|-----------------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **Payments  due by period** | ** ** |
| **Contractual Payments:**   | ** ** | **Total**  | ** ** | **Less than****1 Year**     | ** ** | **1 to 3****Years** | ** ** | **4 to 5****Years** | ** ** | **After 5****Years** | ** ** |
| Long-Term Debt              |       | $          | 510        |                        | $          | 85 |   | $ | 179 |   | $ | 189 |   | $ | 57 |   |
| Operating Leases            |       | 11,535     |       | 2,836                       |       | 4,411 |   | 2,290 |   | 1,998 |   |
| Purchase Obligations        |       | 2,294      |       | 2,294                       |       | — |   | — |   | — |   |
| Other Long-Term Liabilities |       | 3,020      |       | —                      |       | 1,068 |   | 350 |   | 1,602 |   |
| Total                       |       | $          | 17,359     |                        | $          | 5,215 |   | $ | 5,658 |   | $ | 2,829 |   | $ | 3,657 |   |

 

16

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**Forward-Looking Information:**

 

ThisQuarterly Report on Form 10-Q and the Company’s Annual Report for the yearended September 24, 2005 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 are predictionsof or indicate future events and trends and which do not relate to historicalmatters identify forward-looking statements. Such statements are subject to risks and uncertainties that could causeactual results 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, changes in raw material andenergy costs and availability, pricing actions by competitors, consolidationamong customers and competitors, success in the integration of acquiredbusinesses, changes in operating expenses, changes in technology, difficultiesin the start up of new equipment or information technology systems, changes incopyright laws, changes in tax regulations, and general changes in economicconditions, including currency fluctuations and changes in interest rates.  Although the Company believes that the assumptionsunderlying the forward-looking statements are reasonable, any of theassumptions could be inaccurate, and therefore, there can be no assurance thatthe forward-looking statements will prove to be accurate.  The forward-looking statements included hereinare made as of the date hereof, and the Company undertakes no obligation toupdate publicly such statements to reflect subsequent events or circumstances.

 
| **Item 3.** |   | **QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** |
|-------------|--------|----------------------------------------------------------------|

 

Therehave been no material changes from the information concerning the Company’s “Quantitativeand Qualitative Disclosures About Market Risk” as previously reported in theCompany’s Annual Report on Form 10-K for the year ended September 24,2005.

 
| **Item 4.** |   | **CONTROLS  AND PROCEDURES** |
|-------------|--------|------------------------------|

 

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

 

Asrequired by Rule 13a-15 under the Securities Exchange Act of 1934, as ofthe end of the period covered by this quarterly report, the Company carried outan evaluation under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure 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.

 

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

 

Therewas no change in the Company’s internal control over financial reporting thatoccurred during the period covered by this quarterly report that has materiallyaffected, or that is reasonably likely to materially affect, the Company’sinternal control over financial reporting.

 

17

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**COURIER CORPORATION**

 

#### **PART II.  OTHERINFORMATION**

#### ** **

| **Item 1.**  | ** ** | **Legal  Proceedings**                                                                                                                                                                                                                                 |
|--------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|         |       |                                                                                                                                                                                                                                                   |
|         |       | None.                                                                                                                                                                                                                                                  |
|         |       |                                                                                                                                                                                                                                                   |
| **Item 1a.** | ** ** | **Risk Factors**                                                                                                                                                                                                                                       |
|         |       |                                                                                                                                                                                                                                                   |
|         |       | Not applicable.                                                                                                                                                                                                                                        |
|         |       |                                                                                                                                                                                                                                                   |
| **Item 2.**  | ** ** | **Unregistered Sales of Equity  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 October 18, 2005,  reporting under Item 8.01 a press release issued on October 17, 2005  announcing the acquisition of Moore-Langen Printing Company, Inc.                                                                        |
|         |       |                                                                                                                                                                                                                                                   |   |   |
|         |       | Filed November 4, 2005,  reporting under Item 2.02 a press release dated November 3, 2005  reporting financial results for the quarter and year ended September 24,  2005.                                                              |
|         |       |                                                                                                                                                                                                                                                   |   |   |
|         |       | Filed November 14, 2005,  reporting under Item 8.01 a press release announcing an agreement to purchase  a third four-color press.                                                                                                                |
|         |       |                                                                                                                                                                                                                                                   |   |   |
|         |       | Filed December 7, 2005,  reporting under Item 1.01 amendments to the Courier Corporation Deferred  Compensation Program, the Courier Corporation Executive Compensation Program,  and the Courier Corporation Senior Executive Severance Program. |

 

18

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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 1, 2006* | * * | By:                                                | *s/James F. Conway III*       | * * |
|-------------------------------|----------|----------------------------------------------------|-------------------------------|----------|
| Date                          |     | James F. Conway III                                |                          |
|                          |     | Chairman, President and  Chief Executive Officer   |
|                          |     |
|                          |     |
| * February 1, 2006* | * * | By:                                                | *s/Robert P. Story, Jr.* | * * |
| Date                          |     | Robert P. Story, Jr.                          |                          |
|                          |     | Senior Vice President and  Chief Financial Officer |
|                          |     |
|                          |     |
| * February 1, 2006* | * * | By:                                                | *s/Peter M. Folger*           | * * |
| Date                          |     | Peter M. Folger                                    |                          |
|                          |     | Vice President and  Chief Accounting Officer       |
|                               |          |                                                    |                               |          |  |  |

 

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