**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D.C.  20549**

 

**FORM 10-Q**

** **

**(Mark One)**

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

 

**For thequarterly period ended March 28, 2009**

 

**OR**

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

 

**For thetransition period from                  to                  **

 

**Commissionfile number 0-7597**

 

**COURIER CORPORATION**

(Exact name ofregistrant as specified in its charter)

 

| **Massachusetts**                                               | ** ** | **04-2502514**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                            |       |                                  |
| **15  Wellman Avenue, North Chelmsford, Massachusetts**         | ** ** | **01863**                             |
| (Address of  principal executive offices)                       |       | (Zip Code)                            |

 

**(978) 251-6000**

(Registrant’stelephone number, including area code)

 

**NO CHANGE**

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

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter)during the preceding 12 months (or for such shorter period that the registrantwas required to submit and post such files).  Yes o No o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act. (Check one:)

 

| Large  accelerated filer o                |   | Accelerated  filer x         |
|------------------------------------------------|--------|-----------------------------------|
|                                           |   |                              |
| Non- accelerated  filer o                 |   | Smaller  reporting company o |
| (Do not check if  a smaller reporting company) |   |                              |

 

Indicate by check markwhether the registrant is a shell company (as defined in Exchange Act Rule 12b-2).  Yes o  No x

 

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

 

| **Class**                   | ** ** | **Outstanding  at May 5, 2009** |
|-----------------------------|------------|--------------------------------------|
| Common Stock, $1  par value |       | 11,910,822  shares                   |

 

 

 

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COURIER CORPORATION

CONSOLIDATED STATEMENTSOF OPERATIONS (UNAUDITED)

(Dollars in thousandsexcept per share amounts)

 
| ** **                                   | ** ** | **QUARTER ENDED** | ** ** | **SIX MONTHS ENDED** | ** ** |
|----------------------------------------------|------------|------------------------|------------|--------------------------------|------------|
| ** **                                   | ** ** | **March 28,**     | ** ** | **March 29,**             | ** ** | **March 28,** | ** ** | **March 29,** | ** ** |
| ** **                                   | ** ** | **2009**               | ** ** | **2008**                       | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Net sales                                    |       | $                      | 59,360     |                           | $          | 67,787 |   | $ | 119,007 |   | $ | 130,650 |   |
| Cost of sales (Note E)                       |       | 48,737                 |       | 48,418                         |       | 93,956 |   | 94,540 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Gross profit                                 |       | 10,623                 |       | 19,369                         |       | 25,051 |   | 36,110 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Selling and administrative expenses (Note E) |       | 12,081                 |       | 13,674                         |       | 25,157 |   | 27,890 |   |
| Impairment charge (Note A)                   |       | 15,607                 |       | —                         |       | 15,607 |   | — |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Operating (loss) income                      |       | (17,065                | )          | 5,695                          |       | (15,713 | ) | 8,220 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Interest expense, net                        |       | 194                    |       | 272                            |       | 421 |   | 567 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Pretax (loss) income                         |       | (17,259                | )          | 5,423                          |       | (16,134 | ) | 7,653 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Income tax (benefit) provision (Note C)      |       | (6,086                 | )          | 2,040                          |       | (5,664 | ) | 2,854 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Net (loss) income                            |       | $                      | (11,173    | )                              | $          | 3,383 |   | $ | (10,470 | ) | $ | 4,799 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Net (loss) income per share (Note G):        |       |                   |       |                           |       |   |   |   |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Basic                                        |       | $                      | (0.94      | )                              | $          | 0.27 |   | $ | (0.88 | ) | $ | 0.38 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Diluted                                      |       | $                      | (0.94      | )                              | $          | 0.27 |   | $ | (0.88 | ) | $ | 0.38 |   |
|                                         |       |                   |       |                           |       |   |   |   |   |
| Cash dividends declared per share            |       | $                      | 0.21       |                           | $          | 0.20 |   | $ | 0.42 |   | $ | 0.40 |   |

 

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

 

2

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COURIER CORPORATION

CONSOLIDATED CONDENSEDBALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                             | ** ** | **March 28,** | ** ** | **September 27,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| **ASSETS**                                                                                                                             | ** ** | **2009**           | ** ** | **2008**               | ** ** |
|                                                                                                                                   |       |               |       |                   |       |
| Current assets:                                                                                                                        |       |               |       |                   |       |
| Cash and cash equivalents                                                                                                              |       | $                  | 124        |                   | $          | 178 |   |
| Investments                                                                                                                            |       | 803                |       | 820                    |       |
| Accounts receivable, less allowance for uncollectible accounts of  $1,761 at March 28, 2009 and $1,611 at September 27, 2008 |       | 31,837             |       | 45,626                 |       |
| Inventories (Note B)                                                                                                                   |       | 40,768             |       | 37,166                 |       |
| Deferred income taxes                                                                                                                  |       | 4,667              |       | 4,680                  |       |
| Other current assets                                                                                                                   |       | 4,025              |       | 1,528                  |       |
|                                                                                                                                   |       |               |       |                   |       |
| Total current assets                                                                                                                   |       | 82,224             |       | 89,998                 |       |
|                                                                                                                                   |       |               |       |                   |       |
| Property, plant and equipment, less accumulated depreciation:  $159,170 at March 28, 2009 and $153,606 at September 27, 2008 |       | 91,595             |       | 95,692                 |       |
|                                                                                                                                   |       |               |       |                   |       |
| Goodwill (Note A)                                                                                                                      |       | 24,305             |       | 39,912                 |       |
|                                                                                                                                   |       |               |       |                   |       |
| Other intangibles, net (Note A)                                                                                                        |       | 3,820              |       | 3,920                  |       |
|                                                                                                                                   |       |               |       |                   |       |
| Prepublication costs, net (Note A)                                                                                                     |       | 9,359              |       | 9,595                  |       |
|                                                                                                                                   |       |               |       |                   |       |
| Other assets                                                                                                                           |       | 1,583              |       | 1,381                  |       |
|                                                                                                                                   |       |               |       |                   |       |
| Total assets                                                                                                                           |       | $                  | 212,886    |                   | $          | 240,498 |   |

 

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

 

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COURIER CORPORATION

CONSOLIDATED CONDENSEDBALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                                     | ** ** | **March 28,** | ** ** | **September 27,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                   | ** ** | **2009**           | ** ** | **2008**               | ** ** |
|                                                                                                                                           |       |               |       |                   |       |
| Current liabilities:                                                                                                                           |       |               |       |                   |       |
| Current maturities of long-term debt                                                                                                           |       | $                  | 93         |                   | $          | 93 |   |
| Accounts payable                                                                                                                               |       | 10,834             |       | 16,966                 |       |
| Accrued payroll                                                                                                                                |       | 5,294              |       | 6,587                  |       |
| Accrued taxes                                                                                                                                  |       | 944                |       | 3,560                  |       |
| Other current liabilities                                                                                                                      |       | 6,487              |       | 5,970                  |       |
|                                                                                                                                           |       |               |       |                   |       |
| Total current liabilities                                                                                                                      |       | 23,652             |       | 33,176                 |       |
|                                                                                                                                           |       |               |       |                   |       |
| Long-term debt                                                                                                                                 |       | 24,587             |       | 23,646                 |       |
| Deferred income taxes                                                                                                                          |       | 497                |       | 4,687                  |       |
| Other liabilities                                                                                                                              |       | 2,376              |       | 2,765                  |       |
|                                                                                                                                           |       |               |       |                   |       |
| Total liabilities                                                                                                                              |       | 51,112             |       | 64,274                 |       |
|                                                                                                                                           |       |               |       |                   |       |
| Stockholders’ equity (Notes F):                                                                                                           |       |               |       |                   |       |
| Preferred stock, $1 par value - authorized 1,000,000 shares; none  issued                                                                      |       |               |       |                   |       |
| Common stock, $1 par value - authorized 18,000,000 shares; issued  11,911,000 at March 28, 2009 and 11,878,000 at September 27, 2008 |       | 11,911             |       | 11,878                 |       |
| Additional paid-in capital                                                                                                                     |       | 15,769             |       | 14,788                 |       |
| Retained earnings                                                                                                                              |       | 134,456            |       | 149,920                |       |
| Accumulated other comprehensive loss                                                                                                           |       | (362               | )          | (362                   | )          |
|                                                                                                                                           |       |               |       |                   |       |
| Total stockholders’ equity                                                                                                                |       | 161,774            |       | 176,224                |       |
|                                                                                                                                           |       |               |       |                   |       |
| Total liabilities and stockholders’ equity                                                                                                |       | $                  | 212,886    |                   | $          | 240,498 |   |

 

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

 

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COURIER CORPORATION

CONSOLIDATED CONDENSEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                              | ** ** | **SIX MONTHS ENDED** | ** ** |
|-----------------------------------------------------------------------------------------|------------|--------------------------------|------------|
| ** **                                                                              | ** ** | **March 28,**             | ** ** | **March 29,** | ** ** |
| ** **                                                                              | ** ** | **2009**                       | ** ** | **2008** | ** ** |
|                                                                                    |       |                           |       |   |   |
| Operating Activities:                                                                   |       |                           |       |   |   |
| Net (loss) income                                                                       |       | $                              | (10,470    | ) | $ | 4,799 |   |
| Adjustments to reconcile net (loss) income to cash provided from  operating activities: |       |                           |       |   |   |
| Depreciation and amortization                                                           |       | 10,589                         |       | 10,558 |   |
| Impairment charge (Note A)                                                              |       | 15,607                         |       | — |   |
| Stock based compensation                                                                |       | 725                            |       | 742 |   |
| Deferred income taxes                                                                   |       | (4,177                         | )          | 2,025 |   |
| Changes in assets and liabilities:                                                      |       |                           |       |   |   |
| Accounts receivable                                                                     |       | 13,789                         |       | 1,665 |   |
| Inventory                                                                               |       | (3,602                         | )          | (3,530 | ) |
| Accounts payable                                                                        |       | (6,132                         | )          | (3,977 | ) |
| Accrued taxes                                                                           |       | (2,616                         | )          | (921 | ) |
| Other elements of working capital                                                       |       | (3,273                         | )          | (3,477 | ) |
| Other, net                                                                              |       | (167                           | )          | (994 | ) |
|                                                                                    |       |                           |       |   |   |
| Cash provided from operating activities                                                 |       | 10,273                         |       | 6,890 |   |
|                                                                                    |       |                           |       |   |   |
| Investment Activities:                                                                  |       |                           |       |   |   |
| Capital expenditures                                                                    |       | (4,463                         | )          | (5,475 | ) |
| Prepublication costs                                                                    |       | (2,240                         | )          | (2,464 | ) |
| Short-term investments                                                                  |       | 17                             |       | — |   |
|                                                                                    |       |                           |       |   |   |
| Cash used for investment activities                                                     |       | (6,686                         | )          | (7,939 | ) |
|                                                                                    |       |                           |       |   |   |
| Financing Activities:                                                                   |       |                           |       |   |   |
| Long-term debt borrowings, net                                                          |       | 941                            |       | 12,371 |   |
| Cash dividends                                                                          |       | (4,994                         | )          | (5,016 | ) |
| Proceeds from stock plans                                                               |       | 412                            |       | 804 |   |
| Stock repurchases                                                                       |       | —                         |       | (7,177 | ) |
| Excess tax benefits from stock-based compensation                                       |       | —                         |       | 42 |   |
|                                                                                    |       |                           |       |   |   |
| Cash (used for) provided from financing activities                                      |       | (3,641                         | )          | 1,024 |   |
|                                                                                    |       |                           |       |   |   |
| Decrease in cash and cash equivalents                                                   |       | (54                            | )          | (25 | ) |
|                                                                                    |       |                           |       |   |   |
| Cash and cash equivalents at the beginning of the period                                |       | 178                            |       | 1,549 |   |
|                                                                                    |       |                           |       |   |   |
| Cash and cash equivalents at the end of the period                                      |       | $                              | 124        |   | $ | 1,524 |   |

 

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

 

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** **

**COURIER CORPORATION**

** **

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

 

**A.****                                   ****SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

 

**Unaudited Financial Statements**

The consolidated condensed balance sheet as of March 28, 2009, thestatements of operations for the three-month and six-month periods ended March 28,2009 and March 29, 2008, and the statements of cash flows for thesix-month periods ended March 28, 2009 and March 29, 2008 areunaudited.  In the opinion of management,all adjustments, consisting of normal recurring items, considered necessary fora fair presentation of such financial statements have been recorded.

 

Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (“generally acceptedaccounting principles”) have been condensed or omitted.  The balance sheet data as of September 27,2008 was derived from audited year-end financial statements, but does not includedisclosures required by generally accepted accounting principles.  It is suggested that these interim financialstatements be read in conjunction with the Company’s most recent Form 10-Kand Annual Report for the year ended September 27, 2008.

 

**Goodwilland Other Intangibles**

The Companyevaluates possible impairment annually at the end of its fiscal year orwhenever events or circumstances indicate that the carrying value of the assetsmay not be recoverable. These tests are performed at the reporting unit level,which is the operating segment or one level below the operating segment.  Due to a decline in sales and profits atDover Publications, Inc. (“Dover”), resulting from the continued downturnin the economic environment and in consumer spending, the Company performed aninterim test of goodwill for Dover, one of the companies in its specialtypublishing segment.

 

The goodwillimpairment test is a two-step test.  Inthe first step, the Company compares the fair value of the reporting unit toits carrying value.  If the fair value ofthe reporting unit exceeds the carrying value of its net assets, then goodwillis not impaired and the Company is not required to perform further testing.  If the carrying value of the net assets ofthe reporting unit exceeds its fair value, then the Company must perform thesecond step in order to determine the implied fair value of the reporting unit’sgoodwill and compare it to the carrying value of its goodwill.  The Company used a valuation methodology toestimate the fair value of Dover based on a discounted cash flow and a marketvalue approach.  Key assumptions andestimates included revenue and operating income forecasts and the assessedgrowth rate after the forecast period.

 

After performingthe step-one test, the Company determined that the fair value of Dover wasbelow its carrying value and as such the second step was required.  The second step of the impairment testincluded estimating the fair value of the tangible and identified intangibleassets and liabilities of the impaired reporting unit.  The implied goodwill is the residual of thetotal fair value of the reporting unit less the accumulated fair value ofidentified tangible and intangible assets and liabilities.  Based on the results of these valuations, theCompany recorded a pre-tax impairment charge of $15.6 million, representing100% of Dover’s goodwill, at the end of the second quarter.

 

“Other intangibles”includes customer lists related to Federal Marketing Corporation, d/b/aCreative Homeowner (“Creative Homeowner”) and Moore-Langen Printing Company, Inc.(“Moore Langen”), which are being amortized over 15-year and 10-year periods,respectively.  Amortization expenserelated to customer lists was approximately $50,000 and $200,000 in the secondquarters of fiscal 2009 and 2008, respectively, and for the first six monthswas approximately $100,000 and $400,000 in fiscal 2009 and 2008, respectively.

 

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**COURIER CORPORATION**

 

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

 

**PrepublicationCosts**

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

 

**RecentAccounting Pronouncements**

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised 2007), “BusinessCombinations,” (“SFAS No. 141R”), which replaces SFAS No. 141. Thisstatement retains the purchase method of accounting for business acquisitions,but requires a number of changes in the recognition of assets acquired andliabilities assumed as well as in the treatment of acquisition-related costs.  SFAS No. 141R will be effective at thebeginning of the Company’s fiscal year 2010 and will apply prospectively tobusiness combinations completed on or after that date. The Company does notbelieve the adoption of SFAS No. 141R will have a material effect on itsconsolidated financial position, results of operations, or cash flows.

 

In April 2008,the FASB issued FASB Staff Position (“FSP”) 142-3, “Determining the Useful Lifeof Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to beconsidered in determining the useful life of intangible assets. Its intent isto improve the consistency between the useful life of an intangible asset andthe period of expected cash flows used to measure its fair value. FSP 142-3will be effective at the beginning of the Company’s fiscal year 2010. TheCompany does not believe the adoption of FSP 142-3 will have a material effecton its consolidated financial position, results of operations, or cash flows.

 

At the beginningof the second quarter of fiscal 2009, the Company adopted the provisions ofSFAS No. 161, “Disclosures about Derivative Instruments and HedgingActivities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”),which changed the disclosure requirements for derivative instruments andhedging activities.  The adoption of SFASNo. 161 did not have a material effect on the Company’s consolidatedfinancial position, results of operations, or cash flows.

 

# **B.**                                    INVENTORIES

# ** **

Inventories are valued at the lower of cost or market.  Cost is determined using the last-in,first-out (LIFO) method for approximately 51% and 44% of the Company’sinventories at March 28, 2009 and September 27, 2008,respectively.  Other inventories,primarily in the specialty publishing segment, are determined on a first-in,first-out (FIFO) basis.  Inventoriesconsisted of the following:

 
| ** **      | ** ** | **(000’s Omitted)** | ** ** |
|-----------------|------------|-------------------------------|------------|
| ** **      | ** ** | **March 28,  2009**      | ** ** | **September 27,  2008** | ** ** |
| Raw materials   |       | $                             | 5,665      |   | $ | 5,263 |   |
| Work in process |       | 9,606                         |       | 8,091 |   |
| Finished goods  |       | 25,497                        |       | 23,812 |   |
| Total           |       | $                             | 40,768     |   | $ | 37,166 |   |

 

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**COURIER CORPORATION**

 

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

 

# **C.**                                    INCOME TAXES

# ** **

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

 
| ** **                              | ** ** | **(000’s Omitted)** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Quarter Ended**        | ** ** |
| ** **                              | ** ** | **March 28,  2009**      | ** ** | **March 29,  2008** | ** ** |
| Federal taxes at statutory rates        |       | $                             | (6,040     | ) | 35.0 | % | $ | 1,898 |   | 35.0 | % |
| State taxes, net of federal tax benefit |       | (70                           | )          | 0.4 |   | 196 |   | 3.6 |   |
| Federal manufacturer’s deduction   |       | 26                            |       | (0.2 | ) | (60 | ) | (1.1 | ) |
| Other                                   |       | (2                            | )          | — |   | 6 |   | 0.1 |   |
| Total                                   |       | $                             | (6,086     | ) | 35.3 | % | $ | 2,040 |   | 37.6 | % |

 
| ** **                              | ** ** | **(000’s Omitted)**  | ** ** |
|-----------------------------------------|------------|--------------------------------|------------|
| ** **                              | ** ** | **Six Months Ended** | ** ** |
| ** **                              | ** ** | **March 28,  2009**       | ** ** | **March 29,  2008** | ** ** |
| Federal taxes at statutory rates        |       | $                              | (5,647     | ) | 35.0 | % | $ | 2,679 |   | 35.0 | % |
| State taxes, net of federal tax benefit |       | (24                            | )          | 0.1 |   | 261 |   | 3.4 |   |
| Federal manufacturer’s deduction   |       | 7                              |       | — |   | (94 | ) | (1.2 | ) |
| Other                                   |       | —                         |       | — |   | 8 |   | 0.1 |   |
| Total                                   |       | $                              | (5,664     | ) | 35.1 | % | $ | 2,854 |   | 37.3 | % |

 

# **The tax benefitrelated to the impairment charge for Dover was recognized at 35% (see NoteA).  No state tax benefit was recognizedas the Company fully provided a valuation allowance on the related deferredstate tax asset.**

# ** **

# **D.**                                    BUSINESS SEGMENTS

# ** **

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

 

# **Segmentperformance is evaluated based on several factors, of which the primaryfinancial measure is operating income. Operating income is defined as gross profit (sales less cost of sales)less selling and administrative expenses, and includes severance and otherrestructuring costs but excludes stock-based compensation.  As such, segment performance is evaluatedexclusive of interest, income taxes, stock-based compensation, intersegmentprofit elimination, and asset impairment charges.  The elimination of intersegment sales andrelated profit represents sales from the book manufacturing segment to thespecialty publishing segment.**

# ** **

During the first quarter offiscal 2009, the Company changed to this current measure of reporting segmentperformance. Previously, reported segment results included an interestallocation.  The Company’s prior yearsegment information has been adjusted to conform to the current year’spresentation.

 

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# ** **

# **COURIER CORPORATION**

# ** **

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

 

The following table providessegment information for the three-month and six-month periods ended March 28,2009 and March 29, 2008.

 
| ** **                                   | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------------|------------|-------------------------------|------------|
| ** **                                   | ** ** | **Quarter Ended**        | ** ** | **Six Months Ended** | ** ** |
| ** **                                   | ** ** | **March 28,  2009**      | ** ** | **March 29,  2008** | ** ** | **March 28,  2009** | ** ** | **March 29,  2008** | ** ** |
|                                         |       |                          |       |   |   |   |   |   |   |
| Net sales:                                   |       |                          |       |   |   |   |   |   |   |
| Book manufacturing                           |       | $                             | 49,899     |   | $ | 53,359 |   | $ | 100,781 |   | $ | 103,066 |   |
| Specialty publishing                         |       | 12,058                        |       | 16,758 |   | 23,561 |   | 32,014 |   |
| Elimination of intersegment sales            |       | (2,597                        | )          | (2,330 | ) | (5,335 | ) | (4,430 | ) |
| Total                                        |       | $                             | 59,360     |   | $ | 67,787 |   | $ | 119,007 |   | $ | 130,650 |   |
|                                         |       |                          |       |   |   |   |   |   |   |
| Pretax (loss) income:                        |       |                          |       |   |   |   |   |   |   |
| Book manufacturing operating (loss) income   |       | $                             | (652       | ) | $ | 5,319 |   | $ | 2,936 |   | $ | 7,697 |   |
| Specialty publishing operating (loss) income |       | (566                          | )          | 642 |   | (2,493 | ) | 1,127 |   |
| Impairment charge (Note A)                   |       | (15,607                       | )          | — |   | (15,607 | ) | — |   |
| Stock-based compensation                     |       | (342                          | )          | (302 | ) | (725 | ) | (742 | ) |
| Elimination of intersegment profit           |       | 102                           |       | 36 |   | 176 |   | 138 |   |
| Interest expense, net                        |       | (194                          | )          | (272 | ) | (421 | ) | (567 | ) |
| Total                                        |       | $                             | (17,259    | ) | $ | 5,423 |   | $ | (16,134 | ) | $ | 7,653 |   |

# ** **

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

 

The Company recordedrestructuring costs of $3.5 million in the second quarter of fiscal 2009 and$3.7 million in the first half of the year. Restructuring costs includedemployee severance expenses related to cost savings initiatives in both of theCompany’s segments as well as ceasing Creative Homeowner’s distributionservices within the specialty publishing segment.  Restructuring costs also included expensesrelated to closing and consolidating the Book-mart Press manufacturing facilitywithin the book manufacturing segment during the second quarter of fiscal2009.  The following tables detailrestructuring costs by segment and by classification in the accompanyingconsolidated statements of operations.

 
| ** **                                         | ** ** | **(000’s Omitted)**    | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **Quarter Ended**           | ** ** | **Six Months Ended** | ** ** |
| ** **                                         | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Employee severance costs                           |       | $                                | 1,112      |   | $ | 299 |   | $ | 1,411 |   | $ | 1,128 |   | $ | 484 |   | $ | 1,612 |   |
| Write down of property, plant and equipment        |       | 591                              |       | — |   | 591 |   | 591 |   | — |   | 591 |   |
| Inventory write downs                              |       | 778                              |       | — |   | 778 |   | 778 |   | — |   | 778 |   |
| Lease termination and other facility closure costs |       | 748                              |       | — |   | 748 |   | 748 |   | — |   | 748 |   |
| Total restructuring costs                          |       | $                                | 3,229      |   | $ | 299 |   | $ | 3,528 |   | $ | 3,245 |   | $ | 484 |   | $ | 3,729 |   |
|                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Included in cost of sales                          |       | $                                | 2,754      |   | $ | 107 |   | $ | 2,861 |   | $ | 2,754 |   | $ | 107 |   | $ | 2,861 |   |
| Included in selling and administrative expenses    |       | 475                              |       | 192 |   | 667 |   | 491 |   | 377 |   | 868 |   |
| Total restructuring costs                          |       | $                                | 3,229      |   | $ | 299 |   | $ | 3,528 |   | $ | 3,245 |   | $ | 484 |   | $ | 3,729 |   |

 

9

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**COURIERCORPORATION**

** **

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

 

Employeeseverance costs in the specialty publishing segment included centralizing backoffice and order fulfillment operations in addition to ceasing CreativeHomeowner’s distribution services. Within the book manufacturing segment, the Company closed its Book-martPress manufacturing facility during the second quarter in order to reduceredundant capacity and to lower costs. Book-mart Press, located in North Bergen, New Jersey, was dedicated toshort-run, single-color production.  Alsoduring the second quarter, a voluntary severance program was offered throughoutthe Company, which was followed by additional workforce reductions in the bookmanufacturing segment due primarily to reduced one- and two-color capacityutilization.  These actions were allcompleted during the second quarter.  At March 28,2009, approximately $550,000 of severance costs were accrued and the Companyanticipates that payments associated with employee terminations will besubstantially completed by June 2009.

 

Inconnection with the closing and consolidation of the Book-mart Press facility,the Company wrote down the carrying value of assets that will not be utilizedat other locations and for which the carrying value exceeded the fair value.  Where applicable, the fair value of suchassets was determined by estimating the proceeds that would be received basedon the market value of similar assets. Lease termination and other Book-martPress facility closure costs accrued at March 28, 2009 were approximately$500,000.  Payments related to the leaseobligation are scheduled to continue until July 2010.

 

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

 

The Companyrecords stock-based compensation expense for the cost of stock options andstock grants as well as shares issued under the Company’s 1999 Employee StockPurchase Plan. The fair value of each option awarded is calculated on the dateof grant using the Black-Scholes option-pricing model. Stock-based compensationrecognized in selling and administrative expenses in the accompanying financialstatements in the second quarters of fiscal 2009 and 2008 was $342,000 and$302,000, respectively.  The related taxbenefit recognized in the second quarters of fiscal 2009 and 2008 was $111,000and $104,000, respectively. For the first six months of 2009 and 2008, stock-basedcompensation was $725,000 and $742,000, respectively, and the related taxbenefit recognized was $236,000 and $232,000, respectively.  Unrecognized stock-based compensation cost atMarch 28, 2009 was $1.8 million, to be recognized over a weighted-averageperiod of 1.9 years.

 

**Stock Incentive Plan:** The Company’s stock incentiveplan provides for the granting of stock options and stock grants up to a totalof 2,064,375 shares.  Under the planprovisions, both non-qualified and incentive stock options to purchase sharesof the Company’s common stock may be granted to key employees.  The option price per share may not be lessthan the fair market value of stock at the time the option is granted andincentive stock options must expire not later than ten years from the date ofgrant.  The Company annually issues acombination of stock options and stock grants to its key employees. Stockoptions and stock grants generally vest over 3 years.

 

Thefollowing is a summary of option activity under this plan in the first sixmonths of fiscal 2009:

 
| ** **                             | ** ** | ** **         | ** ** | **Weighted Average** | ** ** | **Aggregate**                  | ** ** |
|----------------------------------------|------------|--------------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **Option  Shares** | ** ** | **Exercise  Price**       | ** ** | **Remaining  Term (yrs)** | ** ** | **Intrinsic  Value** | ** ** |
| Outstanding at September 27, 2008 |       | 429,466            |       | $                         | 25.86      |                           |       |   |   |   |
| Expired                                |       | (1,552             | )          | 36.41                     |       |                           |       |   |   |
| Outstanding at March 28, 2009     |       | 427,914            |       | $                         | 25.82      |                           | 2.6        |   | — |   |
|                                   |       |               |       |                      |       |                           |       |   |   |
| Exercisable at March 28, 2009     |       | 268,849            |       | $                         | 25.53      |                           | 1.8        |   | — |   |
| Available for  future grants           |       | 263,546            |       |                      |       |                           |       |   |   |

 

10

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**COURIERCORPORATION**

 

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

 

During the second quarter of fiscal 2009, 50 stock awards were grantedwith a weighted-average fair value of $15.58 per share, 1,000 stock grantsvested with a weighted-average fair value of $38.44 per share, and 333 stockgrants were forfeited with a weighted-average fair value of $43.55 per share.No such shares were granted or forfeited in the first quarter of fiscal2009.  At March 28, 2009, non-vestedstock grants outstanding were 49,826 shares with a weighted-average grant-datefair value of $30.75.

 

**Directors’ Option Plans:** In January 2005,stockholders approved the Courier Corporation 2005 Stock Equity Plan for Non-EmployeeDirectors (the “2005 Plan”). Under the 2005 Plan provisions, non-qualifiedstock options to purchase shares of the Company’s common stock may be grantedto non-employee directors up to a total of 225,000 shares.  The option price per share is the fair marketvalue of stock at the time the option is granted.  The options are immediately exercisable andhave a term of five years.  The 2005 Planreplaced the previous non-employee directors’ plan, which had been adopted in1989.  The fair value of each optiongrant was estimated on the date of the grant using the Black-Scholes option-pricingmodel.  The key assumptions used to valueoptions issued in the second quarter of fiscal 2009 were a risk-free interestrate of 2.02%, expected volatility of 38.87%, a dividend yield of 5.60%, and anexpected life of five years.   Thefollowing table provides activity under the directors’ option plans in thefirst six months of fiscal 2009:

 
| ** **                             | ** ** | ** **         | ** ** | **Weighted Average** | ** ** | **Aggregate**                  | ** ** |
|----------------------------------------|------------|--------------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                             | ** ** | **Option  Shares** | ** ** | **Exercise  Price**       | ** ** | **Remaining  Term (yrs)** | ** ** | **Intrinsic  Value** | ** ** |
| Outstanding at September 27, 2008 |       | 163,620            |       | $                         | 31.63      |                           |       |   |   |   |
| Issued                                 |       | 42,000             |       | 15.08                     |       |                           |       |   |   |
| Expired                                |       | (22,500            | )          | 20.97                     |       |                           |       |   |   |
| Outstanding at March 28, 2009     |       | 183,120            |       | $                         | 29.14      |                           | 2.9        |   | — |   |
|                                   |       |               |       |                      |       |                           |       |   |   |
| Exercisable at March 28, 2009     |       | 183,120            |       | $                         | 29.14      |                           | 2.9        |   | — |   |
| Available for future grants            |       | 8,994              |       |                      |       |                           |       |   |   |

 

Directorsmay also elect to receive their annual retainer and committee chair fees asshares of stock in lieu of cash; 9,616 such shares were issued in the secondquarter of fiscal 2009 with a fair market value of $15.08 per share.

 

**Employee Stock Purchase Plan:** The Company’s 1999 EmployeeStock Purchase Plan (“ESPP”), as amended, covers an aggregate of 337,500 sharesof Company common stock for issuance under the plan.  Eligible employees may purchase shares ofCompany common stock at not less than 85% of fair market value at the end ofthe grant period.  During the secondquarter of fiscal 2009, 23,028 shares were issued under the ESPP at a price of$11.58 per share. At March 28, 2009, there were 29,308 shares availablefor future issuances.

 

**G.****                        ****NET INCOME (LOSS) PER SHARE**

 

The following is areconciliation of the shares used in the calculation of basic and dilutedincome (loss) per share.  Potentiallydilutive shares, calculated using the treasury stock method,consist of shares issued under the Company’s stock optionplans. No potentially dilutive shares are included in the computation inperiods when a loss is incurred.

# ** **

| ** **                             | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|
| ** **                             | ** ** | **Quarter Ended**        | ** ** | **Six Months Ended** | ** ** |
| ** **                             | ** ** | **March 28,  2009**      | ** ** | **March 29,  2008** | ** ** | **March 28,  2009** | ** ** | **March 29,  2008** | ** ** |
|                                   |       |                          |       |   |   |   |   |   |   |
| Average shares outstanding for basic   |       | 11,842                        |       | 12,402 |   | 11,835 |   | 12,470 |   |
| Effect of potentially dilutive shares  |       | —                        |       | 119 |   | — |   | 140 |   |
| Average shares outstanding for diluted |       | 11,842                        |       | 12,521 |   | 11,835 |   | 12,610 |   |

 

11

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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, impairmentof goodwill and other intangibles, 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**   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, it may result in their inability to make payments, and such eventscould possibly lead to their insolvency, and therefore additional allowancesmay be required.

# ** **

Inventories   Management records reductions in the cost basisof inventory for excess and obsolete inventory based primarily upon historicaland forecasted product demand.  If actualmarket conditions are less favorable than those projected by management,additional inventory charges may be required.

 

Goodwill and Other Intangibles Other intangibles include customer lists which are amortized on astraight-line basis over periods ranging from ten to fifteen years. The Companyevaluates possible impairment of goodwill and other intangibles at thereporting unit level, or one level below the operating segment, on an annualbasis or whenever events or changes in circumstances indicate that the carryingvalue of the assets may not be recoverable. The Company completed its annual impairment test at September 27,2008 resulting in no change to the nature or carrying amounts of its intangibleassets in the book manufacturing segment. In the second quarter of fiscal 2009, the Company performed an interimimpairment test for Dover Publications, Inc. (“Dover”), a reporting unitwithin the specialty publishing segment, due to the continued downturn in theeconomic environment and in consumer spending. As a result of the impairment tests, the Company concluded that thecarrying value of Dover’s goodwill exceeded its estimated fair value and a pre-taximpairment charge of $15.6 million, representing 100% of Dover’s goodwill, wasrecorded at the end of the second quarter. The Company continues to monitor the value of its intangible assetsclosely in each of its segments.  Changesin market conditions, further declines in operating results or cash flows, ordeterioration in the market value of the Company or its peers, could result inan impairment charge in the future. Continued disruption in the credit markets may contribute to possiblefuture impairment charges.

#####  

Prepublication Costs  The Company capitalizes prepublication costs, which include the costs ofacquiring rights to publish a work and costs associated with bringing amanuscript to publication such as artwork and editorial efforts. Prepublicationcosts are amortized on a straight-line basis over periods ranging from three tofive years.  Management regularlyevaluates the sales and profitability of the products based upon historical andforecasted demand.  If actual marketconditions are less favorable than those projected by management, additionalamortization expense may be required.

 

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

 

12

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###### ** **

**Overview:**

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

 

**Results of Operations:**

** **
| ** **                          | ** ** | **FINANCIAL HIGHLIGHTS**                                                     | ** ** |
|-------------------------------------|------------|-----------------------------------------------------------------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands except per share amounts)** | ** ** |
| ** **                          | ** ** | **Quarter Ended**                                                            | ** ** | **Six Months Ended** | ** ** |
| ** **                          | ** ** | **March 28,  2009**                                                          | ** ** | **March 29,  2008** | ** ** | %**Change** | ** ** | **March 28,  2009** | ** ** | **March 29,  2008** | ** ** | %**Change** | ** ** |
|                                |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                           |       | $                                                                                 | 59,360     |   | $ | 67,787 |   | -12.4 | % | $ | 119,007 |   | $ | 130,650 |   | -8.9 | % |
| Cost of sales                       |       | 48,737                                                                            |       | 48,418 |   | 0.7 | % | 93,956 |   | 94,540 |   | 0.6 | % |
| Gross profit                        |       | 10,623                                                                            |       | 19,369 |   | -45.2 | % | 25,051 |   | 36,110 |   | -30.6 | % |
| As a percentage of sales            |       | 17.9                                                                              | %          | 28.6 | % |   |   | 21.1 | % | 27.6 | % |   |   |
| Selling and administrative expenses |       | 12,081                                                                            |       | 13,674 |   | -11.6 | % | 25,157 |   | 27,890 |   | -9.8 | % |
| Impairment charge                   |       | 15,607                                                                            |       | — |   |   |   | 15,607 |   | — |   |   |   |
| Operating income (loss)             |       | (17,065                                                                           | )          | 5,695 |   |   |   | (15,713 | ) | 8,220 |   |   |   |
| Interest expense, net               |       | 194                                                                               |       | 272 |   | -28.7 | % | 421 |   | 567 |   | -25.7 | % |
| Pretax income (loss)                |       | (17,259                                                                           | )          | 5,423 |   |   |   | (16,134 | ) | 7,653 |   |   |   |
| Income tax provision (benefit)      |       | (6,086                                                                            | )          | 2,040 |   |   |   | (5,664 | ) | 2,854 |   |   |   |
| Net income (loss)                   |       | $                                                                                 | (11,173    | ) | $ | 3,383 |   |   |   | $ | (10,470 | ) | $ | 4,799 |   |   |   |
|                                |       |                                                                              |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per diluted share |       | $                                                                                 | (0.94      | ) | $ | 0.27 |   |   |   | $ | (0.88 | ) | $ | 0.38 |   |   |   |

# ** **

# **Revenues in the second quarter and firsthalf of fiscal 2009 decreased in both of the Company’s segments compared to thesame periods last year.  Bookmanufacturing segment revenues were down 6% for the second quarter and down 2%for the first six months compared to the corresponding periods last year, withgrowth in sales of four-color books offset by reduced demand for one- andtwo-color books.  In the specialtypublishing segment, revenues were down 28% in the second quarter and down 26%in the first half of fiscal 2009, compared to the same periods last year, withsales in all three of the publishing businesses below prior-year levels,primarily due to the weak economy and reduced consumer spending.  The winding down of Creative Homeowner’s bookdistribution services early in the quarter also contributed to the segment’ssales decline.**

# ** **

# **Overall for fiscal 2009 to date, the Companyrecorded a second-quarter net loss of $11.2 million, or $.94 per diluted share,and a net loss of $10.5 million, or $.88 per diluted share, for the first halfof the year.  These results includerestructuring costs related to cost saving initiatives in both of the Company’ssegments totaling $3.5 million for the second quarter and $3.7 million year todate.  In addition, the Company recordeda pre-tax impairment charge of $15.6 million at the end of the second quarterrelated to Dover’s goodwill. Restructuring and impairment charges totaled $19.1million in the second quarter, or $1.04 per diluted share, and $19.3 millionfor the first six months, or $1.05 per diluted share.**

 

13

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*Impairment Charge*

The Companyevaluates possible impairment of goodwill and other intangibles at thereporting unit level, which is an operating segment or one level below anoperating segment, on an annual basis or whenever events or circumstances indicatethat the carrying value of the assets may not be recoverable. Due to a declinein sales and profits at Dover, resulting from the continued downturn in theeconomic environment and in consumer spending, the Company performed an interimtest of Dover’s goodwill. As a result of the impairment tests, the Companyconcluded that the carrying value of Dover’s goodwill exceeded its estimatedfair value and recorded a pre-tax impairment charge of $15.6 million,representing 100% of Dover’s goodwill, at the end of the second quarter. On anafter-tax basis, the impairment charge was $10.1 million, or $.86 per dilutedshare.

 

*RestructuringCosts*

The Company recordedrestructuring costs of $3.5 million in the second quarter of fiscal 2009 and$3.7 million in the first half of the year. Restructuring costs includedemployee severance expenses related to costs savings initiatives in both of theCompany’s segments as well as ceasing Creative Homeowner’s distributionservices within the specialty publishing segment.  Restructuring costs also included expensesrelated to closing and consolidating the Book-mart Press manufacturing facilitywithin the book manufacturing segment during the second quarter of fiscal2009.  The following tables detailrestructuring costs by segment and by classification in the accompanyingconsolidated statements of operations.

 
| ** **                                         | ** ** | **(000’s Omitted)**    | ** ** |
|----------------------------------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **Quarter Ended**           | ** ** | **Six Months Ended** | ** ** |
| ** **                                         | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Employee severance costs                           |       | $                                | 1,112      |   | $ | 299 |   | $ | 1,411 |   | $ | 1,128 |   | $ | 484 |   | $ | 1,612 |   |
| Write down of property, plant and equipment        |       | 591                              |       | — |   | 591 |   | 591 |   | — |   | 591 |   |
| Inventory write downs                              |       | 778                              |       | — |   | 778 |   | 778 |   | — |   | 778 |   |
| Lease termination and other facility closure costs |       | 748                              |       | — |   | 748 |   | 748 |   | — |   | 748 |   |
| Total restructuring costs                          |       | $                                | 3,229      |   | $ | 299 |   | $ | 3,528 |   | $ | 3,245 |   | $ | 484 |   | $ | 3,729 |   |
|                                               |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Included in cost of sales                          |       | $                                | 2,754      |   | $ | 107 |   | $ | 2,861 |   | $ | 2,754 |   | $ | 107 |   | $ | 2,861 |   |
| Included in selling and administrative expenses    |       | 475                              |       | 192 |   | 667 |   | 491 |   | 377 |   | 868 |   |
| Total restructuring costs                          |       | $                                | 3,229      |   | $ | 299 |   | $ | 3,528 |   | $ | 3,245 |   | $ | 484 |   | $ | 3,729 |   |

 

Employeeseverance costs in the specialty publishing segment included centralizing backoffice and order fulfillment operations in addition to ceasing CreativeHomeowner’s distribution services. Within the book manufacturing segment, the Company closed its Book-martPress manufacturing facility during the second quarter in order to reduceredundant capacity and to lower costs. Book-mart Press, located in North Bergen, New Jersey, was dedicated toshort-run, single-color production.  Book-mart had 72 employees and sales ofapproximately $7 million annually.  Also during the second quarter, a voluntaryseverance program was offered throughout the Company, which was followed byadditional workforce reductions in the book manufacturing segment due primarilyto reduced one- and two-color capacity utilization.  These actions were all completed during thesecond quarter.  Overall, total headcountwas reduced by 175, or approximately 10%, in the second quarter.  At March 28, 2009, approximately$550,000 of severance costs were accrued and the Company anticipates thatpayments associated with employee terminations will be substantially completedby June 2009.  Annual savings fromthe reduction in staffing are projected to be approximately $5 million in thebook manufacturing segment and approximately $3 million in the specialtypublishing segment.

 

14

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###### ** **

Inconnection with the closing and consolidation of the Book-mart Press facility,the Company wrote down the carrying value of assets that will not be utilizedat other locations and for which the carrying value exceeded the fair value.  Where applicable, the fair value of suchassets was determined by estimating the proceeds that would be received basedon the market value of similar assets. Lease termination and other Book-martPress facility closure costs accrued at March 28, 2009 were approximately$500,000.  Payments related to the leaseobligation are scheduled to continue until July 2010.  The Company anticipates additional costs ofapproximately $400,000 related to closing and consolidating the Book-mart Pressfacility in the second half of fiscal 2009.

 

*Book Manufacturing Segment*

 
| ** **                          | ** ** | **SEGMENT HIGHLIGHTS**          | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands)** | ** ** |
| ** **                          | ** ** | **Quarter Ended**               | ** ** | **Six Months Ended** | ** ** |
| ** **                          | ** ** | **March 28,  2009**             | ** ** | **March 29,  2008** | ** ** | **%  Change** | ** ** | **March 28,  2009** | ** ** | **March 29,  2008** | ** ** | **%  Change** | ** ** |
|                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                           |       | $                                    | 49,899     |   | $ | 53,359 |   | -6.5 | % | $ | 100,781 |   | $ | 103,066 |   | -2.2 | % |
| Cost of sales                       |       | 43,870                               |       | 40,563 |   | 8.2 | % | 84,140 |   | 79,879 |   | 5.3 | % |
| Gross profit                        |       | 6,029                                |       | 12,796 |   | -52.9 | % | 16,641 |   | 23,187 |   | -28.2 | % |
| As a percentage of sales            |       | 12.1                                 | %          | 24.0 | % |   |   | 16.5 | % | 22.5 | % |   |   |
| Selling and administrative expenses |       | 6,681                                |       | 7,476 |   | -10.6 | % | 13,705 |   | 15,489 |   | -11.5 | % |
| Operating income (loss)             |       | $                                    | (652       | ) | $ | 5,320 |   |   |   | $ | 2,936 |   | $ | 7,698 |   | -61.9 | % |

 

Within the book manufacturing segment, the Company focuses on three keymarkets: education, religious and specialty trade.  Sales to the education market were down 4% to$21.5 million in the second quarter and down 1% to $38.8 million for the firstsix months compared to the same periods last year.  Higher education sales were up for thequarter and year to date, particularly growth in sales of four-color collegetextbooks, while sales of elementary and high school textbooks were down,largely due to continued pressure on state and local school budgets. Sales tothe specialty trade market of $13.3 million were comparable to the secondquarter last year and were up 5% to $28.4 million for the first six monthscompared to the prior year.  Growth insales of four-color specialty trade books, as well as a number of newcustomers, was offset in part by declines in one- and two-color sales.  Sales to the religious market were down 13%to $12.5 million in the second quarter compared to the prior year’s secondquarter and were down 6% to $28.9 million in the first six months compared tothe first half of last year.  On atrailing 12-month basis, sales to the religious market increased 5%, which isin line with long-term historical growth trends.

 

Growth in four-color sales in this segment was offset by a continuingdecline in demand for one- and two-color books, resulting in reduced capacityutilization at some the Company’s manufacturing plants.  In response, faced with the weak economy andthe need to reduce redundant capacity and lower costs, the Company closed itsBook-mart Press manufacturing facility and reduced one-color capacity in othermanufacturing facilities.  Cost of salesin this segment increased 8% to $43.9 million in the quarter and increased 5%to $84.1 million in the first six months compared to the same periods lastyear. The increased cost of sales is due in part to restructuring charges of$2.8 million for severance and facility closing costs incurred in the secondquarter.  Gross profit in the bookmanufacturing segment in the second quarter decreased to $6.0 million, or 12%of sales, down from $12.8 million, or 24% of sales, in the second quarter ofthe preceding year.  Gross profit for thefirst six months decreased to $16.6 million, or 17% of sales, compared to $23.2million, or 22.5% of sales, in the same period last year.  In addition to the impact of lower sales andrestructuring costs incurred in the quarter, the decline in gross profit alsoreflects continued industry-wide competitive pricing pressures and reducedrevenues from recycling programs.

 

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Selling and administrative expenses for the book manufacturing segmentdecreased 11% in the second quarter to $6.7 million and, as a percentage ofsales, decreased to 13.4% from 14.0% last year. On a year-to-date basis, such expenses decreased 12% to $13.7 million,and, as a percentage of sales, decreased to 13.6% from 15.0%.  These decreases resulted from reductions instaffing and other cost saving initiatives implemented in the past year alongwith reduced variable compensation and were obtained despite restructuringcosts of approximately $0.5 million in the second quarter of fiscal 2009.

 

The operating loss in the book manufacturing segment in the secondquarter was $0.7 million compared to operating income of $5.3 million in thesame period last year.  For the first sixmonths, operating income was $2.9 million compared to $7.7 million in the firsthalf of last year.  The decline inoperating income includes restructuring costs of approximately $3.2 million inthe quarter and first six months of fiscal 2009.

 

*Specialty Publishing Segment*

 
| ** **                          | ** ** | **SEGMENT HIGHLIGHTS**          | ** ** |
|-------------------------------------|------------|--------------------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands)** | ** ** |
| ** **                          | ** ** | **Quarter Ended**               | ** ** | **Six Months Ended** | ** ** |
| ** **                          | ** ** | **March 28,  2009**             | ** ** | **March 29,  2008** | ** ** | **%  Change** | ** ** | **March 28,  2009** | ** ** | **March 29,  2008** | ** ** | **%  Change** | ** ** |
|                                |       |                                 |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                           |       | $                                    | 12,058     |   | $ | 16,758 |   | -28.0 | % | $ | 23,561 |   | $ | 32,014 |   | -26.4 | % |
| Cost of sales                       |       | 7,566                                |       | 10,218 |   | -26.0 | % | 15,327 |   | 19,227 |   | -20.3 | % |
| Gross profit                        |       | 4,492                                |       | 6,540 |   | -31.3 | % | 8,234 |   | 12,787 |   | -35.6 | % |
| As a percentage of sales            |       | 37.3                                 | %          | 39.0 | % |   |   | 34.9 | % | 39.9 | % |   |   |
| Selling and administrative expenses |       | 5,058                                |       | 5,898 |   | -14.2 | % | 10,727 |   | 11,660 |   | -8.0 | % |
| Operating income (loss)             |       | $                                    | (566       | ) | $ | 642 |   |   |   | $ | (2,493 | ) | $ | 1,127 |   |   |   |

 

The Company’s specialtypublishing segment reported second quarter sales of $12.1 million, down 28%from last year’s second quarter, primarily due to the weak economy and reducedconsumer spending.  For the first sixmonths, segment sales decreased to $23.6 million, 26% below the first half offiscal 2008. Sales at Creative Homeowner decreased 55% in the second quarter to$3.1 million and 49% in the first six months to $6.2 million, compared to thecorresponding periods last year.  Thesedecreases reflect the persistent weakness in the nation’s housing sector, whichhas reduced store traffic and sales in the home center market, its largestchannel, as well as the impact of ceasing its distribution services. In November 2008,the Company announced that Creative Homeowner would cease its book distributionservices for one nationwide retailer, which was accomplished at the beginningof January, allowing Creative Homeowner to focus on its core publishingbusiness. Dover’s sales decreased 10% to $7.2 million in the second quarter anddecreased 12% to $14.3 million year to date, compared to the same periods lastyear.  Revenues for REA were down 9% to$1.8 million in the second quarter and down 18% to $3.1 million in the firsthalf of the year compared to the corresponding periods in the prior year.  Revenues for Dover and REA were also impactedby the drop in consumer spending as well as continued inventory reductions bymajor book retailers and distributors in the first two quarters of fiscal 2009.

 

Cost of sales in the specialty publishing segment decreased 26% to $7.6million for the second quarter and decreased 20% to $15.3 million for the firstsix months of fiscal 2009 reflecting the lower sales volume compared to theprior year periods.  The reduction incost of sales for this segment was offset in part by restructuring costsrelated to employee severance of approximately $100,000 in the second quarterand year to date as well as an increase of approximately $250,000 in thereserve for inventory obsolescence.  Grossprofit as a percentage of sales for the segment decreased in the quarter to37.3% from 39.0% and year to date decreased to 34.9% from 39.9% compared to thecorresponding periods in fiscal 2008. Gross profit percentages for all three publishers in this segment werelower than the second quarter and first six months of last year because of thedrop in sales, as well as restructuring charges for severance and costsassociated with ceasing the distribution services at Creative Homeowner.

 

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Selling andadministrative expenses in this segment decreased 14% to $5.1 million and 8% to$10.7 million in the second quarter and first six months, respectively, whencompared to the same periods last year. The decline in such expenses reflect reduced expenses related toCreative Homeowner’s former distribution services as well as cost savingsinitiatives throughout the segment. These savings were offset in part by severance costs of approximately$200,000 in the second quarter and $400,000 year to date for restructuringcharges related to centralizing backoffice and order fulfillment operations in the segment in order to reduce costsand improve efficiency.

 

The operating loss for the specialty publishing segment for the secondquarter was $566,000, compared to operating income of $642,000 in last year’ssecond quarter.  On a year-to-date basis,the operating loss was $2.5 million compared to operating income of $1.1million in the first half of fiscal 2008. These declines were largely due to the sales shortfall for all threepublishing businesses resulting from reduced spending by both retailers andconsumers, the restructuring charges incurred in the quarter and first half offiscal 2009, and losses incurred prior to winding down Creative Homeowner’sdistribution services in January.

 

*Total Consolidated Company*

Interest expense, net of interest income, was $194,000 in the secondquarter of fiscal 2009, compared to $272,000 of net interest expense in thesame quarter last year.  For the firstsix months, interest expense, net of interest income, was $421,000 compared to$567,000 of net interest expense in the first half of fiscal 2008. Average debtunder the revolving credit facility in the second quarter of fiscal 2009 wasapproximately $26.7 million at an average annual interest rate of 1.0%,generating interest expense of approximately $65,000.  Average debt under the revolving creditfacility in the second quarter of last year was approximately $23.9 million atan average annual interest rate of 4.2%, generating interest expense ofapproximately $250,000.  Average debtunder the revolving credit facility for the first six months of fiscal 2009 wasapproximately $26.0 million at an average annual interest rate of 2.0%,generating interest expense of approximately $260,000.  For the first half of fiscal 2008, averagedebt under this facility was approximately $21.1 million at an average annualinterest rate of 4.9%, generating interest expense of approximately $510,000.  Interest expense also includes commitmentfees and other costs associated with maintaining the Company’s $100 millionrevolving credit facility.  Interestcapitalized in the first six months of fiscal 2008 was approximately $123,000;no interest was capitalized in the first half of fiscal 2009.

 

The income tax benefit for thesecond quarter was $6.1 million compared to income tax expense of $2.0 millionin the same quarter last year.  On ayear-to-date basis, the income tax benefit was $5.7 million compared to incometax expense of $2.9 million for the first six months of fiscal 2008. The taxbenefit related to Dover’s impairment charge was recognized at 35%; no statetax benefit was recognized as the Company fully provided a valuation allowanceon the related deferred state tax asset.  Excluding the effect of the tax benefit of theimpairment charge for Dover, the effective tax rate was 37.8% in the secondquarter and 38.3% for the first six months of fiscal 2009 compared to 37.6% and37.3% in the same periods last year, respectively, primarily because of ahigher effective state tax rate.

 

Weighted average shares outstanding used to compute net income (loss) perdiluted share decreased by 679,000 shares and 775,000 from last year’s secondquarter and first six months, respectively, primarily due to the Company’srepurchase of approximately 856,000 shares during fiscal 2008.

 

**Liquidity and Capital Resources:**

During the first six months offiscal 2009, operations provided $10.3 million of cash.  The net loss of $10.5 million in the first halfof the year included a non-cash, after-tax impairment charge of $10.1million.  Depreciation and amortization was$10.6 million, comparable to the first six months of last year.  Working capital used $1.8 million in thefirst half of fiscal 2009,compared to $10.2 million in the same period lastyear.  The improvement in working capitalwas primarily from a reduction in accounts receivable of $13.8 million, whichwas largely offset by an increase in inventories of $3.6 million and a decreasein accounts payable and accrued taxes totaling $8.7 million.

 

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Investment activities in thefirst half of fiscal 2009 used $6.7 million of cash. Capital expenditures were$4.5 million.  For the entire fiscalyear, capital expenditures are expected to be approximately $10 million,including approximately $4 million for the completion during the second quarterof a 150,000 square foot warehouse to support the expanded capacity at theKendallville, Indiana facility.  Prepublicationcosts were $2.2 million, down from $2.5 million in the first six months of lastyear.  For the full fiscal year,prepublication costs are projected to be slightly below last year’s $5 million.

 

Financing activities for the first half of fiscal 2009 used approximately$3.6 million of cash.  Cash dividends of$5.0 million were paid and borrowings increased by $0.9 million during thefirst six months of fiscal 2009.  The Companyhas a $100 million long-term revolving credit facility in place under which theCompany can borrow at a rate not to exceed LIBOR plus 1.5%.  At March 28, 2009, the Company had $24.5million in borrowings under this facility at an interest rate of 1.1%.  The revolving credit facility, which maturesin 2013, contains restrictive covenants including provisions relating to themaintenance of working capital, the incurrence of additional indebtedness and aquarterly test of EBITDA to debt service. The Company was in compliance with all such covenants at March 28,2009.  The facility also provides for acommitment fee not to exceed 3/8% per annum on the unused portion.  The revolving credit facility is used by theCompany for both its long-term and short-term financing needs.  The Company believes that its cash on hand,cash from operations and the available credit facility will be sufficient tomeet its cash requirements through 2009.

 

**RecentAccounting Pronouncements:**

In December 2007,the Financial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standards (“SFAS”) No. 141 (revised 2007), “BusinessCombinations,” (“SFAS No. 141R”), which replaces SFAS No. 141. Thisstatement retains the purchase method of accounting for business acquisitions,but requires a number of changes in the recognition of assets acquired andliabilities assumed as well as in the treatment of acquisition-relatedcosts.  SFAS No. 141R will beeffective at the beginning of the Company’s fiscal year 2010 and will applyprospectively to business combinations completed on or after that date. TheCompany does not believe the adoption of SFAS No. 141R will have amaterial effect on its consolidated financial position, results of operations,or cash flows.

 

In April 2008,the FASB issued FASB Staff Position (“FSP”) 142-3, “Determining the Useful Lifeof Intangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to beconsidered in determining the useful life of intangible assets. Its intent isto improve the consistency between the useful life of an intangible asset andthe period of expected cash flows used to measure its fair value. FSP 142-3will be effective at the beginning of the Company’s fiscal year 2010. TheCompany does not believe the adoption of FSP 142-3 will have a material effecton its consolidated financial position, results of operations, or cash flows.

 

At the beginningof the second quarter of fiscal 2009, the Company adopted the provisions ofSFAS No. 161, “Disclosures about Derivative Instruments and HedgingActivities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”),which changed the disclosure requirements for derivative instruments andhedging activities.  The adoption of SFASNo. 161 did not have a material effect on the Company’s consolidatedfinancial position, results of operations, or cash flows.

 

**Forward-Looking Information:**

This QuarterlyReport on Form 10-Q includes forward-looking statements.  Statements that describe future expectations,plans or strategies are considered “forward-looking statements” as that term isdefined under the Private Securities Litigation Reform Act of 1995 and releasesissued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,” “intend,”“estimate” and other expressions which are predictions of or indicate futureevents and trends and which do not relate to historical matters identifyforward-looking statements.  Suchstatements are subject to risks and uncertainties that could cause actualresults to differ materially from those currently anticipated.  Factors that could affect actual results include, among others, changesin customers’ demand for the Company’s products, including seasonal changes incustomer orders and shifting orders to lower cost regions, changes in marketgrowth rates, changes in raw material costs and availability, pricing actionsby competitors and other competitive pressures in the markets in which theCompany competes, consolidation among customers and competitors, success in theexecution of acquisitions and the performance and integration of acquiredbusinesses including carrying value of intangible assets, restructuring andimpairment charges required under generally accepted accounting principles,changes 

 

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in operating expenses including medical and energy costs, changes intechnology including migration from paper-based books to digital, difficultiesin the start up of new equipment or information technology systems, changes incopyright laws, changes in consumer product safety regulations, changes inenvironmental regulations, changes in tax regulations, changes in the Company’seffective income tax rate and general changes in economic conditions, includingcurrency fluctuations, changes in interest rates, changes in consumerconfidence, changes in the housing market, and tightness in the credit markets.* *Althoughthe Company believes that the assumptions underlying the forward-lookingstatements are reasonable, any of the assumptions could be inaccurate, andtherefore, there can be no assurance that the forward-looking statements willprove to be accurate.  Theforward-looking statements included herein are made as of the date hereof, andthe Company undertakes no obligation to update publicly such statements toreflect subsequent events or circumstances.

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

 

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

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

#### ** **

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

 

As required by Rule 13a-15under the Securities Exchange Act of 1934, as of the end of the period coveredby this Quarterly Report, the Company carried out an evaluation under thesupervision and with the participation of the Company’s management, includingthe Company’s Chief Executive Officer and Chief Financial Officer, of theeffectiveness of the design and operation of the Company’s disclosure controlsand procedures.  Based upon thatevaluation, the Chief Executive Officer and Chief Financial Officer concludedthat the Company’s disclosure controls and procedures are effective to ensurethat information required to be disclosed by the Company in the reports itfiles or submits under the Securities Exchange Act of 1934, as amended, isrecorded, processed, summarized and reported, within the time periods specifiedin the Securities and Exchange Commission’s rules and forms.

 

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

 

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

 

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

 
| **Item 1****.**  | **Legal Proceedings** |
|------------------|-----------------------|
|             |                  |
|             | None.                 |
|             |                  |
| **Item 1A****.** | **Risk Factors**      |

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                                          the timing and size of the orders for ourbooks;

 

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

 

·                                          the lengthy and unpredictable salescycles associated with sales of textbooks to the elementary and high schoolmarket;

 

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

 

·                                          fluctuations in the currency market maymake manufacturing in the United States more or less attractive and makeequipment more or less expensive for us to purchase;

 

·                                          issues that might arise from theintegration of acquired businesses, including their inability to achieveexpected results; and

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Energycosts are incurred directly to run production equipment and facilities andindirectly through expenses such as freight and raw materials such as ink.  In a competitive market environment, increasesto these direct and indirect energy related costs might not be able to bepassed through to customers through price increases or mitigated through othermeans.  In such instances, increasedenergy costs could adversely impact operating costs or customer demand.  In addition, interruption in the availabilityof energy could disrupt operations, adversely impacting operating results.

 

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

 

Becausethe markets in which we operate are highly competitive, we must continue toimprove our operating efficiency in order to maintain or improve ourprofitability.  Although we have beenable to expand our capacity, improve our productivity and reduce costs in thepast, there is no assurance that we will be able to do so in the future.  In addition, reducing operating costs in thefuture may require significant initial costs to reduce headcount, close orconsolidate operations, or upgrade equipment and technology.

 

**Inadequateintellectual property protection for our publications could negatively impactour financial results.**

 

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

 

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by the increased availabilityof such works elsewhere, including on the Internet, either for free or for alower price.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

·                                          Reduced fundraising byreligious customers may decrease their order level.

 

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

 

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

 

Electronicdelivery of documents and data, including the online distribution and hostingof media content, offers alternatives to traditional delivery of printed documents.  Consumer acceptance of electronic delivery ofbooks is uncertain, as is the extent to which consumers are willing to replaceprint materials with online hosted media content.  To the extent that our customers accept theseelectronic alternatives, demand for our printed products may be adverselyaffected.

 

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

 

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

 

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

 

We usevarious materials in our operations that contain substances consideredhazardous or toxic under environmental laws. In addition, our operations are subject to federal, state, and localenvironmental laws relating to, among other things, air emissions, wastegeneration, handling, management and disposal, waste water treatment anddischarge and remediation of soil and groundwater contamination.  Permits are required for the operation ofcertain of our businesses and these permits are subject to renewal,modification and in some circumstances, revocation.  Under certain environmental laws, includingthe Comprehensive Environmental Response, Compensation and Liability Act, asamended (“CERCLA,” commonly referred to as “Superfund”), and similar state lawsand regulations, we may be liable for costs and damages relating to soil andgroundwater contamination at off-site disposal locations or at our own

 

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

 

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

 

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

 

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

 

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

 

·                                          we may havedifficulty incorporating and integrating acquired technologies into our business;

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Oursuccess depends, in part, on our ability to continue to retain our executiveofficers and key management personnel. Our business strategy also depends on our ability to attract, develop,motivate and retain employees who have relevant experience in the printing andpublishing industries.  There can be noassurance that we can continue to attract and retain the necessary talentedemployees, including executive officers and other key members of management.  If that were to occur, it could adverselyaffect our business.

 

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

 

If we experience problems hiring and retaining skilledemployees, our business may be negatively affected.  The timely manufacture and delivery of ourproducts requires an adequate supply of skilled employees, and the operatingcosts of our manufacturing facilities can be adversely affected by highturnover in skilled positions. Accordingly, our ability to increase sales, productivity and netearnings could be impacted by our ability to employ the skilled employeesnecessary to meet our requirements. Although our book manufacturing locations are geographically dispersed,individual locations may encounter strong competition with other manufacturersfor skilled employees.  There can be noassurance that we will be able to maintain an adequate skilled labor forcenecessary to efficiently operate our facilities.  In addition, unions represent certain groupsof employees at two of our locations, and periodically, contracts with thoseunions come up for renewal.  The outcomeof those negotiations could have an adverse affect on our operations at thoselocations.  Also, changes in federaland/or state laws may facilitate the organization of unions at locations thatdo not currently have unions, which could have an adverse affect on ouroperations.

 

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

 

##### Changing laws, regulations and standards relating tocorporate governance and public disclosure, including the Sarbanes-Oxley Act of2002 and new rules subsequently implemented by the Securities and ExchangeCommission and The NASDAQ Stock Market, as well as new accountingpronouncements, are creating uncertainty and additional complexities forcompanies.  To maintain high standards ofcorporate governance and public disclosure, we continue to invest resources tocomply with evolving standards.  Thisinvestment may result in increased general and administrative expenses and adiversion of management time and attention from revenue generating and costmanagement activities.

#####  

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

 

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

 
| **Item 2****.** | **Unregistered Sales of Equity Securities and Use of Proceeds** |
|-----------------|-----------------------------------------------------------------|
|            |                                                            |
|            | None.                                                           |
|            |                                                            |
| **Item 3**.     | **Defaults Upon Senior Securities**                             |
| ** **      | ** **                                                      |
|            | None.                                                           |

 

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| **Item 4****.** | **Submission of Matters to a Vote of Security Holders** |
|-----------------|---------------------------------------------------------|

 

The Annual Meetingof Stockholders of the Company was held on January 14, 2009.  Following are the matters voted on at themeeting.

 

1) All nominees ofthe Board of Directors of the Company were elected for a three-year term.  Votes were cast as follows: James F. Conway, III– 11,379,850 for and 56,943 withheld; Kathleen Foley Curley – 11,376,535 forand 60,258 withheld, and W. Nicholas Thorndike – 11,366,018 for and 70,775withheld.

 

2) Stockholdersvoted to ratify and approve the selection by the Audit and Finance Committee ofthe Board of Directors, of Deloitte & Touche LLP as independent publicaccountants for the Company for the fiscal year ending September 26,2009.  Votes were cast as follows:11,396,426 votes for, 26,144 votes against, and 14,223 votes abstained.

 
| **Item 5****.** | **Other Information** |
|-----------------|-----------------------|

 

There have been no materialchanges to the procedures by which security holders may recommend nominees tothe Company’s Board of Directors.

 
| **Item 6**. | **Exhibits**         |
|-------------|----------------------|
| ** **  | ** **           |
| ** **  | **Exhibit No.** | ** ** | **Description** |
|        |                 |   |   |
|        | 31.1*                |   | Certification of Chief  Executive Officer |
|        | 31.2*                |   | Certification of Chief  Financial Officer |
| ** **  | **32.1***            | ** ** | **Certification of Chief  Executive Officer** |
|        | 32.2*                |   | Certification of Chief  Financial Officer |

 

----

* Filed herewith.

 

25

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**SIGNATURES**

 

Pursuant to the requirements of the Securities Exchange Act of 1934, theCompany has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 

**COURIER CORPORATION**

**(Registrant)**
|                           |   |   |                      |
|--------------------------------|--------|--------|---------------------------|
|                           |   |   |                      |
| *  May 7, 2009* |   | By:    | *s/James F. Conway III*   |
| Date                           |   |   | James F. Conway III       |
|                           |   |   | Chairman, President and   |
|                           |   |   | Chief Executive Officer   |
|                           |   |   |                      |
|                           |   |   |                      |
| *  May 7, 2009* |   | By:    | *s/Peter M. Folger*       |
| Date                           |   |   | Peter M. Folger           |
|                           |   |   | Senior Vice President and |
|                           |   |   | Chief Financial Officer   |
|                           |   |   |                      |
|                           |   |   |                      |
| *  May 7, 2009* |   | By:    | *s/Kathleen M. Leon*      |
| Date                           |   |   | Kathleen M. Leon          |
|                           |   |   | Vice President and        |
|                           |   |   | Controller                |

 

26

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                               |
|----------------------|------------|-----------------------------------------------|
|                 |       |                                          |
| 31.1*                |       | Certification of Chief  Executive Officer     |
| 31.2*                |       | Certification of Chief  Financial Officer     |
| **32.1***            | ** ** | **Certification of Chief  Executive Officer** |
| 32.2*                |       | Certification of Chief  Financial Officer     |

 

----

* Filed herewith.

 

27

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