**UNITED STATES**

**SECURITIESAND 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  June 28, 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 checkmark whether the registrant (1) has filed all reports required to be filed bySection 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

 

Yes     ý        No     o

 

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Exchange ActRule 12b-2).

Yes     ý        No     o

 

Indicate thenumber of shares outstanding of each of the issuer’s classes of common stock,as of the latest practicable date.

 

| **Class**                  |   | **Outstanding at August 1, 2003** |
|----------------------------|--------|-----------------------------------|
| Common Stock, $1 par value |   | 5,242,589 Shares                  |

 

 

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COURIER CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

 
|                                |   | **QUARTER ENDED**  |   | **NINE MONTHS ENDED** |   |
|-------------------------------------|--------|--------------------|--------|-----------------------|--------|
|                                |   | **June 28,  2003** |   | **June 29,  2002**    |   | **June 28,  2003** |   | **June 29,  2002** |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Net sales                           |   | $                  | 51,076 |                  | $      | 51,668 |   | $ | 148,463 |   | $ | 145,384 |   |
| Cost of sales                       |   | 34,114             |   | 36,256                |   | 100,527 |   | 102,498 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Gross profit                        |   | 16,962             |   | 15,412                |   | 47,936 |   | 42,886 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Selling and administrative expenses |   | 9,578              |   | 9,154                 |   | 29,064 |   | 27,888 |   |
| Interest expense (income)           |   | (2                 | )      | 86                    |   | 66 |   | 399 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Income before taxes                 |   | 7,386              |   | 6,172                 |   | 18,806 |   | 14,599 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Provision for income taxes (Note C) |   | 2,614              |   | 2,026                 |   | 6,497 |   | 4,860 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Income from continuing operations   |   | $                  | 4,772  |                  | $      | 4,146 |   | $ | 12,309 |   | $ | 9,739 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Discontinued operations (Note E):   |   |               |   |                  |   |   |   |   |   |
| Loss from operations, net of tax    |   | —             |   | (66                   | )      | (65 | ) | (173 | ) |
| Gain on disposal, net of tax        |   | —             |   | —                |   | 861 |   | — |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Net income                          |   | $                  | 4,772  |                  | $      | 4,080 |   | $ | 13,105 |   | $ | 9,566 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Income per basic share (Note D):    |   |               |   |                  |   |   |   |   |   |
| Continuing operations               |   | $                  | 0.91   |                  | $      | 0.80 |   | $ | 2.36 |   | $ | 1.90 |   |
| Discontinued operations (Note E):   |   |               |   |                  |   |   |   |   |   |
| Loss from operations                |   | —             |   | (0.01                 | )      | (0.01 | ) | (0.03 | ) |
| Gain on disposal                    |   | —             |   | —                |   | 0.16 |   | — |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Net income per basic share          |   | $                  | 0.91   |                  | $      | 0.79 |   | $ | 2.51 |   | $ | 1.86 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Income per diluted share (Note D):  |   |               |   |                  |   |   |   |   |   |
| Continuing operations               |   | $                  | 0.88   |                  | $      | 0.77 |   | $ | 2.28 |   | $ | 1.83 |   |
| Discontinued operations (Note E):   |   |               |   |                  |   |   |   |   |   |
| Loss from operations                |   | —             |   | (0.01                 | )      | (0.01 | ) | (0.03 | ) |
| Gain on disposal                    |   | —             |   | —                |   | 0.16 |   | — |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Net income per diluted share        |   | $                  | 0.88   |                  | $      | 0.76 |   | $ | 2.43 |   | $ | 1.80 |   |
|                                |   |               |   |                  |   |   |   |   |   |
| Cash dividends declared per share   |   | $                  | 0.1125 |                  | $      | 0.10 |   | $ | 0.3375 |   | $ | 0.30 |   |

 

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

 

2

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
|                                                                                                                        |   | **June 28,  2003** |    | **September 28,  2002** |   |
|-----------------------------------------------------------------------------------------------------------------------------|--------|--------------------|---------|-------------------------|--------|
| ASSETS                                                                                                                      |   |               |    |                    |   |
|                                                                                                                        |   |               |    |                    |   |
| Current assets:                                                                                                             |   |               |    |                    |   |
| Cash and cash equivalents                                                                                                   |   | $                  | 20,054  |                    | $      | 5,630 |   |
| Accounts receivable, less allowance for  uncollectible accounts                                                             |   | 28,750             |    | 30,892                  |   |
| Inventories (Note B)                                                                                                        |   | 21,469             |    | 21,412                  |   |
| Deferred income taxes                                                                                                       |   | 3,069              |    | 3,163                   |   |
| Other current assets                                                                                                        |   | 882                |    | 625                     |   |
|                                                                                                                        |   |               |    |                    |   |
| Total current assets                                                                                                        |   | 74,224             |    | 61,722                  |   |
|                                                                                                                        |   |               |    |                    |   |
| Property, plant and equipment, less  accumulated depreciation: $102,323 at June 28, 2003 and $96,813 at September  28, 2002 |   | 38,449             |    | 40,620                  |   |
|                                                                                                                        |   |               |    |                    |   |
| Prepublication costs (Note A)                                                                                               |   | 3,658              |    | 3,219                   |   |
|                                                                                                                        |   |               |    |                    |   |
| Goodwill and other intangibles, net (Note  A)                                                                               |   | 24,940             |    | 24,952                  |   |
|                                                                                                                        |   |               |    |                    |   |
| Other assets                                                                                                                |   | 1,299              |    | 1,145                   |   |
|                                                                                                                        |   |               |    |                    |   |
| Total assets                                                                                                                |   | $                  | 142,570 |                    | $      | 131,658 |   |

 

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

 

3

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
|                                                                                               |   | **June 28,  2003** |    | **September 28,  2002** |   |
|----------------------------------------------------------------------------------------------------|--------|--------------------|---------|-------------------------|--------|
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                          |   |               |    |                    |   |
|                                                                                               |   |               |    |                    |   |
| Current liabilities:                                                                               |   |               |    |                    |   |
| Current maturities of long-term debt                                                               |   | $                  | 78      |                    | $      | 78 |   |
| Accounts payable                                                                                   |   | 6,767              |    | 6,708                   |   |
| Accrued payroll                                                                                    |   | 7,263              |    | 7,642                   |   |
| Accrued taxes                                                                                      |   | 4,538              |    | 6,965                   |   |
| Other current liabilities                                                                          |   | 7,023              |    | 6,362                   |   |
|                                                                                               |   |               |    |                    |   |
| Total current liabilities                                                                          |   | 25,669             |    | 27,755                  |   |
|                                                                                               |   |               |    |                    |   |
| Long-term debt                                                                                     |   | 615                |    | 674                     |   |
| Deferred income taxes                                                                              |   | 5,452              |    | 4,658                   |   |
| Other liabilities                                                                                  |   | 2,551              |    | 2,652                   |   |
|                                                                                               |   |               |    |                    |   |
| Total liabilities                                                                                  |   | 34,287             |    | 35,739                  |   |
|                                                                                               |   |               |    |                    |   |
| 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 5,445,000 shares               |   | 5,445              |    | 5,445                   |   |
| Additional paid-in capital                                                                         |   | 2,931              |    | 2,246                   |   |
| Retained earnings                                                                                  |   | 102,403            |    | 91,061                  |   |
| Unearned compensation                                                                              |   | (390               | )       | (509                    | )      |
| Treasury stock, at cost: 206,000 shares at  June 28, 2003 and 230,000 shares at September 28, 2002 |   | (2,106             | )       | (2,324                  | )      |
|                                                                                               |   |               |    |                    |   |
| Total stockholders’ equity                                                                    |   | 108,283            |    | 95,919                  |   |
|                                                                                               |   |               |    |                    |   |
| Total liabilities and stockholders’ equity                                                    |   | $                  | 142,570 |                    | $      | 131,658 |   |

 

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

 

4

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COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS(UNAUDITED)

(Dollars in thousands)

 
|                                                                             |   | **NINE MONTHS ENDED** |   |
|----------------------------------------------------------------------------------|--------|-----------------------|--------|
|                                                                             |   | **June 28,  2003**    |   | **June 29,  2002** |   |
|                                                                             |   |                  |   |   |   |
| Operating Activities:                                                            |   |                  |   |   |   |
| Net income                                                                       |   | $                     | 13,105 |   | $ | 9,566 |   |
| Adjustments to reconcile net income to  cash provided from operating activities: |   |                  |   |   |   |
| Depreciation and amortization                                                    |   | 7,431                 |   | 8,289 |   |
| Deferred income taxes                                                            |   | 888                   |   | 1,399 |   |
| Changes in assets and liabilities:                                               |   |                  |   |   |   |
| Accounts receivable                                                              |   | 2,142                 |   | 5,586 |   |
| Inventory                                                                        |   | (57                   | )      | 9 |   |
| Accounts payable                                                                 |   | 59                    |   | (2,687 | ) |
| Accrued taxes                                                                    |   | (2,461                | )      | (1,665 | ) |
| Other elements of working capital                                                |   | 25                    |   | 293 |   |
| Gain on sale of discontinued operations  (Note E)                                |   | (861                  | )      | — |   |
| Other, net                                                                       |   | (270                  | )      | 371 |   |
|                                                                             |   |                  |   |   |   |
| Cash provided from operating activities                                          |   | 20,001                |   | 21,161 |   |
|                                                                             |   |                  |   |   |   |
| Investment Activities:                                                           |   |                  |   |   |   |
| Capital expenditures                                                             |   | (4,048                | )      | (3,887 | ) |
| Prepublication costs                                                             |   | (1,653                | )      | (1,282 | ) |
| Proceeds from sale of discontinued  operations (Note E)                          |   | 1,500                 |   | — |   |
|                                                                             |   |                  |   |   |   |
| Cash used for investment activities                                              |   | (4,201                | )      | (5,169 | ) |
|                                                                             |   |                  |   |   |   |
| Financing Activities:                                                            |   |                  |   |   |   |
| Long-term debt repayments                                                        |   | (59                   | )      | (15,307 | ) |
| Cash dividends                                                                   |   | (1,763                | )      | (1,541 | ) |
| Proceeds from stock plans                                                        |   | 446                   |   | 738 |   |
|                                                                             |   |                  |   |   |   |
| Cash used for financing activities                                               |   | (1,376                | )      | (16,110 | ) |
|                                                                             |   |                  |   |   |   |
| Increase (decrease) in cash and cash  equivalents                                |   | 14,424                |   | (118 | ) |
|                                                                             |   |                  |   |   |   |
| Cash and cash equivalents at the beginning  of the period                        |   | 5,630                 |   | 173 |   |
|                                                                             |   |                  |   |   |   |
| Cash and cash equivalents at the end of  the period                              |   | $                     | 20,054 |   | $ | 55 |   |

 

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

 

5

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**COURIERCORPORATION**

 

**NOTESTO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)**

 

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

 

**UnauditedFinancial Statements**

Thebalance sheet as of June 28, 2003, the statements of income for the three-monthand nine-month periods ended June 28, 2003 and June 29, 2002, and thestatements of cash flows for the nine-month periods ended June 28, 2003 andJune 29, 2002 are unaudited and, in the opinion of management, all adjustmentsnecessary for a fair presentation of such financial statements have beenrecorded.  Such adjustments consistedonly of normal recurring items.  Certainamounts for fiscal 2002 have been reclassified in the accompanying financialstatements in order to be consistent with the current year’s classification.

 

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 asof September 28, 2002 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 28, 2002.

 

**Prepublication Costs**

Prepublicationcosts, associated with the specialty publishing segment, are amortized usingthe straight-line method over an estimated useful life of four years.  Effective with the second quarter of fiscal2003, amortization expense of prepublication costs was reclassified to cost ofsales from selling and administrative expense. Prior periods presented in the accompanying financial statements havebeen reclassified in order to be consistent with the current classification.

 

**Goodwill and OtherIntangibles, Net**

The Company accounts forgoodwill in accordance with SFAS No. 142, “Accounting for Goodwill and OtherIntangible Assets.”  As of June 28, 2003and September 28, 2002, “Goodwill and other intangibles, net” consists ofgoodwill of approximately $24.9 million and other intangibles of $0.1million.  Goodwill has been allocated$9.3 million to the book manufacturing segment and $15.6 million to thespecialty publishing segment.  There hasbeen no change in the carrying amount of goodwill during the period or in theallocation of goodwill by reportable segment. Other intangible assets are subject to amortization over a remainingseven-year life.

 

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 44% and 46% of the Company’s inventories at June 28, 2003 andSeptember 28, 2002, respectively.  Otherinventories, primarily at Dover, are determined on a first-in, first-out (FIFO)basis.  Inventories consisted of thefollowing:

 
|             |   | **(000’s Omitted)** |   |
|------------------|--------|--------------------------|--------|
|             |   | **June 28,  2003**       |   | **September 28,****2002** |   |
| Raw materials    |   | $                        | 1,973  |   | $ | 3,405 |   |
| Work in  process |   | 5,187                    |   | 4,852 |   |
| Finished goods   |   | 14,309                   |   | 13,155 |   |
| Total            |   | $                        | 21,469 |   | $ | 21,412 |   |

 

 

**C.****                                    INCOME TAXES**

 

Theprovision for income taxes from continuing operations differs from thatcomputed using the statutory federal income tax rates for the followingreasons:

 
|                                                   |   | **(000’s  Omitted)** |   |
|--------------------------------------------------------|--------|---------------------------|--------|
|                                                   |   | **Quarter  Ended**        |   | **Nine  Months Ended** |   |
|                                                   |   | **June 28,  2003**        |   | **June 29,  2002** |   | **June 28,****2003** |   | **June 29,  2002** |   |
| Federal taxes  at statutory rates                      |   | $                         | 2,563  |   | $ | 2,105 |   | $ | 6,529 |   | $ | 5,015 |   |
| State taxes,  net of federal benefit                   |   | 201                       |   | 137 |   | 455 |   | 327 |   |
| Foreign sales  corporation (FSC) export related income |   | (144                      | )      | (243 | ) | (502 | ) | (523 | ) |
| Other                                                  |   | (6                        | )      | 27 |   | 15 |   | 41 |   |
| Total                                                  |   | $                         | 2,614  |   | $ | 2,026 |   | $ | 6,497 |   | $ | 4,860 |   |

 

**D.****                                    NETINCOME 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, consist of shares issued under theCompany’s stock option plans.

 
|                                    |   | **(000’s  Omitted)** |   |
|-----------------------------------------|--------|---------------------------|--------|
|                                    |   | **Quarter  Ended**        |   | **Nine  Months Ended** |   |
|                                    |   | **June 28, 2003**         |   | **June 29, 2002** |   | **June 28, 2003** |   | **June 29, 2002** |   |
|                                    |   |                      |   |   |   |   |   |   |   |
| Average shares  outstanding for basic   |   | 5,237                     |   | 5,161 |   | 5,225 |   | 5,137 |   |
| Effect of  potentially dilutive shares  |   | 186                       |   | 195 |   | 179 |   | 183 |   |
| Average shares  outstanding for diluted |   | 5,423                     |   | 5,356 |   | 5,404 |   | 5,320 |   |

 

7

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**E.             DISCONTINUEDOPERATIONS**

 

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 periodspresented are:

 
|                                  |   | **(000’s  Omitted)** |   |
|---------------------------------------|--------|---------------------------|--------|
|                                  |   | **Quarter  Ended**        |   | **Nine  Months Ended** |   |
|                                  |   | **June 28,  2003**        |   | **June 29,  2002** |   | **June 28,  2003** |   | **June 29,  2002** |   |
| Sales                                 |   | $                         | — |   | $ | 125 |   | $ | 142 |   | $ | 616 |   |
|                                  |   |                      |   |   |   |   |   |   |   |
| Pretax loss from operations           |   | $                         | — |   | $ | (111 | ) | $ | (100 | ) | $ | (289 | ) |
| Income tax benefit                    |   | —                    |   | (45 | ) | (35 | ) | (116 | ) |
| Loss after tax                        |   | $                         | — |   | $ | (66 | ) | $ | (65 | ) | $ | (173 | ) |
|                                  |   |                      |   |   |   |   |   |   |   |
| Proceeds from sale                    |   |                      |   |   |   | $ | 1,500 |   |   |   |
| Net assets sold and costs of disposal |   |                      |   |   |   | 148 |   |   |   |
| Pretax gain                           |   |                      |   |   |   | $ | 1,352 |   |   |   |
| Income tax provision                  |   |                      |   |   |   | 491 |   |   |   |
| Gain on disposal, net of tax          |   |                      |   |   |   | $ | 861 |   |   |   |

 

**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.

 

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 providessegment information for the three-month and nine-month periods ended June 28,2003 and June 29, 2002. Information relating to the discontinued CustomizedEducation segment (Note E) is not included.

 
|                                |   | **(000’s  Omitted)** |   |
|-------------------------------------|--------|---------------------------|--------|
|                                |   | **Quarter  Ended**        |   | **Nine  Months Ended** |   |
|                                |   | **June 28,****2003**      |   | **June 29,****2002** |   | **June 28,  2003** |   | **June 29,****2002** |   |
|                                |   |                      |   |   |   |   |   |   |   |
| Net sales:                          |   |                      |   |   |   |   |   |   |   |
| Book  manufacturing                 |   | $                         | 43,561 |   | $ | 44,699 |   | $ | 126,528 |   | $ | 123,476 |   |
| Specialty  publishing               |   | 8,948                     |   | 8,487 |   | 26,390 |   | 25,885 |   |
| Elimination of  intersegment sales  |   | (1,433                    | )      | (1,518 | ) | (4,455 | ) | (3,977 | ) |
| Total for  continuing operations    |   | $                         | 51,076 |   | $ | 51,668 |   | $ | 148,463 |   | $ | 145,384 |   |
|                                |   |                      |   |   |   |   |   |   |   |
| Income (loss)  before taxes:        |   |                      |   |   |   |   |   |   |   |
| Book  manufacturing                 |   | $                         | 6,294  |   | $ | 5,411 |   | $ | 15,722 |   | $ | 12,191 |   |
| Specialty  publishing               |   | 1,208                     |   | 904 |   | 3,457 |   | 2,713 |   |
| Elimination of  intersegment profit |   | (116                      | )      | (143 | ) | (373 | ) | (305 | ) |
| Total for  continuing operations    |   | $                         | 7,386  |   | $ | 6,172 |   | $ | 18,806 |   | $ | 14,599 |   |

 

9

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

 

 

**Critical Accounting Policies and Estimates:**

 

The Company’s consolidatedcondensed financial statements have been prepared in accordance with generallyaccepted accounting principles.  Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the amounts reported in these financial statementsand accompanying notes.   On an ongoingbasis, management evaluates its estimates and judgments, including thoserelated to collectibility of accounts receivable, recovery of inventories,impairment of goodwill, 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 credit worthiness. 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   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 accounts for goodwill inaccordance with SFAS No. 142, “Accounting for Goodwill and Other IntangibleAssets”.  Accordingly, the Companyevaluates possible impairment annually or whenever events or circumstancesindicate that the carrying value of the assets may not be recoverable.  The Company completed the annual impairmenttest required by SFAS No. 142 at September 28, 2002 resulting in no change tothe nature or carrying amounts of its intangible assets.  Changes in market conditions or pooroperating 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 a four-year period.  Management regularly evaluates the sales andprofitability of the products based upon historical and forecasted demand.  Based upon this evaluation, adjustments maybe required to amortization expense.

 

Income Taxes   Incometax liabilities and assets are determined based upon the differences among thefinancial statement and tax bases of assets and liabilities, and taxes reportedon the Company’s tax returns.  Changesin the recoverability of the Company’s tax assets or audits by tax authoritiescould result in future charges or credits to income tax expense.

 

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**Resultsof Operations:**

For the third quarter of fiscal2003, the Company’s income from continuing operations was $4.8 million, or $.88per diluted share, an increase of 15% over last year’s corresponding periodresults of $4.1 million, or $.77 per diluted share.  Sales for the third quarter of fiscal 2003 were $51.1 million,off 1% from $51.7 million in the third quarter of fiscal 2002.  Gross profit increased to $17.0 million inthe third quarter compared to $15.4 million in the same period last year, and,as a percentage of sales, increased to 33% compared to 30% in the prior yearperiod.

 

For the first nine months offiscal 2003, income from continuing operations increased 26% to $12.3 million,or $2.28 per diluted share, compared to $9.7 million, or $1.83 per dilutedshare, for the same period last year. Nine-month sales were $148.5 million, up 2% from the first nine monthsof fiscal 2002.  Gross profit as apercentage of sales increased to 32% on a year-to-date basis compared to 29% inthe corresponding period of fiscal 2002. These quarter and year-to-date amountsdo not include the results of a discontinued operation, Courier CustomPublishing, a provider of customized teaching materials which was sold onDecember 17, 2002.

 

**ContinuingOperations**

 

*BookManufacturing Segment*

Sales from the Company’s book manufacturingsegment were $43.6 million, a decrease of 2.5% from the third quarter of fiscal2002.  Within this segment, sales in theeducation market rose by 5% in the third quarter compared to the prioryear.  Sales in higher education, thelargest portion of this market, were up 22% in the quarter reflecting stronggrowth in demand for four-color textbooks. In the elementary/high school market, sales declined 13% in the thirdquarter compared to the same period last year, reflecting a lighter schedule ofstate textbook adoptions and tighter state budgets this year.  Sales to the religious market declined 10%in the quarter compared to the third quarter of fiscal 2002.  In 2003, sales of religious trade books havesuffered from reductions in the number of new titles released as publisherswork to control costs in the slow economy. Sales to the specialty trade market were up 14% in the third quartercompared to the corresponding period last year, reflecting a return to morenormal order patterns after significant inventory reductions by publishers lastyear.  The improvement in sales alsoreflects gains in market share and continued rising demand for game books.

 

Gross profit as a percentage of sales in thebook manufacturing segment increased by 290 basis points to 29.5% in the thirdquarter from 26.6% 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 thethird quarter rose 1% to $6.6 million compared to the same period in the prioryear.

 

Pretax income in this segment increased 16%to $6.3 million, or $.75 per diluted share, in the third quarter compared to$5.4 million, or $.68 per diluted share, in the corresponding quarter lastyear.  As a percentage of sales, pretaxincome increased to 14% in the quarter from 12% in the same period last year.

 

For the first nine months of fiscal 2003,sales in the book manufacturing segment were $126.5 million, an increase of2.5% over the corresponding period of fiscal 2002.  As a percentage of sales, gross profit increased 260 basis pointsto 28.5% year to date compared to 25.9% in the same period last year reflectingproductivity gains, cost reductions and a more favorable sales mix.  Pretax earnings were $15.7 million, or $1.92per diluted share, an increase of 29% over the first nine months of last year.

 

*SpecialtyPublishing Segment*

Sales from the Company’s specialty publishingsegment, which is comprised of Dover Publications, Inc. (“Dover”), were $8.9million in the third quarter of fiscal 2003, an increase of 5% over the sameperiod last year.  This improvement inthe quarter was largely attributable to increased sales to large bookstorechains and international sales, which had both experienced sales declines inthe first half of the year.

 

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Gross profit as a percent of sales in the specialty publishing segmentincreased 410 basis points to 47.2% in the third quarter compared to the sameperiod last year.  Amortization expenserelated to prepublication costs was reclassified from selling andadministrative expense to cost of sales in the second quarter of fiscal 2003.  All prior periods have been reclassified tobe consistent with this presentation. The improvement in the gross profit percentage reflects increased pricesas well as cost savings from shifting more manufacturing of Dover books to theCompany’s manufacturing plants.  Also,declining product costs related to  thesale of inventory from the original acquisition added approximately 75 basispoints.

 

Selling and administrativeexpenses in this segment were $2.9 million in the third quarter, an increase of14% over the corresponding prior year period primarily due to higher sales andmarketing expenses.

 

Pretax income in the specialty publishingsegment was $1.2 million, or $.14 per diluted share, a 34% increase over lastyear’s third quarter, reflecting the increase in sales and improvement in grossprofit margins.

 

For the first nine months of fiscal 2003,Dover’s sales were $26.4 million, an increase of 2% over the same period lastyear.  Gross profit year to dateincreased by 310 basis points to 46.3% as a percentage of sales compared to43.2% last year, after adjusting for the reclassification of amortization ofprepublication costs.  This improvementreflects the benefit of higher prices and a favorable mix of direct-to-consumersales.  Also, decliningproduct costs related to  the sale ofinventory from the original acquisition added approximately 130 basis points togross profit year to date.  Pretax income for the first nine months increased27% over last year to $3.5 million.

 

*TotalConsolidated Company*

Interest income, net of interest expense, was$2,000 in the third quarter of fiscal 2003 compared to interest expense of$86,000 in the same period of fiscal 2002. During the third quarter of fiscal 2003, there were no borrowings underthe Company’s $60 million revolving credit facility, however, interest expenseincludes commitment fees and other costs associated with maintaining thiscredit facility.  Cash investments inthe third quarter of fiscal 2003 averaged approximately $18.5 million at a 1.1%annual investment rate generating interest income of approximately$51,000.  For the same period last year,the Company’s average borrowings were $5.0 million on its credit facility at2.3%.  For the first nine months offiscal 2003, interest expense, net of interest income, was $66,000 compared to$399,000 in the corresponding period last year.  This decrease resulted from the same factors that affected thethird quarter.

 

The Company’s effective taxrates for the third quarter and first nine months of fiscal 2003 were 35%compared to 33% for the corresponding periods last year reflecting a highereffective state tax rate and a reduced benefit from export related income.

 

For purposes of computing netincome per diluted share, weighted average shares outstanding increased byapproximately 67,000 shares over last year’s third quarter.  The increase was largely due to optionsexercised under the Company’s stock plans.

 

**DiscontinuedOperations**

 

OnDecember 17, 2002, the Company sold the assets of its wholly-owned subsidiary,Courier Custom Publishing, Inc. which comprised all of the activities of theCustomized Education segment. The Customized Education segment providedcustomized coursepacks and textbooks. Year-to-date results were a loss of $65,000, or $.01 per diluted share,in the current year compared to a loss of $173,000, or $.03 per diluted share,in the prior year.  Proceeds from thesale of Courier Custom Publishing were $1.5 million resulting in an after taxgain of approximately $0.9 million, or $.16 per diluted share.

 

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**Liquidityand Capital Resources:**

During the first nine months offiscal 2003, operations provided approximately $20 million of cash.  Income from continuing operations was $12.3million and depreciation and amortization were $7.4 million.  Working capital used approximately $0.6million of cash, primarily for the payment of accrued taxes.

 

Investment activities in the first ninemonths of fiscal 2003 used approximately $4.2 million of cash.  Proceeds from the sale of Courier CustomPublishing were $1.5 million. Capital expenditures were approximately $4.0million and prepublication costs were approximately $1.7 million.  For the entire fiscal year, capitalexpenditures are expected to be approximately $10 to $12 million, primarily fornew equipment to increase productivity and lower costs in the bookmanufacturing segment.  This amount alsoincludes deposits on a major new press for delivery next spring to expand theCompany’s four-color printing capacity.  Prepublication costs for the full fiscal year are projected to beapproximately $2 million. In March 2003, the Company announced anagreement to sell approximately 200,000 square feet of unoccupied andunderutilized portions of its multi-building manufacturing complex in Westford,Massachusetts for $1.7 million.  Courierwill continue its current levels of book manufacturing at the site.  The agreement contains a number ofsignificant contingencies. Assuming these contingencies can be resolved,closing is anticipated in late 2003. 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 ninemonths of fiscal 2003 used approximately $1.4 million of cash.  Dividend payments were $1.8 million whileproceeds from stock plans were $0.4 million. At June 28, 2003, the Company had no borrowings under its $60 millionlong-term revolving credit facility, which bears interest at a floatingrate.  During the quarter, the maturitydate of this facility was extended to March 2006.  The revolving credit facility is used by the Company for both itslong-term and short-term financing needs. The Company believes that its cash from operations and available creditfacilities will be sufficient to meet its cash requirements through fiscal2003.

 

The following table summarizes the Company’scontractual obligations and commitments at September 28, 2002 to make futurepayments 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               |   | $         | 752    |                       | $      | 78 |   | $ | 248 |   | $ | 178 |   | $ | 248 |   |
| Operating  Leases            |   | $         | 12,968 |                       | $      | 3,869 |   | $ | 7,249 |   | $ | 1,850 |   | $ | — |   |
| Purchase  Obligations(1)     |   | $         | 9,334  |                       | $      | 9,334 |   | $ | — |   | $ | — |   | $ | — |   |
| Other  Long-Term Liabilities |   | $         | 2,652  |                       | $      | — |   | $ | 1,157 |   | $ | 350 |   | $ | 1,145 |   |

 

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(1)          Representamounts at June 28, 2003.

 

**Forward-LookingInformation:**

Statements that describe futureexpectations, plans or strategies are considered “forward-looking statements”as that term is defined under the Private Securities Litigation Reform Act of1995 and releases issued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,”“intend,” “estimate” and other expressions which are predictions of or indicatefuture events and trends and which do not relate to historical matters identifyforward-looking statements.  Suchstatements are subject to risks and uncertainties that could cause actual resultsto differ materially from those currently anticipated.  Factors that could affect actual resultsinclude, among others, changes in customers’ demand for the Company’s products,changes in raw material costs, pricing actions by competitors, success in theintegration of acquired businesses, unanticipated changes in operatingexpenses, changes in technology, changes in copyright laws, changes in taxpolicy including export credits, and general changes in economicconditions.  Although the Companybelieves that the assumptions underlying the forward-looking statements arereasonable, any of the assumptions could be inaccurate, and therefore, therecan be no assurance that the forward-looking statements will prove to beaccurate.  The forward-looking statementsincluded herein are made as of the date hereof, and the Company undertakes noobligation to update publicly such statements to reflect subsequent events orcircumstances.

 

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**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 28, 2002.

 

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

 

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

 

As required by Rule 13a-15 under theSecurities Exchange Act of 1934, as of the end of the period covered by thisquarterly report, the Company carried out an evaluation under the supervisionand with the participation of the Company’s management, including the Company’sChief Executive Officer and Chief Financial Officer, of the effectiveness ofthe design and operation of the Company’s disclosure controls and procedures.  Based upon that evaluation, the ChiefExecutive Officer and Chief Financial Officer concluded that the Company’sdisclosure controls and procedures are effective to ensure that informationrequired to be disclosed by the Company in the reports it files or submitsunder the Exchange Act is recorded, processed, summarized and reported, withinthe time periods specified in the Securities and Exchange Commission’s rulesand forms.  The Company continuallyreviews its disclosure controls and procedures and may from time to time makechanges aimed at enhancing their effectiveness and to ensure that its systemsevolve with its business.

 

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

 

There was no change in the Company’sinternal control over financial reporting that occurred during the periodcovered by this quarterly report that has materially affected, or is reasonablylikely to materially affect, the Company’s internal control over financialreporting.

 

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**PART II. OTHER INFORMATION**

 

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

 

None.

 

**Item 2.****                                                           Changes in Securities and Use of Proceeds**

 

None.

 

**Item3.****                                                           DefaultsUpon Senior Securities**

 

None.

 

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

 

None.

 

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

 

None.

 

**Item6.**                                                           **Exhibits and Reports on Form 8-K**

 

(a)  Exhibits

 
| **Exhibit No.** |   | **Description**                                                                                                                                                                                                                                                            |
|-----------------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 10              |   | Amended  and Restated Revolving Credit Agreement, dated as of March 31, 2003, between  Courier Corporation, Fleet National Bank, KeyBank National Association,  Citizens Bank of Massachusetts and Sovereign Bank, providing for a $60  million revolving credit facility. |
|            |   |                                                                                                                                                                                                                                                                       |
| 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 July 17, 2003, reporting under Item 12a press release dated July 17, 2003 reporting financial results for the quarterended June 28, 2003.

 

Filed August 12, 2003, reporting under Item11 a notice to employees dated August 8, 2003 regarding a change in investment,trustee and record keeping services for the Courier Profit Sharing and SavingsPlan.

 

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**SIGNATURES**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the Company has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                          | **COURIER CORPORATION** |
|-------------------------------|-------------------------|
|                          | **(Registrant)**        |   |
|                          |                    |
| *  August 12, 2003* |                    | *By:* | *s/James F. Conway III* |   |
| Date                          |                    |   |   | James F. Conway III |
|                          |                    |   | Chairman,  President and  Chief Executive Officer |
|                          |                    |
| *  August 12, 2003* |                    | *By:* | *s/Robert P. Story, Jr.* |   |
| Date                          |                    |   |   | Robert P. Story, Jr. |
|                          |                    |   | Senior Vice President and  Chief Financial Officer |
|                          |                    |
| *  August 12, 2003* |                    | *By:* | *s/Peter M. Folger* |   |
| Date                          |                    |   |   | Peter M. Folger |
|                          |                    |   | Vice President and  Chief Accounting Officer |
|                               |                         |  |  |  |  |  |  |  |  |  |  |

 

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