**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C.  20549**

** **

**FORM 10-Q**

** **

**(Mark One)**

 

**x**           QUARTERLYREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**For the quarterly periodended  June 27, 2009**

 

**OR**

** **

**o**         TRANSITIONREPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACTOF 1934

 

**For the transitionperiodfrom                  to                  **

** **

**Commission file number  0-7597**

** **

**COURIER CORPORATION**

**(Exact name of registrant as specified inits charter)**

** **

| **Massachusetts**                                                   | ** ** | **04-2502514**                            |
|---------------------------------------------------------------------|------------|-------------------------------------------|
| **(State or other  jurisdiction of incorporation or organization)** | ** ** | **(I.R.S. Employer  Identification No.)** |

 

| **15  Wellman Avenue, North Chelmsford, Massachusetts** | ** ** | **01863**      |
|---------------------------------------------------------|------------|----------------|
| **(Address of principal  executive offices)**           | ** ** | **(Zip Code)** |

** **

**(978) 251-6000**

**(Registrant’s telephone number, includingarea code)**

** **

**NO CHANGE**

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

** **

**Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes   **x   No   o

** **

**Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).  Yes   **o   No   o

** **

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-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) |   |                              |

** **

**Indicateby check mark whether the registrant is a shell company (as defined in ExchangeAct Rule 12b-2).  Yes   **o   No   x

** **

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

** **

| **Class**                       | ** ** | **Outstanding  at August 4, 2009** |
|---------------------------------|------------|-----------------------------------------|
| **Common Stock, $1 par  value** | ** ** | **11,911,748 shares**                   |

 

 

** **

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** **

COURIER CORPORATION

CONSOLIDATED STATEMENTSOF OPERATIONS (UNAUDITED)

(Dollars in thousandsexcept per share amounts)

 
| ** **                                    | ** ** | **QUARTER  ENDED** | ** ** | **NINE  MONTHS ENDED** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                    | ** ** | **June 27,**  | ** ** | **June 28,**      | ** ** | **June 27,** | ** ** | **June 28,** | ** ** |
| ** **                                    | ** ** | **2009**           | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                          |       |               |       |                   |       |   |   |   |   |
| Net sales                                     |       | $                  | 61,390     |                   | $          | 73,378 |   | $ | 180,397 |   | $ | 204,028 |   |
| Cost of sales (Note E)                        |       | 47,313             |       | 54,364                 |       | 141,269 |   | 148,904 |   |
|                                          |       |               |       |                   |       |   |   |   |   |
| Gross profit                                  |       | 14,077             |       | 19,014                 |       | 39,128 |   | 55,124 |   |
|                                          |       |               |       |                   |       |   |   |   |   |
| Selling and  administrative expenses (Note E) |       | 11,305             |       | 13,600                 |       | 36,462 |   | 41,490 |   |
| Impairment charge (Note  A)                   |       | —             |       | 23,850                 |       | 15,607 |   | 23,850 |   |
|                                          |       |               |       |                   |       |   |   |   |   |
| Operating income (loss)                       |       | 2,772              |       | (18,436                | )          | (12,941 | ) | (10,216 | ) |
|                                          |       |               |       |                   |       |   |   |   |   |
| Interest expense, net                         |       | 153                |       | 322                    |       | 574 |   | 889 |   |
|                                          |       |               |       |                   |       |   |   |   |   |
| Pretax income (loss)                          |       | 2,619              |       | (18,758                | )          | (13,515 | ) | (11,105 | ) |
|                                          |       |               |       |                   |       |   |   |   |   |
| Income tax provision  (benefit) (Note C)      |       | 1,007              |       | (6,386                 | )          | (4,657 | ) | (3,532 | ) |
|                                          |       |               |       |                   |       |   |   |   |   |
| Net income (loss)                             |       | $                  | 1,612      |                   | $          | (12,372 | ) | $ | (8,858 | ) | $ | (7,573 | ) |
|                                          |       |               |       |                   |       |   |   |   |   |
| Net income (loss) per  share (Note G):        |       |               |       |                   |       |   |   |   |   |
|                                          |       |               |       |                   |       |   |   |   |   |
| Basic                                         |       | $                  | 0.14       |                   | $          | (1.01 | ) | $ | (0.75 | ) | $ | (0.61 | ) |
|                                          |       |               |       |                   |       |   |   |   |   |
| Diluted                                       |       | $                  | 0.14       |                   | $          | (1.01 | ) | $ | (0.75 | ) | $ | (0.61 | ) |
|                                          |       |               |       |                   |       |   |   |   |   |
| Cash dividends declared  per share            |       | $                  | 0.21       |                   | $          | 0.20 |   | $ | 0.63 |   | $ | 0.60 |   |

 

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

 

2

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCESHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                             | ** ** | **June 27,** | ** ** | **September 27,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                                                                                                             | ** ** | **2009**          | ** ** | **2008**               | ** ** |
| ASSETS                                                                                                                                 |       |              |       |                   |       |
| ** **                                                                                                                             |       |              |       |                   |       |
| Current assets:                                                                                                                        |       |              |       |                   |       |
| Cash and cash  equivalents                                                                                                             |       | $                 | 127        |                   | $          | 178 |   |
| Investments                                                                                                                            |       | 892               |       | 820                    |       |
| Accounts receivable,  less allowance for uncollectible accounts of $1,836 at June 27, 2009 and  $1,611 at September 27, 2008 |       | 36,117            |       | 45,626                 |       |
| Inventories (Note B)                                                                                                                   |       | 39,545            |       | 37,166                 |       |
| Deferred income taxes                                                                                                                  |       | 4,581             |       | 4,680                  |       |
| Other current assets                                                                                                                   |       | 3,869             |       | 1,528                  |       |
|                                                                                                                                   |       |              |       |                   |       |
| Total current assets                                                                                                                   |       | 85,131            |       | 89,998                 |       |
|                                                                                                                                   |       |              |       |                   |       |
| Property, plant and  equipment, less accumulated depreciation: $162,880 at June 27, 2009 and  $153,606 at September 27, 2008 |       | 88,810            |       | 95,692                 |       |
|                                                                                                                                   |       |              |       |                   |       |
| Goodwill (Note A)                                                                                                                      |       | 24,305            |       | 39,912                 |       |
|                                                                                                                                   |       |              |       |                   |       |
| Other intangibles, net  (Note A)                                                                                                       |       | 3,770             |       | 3,920                  |       |
|                                                                                                                                   |       |              |       |                   |       |
| Prepublication costs,  net (Note A)                                                                                                    |       | 9,001             |       | 9,595                  |       |
|                                                                                                                                   |       |              |       |                   |       |
| Other assets                                                                                                                           |       | 1,619             |       | 1,381                  |       |
|                                                                                                                                   |       |              |       |                   |       |
| Total assets                                                                                                                           |       | $                 | 212,636    |                   | $          | 240,498 |   |

 

The accompanying notesare an integral part of the consolidated financial statements.

 

3

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COURIER CORPORATION

CONSOLIDATED CONDENSEDBALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                                                                                     | ** ** | **June 27,** | ** ** | **September 27,** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|------------------------|------------|
| ** **                                                                                                                                     | ** ** | **2009**          | ** ** | **2008**               | ** ** |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                                                     |       |              |       |                   |       |
|                                                                                                                                           |       |              |       |                   |       |
| Current liabilities:                                                                                                                           |       |              |       |                   |       |
| Current maturities of  long-term debt                                                                                                          |       | $                 | 93         |                   | $          | 93 |   |
| Accounts payable                                                                                                                               |       | 10,174            |       | 16,966                 |       |
| Accrued payroll                                                                                                                                |       | 5,432             |       | 6,587                  |       |
| Accrued taxes                                                                                                                                  |       | 730               |       | 3,560                  |       |
| Other current  liabilities                                                                                                                     |       | 7,221             |       | 5,970                  |       |
|                                                                                                                                           |       |              |       |                   |       |
| Total current  liabilities                                                                                                                     |       | 23,650            |       | 33,176                 |       |
|                                                                                                                                           |       |              |       |                   |       |
| Long-term debt                                                                                                                                 |       | 24,524            |       | 23,646                 |       |
| Deferred income taxes                                                                                                                          |       | 775               |       | 4,687                  |       |
| Other liabilities                                                                                                                              |       | 2,478             |       | 2,765                  |       |
|                                                                                                                                           |       |              |       |                   |       |
| Total liabilities                                                                                                                              |       | 51,427            |       | 64,274                 |       |
|                                                                                                                                           |       |              |       |                   |       |
| Stockholders’ equity  (Note F):                                                                                                           |       |              |       |                   |       |
| Preferred stock, $1 par  value - authorized 1,000,000 shares; none issued                                                                      |       |              |       |                   |       |
| Common stock, $1 par  value - authorized 18,000,000 shares; issued 11,911,000 at June 27, 2009  and 11,878,000 at September 27, 2008 |       | 11,911            |       | 11,878                 |       |
| Additional paid-in  capital                                                                                                                    |       | 16,081            |       | 14,788                 |       |
| Retained earnings                                                                                                                              |       | 133,567           |       | 149,920                |       |
| Accumulated other  comprehensive loss                                                                                                          |       | (350              | )          | (362                   | )          |
|                                                                                                                                           |       |              |       |                   |       |
| Total stockholders’  equity                                                                                                               |       | 161,209           |       | 176,224                |       |
|                                                                                                                                           |       |              |       |                   |       |
| Total liabilities and  stockholders’ equity                                                                                               |       | $                 | 212,636    |                   | $          | 240,498 |   |

 

The accompanying notesare an integral part of the consolidated financial statements.

 

4

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COURIER CORPORATION

CONSOLIDATED CONDENSEDSTATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

 
| ** **                                                                     | ** ** | **NINE  MONTHS ENDED** | ** ** |
|--------------------------------------------------------------------------------|------------|------------------------|------------|
| ** **                                                                     | ** ** | **June 27,**      | ** ** | **June 28,** | ** ** |
| ** **                                                                     | ** ** | **2009**               | ** ** | **2008** | ** ** |
|                                                                           |       |                   |       |   |   |
| Operating Activities:                                                          |       |                   |       |   |   |
| Net loss                                                                       |       | $                      | (8,858     | ) | $ | (7,573 | ) |
| Adjustments to reconcile  net loss to cash provided from operating activities: |       |                   |       |   |   |
| Depreciation and  amortization                                                 |       | 15,824                 |       | 16,607 |   |
| Impairment charges  (Note A)                                                   |       | 15,607                 |       | 23,850 |   |
| Stock-based  compensation                                                      |       | 1,073                  |       | 955 |   |
| Deferred income taxes                                                          |       | (3,813                 | )          | (5,098 | ) |
| Changes in assets and  liabilities:                                            |       |                   |       |   |   |
| Accounts receivable                                                            |       | 9,509                  |       | 228 |   |
| Inventory                                                                      |       | (2,379                 | )          | (1,426 | ) |
| Accounts payable                                                               |       | (6,792                 | )          | (5,242 | ) |
| Accrued taxes                                                                  |       | (2,830                 | )          | (1,166 | ) |
| Other elements of  working capital                                             |       | (2,245                 | )          | (1,975 | ) |
| Other, net                                                                     |       | (150                   | )          | (855 | ) |
|                                                                           |       |                   |       |   |   |
| Cash provided from  operating activities                                       |       | 14,946                 |       | 18,305 |   |
|                                                                           |       |                   |       |   |   |
| Investment Activities:                                                         |       |                   |       |   |   |
| Capital expenditures                                                           |       | (5,601                 | )          | (7,755 | ) |
| Prepublication costs                                                           |       | (3,119                 | )          | (3,689 | ) |
| Short-term investments                                                         |       | (72                    | )          | — |   |
|                                                                           |       |                   |       |   |   |
| Cash used for  investment activities                                           |       | (8,792                 | )          | (11,444 | ) |
|                                                                           |       |                   |       |   |   |
| Financing Activities:                                                          |       |                   |       |   |   |
| Long-term debt  borrowings, net                                                |       | 878                    |       | 10,755 |   |
| Cash dividends                                                                 |       | (7,495                 | )          | (7,469 | ) |
| Proceeds from stock  plans                                                     |       | 412                    |       | 1,269 |   |
| Stock repurchases                                                              |       | —                 |       | (12,055 | ) |
| Excess tax benefits  from stock-based compensation                             |       | —                 |       | 33 |   |
|                                                                           |       |                   |       |   |   |
| Cash used for financing  activities                                            |       | (6,205                 | )          | (7,467 | ) |
|                                                                           |       |                   |       |   |   |
| Decrease in cash and  cash equivalents                                         |       | (51                    | )          | (606 | ) |
|                                                                           |       |                   |       |   |   |
| Cash and cash  equivalents at the beginning of the period                      |       | 178                    |       | 1,549 |   |
|                                                                           |       |                   |       |   |   |
| Cash and cash  equivalents at the end of the period                            |       | $                      | 127        |   | $ | 943 |   |

 

The accompanying notesare an integral part of the consolidated financial statements.

 

5

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**COURIER CORPORATION**

 

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

 

**A.            SUMMARY OF SIGNIFICANT ACCOUNTINGPOLICIES**

 

**UnauditedFinancial Statements**

 

Theconsolidated condensed balance sheet as of June 27, 2009, the statementsof operations for the three-month and nine-month periods ended June 27,2009 and June 28, 2008, and the statements of cash flows for thenine-month periods ended June 27, 2009 and June 28, 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.  The Company considers events or transactionsthat occur after the balance sheet date but before the financial statements areissued to provide additional evidence relative to certain estimates or toidentify matters that require additional disclosure. Such events were evaluatedthrough August 6, 2009, the date of financial statement issuance.

 

Certaininformation and footnote disclosures normally included in financial statementsprepared in accordance with accounting principles generally accepted in theUnited States of America (“generally accepted accounting principles”) have beencondensed or omitted.  The balance sheetdata as of September 27, 2008 was derived from audited year-end financialstatements, but does not include disclosures required by generally acceptedaccounting principles.  It is suggestedthat these interim financial statements be read in conjunction with the Company’smost recent Annual Report on Form 10-K for the year ended September 27,2008.

 

**Goodwilland Other Intangibles**

 

The Company evaluatespossible impairment annually at the end of its fiscal year or whenever eventsor circumstances indicate that the carrying value of the assets may not berecoverable. These tests are performed at the reporting unit level, which isthe operating segment or one level below the operating segment.  Due to a decline in sales and profits at DoverPublications, Inc. (“Dover”), resulting from the continued downturn in theeconomic environment and in consumer spending, the Company performed an interimtest of goodwill for Dover, one of the companies in its specialty publishingsegment, in the second quarter of fiscal 2009.

 

The goodwill impairmenttest is a two-step test.  In the firststep, the Company compares the fair value of the reporting unit to its carryingvalue.  If the fair value of thereporting unit exceeds the carrying value of its net assets, then goodwill isnot 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 performing thestep-one test, the Company determined that the fair value of Dover was belowits 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.

 

In the third quarter offiscal 2008, impairment testing was performed on the goodwill and otherintangible assets of Federal Marketing Corporation, d/b/a Creative Homeowner (“CreativeHomeowner”), resulting in a pre-tax impairment charge of $23.9 million.

 

“Other intangibles”includes customer lists related to Creative Homeowner and Moore-Langen PrintingCompany, Inc. (“Moore Langen”), which are being amortized over 15-year and10-year periods, respectively. Amortization expense related to customer lists was approximately $50,000and $200,000 in the third quarters of fiscal 2009 and 2008, respectively, andfor the first nine months was approximately $150,000 and $600,000 in fiscal2009 and 2008, respectively.

 

6

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**COURIERCORPORATION**

 

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

 

**Fair Value of Financial Instruments**

 

Financialinstruments consist primarily of cash, investments in mutual funds, accountsreceivable, accounts payable and debt obligations.  At June 27, 2009 and September 27,2008, the fair value of the Company’s financial instruments approximated theircarrying values.

 

**PrepublicationCosts**

 

Prepublicationcosts, associated with creating new titles in the specialty publishing segment,are amortized to cost of sales using the straight-line method over estimateduseful lives of three to five years.

 

**Recent Accounting Pronouncements**

 

In May 2009, theFinancial Accounting Standards Board (“FASB”) issued Statement of FinancialAccounting Standard (“SFAS”) No.165, “Subsequent Events” (“SFAS 165”).  SFAS165 establishes requirements for subsequent events. SFAS 165 was effective forinterim or annual periods ending after June 15, 2009.  Adoptionof SFAS 165 in the third quarter did not have a significant effect on theCompany’s consolidated financial position, results of operations or cashflows.  The Company is now required toprovide additional disclosures, which are included in Note A.

 

In April 2009, theFASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures aboutFair Value of Financial Instruments” (“FSP No. FAS 107-1” and “APB 28-1”).This FSP amends SFAS No. 107, “Disclosures about Fair Value of FinancialInstruments,” to require disclosures regarding the fair values of financialinstruments in interim financial information and does not change the accountingtreatment for these financial instruments. The Company adopted the provisionsof FSP No. FAS 107-1 and APB 28-1 during the third quarter and therequired disclosures are included in Note A.

 

At the beginning of thesecond quarter of fiscal 2009, the Company adopted the provisions of SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities,” an amendmentof FASB Statement No. 133 (“SFAS No. 161”), which changed thedisclosure requirements for derivative instruments and hedging activities.  The adoption of SFAS No. 161 did nothave a material effect on the Company’s consolidated financial position,results of operations, or cash flows.

 

In April 2008, theFASB issued FASB Staff Position (“FSP”) 142-3, “Determining the Useful Life ofIntangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to be consideredin determining the useful life of intangible assets. Its intent is to improvethe consistency between the useful life of an intangible asset and the periodof expected cash flows used to measure its fair value. FSP 142-3 will beeffective at the beginning of the Company’s fiscal year 2010. The Company doesnot believe the adoption of FSP 142-3 will have a material effect on itsconsolidated financial position, results of operations, or cash flows.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), “Business Combinations,” (“SFAS No. 141R”), which replacesSFAS No. 141. This statement retains the purchase method of accounting forbusiness acquisitions, but requires a number of changes in the recognition ofassets acquired and liabilities 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.

 

7

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**COURIERCORPORATION**

 

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

 

# **B.            INVENTORIES**

 

Inventoriesare valued at the lower of cost or market. Cost is determined using the last-in, first-out (LIFO) method forapproximately 51% and 44% of the Company’s inventories at June 27, 2009and September 27, 2008, respectively. Other inventories, primarily in the specialty publishing segment, aredetermined on a first-in, first-out (FIFO) basis.  Inventories consisted of the following:

 
| ** **      | ** ** | **(000’s Omitted)**  | ** ** |
|-----------------|------------|---------------------------|------------|
| ** **      | ** ** | **June 27,****2009** | ** ** | **September 27,****2008** | ** ** |
| Raw  materials  |       | $                         | 4,585      |   | $ | 5,263 |   |
| Work in process |       | 8,366                     |       | 8,091 |   |
| Finished goods  |       | 26,594                    |       | 23,812 |   |
| Total           |       | $                         | 39,545     |   | $ | 37,166 |   |

 

# **C.            INCOMETAXES**

 

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

 
| ** **                              | ** ** | **(000’s Omitted)** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|
| ** **                              | ** ** | **Quarter Ended**        | ** ** |
| ** **                              | ** ** | **June 27,**        | ** ** | **June 28,** | ** ** |
| ** **                              | ** ** | **2009**                 | ** ** | **2008** | ** ** |
| Federal taxes at statutory rates        |       | $                        | 917        |   | 35.0 | % | $ | (6,565 | ) | (35.0 | )% |
| State taxes, net of federal tax benefit |       | 121                      |       | 4.6 |   | 225 |   | 1.2 |   |
| Federal manufacturer’s deduction   |       | (27                      | )          | (1.0 | ) | (61 | ) | (0.3 | ) |
| Other                                   |       | (4                       | )          | (0.2 | ) | 15 |   | 0.1 |   |
| Total                                   |       | $                        | 1,007      |   | 38.4 | % | $ | (6,386 | ) | (34.0 | )% |
|                                    |       |                     |       |   |   |   |   |   |   |
| ** **                              | ** ** | **(000’s Omitted)** | ** ** |
| ** **                              | ** ** | **Nine Months Ended**    | ** ** |
| ** **                              | ** ** | **June 27,**        | ** ** | **June 28,** | ** ** |
| ** **                              | ** ** | **2009**                 | ** ** | **2008** | ** ** |
| Federal taxes at statutory rates        |       | $                        | (4,730     | ) | (35.0 | )%   | $ | (3,887 | ) | (35.0 | )% |
| State taxes, net of federal tax benefit |       | 96                       |       | 0.7 |   | 486 |   | 4.4 |   |
| Federal manufacturer’s deduction   |       | (20                      | )          | (0.1 | ) | (155 | ) | (1.4 | ) |
| Other                                   |       | (3                       | )          | — |   | 24 |   | 0.2 |   |
| Total                                   |       | $                        | (4,657     | ) | (34.5 | )% | $ | (3,532 | ) | (31.8 | )% |

 

# **The tax benefitsrelated to the impairment charges in both fiscal 2009 and 2008 were recognizedat 35% (see Note A).  No state taxbenefits were recognized as the Company fully provided valuation allowances onthe related deferred state tax assets.**

 

8

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# **COURIER CORPORATION**

 

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

# ** **

# **D.            BUSINESSSEGMENTS**

 

The Company has two business segments: bookmanufacturing and specialty publishing. The book manufacturing segment offers afull range of services from production through storage and distribution forreligious, educational and specialty trade book publishers. The specialtypublishing segment consists of Dover, Creative Homeowner and Research &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 of fiscal 2009,the Company changed to this current measure of reporting segment performance.Previously, reported segment results included an interest allocation.  The Company’s prior year segment informationhas been adjusted to conform to the current year’s presentation.

 

The following table provides segmentinformation for the three-month and nine-month periods ended June 27, 2009and June 28, 2008.

 

 
| ** **                          | ** ** | **(000’s Omitted)** | ** ** |
|-------------------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Quarter Ended**        | ** ** | **Nine Months Ended** | ** ** |
| ** **                          | ** ** | **June 27,  2009**  | ** ** | **June 28,  2008** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** |
|                                |       |                     |       |   |   |   |   |   |   |
| Net sales:                          |       |                     |       |   |   |   |   |   |   |
| Book manufacturing                  |       | $                        | 52,691     |   | $ | 63,187 |   | $ | 153,472 |   | $ | 166,253 |   |
| Specialty publishing                |       | 11,327                   |       | 13,362 |   | 34,888 |   | 45,376 |   |
| Elimination of intersegment sales   |       | (2,628                   | )          | (3,171 | ) | (7,963 | ) | (7,601 | ) |
| Total                               |       | $                        | 61,390     |   | $ | 73,378 |   | $ | 180,397 |   | $ | 204,028 |   |
|                                |       |                     |       |   |   |   |   |   |   |
| Pretax income (loss):               |       |                     |       |   |   |   |   |   |   |
| Book manufacturing operating income |       | $                        | 3,740      |   | $ | 8,104 |   | $ | 6,676 |   | $ | 15,801 |   |
| Specialty publishing operating loss |       | (624                     | )          | (2,516 | ) | (3,117 | ) | (1,389 | ) |
| Impairment charges (Note A)         |       | —                   |       | (23,850 | ) | (15,607 | ) | (23,850 | ) |
| Stock-based compensation            |       | (347                     | )          | (213 | ) | (1,072 | ) | (955 | ) |
| Elimination of intersegment profit  |       | 3                        |       | 39 |   | 179 |   | 177 |   |
| Interest expense, net               |       | (153                     | )          | (322 | ) | (574 | ) | (889 | ) |
| Total                               |       | $                        | 2,619      |   | $ | (18,758 | ) | $ | (13,515 | ) | $ | (11,105 | ) |

 

**E.             RESTRUCTURING COSTS**

 

The Company recordedrestructuring costs of $3.8 million in the first nine months of fiscal 2009.Restructuring costs included employee severance expenses related to costsavings initiatives in both of the Company’s segments as well as ceasingCreative Homeowner’s distribution services within the specialty publishingsegment.  Restructuring costs alsoincluded expenses related to closing and consolidating the Book-mart Pressmanufacturing facility within the book manufacturing segment during the secondquarter of fiscal 2009.

 

9

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**COURIER CORPORATION**

 

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

 

The following tablesdetail restructuring costs by segment and by classification in the accompanyingconsolidated statements of operations.

 
| ** **                                         | ** ** | **(000’s Omitted)**              | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                         | ** ** | **Quarter Ended  June 27, 2009** | ** ** | **Nine Months Ended  June 27, 2009** | ** ** |
| ** **                                         | ** ** | **Book  Manufacturing  Segment**      | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                               |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Employee severance costs                           |       | $                                     | 65         |   | — |   | $ | 65 |   | $ | 1,193 |   | $ | 484 |   | $ | 1,677 |   |
| Write down of property, plant and equipment        |       |                                  |       | — |   | — |   | 591 |   | — |   | 591 |   |
| Inventory write downs                              |       |                                  |       | — |   | — |   | 778 |   | — |   | 778 |   |
| Lease termination and other facility closure costs |       |                                  |       | — |   | — |   | 748 |   | — |   | 748 |   |
| Total restructuring costs                          |       | $                                     | 65         |   | $ | 0 |   | $ | 65 |   | $ | 3,310 |   | $ | 484 |   | $ | 3,794 |   |
|                                               |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Included in cost of sales                          |       | $                                     | 65         |   | — |   | $ | 65 |   | $ | 2,819 |   | $ | 107 |   | $ | 2,926 |   |
| Included in selling and administrative expenses    |       | —                                |       | — |   | — |   | 491 |   | 377 |   | 868 |   |
| Total restructuring costs                          |       | $                                     | 65         |   | $ | 0 |   | $ | 65 |   | $ | 3,310 |   | $ | 484 |   | $ | 3,794 |   |

 

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 and is consolidating its operations intothe Company’s other manufacturing facilities. The Book-mart Press facility, located in North Bergen, New Jersey, wasdedicated to short-run, single-color production.  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.  At June 27, 2009, approximately $235,000of severance costs were accrued in the accompanying consolidated condensedbalance sheet and the Company anticipates that payments associated withemployee terminations will be substantially completed by September 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 in the accompanying consolidated condensedbalance sheet at June 27, 2009 were approximately $420,000.  Payments related to the lease obligation arescheduled to continue until July 2010.

 

**F.             STOCK-BASED COMPENSATION**

 

The Company recordsstock-based compensation expense for the cost of stock options and stock grantsas well as shares issued under the Company’s 1999 Employee Stock Purchase Plan.The fair value of each option awarded is calculated on the date of grant usingthe Black-Scholes option-pricing model. Stock-based compensation recognized inselling and administrative expenses in the accompanying financial statements inthe third quarters of fiscal 2009 and 2008 was $347,000 and $213,000,respectively.  The related tax benefitrecognized in the third quarters of fiscal 2009 and 2008 was $113,000 and$62,000, respectively. For the first nine months of 2009 and 2008, stock-basedcompensation was $1,072,000 and $955,000, respectively, and the related taxbenefit recognized was $350,000 and $293,000, respectively.  Unrecognized stock-based compensation cost atJune 27, 2009 was $1.4 million, to be recognized over a weighted-averageperiod of 1.8 years.

 

10

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**COURIER CORPORATION**

 

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

 

**StockIncentive Plan:** The Company’s stock incentive plan provides for thegranting of stock options and stock grants up to a total of 2,064,375shares.  Under the plan provisions, bothnon-qualified and incentive stock options to purchase shares of the Company’scommon stock may be granted to key employees. The option price per share may not be less than the fair market value ofstock at the time the option is granted and incentive stock options must expirenot later than ten years from the date of grant.  The Company annually issues a combination ofstock options and stock grants to its key employees. Stock options and stockgrants generally vest over 3 years.

 

Thefollowing is a summary of option activity under this plan in the first ninemonths 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                |       |                      |       |   |   |
| Forfeited                              |       | (334                 | )          | 37.29                |       |                      |       |   |   |
| Outstanding at June 27, 2009      |       | 427,580              |       | $                    | 25.81      |                      | 2.4        |   | — |   |
|                                   |       |                 |       |                 |       |                      |       |   |   |
| Exercisable at June 27, 2009      |       | 268,849              |       | $                    | 25.53      |                      | 1.5        |   | — |   |
| Available  for future grants           |       | 263,880              |       |                 |       |                      |       |   |   |

 

Duringthe first nine months of fiscal 2009, 50 stock awards were granted with aweighted-average fair value of $15.58 per share, 2,167 stock grants vested witha weighted-average fair value of $40.72 per share, and 333 stock grants wereforfeited with a weighted-average fair value of $43.55 per share.  At June 27, 2009, non-vested stockgrants outstanding were 48,659 shares with a weighted-average grant-date fairvalue of $30.47.

 

**Directors’Option Plans:** In January 2005, stockholders approved the CourierCorporation 2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”).Under the 2005 Plan provisions, non-qualified stock options to purchase sharesof the Company’s common stock may be granted to non-employee directors up to atotal of 225,000 shares.  The optionprice per share is the fair market value of stock at the time the option isgranted.  The options are immediatelyexercisable and have a term of five years. The 2005 Plan replaced the previous non-employee directors’ plan, whichhad been adopted in 1989.  The fair valueof each option grant was estimated on the date of the grant using theBlack-Scholes option-pricing model.  Thekey assumptions used to value options issued in fiscal 2009 were a risk-freeinterest rate of 2.0%, expected volatility of 39%, a dividend yield of 5.6%,and an expected life of five years.   Thefollowing table provides activity under the directors’ option plans in thefirst nine 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 June 27, 2009      |       | 183,120              |       | $                    | 29.14      |                      | 2.7        |   | — |   |
|                                   |       |                 |       |                 |       |                      |       |   |   |
| Exercisable at June 27, 2009      |       | 183,120              |       | $                    | 29.14      |                      | 2.7        |   | — |   |
| 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 fiscal 2009with a fair market value of $15.08 per share.

 

11

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**COURIER CORPORATION**

 

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

 

**EmployeeStock Purchase Plan:** The Company’s 1999 Employee Stock Purchase Plan (“ESPP”),as amended, covers an aggregate of 337,500 shares of Company common stock forissuance under the plan.  Eligibleemployees may purchase shares of Company common stock at not less than 85% offair market value at the end of the grant period.  On March 1, 2009, 23,028 shares wereissued under the ESPP at a price of $11.58 per share. At June 27, 2009,there were 29,308 shares available for future issuances.

 

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

 

Thefollowing is a reconciliation of the shares used in the calculation of basicand diluted income (loss) per share. Potentially dilutive shares, calculated using the treasury stock method,consist of shares issued under the Company’s stock option plans. No potentiallydilutive shares are included in the computation in periods when a loss isincurred.

# ** **

| ** **                             | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------|------------|--------------------------|------------|
| ** **                             | ** ** | **Quarter Ended**        | ** ** | **Nine Months Ended** | ** ** |
| ****                                   | ** ** | **June 27,  2009**  | ** ** | **June 28,  2008** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** |
|                                   |       |                     |       |   |   |   |   |   |   |
| Average shares outstanding for basic   |       | 11,861                   |       | 12,252 |   | 11,844 |   | 12,397 |   |
| Effect of potentially dilutive shares  |       | 10                       |       | — |   | — |   | — |   |
| Average shares outstanding for diluted |       | 11,871                   |       | 12,252 |   | 11,844 |   | 12,397 |   |

 

12

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**Item 2****.                                                                       COURIERCORPORATION**

**MANAGEMENT’S DISCUSSION AND ANALYSIS OF**

**FINANCIALCONDITION AND RESULTS OF OPERATIONS**

 

**CriticalAccounting Policies and Estimates****:**

 

The Company’s consolidated condensedfinancial statements have been prepared in accordance with generally acceptedaccounting principles.  The preparationof these financial statements requires management to make estimates andassumptions that affect the amounts reported in these financial statements andaccompanying notes.  On an ongoing basis,management evaluates its estimates and judgments, including those related tocollectibility of accounts receivable, recovery of inventories, impairment ofgoodwill 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, which is the operating segment or one level below theoperating segment, on an annual basis or whenever events or changes incircumstances indicate that the carrying value of the assets may not berecoverable.  The Company completed itsannual impairment test at September 27, 2008 resulting in no change to thenature or carrying amounts of its intangible assets in the book manufacturingsegment.  In the second quarter of fiscal2009, the Company performed an interim impairment test for Dover Publications,Inc. (“Dover”), a reporting unit within the specialty publishing segment, dueto the continued downturn in the economic environment and in consumer spending.  As a result of the impairment test, theCompany concluded that the carrying value of Dover’s goodwill exceeded itsestimated fair value and a pre-tax impairment charge of $15.6 million,representing 100% of Dover’s goodwill, was recorded at the end of the secondquarter.  The Company continues tomonitor the value of its intangible assets closely in each of itssegments.  Changes in market conditions,further declines in operating results or cash flows, or deterioration in themarket value of the Company or its peers, could result in an impairment chargein the future.  Continued disruption inthe credit markets may contribute to possible future 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 accruedtaxes are based on amounts reported on the Company’s tax returns and changes indeferred taxes.  Deferred income tax liabilities and assets are determined based uponthe differences between the financial statement and tax bases of assets andliabilities.  Changes in therecoverability of the Company’s deferred tax assets or audits by taxauthorities could result in future charges or credits to income tax expense,and related accrued and deferred taxes.

 

13

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**Overview:**

 

Courier Corporation, founded in 1824, isone of America’s leading book manufacturers and specialty publishers.  The Company has two business segments: bookmanufacturing and specialty publishing.  The book manufacturing segment streamlines theprocess of bringing books from the point of creation to the point of use.  Based on sales, Courier is the third largestbook manufacturer in the United States, offering services from prepress andproduction, through storage and distribution. The specialty publishing segment consists of Dover Publications, Inc.(“Dover”), Research & Education Association, Inc. (“REA”), andFederal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”).  Dover publishes over 9,000 titles in morethan 30 specialty categories ranging from literature to paper dolls, and frommusic scores to clip art.  REA publishestest preparation and study-guide books and software for high school, collegeand graduate students, as well as professionals.  Creative Homeowner publishes books on homedesign, decorating, landscaping, and gardening, and sells home plans.

 

**Results ofOperations:**

 
| ** **                          | ** ** | **FINANCIAL HIGHLIGHTS**                            | ** ** |
|-------------------------------------|------------|-----------------------------------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands except per share amounts)** | ** ** |
| ** **                          | ** ** | **Quarter Ended**                                   | ** ** | **Nine Months Ended** | ** ** |
| ** **                          | ** ** | **June 27,  2009**                             | ** ** | **June 28,  2008** | ** ** | **%  Change** | ** ** | **June 27,  2009** | ** ** | **June 28,  2008** | ** ** | **%  Change** | ** ** |
|                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Net  sales                          |       | $                                                   | 61,390     |   | $ | 73,378 |   | -16.3 | % | $ | 180,397 |   | $ | 204,028 |   | -11.6 | % |
| Cost of sales                       |       | 47,313                                              |       | 54,364 |   | -13.0 | % | 141,269 |   | 148,904 |   | -5.1 | % |
| Gross profit                        |       | 14,077                                              |       | 19,014 |   | -26.0 | % | 39,128 |   | 55,124 |   | -29.0 | % |
| As a percentage of sales            |       | 22.9                                                | %          | 25.9 | % |   |   | 21.7 | % | 27.0 | % |   |   |
| Selling and administrative expenses |       | 11,305                                              |       | 13,600 |   | -16.9 | % | 36,462 |   | 41,490 |   | - 12.1 | % |
| Impairment charge                   |       | —                                              |       | 23,850 |   |   |   | 15,607 |   | 23,850 |   |   |   |
| Operating income (loss)             |       | 2,772                                               |       | (18,436 | ) |   |   | (12,941 | ) | (10,216 | ) |   |   |
| Interest expense, net               |       | 153                                                 |       | 322 |   | -52.5 | % | 574 |   | 889 |   | -35.4 | % |
| Pretax income (loss)                |       | 2,619                                               |       | (18,758 | ) |   |   | (13,515 | ) | (11,105 | ) |   |   |
| Income tax provision (benefit)      |       | 1,007                                               |       | (6,386 | ) |   |   | (4,657 | ) | (3,532 | ) |   |   |
| Net income (loss)                   |       | $                                                   | 1,612      |   | $ | (12,372 | ) |   |   | $ | (8,858 | ) | $ | (7,573 | ) |   |   |
|                                |       |                                                |       |   |   |   |   |   |   |   |   |   |   |
| Net income (loss) per diluted share |       | $                                                   | 0.14       |   | $ | (1.01 | ) |   |   | $ | (0.75 | ) | $ | (0.61 | ) |   |   |

# ** **

# **Revenues in the thirdquarter and first nine months of fiscal 2009 decreased in both of the Company’ssegments compared to the same periods last year.  Book manufacturing segment revenues in thethird quarter of fiscal 2009 were down 17% from the same period last year.  On a year-to-date basis, sales in thissegment were down 8% compared to the corresponding period 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 15% in the third quarter and down 23% inthe first nine months of fiscal 2009, compared to the same periods last year,primarily due to the weak economy and reduced consumer spending.  The winding down of Creative Homeowner’s bookdistribution services early in the second quarter also contributed to thesegment’s sales decline compared to prior year periods.**

# ** **

# **The Companyrecorded net income in the third-quarter of $1.6 million, or $.14 per dilutedshare, and a net loss of $8.9 million, or $.75 per diluted share, for the firstnine months of the year.  These resultsinclude restructuring costs related to cost saving initiatives in both of theCompany’s segments of $3.8 million year to date.  In addition, the Company recorded a pre-taximpairment charge of $15.6 million at the end of the second quarter related toDover’s goodwill. For the first nine months of fiscal 2009, these restructuringand impairment charges totaled $19.4 million, or $1.05 per diluted share.  The third quarter of fiscal 2008 included apre-tax impairment charge related to Creative Homeowner’s goodwill and otherintangibles of $23.9 million or $1.27 per diluted share.**

 

14

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*Impairment Charges*

 

The Company evaluatespossible impairment of goodwill and other intangibles at the reporting unitlevel, which is an operating segment or one level below an operating segment,on an annual basis or whenever events or circumstances indicate that thecarrying value of the assets may not be recoverable. Due to a decline in salesand profits at Dover, resulting from the continued downturn in the economicenvironment and in consumer spending, the Company performed an interim test ofDover’s goodwill in the second quarter of fiscal 2009. As a result of theimpairment test, the Company concluded that the carrying value of Dover’sgoodwill exceeded its estimated fair value and recorded a pre-tax impairmentcharge of $15.6 million, representing 100% of Dover’s goodwill, at the end ofthe second quarter. On an after-tax basis, the impairment charge was $10.1million, or $.86 per diluted share.  Inthe third quarter of fiscal 2008, a pre-tax impairment charge of $23.9 millionwas recorded related to goodwill and other intangible assets of CreativeHomeowner.  On an after-tax basis, thisimpairment charge was $15.5 million, or $1.27 per diluted share.

 

*RestructuringCosts*

 

The Company recordedrestructuring costs of $3.8 million in the first nine months of the year.Restructuring costs included employee severance expenses related to costsavings initiatives in both of the Company’s segments as well as ceasingCreative Homeowner’s distribution services within the specialty publishingsegment.  Restructuring costs alsoincluded expenses related to closing and consolidating the Book-mart Pressmanufacturing facility within the book manufacturing segment during the secondquarter of fiscal 2009.  The followingtables detail restructuring costs by segment and by classification in theaccompanying consolidated statements of operations.

 
| ** **                                         | ** ** | **(000’s Omitted)**              | ** ** |
|----------------------------------------------------|------------|---------------------------------------|------------|
| ** **                                         | ** ** | **Quarter Ended  June 27, 2009** | ** ** | **Nine Months Ended  June 27, 2009** | ** ** |
| ** **                                         | ** ** | **Book  Manufacturing  Segment**      | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                               |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Employee severance costs                           |       | $                                     | 65         |   | — |   | $ | 65 |   | $ | 1,193 |   | $ | 484 |   | $ | 1,677 |   |
| Write down of property, plant and equipment        |       | —                                |       | — |   | — |   | 591 |   | — |   | 591 |   |
| Inventory write downs                              |       | —                                |       | — |   | — |   | 778 |   | — |   | 778 |   |
| Lease termination and other facility closure costs |       | —                                |       | — |   | — |   | 748 |   | — |   | 748 |   |
| Total restructuring costs                          |       | $                                     | 65         |   | $ | 0 |   | $ | 65 |   | $ | 3,310 |   | $ | 484 |   | $ | 3,794 |   |
|                                               |       |                                  |       |   |   |   |   |   |   |   |   |   |   |
| Included in cost of sales                          |       | $                                     | 65         |   | — |   | $ | 65 |   | $ | 2,819 |   | $ | 107 |   | $ | 2,926 |   |
| Included in selling and administrative expenses    |       | —                                |       | — |   | — |   | 491 |   | 377 |   | 868 |   |
| Total restructuring costs                          |       | $                                     | 65         |   | $ | 0 |   | $ | 65 |   | $ | 3,310 |   | $ | 484 |   | $ | 3,794 |   |

 

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 and is consolidating its operations intothe Company’s other manufacturing facilities. The Book-mart Press facility, located in North Bergen, New Jersey, wasdedicated to short-run, single-color production.  The Book-mart Press facility had 72employees and sales of approximately $7 million annually.  Also during the secondquarter, a voluntary severance program was offered throughout the Company, whichwas followed by additional workforce reductions in the book manufacturingsegment due primarily to reduced one- and two-color capacity utilization.  Overall, total headcount has been reduced byapproximately 12% during fiscal 2009.  AtJune 27, 2009, approximately $235,000 of severance costs remained accruedand the Company anticipates that payments associated with employee terminationswill be substantially completed by September 2009.  Annual savings from the reduction in staffingare projected to be approximately $5 million in the book manufacturing segmentand approximately $3 million in the specialty publishing segment.

 

15

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###### **In connection with the closingand consolidation of the Book-mart Press facility, the Company wrote down thecarrying value of assets that will not be utilized at other locations and forwhich 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 June 27, 2009 were approximately$420,000.  Payments related to the leaseobligation are scheduled to continue until July 2010.  The Company anticipates additional expensesof approximately $300,000 related to consolidating and moving equipment fromthe Book-mart Press facility to the Company’s other manufacturing facilitiesover the next six months.**

 

*BookManufacturing Segment*

 
| ** **                          | ** ** | **SEGMENT HIGHLIGHTS**     | ** ** |
|-------------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands)** | ** ** |
| ** **                          | ** ** | **Quarter Ended**          | ** ** | **Nine Months Ended** | ** ** |
| ** **                          | ** ** | **June 27,  2009**    | ** ** | **June 28,  2008** | ** ** | **%  Change** | ** ** | **June 27,****2009** | ** ** | **June 28,  2008** | ** ** | **%  Change** | ** ** |
|                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                           |       | $                          | 52,691     |   | $ | 63,187 |   | -16.6 | % | $ | 153,472 |   | $ | 166,253 |   | -7.7 | % |
| Cost of sales                       |       | 42,824                     |       | 47,536 |   | -9.9 | % | 126,964 |   | 127,415 |   | 0.4 | % |
| Gross profit                        |       | 9,867                      |       | 15,651 |   | -37.0 | % | 26,508 |   | 38,838 |   | -31.7 | % |
| As a percentage of sales            |       | 18.7                       | %          | 24.8 | % |   |   | 17.3 | % | 23.4 | % |   |   |
| Selling and administrative expenses |       | 6,127                      |       | 7,547 |   | -18.8 | % | 19,832 |   | 23,037 |   | -13.9 | % |
| Operating income                    |       | $                          | 3,740      |   | $ | 8,104 |   | -53.8 | % | $ | 6,676 |   | $ | 15,801 |   | -57.7 | % |

 

Withinthe book manufacturing segment, the Company focuses on three key markets:education, religious and specialty trade. Sales to the education market were down 18% to $23 million in the thirdquarter and down 8% to $62 million for the first nine months compared to thesame periods last year.  Higher educationsales were up for the quarter and year to date, particularly growth in sales offour-color college textbooks, while sales of elementary and high schooltextbooks were down, largely due to continued pressure on state and localschool budgets. Sales to the specialty trade market were down 10% to $13million in the quarter compared to last year’s third quarter.  On a year-to-date basis, sales to this marketwere flat at $41 million when compared to the corresponding prior year periodas growth in sales of four-color specialty trade books, as well as a number ofnew customers, was offset by declines in one- and two-color sales.  Sales to the religious market were down 18%to $15 million in the third quarter and were down 10% to $44 million in thefirst nine months compared to the same periods last year, reflecting adifficult fundraising environment in recent months.

 

Acontinuing decline in demand for one- and two-color books resulted in reducedcapacity utilization at some of 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 in the second quarter of fiscal 2009 andreduced one-color capacity in other manufacturing facilities.  Cost of sales in this segment decreased 10%to $42.8 million in the third quarter and was comparable to the first ninemonths of last year at $127.0 million, but increased as a percentage of salesfor the third quarter and year to date, reflecting the impact of restructuringcosts and lower capacity utilization. Gross profit in the book manufacturing segment in the third quarterdecreased to $9.9 million, or 19% of sales, down from $15.7 million, or 25% ofsales, in the prior year’s third quarter. Gross profit for the first nine months decreased to $26.5 million, or17% of sales, compared to $38.8 million, or 23% of sales, in the same periodlast year.  In addition to the impact oflower sales and of restructuring costs of $2.8 million, the decline in grossprofit year to date also reflects continued industry-wide competitive pricingpressures and reduced revenues from recycling programs.

 

16

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Sellingand administrative expenses for the book manufacturing segment decreased 19% inthe third quarter to $6.1 million.  On ayear-to-date basis, such expenses decreased 14% to $19.8 million, and, as apercentage of sales, decreased to 13% from 14%. These decreases resulted from reductions in staffing and other costsaving initiatives implemented in the past year along with reduced variablecompensation and were obtained despite restructuring costs of approximately$0.5 million in the second quarter of fiscal 2009.

 

Operatingincome in the book manufacturing segment in the third quarter was $3.7 millioncompared to operating income of $8.1 million in the same period last year.  Year to date, operating income was $6.7million compared to $15.8 million in the first nine months of last year.  The decline in operating income includesrestructuring costs of $3.3 million in the first nine months of fiscal 2009.

 

*SpecialtyPublishing Segment*

 
| ** **                          | ** ** | **SEGMENT HIGHLIGHTS**     | ** ** |
|-------------------------------------|------------|----------------------------|------------|
| ** **                          | ** ** | **(dollars in thousands)** | ** ** |
| ** **                          | ** ** | **Quarter Ended**          | ** ** | **Nine Months Ended** | ** ** |
| ** **                          | ** ** | **June 27,  2009**    | ** ** | **June 28,  2008** | ** ** | **%  Change** | ** ** | **June 27,****2009** | ** ** | **June 28,  2008** | ** ** | **%  Change** | ** ** |
|                                |       |                       |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                           |       | $                          | 11,327     |   | $ | 13,362 |   | -15.2 | % | $ | 34,888 |   | $ | 45,376 |   | -23.1 | % |
| Cost of sales                       |       | 7,120                      |       | 10,041 |   | -29.1 | % | 22,447 |   | 29,268 |   | -23.3 | % |
| Gross profit                        |       | 4,207                      |       | 3,321 |   | 26.7 | % | 12,441 |   | 16,108 |   | -22.8 | % |
| As a percentage of sales            |       | 37.1                       | %          | 24.9 | % |   |   | 35.7 | % | 35.5 | % |   |   |
| Selling and administrative expenses |       | 4,831                      |       | 5,837 |   | -17.2 | % | 15,558 |   | 17,497 |   | -11.1 | % |
| Operating loss                      |       | $                          | (624       | ) | $ | (2,516 | ) |   |   | $ | (3,117 | ) | $ | (1,389 | ) |   |   |

 

The Company’s specialty publishing segmentreported second quarter sales of $11.3 million, down 15% from last year’s thirdquarter, primarily due to the impact of reduced consumer spending and bookretailers managing inventory levels tightly. Year-to-date segment sales decreased to $34.9 million, 23% below thefirst nine months of fiscal 2008. Sales at Creative Homeowner decreased 38% inthe third quarter to $2.3 million and 46% in the first nine months to $8.5million, compared to the corresponding periods last year.  These decreases reflect the persistentweakness in the nation’s housing sector, which has reduced store traffic andsales in the home center market, its largest channel, as well as the impact ofceasing its distribution services. In November 2008, the Company announcedthat Creative Homeowner would cease its book distribution services for onenationwide retailer, which was accomplished at the beginning of January,allowing Creative Homeowner to focus on its core publishing business. Dover’ssales decreased 8% to $7.3 million in the third quarter and decreased 10% to$21.6 million year to date, compared to the same periods last year.  Revenues for REA were flat in the thirdquarter at $1.7 million and were down 12% to $4.8 million on a year-to-datebasis compared to the corresponding periods last 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 nine months of fiscal 2009.

 

Costof sales in the specialty publishing segment decreased 29% to $7.1 million forthe third quarter and decreased 23% to $22.4 million for the first nine monthsof fiscal 2009 reflecting the lower sales volume compared to the prior yearperiods.  The reduction in cost of salesfor this segment was offset in part by restructuring costs related to employeeseverance of approximately $100,000.  Gross profit as a percentage of sales forthe segment increased in the quarter to 37% from 25% in last year’s thirdquarter primarily as a result of Creative Homeowner ceasing its distributionservices earlier this year and from approximately $1 million in charges lastyear to increase inventory reserves and write down the investment inunderperforming titles.  On ayear-to-date basis, gross profit as a percentage of sales was comparable to theprior year at 36% as the impact of lower volume was offset by cost savingsinitiatives, including cessation of Creative Homeowner’s distributionactivities.

 

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Selling andadministrative expenses in this segment decreased 17% to $4.8 million and 11%to $15.6 million in the third quarter and first nine 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$400,000 for restructuring charges earlier in the year related to centralizing back office and orderfulfillment operations in the segment in order to reduce costs and improveefficiency.

 

Theoperating loss for the specialty publishing segment for the third quarter was$624,000, compared to $2.5 million in last year’s third quarter, reflecting theimpact of Creative Homeowner ceasing its distribution services earlier in thisyear as well as approximately $1 million in charges in last year’s thirdquarter to increase inventoryreserves and write down the investment in underperforming titles.  On ayear-to-date basis, the operating loss for this segment was $3.1 millioncompared to $1.4 million in the first nine months of fiscal 2008, reflectingthe sales shortfall resulting from reduced spending by both retailers andconsumers, as well as the restructuring charges incurred earlier in the yearand losses incurred prior to winding down Creative Homeowner’s distributionservices in January.

 

*TotalConsolidated Company*

 

Interestexpense, net of interest income, was $153,000 in the third quarter of fiscal2009, compared to $322,000 of net interest expense in the same quarter lastyear.  For the first nine months,interest expense, net of interest income, was $574,000 compared to $889,000 ofnet interest expense in the first nine months of fiscal 2008. Average debtunder the revolving credit facility in the third quarter of fiscal 2009 wasapproximately $27.2 million at an average annual interest rate of 0.9%,generating interest expense of approximately $62,000.  Average debt under the revolving creditfacility in the third quarter of last year was approximately $29.8 million atan average annual interest rate of 3.2%, generating interest expense ofapproximately $240,000.  Average debtunder the revolving credit facility for the first nine months of fiscal 2009was approximately $26.4 million at an average annual interest rate of 1.6%, generatinginterest expense of approximately $320,000. For the first nine months of fiscal 2008, average debt under thisfacility was approximately $24.0 million at an average annual interest rate of4.3%, generating interest expense of approximately $770,000.  Interest expense also includes commitmentfees and other costs associated with maintaining the Company’s $100 millionrevolving credit facility.  Interestcapitalized in the first nine months of fiscal 2008 was approximately $123,000;no interest was capitalized in the first nine months of fiscal 2009.

 

The income tax provision for the thirdquarter was $1.0 million compared to an income tax benefit of $6.4 million inthe same quarter last year.  On ayear-to-date basis, the income tax benefit was $4.7 million compared to abenefit of $3.5 million for the first nine months of fiscal 2008. The taxbenefits related to the impairment charges in both fiscal 2009 and 2008 wererecognized at 35%; no state tax benefits were recognized as the Company fully providedvaluation allowances on the related deferred state tax assets.  The effective tax rate in the quarter was38.4% compared to 38.6% last year after excluding the effect of the tax benefitof Creative Homeowner’s impairment charge in the prior year’s thirdquarter.  Excluding the impairmentcharges in both years, the effective tax rate for the first nine months was38.5% in fiscal 2009 compared to 37.8% last year, primarily because of a highereffective state tax rate.

 

Weightedaverage shares outstanding used to compute net income (loss) per diluted sharedecreased by 381,000 shares and 553,000 from last year’s third quarter andfirst nine months, respectively, primarily due to the Company’s repurchase ofapproximately 856,000 shares during fiscal 2008.

 

**Liquidityand Capital Resources****:**

 

During the first nine months of fiscal2009, operations provided $14.9 million of cash.  The year-to-date net loss of $8.9 millionincluded a non-cash, after-tax impairment charge of $10.1 million.  Depreciation and amortization was $15.8million, slightly lower than the first nine months of last year.  Working capital used $4.7 million compared to$9.6 million in the same period last year. The improvement in working capital was primarily from a reduction inaccounts receivable of $9.5 million, which was offset by an increase ininventories of $2.4 million and a decrease in accounts payable and accruedtaxes totaling $9.6 million.

 

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Investment activities in the first nine monthsof fiscal 2009 used $8.8 million of cash. Capital expenditures were $5.6million, compared to $7.8 million in the same period last year.  For the entire fiscal year, capitalexpenditures are expected to be approximately $10 million, including approximately$4 million for the completion during the second quarter of a 150,000 squarefoot warehouse to support the expanded capacity at the Kendallville, Indianafacility.  Prepublication costs were $3.1million, down from $3.7 million in the first nine months of last year.  For the full fiscal year, prepublicationcosts are projected to be between $4 and $4.5 million, slightly below last year’s$5 million.

 

Financingactivities for the first nine months of fiscal 2009 used approximately $6.2million of cash.  Cash dividends of $7.5million were paid and borrowings increased by $0.9 million during the firstnine 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 June 27, 2009, the Company had $24.4million in borrowings under this facility at an interest rate of 0.8%.  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 June 27,2009.  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.

 

**Recent Accounting Pronouncements:**

 

In May 2009, theFASB issued SFAS No.165, “Subsequent Events” (“SFAS 165”).  SFAS 165establishes requirements for subsequent events. SFAS 165 was effective forinterim or annual periods ending after June 15, 2009.  Adoptionof SFAS 165 in the third quarter did not have a significant effect on theCompany’s consolidated financial position, results of operations or cash flows.

 

In April 2009, theFASB issued FSP No. FAS 107-1 and APB 28-1, “Interim Disclosures aboutFair Value of Financial Instruments” (“FSP No. FAS 107-1” and “APB 28-1”).This FSP amends SFAS No. 107, “Disclosures about Fair Value of FinancialInstruments,” to require disclosures regarding the fair values of financialinstruments in interim financial information and does not change the accountingtreatment for these financial instruments. The Company adopted the provisionsof FSP No. FAS 107-1 and APB 28-1 during the third quarter.

 

At the beginning of thesecond quarter of fiscal 2009, the Company adopted the provisions of SFAS No. 161,“Disclosures about Derivative Instruments and Hedging Activities,” an amendmentof FASB Statement No. 133 (“SFAS No. 161”), which changed thedisclosure requirements for derivative instruments and hedging activities.  The adoption of SFAS No. 161 did nothave a material effect on the Company’s consolidated financial position,results of operations, or cash flows.

 

In April 2008, theFASB issued FASB Staff Position (“FSP”) 142-3, “Determining the Useful Life ofIntangible Assets” (“FSP 142-3”). FSP 142-3 amends the factors to be consideredin determining the useful life of intangible assets. Its intent is to improvethe consistency between the useful life of an intangible asset and the periodof expected cash flows used to measure its fair value. FSP 142-3 will beeffective at the beginning of the Company’s fiscal year 2010. The Company doesnot believe the adoption of FSP 142-3 will have a material effect on its consolidatedfinancial position, results of operations, or cash flows.

 

In December 2007,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), “Business Combinations,” (“SFAS No. 141R”), which replacesSFAS No. 141. This statement retains the purchase method of accounting forbusiness acquisitions, but requires a number of changes in the recognition ofassets acquired and liabilities assumed as well as in the treatment ofacquisition-related costs.  SFAS No. 141Rwill be effective at the beginning of the Company’s fiscal year 2010 and willapply prospectively to business combinations completed on or after that date.The Company does not believe the adoption of SFAS No. 141R will have amaterial effect on its consolidated financial position, results of operations,or cash flows.

 

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**Forward-LookingInformation****:**

 

This Quarterly Report on Form 10-Qincludes forward-looking statements. Statements that describe future expectations, plans or strategies areconsidered “forward-looking statements” as that term is defined under thePrivate Securities Litigation Reform Act of 1995 and releases issued by theSecurities and Exchange Commission.  Thewords “believe,” “expect,” “anticipate,” “intend,” “estimate” and otherexpressions which are predictions of or indicate future events and trends andwhich do not relate to historical matters identify forward-lookingstatements.  Such statements are subjectto risks and uncertainties that could cause actual results to differ materiallyfrom those currently anticipated.  Factors thatcould affect actual results include, among others, changes in customers’ demandfor the Company’s products, including seasonal changes in customer orders andshifting orders to lower cost regions, changes in market growth rates, changesin raw material costs and availability, pricing actions by competitors andother competitive pressures in the markets in which the Company competes,consolidation among customers and competitors, success in the execution ofacquisitions and the performance and integration of acquired businessesincluding carrying value of intangible assets, restructuring and impairmentcharges required under generally accepted accounting principles, changes inoperating expenses including medical and energy costs, changes in technologyincluding migration from paper-based books to digital, difficulties in thestart 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.* *Although the Company believes that theassumptions underlying the forward-looking statements are reasonable, any ofthe assumptions could be inaccurate, and therefore, there can be no assurancethat the forward-looking statements will prove to be accurate.  The forward-looking statements includedherein are made as of the date hereof, and the Company undertakes no obligationto update publicly such statements to reflect subsequent events orcircumstances.

 

**Item 3****.****                                  ****QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

Therehave been no material changes from the information concerning the Company’s “Quantitativeand Qualitative Disclosures About Market Risk” as previously reported in theCompany’s Annual Report on Form 10-K for the year ended September 27,2008.

 

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

 

**(a)****                                 ****Evaluation ofdisclosure controls and procedures**

 

As required by Rule 13a-15 under theSecurities Exchange Act of 1934, as of the end of the period covered by thisQuarterly Report, the Company carried out an evaluation under the supervisionand with the participation of the Company’s management, including the Company’sChief Executive Officer and Chief Financial Officer, of the effectiveness ofthe design and operation of the Company’s disclosure controls andprocedures.  Based upon that evaluation,the Chief Executive Officer and Chief Financial Officer concluded that theCompany’s disclosure controls and procedures are effective to ensure thatinformation required to be disclosed by the Company in the reports it files orsubmits under the Securities Exchange Act of 1934, as amended, is recorded,processed, summarized and reported, within the time periods specified in theSecurities and Exchange Commission’s rules and forms.

 

**(b)****                                 ****Changes ininternal controls over financial reporting**

 

There was no change in the Company’sinternal control over financial reporting that occurred during the periodcovered by this Quarterly Report that has materially affected, or that isreasonably likely to materially affect, the Company’s internal control overfinancial reporting.

 

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

 

**Item 1****.****           ****LegalProceedings**

 

None.

 

**Item 1A****.****        ****RiskFactors**

 

The Company’s consolidatedresults of operations, financial condition and cash flows can be adverselyaffected by various risks.  Our businessis influenced by many factors that are difficult to predict, involveuncertainties that may materially affect actual results and are often beyondour control.  These risks include, butare not limited to, the principal factors listed below and the other mattersset forth in this Quarterly Report on Form 10-Q.  You should carefully consider all of thesefactors.  For other factors that maycause actual results to differ materially from those indicated in anyforward-looking statement contained in this report, see *Forward-LookingInformation* in *Management’s Discussionand Analysis of Financial Condition and Results of Operations*.

 

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

 

The book industry is extremelycompetitive.  In the book manufacturingsegment, consolidation over the past few years of both customers andcompetitors within the markets the Company competes has caused downward pricingpressures.  In addition, excess capacity andcompetition from printing companies in lower cost countries may increasecompetitive pricing pressures. Furthermore, some of our competitors have greater sales, assets andfinancial resources than us, particularly those in foreign countries, who may derivesignificant advantages from local governmental regulation, including taxholidays and other subsidies.  All or anyof these competitive pressures could affect prices or customers’ demand for ourproducts, impacting our profit margins and/or resulting in a loss of customersand market share.

 

**We need to keeppace with rapid industry and technological change.**

 

The printing industry is in aperiod of rapid technological evolution. Our future financial performance will depend, in part, upon the abilityto anticipate and adapt to rapid industry and technological changes occurringin the industry and upon the ability to offer, on a timely basis, services thatmeet evolving industry standards.  Wecannot assure investors that we will be able to adapt to such technologicalchanges or offer these services on a timely basis or establish or maintain acompetitive position.  We are unable topredict which of the many possible future product and service offerings will beimportant to establish and maintain a competitive position or what expenditureswill be required to develop 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 aredependent in part on unpredictable order 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 our books;                                                                                                                       |
|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                    |
| · | the availability of  markets for sales or distribution by our major customers;                                                                                          |
|   |                                                                                                                                                                    |
| · | the lengthy and  unpredictable sales cycles associated with sales of textbooks to the  elementary and high school market;                                               |
|   |                                                                                                                                                                    |
| · | our customers’ willingness and success in shifting  orders from the peak textbook season to the off-peak season to even out our  manufacturing load over the year; |
|   |                                                                                                                                                                    |
| · | fluctuations in the  currency market may make manufacturing in the United States more or less  attractive and make equipment more or less expensive for us to purchase; |
|   |                                                                                                                                                                    |
| · | issues that might arise from the integration of  acquired businesses, including their inability to achieve expected results;  and                                       |

 

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| · | tightness in credit  markets affecting the availability 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 futurequarters our operating results could fall below the expectations of securitiesanalysts or investors. If this occurs, the trading price of our common stockcould decline.

 

**Fluctuations inthe cost and availability of paper and other raw materials may cause disruptionand impact margins.**

 

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

 

Availability of paper isimportant 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.

 

Fluctuations in the costs andavailability of other raw materials could adversely affect operating costs orcustomer demand and thereby negatively impact our operating results, financialcondition 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.

 

**Energy costs andavailability may negatively impact our financial results.**

 

Energy costs are incurreddirectly to run production equipment and facilities and indirectly throughexpenses such as freight and raw materials such as ink.  In a competitive market environment,increases to these direct and indirect energy related costs might not be ableto be passed through to customers through price increases or mitigated throughother means.  In such instances,increased energy costs could adversely impact operating costs or customerdemand.  In addition, interruption in theavailability of energy could disrupt operations, adversely impacting operatingresults.

 

**We may not beable to continue to improve our operating efficiencies.**

 

Because the markets in which weoperate are highly competitive, we must continue to improve our operatingefficiency in order to maintain or improve our profitability.  Although we have been able to expand ourcapacity, improve our productivity and reduce costs in the past, there is noassurance 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 are protectedby 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 property protection.  Our operating results may be adverselyaffected 

 

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by the increased availability of such workselsewhere, including on the Internet, either for free or for a lower price.

 

**We have a highdegree of customer concentration.**

 

We derived approximately 50% of our fiscal2008 revenues from three major customers, and in fiscal 2007 and 2006 wederived approximately 35% and 40%, respectively, of our revenues from two majorcustomers.  We expect similar concentrationsin fiscal 2009.  A significant reductionin order volumes or price levels from any of these customers could have amaterial adverse effect on the Company.

 

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

 

Economic conditions have thepotential to impact our financial results significantly.  Within the book manufacturing and specialtypublishing segments, we may be adversely affected by the current worldwideeconomic downturn, including as a result of changes in government, business andconsumer spending.  Examples of how ourfinancial results may be impacted include:

 
| · | Fluctuations in federal or state government spending  on education, including a reduction in tax revenues due to the current  economic environment, could lead to a corresponding decrease or increase in  the demand for educational materials, which are produced in our book  manufacturing segment and comprise a portion of our publishing products. |
|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                      |
| · | Consumer demand for books can be impacted by  reductions in disposable income when costs such as electricity and gasoline  reduce discretionary spending.                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                      |
| · | Tightness in credit markets may result in customers  delaying orders to reduce inventory levels and may impact their ability to  pay their debts as they become due and may disrupt supplies from vendors.                                                                                                                                                |
|   |                                                                                                                                                                                                                                                                                                                                                      |
| · | Changes in the housing market may impact the sale of  Creative Homeowner’s products.                                                                                                                                                                                                                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                      |
| · | Reduced fundraising by religious customers may  decrease their order level.                                                                                                                                                                                                                                                                               |
|   |                                                                                                                                                                                                                                                                                                                                                      |
| · | A slowdown in book purchases may result in retailers  returning an unusually large number of books to publishers who, in turn  reduce their reorders.                                                                                                                                                                                                     |

 

**The substitutionof electronic delivery for printed materials may adversely affect our business.**

 

Electronic delivery ofdocuments and data, including the online distribution and hosting of mediacontent, 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.

 

**Changes inpostal rates and postal regulations may adversely impact our business.**

 

Postal costs are a significantcomponent of our direct marketing cost structure and postal rate changes caninfluence 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.

 

**Our facilitiesare subject to stringent environmental laws and regulations, which may subjectus to liability or increase our costs.**

 

We use various materials in ouroperations that contain substances considered hazardous or toxic underenvironmental laws.  In addition, ouroperations are subject to federal, state, and local environmental laws relatingto, among other things, air emissions, waste generation, handling, managementand disposal, waste water treatment and discharge and remediation of soil andgroundwater contamination.  Permits arerequired for the operation of certain of our businesses and these permits aresubject 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.

 

**We may not beable to successfully integrate acquired businesses.**

 

In recent years, we have completedthree acquisitions, including Moore Langen and Creative Homeowner in fiscalyear 2006 and REA in fiscal 2004, and may continue to make acquisitions in thefuture.  We believe that theseacquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of theseacquisitions will depend in part upon our ability to integrate these businessesin an efficient and effective manner. The challenges involved in successfully integrating acquisitionsinclude:

 
| · | we may find that the acquired company or assets do  not further our business strategy, or that we overpaid for the company or  assets, or that economic conditions have changed, all of which may result in  a future impairment charge; |
|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                     |
| · | we may have difficulty integrating the operations  and personnel of the acquired business and may have difficulty retaining the  customers and/or the key personnel of the acquired business;                                            |
|   |                                                                                                                                                                                                                                     |
| · | we may have difficulty incorporating and integrating  acquired technologies into our business;                                                                                                                                           |
|   |                                                                                                                                                                                                                                     |
| · | our ongoing business and management’s attention may  be disrupted or diverted by transition or integration issues and the  complexity of managing diverse locations;                                                                |
|   |                                                                                                                                                                                                                                     |
| · | we may have difficulty maintaining uniform  standards, controls, procedures and policies across locations;                                                                                                                               |
|   |                                                                                                                                                                                                                                     |
| · | an acquisition may result in litigation from  terminated employees of the acquired business or third parties; and                                                                                                                        |
|   |                                                                                                                                                                                                                                     |
| · | we may experience significant problems or  liabilities associated with technology and legal 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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**Our ability tohire and train key executives and other qualified employees is crucial.**

 

Our success depends, in part,on our ability to continue to retain our executive officers and key managementpersonnel.  Our business strategy alsodepends on our ability to attract, develop, motivate and retain employees whohave relevant experience in the printing and publishing industries.  There can be no assurance that we cancontinue to attract and retain the necessary talented employees, includingexecutive officers and other key members of management.  If that were to occur, it could adverselyaffect our business.

 

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

 

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

 

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

#####  

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

 

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

 

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

 

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**Item 2****.****           ****UnregisteredSales of Equity Securities and Use of Proceeds**

 

None.

 

**Item 3****.****           ****Defaults Upon SeniorSecurities**

 

None.

 

**Item 4****.****           ****Submissionof Matters to a Vote of Security Holders**

 

None.

 

**Item 5****.****           ****OtherInformation**

 

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

 

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

 
| **Exhibit No.** | ** ** | **Description**                                                                                                         |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------|
| 10.1*                |       | Amendment, effective  July 15, 2009, to the Courier Corporation Amended and Restated 1993  Stock Incentive Plan    |
| 10.2*                |       | Amendment, effective  July 15, 2009, to the Courier Corporation 2005 Stock Equity Plan for  Non-Employee Directors |
| 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.

 

26

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**SIGNATURES**

 

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

 

 
| **COURIER CORPORATION** |
|-------------------------|
| **(Registrant)**        |
|                    |   |
|                    |   |
| *August 6,  2009*  | * * | By: | *s/James  F. Conway III* |
| Date                    |   | James  F. Conway III |
|                    |   | Chairman,  President and |
|                    |   | Chief  Executive Officer |
|                    |   |   |
|                    |   |   |
| *August 6,  2009*  | * * | By: | *s/Peter  M. Folger* |
| Date                    |   | Peter  M. Folger |
|                    |   | Senior  Vice President and |
|                    |   | Chief  Financial Officer |
|                    |   |   |
|                    |   |   |
| *August 6,  2009*  | * * | By: | *s/Kathleen  M. Leon* |
| Date                    |   | Kathleen  M. Leon |
|                    |   | Vice  President and |
|                    |   | Controller |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                         |
|----------------------|------------|-------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                    |
| 10.1*                |       | Amendment, effective  July 15, 2009, to the Courier Corporation Amended and Restated 1993  Stock Incentive Plan    |
| 10.2*                |       | Amendment, effective  July 15, 2009, to the Courier Corporation 2005 Stock Equity Plan for  Non-Employee Directors |
| 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.

 

28

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