**UNITED STATES**

**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(MarkOne)**

 

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

 

**For the quarterly period ended March 27,2010**

 

**OR**

 

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

 

**For thetransition period from                     to                     **

 

**Commissionfile number 0-7597**

 

**COURIER CORPORATION**

(Exact name of registrant as specified in its charter)

 

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

 

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

 

**(978) 251-6000**

(Registrant’s telephone number, including area code)

 

**NO CHANGE**

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

 

Indicate by checkmark whether the registrant (1) has filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 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

 

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

 

Indicate by checkmark whether the registrant is a large accelerated filer, an accelerated 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) |   |                              |

 

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

 

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

 

| **Class**                   | ** ** | **Outstanding at April 23, 2010** |
|-----------------------------|------------|-------------------------------------------------------|
| Common Stock, $1  par value |       | 12,001,459  shares                                    |

 

 

 

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COURIERCORPORATION

CONSOLIDATEDCONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars inthousands except per share amounts)

 
| ** **                                    | ** ** | **QUARTER ENDED**  | ** ** | **SIX MONTHS ENDED** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|----------------------|------------|
| ** **                                    | ** ** | **March 27,** | ** ** | **March 28,**   | ** ** | **March 27,** | ** ** | **March 28,** | ** ** |
| ** **                                    | ** ** | **2010**           | ** ** | **2009**             | ** ** | **2010** | ** ** | **2009** | ** ** |
|                                          |       |               |       |                 |       |   |   |   |   |
| Net  sales                                    |       | $                  | 58,879     |                 | $          | 59,360 |   | $ | 121,983 |   | $ | 119,007 |   |
| Cost  of sales (Note E)                       |       | 44,579             |       | 48,737               |       | 90,387 |   | 93,956 |   |
|                                          |       |               |       |                 |       |   |   |   |   |
| Gross  profit                                 |       | 14,300             |       | 10,623               |       | 31,596 |   | 25,051 |   |
|                                          |       |               |       |                 |       |   |   |   |   |
| Selling  and administrative expenses (Note E) |       | 11,846             |       | 12,081               |       | 24,497 |   | 25,157 |   |
| Impairment  charge (Note A)                   |       | —             |       | 15,607               |       | — |   | 15,607 |   |
|                                          |       |               |       |                 |       |   |   |   |   |
| Operating  income (loss)                      |       | 2,454              |       | (17,065              | )          | 7,099 |   | (15,713 | ) |
|                                          |       |               |       |                 |       |   |   |   |   |
| Interest  expense, net                        |       | 119                |       | 194                  |       | 237 |   | 421 |   |
|                                          |       |               |       |                 |       |   |   |   |   |
| Pretax  income (loss)                         |       | 2,335              |       | (17,259              | )          | 6,862 |   | (16,134 | ) |
|                                          |       |               |       |                 |       |   |   |   |   |
| Income  tax provision (benefit) (Note C)      |       | 900                |       | (6,086               | )          | 2,643 |   | (5,664 | ) |
|                                          |       |               |       |                 |       |   |   |   |   |
| Net  income (loss)                            |       | $                  | 1,435      |                 | $          | (11,173 | ) | $ | 4,219 |   | $ | (10,470 | ) |
|                                          |       |               |       |                 |       |   |   |   |   |
| Net  income (loss) per share (Note G):        |       |               |       |                 |       |   |   |   |   |
|                                          |       |               |       |                 |       |   |   |   |   |
| Basic                                         |       | $                  | 0.12       |                 | $          | (0.94 | ) | $ | 0.35 |   | $ | (0.88 | ) |
|                                          |       |               |       |                 |       |   |   |   |   |
| Diluted                                       |       | $                  | 0.12       |                 | $          | (0.94 | ) | $ | 0.35 |   | $ | (0.88 | ) |
|                                          |       |               |       |                 |       |   |   |   |   |
| Cash  dividends declared per share            |       | $                  | 0.21       |                 | $          | 0.21 |   | $ | 0.42 |   | $ | 0.42 |   |

 

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

 

2

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COURIERCORPORATION

CONSOLIDATEDCONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars inthousands)

 
| ** **                                                                                                                                | ** ** | **March 27,** | ** ** | **September 26,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                                                | ** ** | **2010**           | ** ** | **2009**               | ** ** |
|                                                                                                                                      |       |               |       |                   |       |
| ASSETS                                                                                                                                    |       |               |       |                   |       |
|                                                                                                                                      |       |               |       |                   |       |
| Current  assets:                                                                                                                          |       |               |       |                   |       |
| Cash  and cash equivalents                                                                                                                |       | $                  | 93         |                   | $          | 492 |   |
| Investments                                                                                                                               |       | 1,117              |       | 1,017                  |       |
| Accounts  receivable, less allowance for uncollectible accounts of $1,759 at  March 27, 2010 and $1,600 at September 26, 2009   |       | 31,559             |       | 34,176                 |       |
| Inventories  (Note B)                                                                                                                     |       | 41,291             |       | 38,026                 |       |
| Deferred  income taxes                                                                                                                    |       | 4,465              |       | 4,462                  |       |
| Other  current assets                                                                                                                     |       | 2,465              |       | 1,404                  |       |
|                                                                                                                                      |       |               |       |                   |       |
| Total  current assets                                                                                                                     |       | 80,990             |       | 79,577                 |       |
|                                                                                                                                      |       |               |       |                   |       |
| Property,  plant and equipment, less accumulated depreciation of $163,539 at  March 27, 2010 and $160,783 at September 26, 2009 |       | 84,989             |       | 89,754                 |       |
|                                                                                                                                      |       |               |       |                   |       |
| Goodwill  (Note A)                                                                                                                        |       | 26,489             |       | 24,980                 |       |
|                                                                                                                                      |       |               |       |                   |       |
| Other  intangibles, net (Note A)                                                                                                          |       | 5,466              |       | 3,720                  |       |
|                                                                                                                                      |       |               |       |                   |       |
| Prepublication  costs, net (Note A)                                                                                                       |       | 8,683              |       | 9,194                  |       |
|                                                                                                                                      |       |               |       |                   |       |
| Other  assets                                                                                                                             |       | 1,277              |       | 1,212                  |       |
|                                                                                                                                      |       |               |       |                   |       |
| Total  assets                                                                                                                             |       | $                  | 207,894    |                   | $          | 208,437 |   |

 

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

 

3

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COURIERCORPORATION

CONSOLIDATEDCONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars inthousands)

 
| ** **                                                                                                                                      | ** ** | **March 27,** | ** ** | **September 26,** | ** ** |
|-------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------|------------|------------------------|------------|
| ** **                                                                                                                                      | ** ** | **2010**           | ** ** | **2009**               | ** ** |
|                                                                                                                                            |       |               |       |                   |       |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                                                      |       |               |       |                   |       |
|                                                                                                                                            |       |               |       |                   |       |
| Current  liabilities:                                                                                                                           |       |               |       |                   |       |
| Current  maturities of long-term debt                                                                                                           |       | $                  | 96         |                   | $          | 96 |   |
| Accounts  payable                                                                                                                               |       | 11,300             |       | 10,974                 |       |
| Accrued  payroll                                                                                                                                |       | 7,317              |       | 5,950                  |       |
| Accrued  taxes                                                                                                                                  |       | 1,187              |       | 3,032                  |       |
| Other  current liabilities                                                                                                                      |       | 7,818              |       | 7,098                  |       |
|                                                                                                                                            |       |               |       |                   |       |
| Total  current liabilities                                                                                                                      |       | 27,718             |       | 27,150                 |       |
|                                                                                                                                            |       |               |       |                   |       |
| Long-term  debt                                                                                                                                 |       | 11,641             |       | 13,514                 |       |
| Deferred  income taxes                                                                                                                          |       | 497                |       | 177                    |       |
| Other  liabilities                                                                                                                              |       | 3,416              |       | 3,006                  |       |
|                                                                                                                                            |       |               |       |                   |       |
| Total  liabilities                                                                                                                              |       | 43,272             |       | 43,847                 |       |
|                                                                                                                                            |       |               |       |                   |       |
| 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 12,001,000 at  March 27, 2010 and 11,956,000 at September 26, 2009 |       | 12,001             |       | 11,956                 |       |
| Additional  paid-in capital                                                                                                                     |       | 17,273             |       | 16,479                 |       |
| Retained  earnings                                                                                                                              |       | 135,975            |       | 136,782                |       |
| Accumulated  other comprehensive loss                                                                                                           |       | (627               | )          | (627                   | )          |
|                                                                                                                                            |       |               |       |                   |       |
| Total  stockholders’ equity                                                                                                                |       | 164,622            |       | 164,590                |       |
|                                                                                                                                            |       |               |       |                   |       |
| Total  liabilities and stockholders’ equity                                                                                                |       | $                  | 207,894    |                   | $          | 208,437 |   |

 

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

 

4

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COURIERCORPORATION

CONSOLIDATEDCONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollarsin thousands)

 
| ** **                                                                              | ** ** | **SIX MONTHS ENDED** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------|------------|
| ** **                                                                              | ** ** | **March 27,**   | ** ** | **March 28,** | ** ** |
| ** **                                                                              | ** ** | **2010**             | ** ** | **2009** | ** ** |
| Operating  Activities:                                                                  |       |                 |       |   |   |
| Net  income (loss)                                                                      |       | $                    | 4,219      |   | $ | (10,470 | ) |
| Adjustments  to reconcile net income (loss) to cash provided from operating activities: |       |                 |       |   |   |
| Depreciation  and amortization                                                          |       | 10,348               |       | 10,589 |   |
| Impairment  charge (Note A)                                                             |       | —               |       | 15,607 |   |
| Stock-based  compensation                                                               |       | 683                  |       | 725 |   |
| Deferred  income taxes                                                                  |       | 317                  |       | (4,177 | ) |
| Gain  on disposition of assets                                                          |       | (183                 | )          | — |   |
| Changes  in assets and liabilities:                                                     |       |                 |       |   |   |
| Accounts  receivable                                                                    |       | 2,996                |       | 13,789 |   |
| Inventory                                                                               |       | (3,224               | )          | (3,602 | ) |
| Accounts  payable                                                                       |       | 37                   |       | (6,132 | ) |
| Accrued  taxes                                                                          |       | (1,845               | )          | (2,616 | ) |
| Other  elements of working capital                                                      |       | 686                  |       | (3,273 | ) |
| Other  long-term, net                                                                   |       | (299                 | )          | (167 | ) |
|                                                                                    |       |                 |       |   |   |
| Cash  provided from operating activities                                                |       | 13,735               |       | 10,273 |   |
|                                                                                    |       |                 |       |   |   |
| Investment  Activities:                                                                 |       |                 |       |   |   |
| Capital  expenditures                                                                   |       | (2,864               | )          | (4,463 | ) |
| Acquisition  (Note H)                                                                   |       | (3,000               | )          | — |   |
| Prepublication  costs                                                                   |       | (2,102               | )          | (2,240 | ) |
| Proceeds  on disposition of assets                                                      |       | 590                  |       | — |   |
| Short-term  investments                                                                 |       | (100                 | )          | 17 |   |
|                                                                                    |       |                 |       |   |   |
| Cash  used for investment activities                                                    |       | (7,476               | )          | (6,686 | ) |
|                                                                                    |       |                 |       |   |   |
| Financing  Activities:                                                                  |       |                 |       |   |   |
| Long-term  debt (repayments) borrowings                                                 |       | (1,873               | )          | 941 |   |
| Cash  dividends                                                                         |       | (5,026               | )          | (4,994 | ) |
| Proceeds  from stock plans                                                              |       | 241                  |       | 412 |   |
|                                                                                    |       |                 |       |   |   |
| Cash  used for financing activities                                                     |       | (6,658               | )          | (3,641 | ) |
|                                                                                    |       |                 |       |   |   |
| Decrease  in cash and cash equivalents                                                  |       | (399                 | )          | (54 | ) |
|                                                                                    |       |                 |       |   |   |
| Cash  and cash equivalents at the beginning of the period                               |       | 492                  |       | 178 |   |
|                                                                                    |       |                 |       |   |   |
| Cash  and cash equivalents at the end of the period                                     |       | $                    | 93         |   | $ | 124 |   |
|                                                                                    |       |                 |       |   |   |
| Supplemental  disclosure of noncash investing activities:                               |       |                 |       |   |   |
| Contingent  consideration (Note H)                                                      |       | $                    | 850        |   | — |   |

 

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

 

5

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**COURIER CORPORATION**

** **

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

 

**A.            SUMMARY OFSIGNIFICANT ACCOUNTING POLICIES**

 

**Unaudited Financial Statements**

 

The consolidated condensed balance sheet as of March 27, 2010, andthe consolidated condensed statements of operations for the three-month andsix-month periods ended March 27, 2010 and March 28, 2009, and thestatements of cash flows for the six-month periods ended March 27, 2010and March 28, 2009 are unaudited. In the opinion of management, all adjustments, consisting of normalrecurring items, considered necessary for a fair presentation of such financialstatements have been recorded.  TheCompany considers events or transactions that occur after the balance sheetdate but before the financial statements are issued to provide additionalevidence relative to certain estimates or to identify matters that requireadditional disclosure.

 

Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States of America (“generally acceptedaccounting principles”) have been condensed or omitted.  The balance sheet data as of September 26,2009 was derived from audited year-end financial statements, but does notinclude disclosures required by generally accepted accounting principles.  It is suggested that these interim financialstatements be read in conjunction with the Company’s most recent Annual Reporton Form 10-K for the year ended September 26, 2009.

 

**Goodwilland Other Intangibles**

 

The Companyevaluates possible impairment annually at the end of its fiscal year orwhenever events or changes in circumstances indicate that the carrying value ofthe assets may not be recoverable. There were no such events or changes incircumstances in the period ended March 27, 2010.  In the second quarter of fiscal 2009, theCompany recorded a $15.6 million impairment charge related to Dover Publications, Inc.(“Dover”), representing 100% of Dover’s goodwill.

 

During the secondquarter of fiscal 2010, the Company acquired Highcrest Media LLC (“HighcrestMedia”) and recorded goodwill of $1.5 million (see Note H). In addition, theCompany recorded intangibles related to customer lists and technology with thisacquisition totaling $1.9 million, which are being amortized over a 5-yearperiod.  “Other intangibles” also includecustomer lists related to Federal Marketing Corporation, d/b/a Creative Homeowner(“Creative Homeowner”) and Moore-Langen Printing Company, Inc. (“MooreLangen”), which are being amortized over 15-year and 10-year periods,respectively.  Related amortizationexpense was approximately $130,000 and $50,000 in the second quarters of fiscalyears 2010 and 2009, respectively.  Forthe first six months, amortization expense was approximately $180,000 and$100,000 in fiscal years 2010 and 2009, respectively. Annual amortizationexpense over the next five years will be approximately $600,000 prospectively.

 

**Fair Value of Financial Instruments**

 

Financial instruments consist primarily of cash, investments in mutualfunds, accounts receivable, accounts payable and debt obligations.  At March 27, 2010 and September 26,2009, the fair value of the Company’s financial instruments approximated theircarrying values.  The fair value of theCompany’s revolving credit facility approximates its carrying value due to thevariable interest rate and the Company’s current rate standing.

 

**PrepublicationCosts**

 

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

 

6

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**COURIERCORPORATION**

 

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

 

**RecentAccounting Pronouncements****:**

 

Atthe beginning of fiscal 2010, the Company****adopted the provisions of the Financial AccountingStandards Board (“FASB”) authoritative literature on business combinations,which expands the definition of a business combination and changes the mannerin which the Company accounts for business combinations. Significant changesinclude the capitalization of IPR&D as an indefinite-lived asset, therecognition of certain acquired contingent assets and liabilities at fairvalue, the expensing of acquisition-related restructuring actions andtransaction costs, and the recognition of contingent purchase priceconsideration at fair value on the acquisition date. In addition,post-acquisition changes in deferred tax asset valuation allowances andacquired income tax uncertainties will be recognized as income tax expense orbenefit. The accounting treatment for taxes will be applicable to acquisitionsthat close both prior and subsequent to the adoption of this guidance. TheCompany has applied this standard to the acquisition of Highcrest Media,described in Note H. As a result of adopting this guidance, the Companyexpensed approximately $55,000 of transaction costs related to the acquisitionand recorded contingent consideration of $1.2 million in the initial purchaseprice at its estimated fair value of $850,000.

 

# **B.            INVENTORIES**

# ** **

Inventories are valued at the lower of cost or market.  Cost was determined using the last-in,first-out (LIFO) method for approximately 52% and 53% of the Company’sinventories at March 27, 2010 and September 26, 2009,respectively.  Other inventories,primarily in the specialty publishing segment, are determined on a first-in,first-out (FIFO) basis.  Inventoriesconsisted of the following:

 
| ** **      | ** ** | **(000’s  Omitted)**  | ** ** |
|-----------------|------------|----------------------------|------------|
| ** **      | ** ** | **March 27,****2010** | ** ** | **September 26,****2009** | ** ** |
| Raw materials   |       | $                          | 5,301      |   | $ | 4,384 |   |
| Work in process |       | 10,967                     |       | 8,286 |   |
| Finished goods  |       | 25,023                     |       | 25,356 |   |
| Total           |       | $                          | 41,291     |   | $ | 38,026 |   |

# ** **

# **C.            INCOME TAXES**

# ** **

The provision (benefit) forincome taxes differs from that computed using the statutory federal income taxrates for the following reasons:

 
| ** **                               | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|
| ** **                               | ** ** | **Quarter Ended**        | ** ** |
| ** **                               | ** ** | **March 27, 2010**  | ** ** | **March 28, 2009** | ** ** |
| Federal  taxes at statutory rates        |       | $                        | 817        |   | 35.0 | % | $ | (6,040 | ) | 35.0 | % |
| State  taxes, net of federal tax benefit |       | 121                      |       | 5.2 |   | (70 | ) | 0.4 |   |
| Federal  manufacturer’s deduction   |       | (45                      | )          | (1.9 | ) | 26 |   | (0.2 | ) |
| Other                                    |       | 7                        |       | 0.3 |   | (2 | ) | — |   |
| Total                                    |       | $                        | 900        |   | 38.5 | % | $ | (6,086 | ) | 35.3 | % |

 

7

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# **COURIER CORPORATION**

# ** **

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

# ** **

| ** **                               | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|
| ** **                               | ** ** | **Six Months Ended**     | ** ** |
| ** **                               | ** ** | **March 27, 2010**  | ** ** | **March 28, 2009** | ** ** |
| Federal  taxes at statutory rates        |       | $                        | 2,402      |   | 35.0 | % | $ | (5,647 | ) | 35.0 | % |
| State  taxes, net of federal tax benefit |       | 348                      |       | 5.1 |   | (24 | ) | 0.1 |   |
| Federal  manufacturer’s deduction   |       | (124                     | )          | (1.8 | ) | 7 |   | — |   |
| Other                                    |       | 17                       |       | 0.2 |   | — |   | — |   |
| Total                                    |       | $                        | 2,643      |   | 38.5 | % | $ | (5,664 | ) | 35.1 | % |

# ** **

# **The tax benefit related to the impairment charge forDover recorded in the second quarter of last year was recognized at 35% (seeNote A).  No state tax benefit wasrecognized as the Company fully provided a valuation allowance on the relateddeferred state tax asset.**

# ** **

# **D.            BUSINESS SEGMENTS**

# ** **

The Company has two businesssegments: book manufacturing and specialty publishing. The book manufacturingsegment offers a full range of services from production through storage anddistribution for religious, educational and specialty trade book publishers. InJanuary 2010, the Company acquired Highcrest Media, which has beenincluded in the book manufacturing segment (see Note H).  The specialty publishing segment consists ofDover, Creative Homeowner and Research & Education Association, Inc.(“REA”).

 

# **Segment performance is evaluated based on severalfactors, of which the primary financial measure is operating income.  Operating income is defined as gross profit(sales less cost of sales) less selling and administrative expenses, andincludes severance and other restructuring costs but excludes stock-basedcompensation.  As such, segmentperformance is evaluated exclusive of interest, income taxes, stock-basedcompensation, intersegment profit, and impairment charges.  The elimination of intersegment sales andrelated profit represents sales from the book manufacturing segment to thespecialty publishing segment.**

# ** **

The following table providessegment information for the three-month and six-month periods ended March 27,2010 and March 28, 2009.

 
| ** **                                   | ** ** | **(000’s Omitted)** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|
| ** **                                   | ** ** | **Quarter Ended**        | ** ** | **Six Months Ended** | ** ** |
| ** **                                   | ** ** | **March 27,**       | ** ** | **March 28,** | ** ** | **March 27,** | ** ** | **March 28,** | ** ** |
| ** **                                   | ** ** | **2010**                 | ** ** | **2009** | ** ** | **2010** | ** ** | **2009** | ** ** |
| Net sales:                                   |       |                     |       |   |   |   |   |   |   |
| Book manufacturing                           |       | $                        | 49,980     |   | $ | 49,899 |   | $ | 104,821 |   | $ | 100,781 |   |
| Specialty publishing                         |       | 11,721                   |       | 12,058 |   | 23,282 |   | 23,561 |   |
| Elimination of intersegment sales            |       | (2,822                   | )          | (2,597 | ) | (6,120 | ) | (5,335 | ) |
| Total                                        |       | $                        | 58,879     |   | $ | 59,360 |   | $ | 121,983 |   | $ | 119,007 |   |
|                                         |       |                     |       |   |   |   |   |   |   |
| Pretax income (loss):                        |       |                     |       |   |   |   |   |   |   |
| Book manufacturing operating income (loss)   |       | $                        | 2,796      |   | $ | (652 | ) | $ | 8,497 |   | $ | 2,936 |   |
| Specialty publishing operating income (loss) |       | 13                       |       | (566 | ) | (501 | ) | (2,493 | ) |
| Impairment  charge (Note A)                  |       | —                   |       | (15,607 | ) | — |   | (15,607 | ) |
| Stock-based compensation                     |       | (334                     | )          | (342 | ) | (683 | ) | (725 | ) |
| Elimination of intersegment profit           |       | (21                      | )          | 102 |   | (214 | ) | 176 |   |
| Interest expense, net                        |       | (119                     | )          | (194 | ) | (237 | ) | (421 | ) |
| Total                                        |       | $                        | 2,335      |   | $ | (17,259 | ) | $ | 6,862 |   | $ | (16,134 | ) |

 

8

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**COURIER CORPORATION**

 

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

 

**E.             RESTRUCTURING COSTS**

 

In fiscal 2009, theCompany recorded restructuring costs of $3.5 million in the second quarter and$3.7 million in the first half of the year. Restructuring costs includedemployee severance expenses related to cost savings initiatives in both of theCompany’s segments, as well as winding down Creative Homeowner’s distributionservices and closing and consolidating the Book-mart Press manufacturingfacility during the second quarter of fiscal 2009.  The following table details restructuringcosts by segment and by classification in the accompanying consolidatedstatements of operations.

 
| ** **                                       | ** ** | **(000’s  Omitted)**       | ** ** |
|--------------------------------------------------|------------|---------------------------------|------------|
| ** **                                       | ** ** | **Quarter Ended**               | ** ** | **Six Months Ended** | ** ** |
| ** **                                       | ** ** | **Book  Manufacturing Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                             |       |                            |       |   |   |   |   |   |   |   |   |   |   |
| Included in cost of sales                        |       | $                               | 2,754      |   | $ | 107 |   | $ | 2,861 |   | $ | 2,754 |   | $ | 107 |   | $ | 2,861 |   |
| Included in selling and administrative  expenses |       | 475                             |       | 192 |   | 667 |   | 491 |   | 377 |   | 868 |   |
| Total restructuring costs                        |       | $                               | 3,229      |   | $ | 299 |   | $ | 3,528 |   | $ | 3,245 |   | $ | 484 |   | $ | 3,729 |   |

 

Forthe entire fiscal year 2009, the Company recorded restructuring costs totaling$4.8 million.  The following tabledepicts the accrual balances for these restructuring costs that remained as of September 26,2009 and March 27, 2010, which relate to closing and consolidating theBook-mart Press manufacturing facility.

 
| ** **                                           | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | **Accrual at**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Accrual at** | ** ** |
| ** **                                           | ** ** | **September 26,**   | ** ** | **Additional** | ** ** | **Cash** | ** ** | **March 27,** | ** ** |
| ** **                                           | ** ** | **2009**                 | ** ** | **Charges** | ** ** | **Paid** | ** ** | **2010** | ** ** |
| Employee  severance and benefit costs                |       | $                        | 495        |   | $ | — |   | $ | (42 | ) | $ | 453 |   |
| Lease  termination, facility closure and other costs |       | 546                      |       | 140 |   | (303 | ) | 383 |   |
| Total                                                |       | $                        | 1,041      |   | $ | 140 |   | $ | (345 | ) | $ | 836 |   |

 

Inaddition to the above, the Company recorded a gain on the disposition ofBook-mart Press assets in the first quarter of fiscal 2010 of $140,000.  Amounts accrued for restructuring costs at March 27,2010 and September 26, 2009 are included in “Other current liabilities” inthe accompanying consolidated balance sheet. The Company anticipates thatpayments associated with Book-mart Press, including rental payments related tothe lease obligation and closing costs associated with the termination of thelease, will be substantially completed by the end of this fiscal year.

 

9

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**COURIER CORPORATION**

 

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

 

**F.             STOCK-BASED COMPENSATION**

 

The Companyrecords stock-based compensation expense for the cost of stock options andstock grants as well as shares issued under the Company’s 1999 Employee StockPurchase Plan, as amended (the “ESPP”). The fair value of each option awardedis calculated on the date of grant using the Black-Scholes option-pricingmodel. Stock-based compensation recognized in selling and administrativeexpenses in the accompanying financial statements in the second quarters offiscal 2010 and 2009 was $334,000 and $342,000, respectively.  The related tax benefit recognized in thesecond quarters of fiscal 2010 and 2009 was $120,000 and $111,000,respectively.  For the first six monthsof 2010 and 2009, stock-based compensation was $683,000 and $725,000,respectively, and the related tax benefit recognized was $244,000 and $236,000,respectively.  Unrecognized stock-basedcompensation cost at March 27, 2010 was $1.9 million, to be recognizedover a weighted-average period of 2.1 years.

 

**StockIncentive Plan:** The Company’s Amended and Restated 1993 Stock IncentivePlan provides for the granting of stock options and stock grants up to a totalof 2,064,375 shares.  Under the plan provisions,both non-qualified and incentive stock options to purchase shares of theCompany’s common stock may be granted to key employees.  The option price per share may not be lessthan the fair market value of stock at the time the option is granted andincentive stock options must expire not later than ten years from the date ofgrant.  The Company annually issues acombination of stock options and stock grants to its key employees. Stockoptions and stock grants generally vest over 3 years.

 

Thefollowing is a summary of option activity under this plan in the first sixmonths of fiscal 2010:

 
| ** **                              | ** ** | ** **           | ** ** | **Weighted Average** | ** ** | **Aggregate**             | ** ** |
|-----------------------------------------|------------|----------------------|------------|----------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **Option****Shares** | ** ** | **Exercise  Price**  | ** ** | **Remaining  Term (yrs)** | ** ** | **Intrinsic  Value** | ** ** |
| Outstanding at  September 26, 2009 |       | 463,886              |       | $                    | 24.74      |                      |       |   |   |   |
| Granted                                 |       | 4,558                |       | 13.71                |       |                      |       |   |   |
| Outstanding at March 27,  2010     |       | 468,444              |       | $                    | 24.63      |                      | 2.7        |   | $ | 169,178 |   |
|                                    |       |                 |       |                 |       |                      |       |   |   |
| Exercisable at March 27,  2010     |       | 259,181              |       | $                    | 28.94      |                      | 1.7        |   |   |   |
| Available for future grants             |       | 193,050              |       |                 |       |                      |       |   |   |
|                                         |            |                      |            |                      |            |                           |            |  |  |  |  |

 

Thefair value of each option grant was estimated on the date of the grant usingthe Black-Scholes option-pricing model.The key assumptions used to value theoptions granted, which were issued in the second quarter of fiscal 2010, were arisk-free interest rate of 2.7%, expected volatility of 46%, a dividend yieldof 6.1%, and an expected life of five years, resulting in a weighted averagefair value of $3.46 per share.

 

Inthe second quarter of fiscal 2010, 869 stock awards were granted with aweighted-average fair value of $13.71 per share.  During the first six months of fiscal 2010,7,093 stock grants vested with a weighted-average fair value of $38.47 pershare. At March 27, 2010, there were 59,937 non-vested stock grantsoutstanding with a weighted-average fair value of $21.95.

 

**Directors’Stock Equity Plans:** In January 2010, stockholders approved the CourierCorporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”).  Under the plan provisions, stock grants aswell as non-qualified stock options to purchase shares of the Company’s commonstock may be granted to non-employee directors up to a total of 300,000shares.  The 2010 Plan replaced theprevious non-employee directors’ plan, which had been adopted in 2005 (the “2005Plan”). No further options will be granted under the 2005 Plan.  Under the 2010 Plan, the option price pershare is the fair market value of stock at the time the option is granted andoptions have a term of five years. Stock options and stock grants generallyvest over three years.

 

10

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**COURIER CORPORATION**

 

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

 

Duringthe second quarter of fiscal 2010, 53,179 options were granted under the 2010Plan. The fair value of each option grant was estimated on the date of thegrant using the Black-Scholes option-pricing model.  The key assumptions used to value the optionsgranted were a risk-free interest rate of 2.7%, expected volatility of 46%, adividend yield of 6.1%, and an expected life of five years, resulting in aweighted average fair value of $3.46 per share.

 

Thefollowing is a summary of option activity under the 2010 Plan and the 2005 Planin the first six months of fiscal 2010:

 
| ** **                              | ** ** | ** **           | ** ** | **Weighted Average** | ** ** | **Aggregate**             | ** ** |
|-----------------------------------------|------------|----------------------|------------|----------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **Option****Shares** | ** ** | **Exercise  Price**  | ** ** | **Remaining  Term (yrs)** | ** ** | **Intrinsic  Value** | ** ** |
| Outstanding at  September 26, 2009 |       | 186,687              |       | $                    | 28.89      |                      |       |   |   |   |
| Granted                                 |       | 53,179               |       | 13.71                |       |                      |       |   |   |
| Expired                                 |       | (33,000              | )          | 32.65                |       |                      |       |   |   |
| Outstanding at March 27,  2010     |       | 206,866              |       | $                    | 24.39      |                      | 3.3        |   | $ | 245,163 |   |
|                                    |       |                 |       |                 |       |                      |       |   |   |
| Exercisable at March 27,  2010     |       | 153,687              |       | $                    | 28.08      |                      | 2.5        |   |   |   |
| Available for future grants             |       | 221,236              |       |                 |       |                      |       |   |   |
|                                         |            |                      |            |                      |            |                           |            |  |  |  |  |

 

Duringthe second quarter of fiscal 2010, 13,181 stock awards were granted tonon-employee directors with a weighted-average fair value of $13.71 per share,representing all such non-vested stock grants outstanding at March 27,2010.  Directors may also elect toreceive their annual retainer and committee chair fees as shares of stock inlieu of cash; 12,404 such shares were issued in the second quarter of fiscal2010.

 

**Employee Stock Purchase Plan:** The ESPP allows eligibleemployees to purchase shares of Company common stock at not less than 85% offair market value at the end of the grant period.  On January 20, 2010, stockholdersapproved an amendment to the ESPP increasing the shares authorized under theplan by 300,000 to an aggregate of 637,500 shares of Company common stockavailable for issuance under the plan. During the second quarter of fiscal 2010, 18,419 shares were issued underthe ESPP at a price of $13.08 per share. At March 27, 2010, there were 293,357 shares available for futureissuances.

 

**G.        NET INCOME PER SHARE**

 

The following is areconciliation of the outstanding shares used in the calculation of basic anddiluted net income (loss) per share. Potentially dilutive shares, calculated using the treasury stock method,consist of shares issued under the Company’s stock option plans.  In the second quarter and first six months offiscal 2009, approximately 6,000 and 5,000 potentially dilutive shares,respectively, were excluded as the Company incurred a loss in those periods.

 
| ** **                              | ** ** | **(000’s Omitted)** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|
| ** **                              | ** ** | **Quarter Ended**        | ** ** | **Six Months Ended** | ** ** |
| ** **                              | ** ** | **March 27,  2010** | ** ** | **March 28,  2009** | ** ** | **March 27,  2010** | ** ** | **March 28,  2009** | ** ** |
|                                    |       |                     |       |   |   |   |   |   |   |
| Average shares outstanding for  basic   |       | 11,910                   |       | 11,842 |   | 11,901 |   | 11,835 |   |
| Effect of potentially dilutive  shares  |       | 31                       |       | — |   | 24 |   | — |   |
| Average shares outstanding for  diluted |       | 11,941                   |       | 11,842 |   | 11,925 |   | 11,835 |   |

 

11

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**COURIER CORPORATION**

 

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

 

**H.****                       ****BUSINESSACQUISITION**

 

On January 15, 2010,the Company acquired the assets ofHighcrest Media, a Massachusetts-based provider of software solutionsthat streamline the production of customized textbooks for use in colleges,universities and businesses.  Theacquisition also complements the Company’s investment during fiscal 2010 indigital printing technology. The $3 million cash acquisition, which hasadditional future “earn out” potential payments of up to $1.2 million, was accounted for as a purchase, andaccordingly, Highcrest Media’s financial results are included in the bookmanufacturing segment in the consolidated financial statements from the date ofacquisition. The future earn out potential payments were valued at $850,000using a probability weighted discounted cash flow model and may be paid outover three years.

 

The acquisition of HighcrestMedia was recorded by allocating the fair value of consideration of theacquisition to the identified assets acquired, including intangible assets andliabilities assumed, based on their estimated fair value at the acquisitiondate.  The excess of the fair value ofconsideration of the acquisition over the net amounts assigned to the fairvalue of the assets acquired and liabilities assumed was recorded as goodwill.Goodwill and other intangibles are tax deductible. Based on these valuations,the purchase price allocation was as follows:

 
| ** **                                                         | ** ** | **(000’s  Omitted)** | ** ** |
|--------------------------------------------------------------------|------------|---------------------------|------------|
|                                                               |       |                      |       |
| Accounts receivable                                                |       | $                         | 379        |   |
| Inventories                                                        |       | 41                        |       |
| Machinery, equipment and other  long-term assets                   |       | 280                       |       |
| Amortizable intangibles                                            |       | 1,930                     |       |
| Goodwill                                                           |       | 1,509                     |       |
| Accounts payable and accrued  liabilities                          |       | (289                      | )          |
| Total purchase price                                               |       | $                         | 3,850      |   |
| Less: Fair value of contingent  “earn out” consideration |       | (850                      | )          |
| Net cash paid                                                      |       | $                         | 3,000      |   |

 

The Company also assumedoperating leases for some of Highcrest Media’s equipment.  The acquisition of Highcrest Media isexpected to be modestly accretive to the Company’s earnings for fiscal2010.  The Company expects to finalizethe preliminary estimates of the fair value of the intangible assets in thenext quarter.

 

**I.****                                 ****LONG-TERM DEBT**

 

On March 26, 2010, theCompany entered into a financing arrangement providing up to $8 million for thedigital print operation assets.  Thisarrangement has a four-year term and an annual interest rate of 3.9%.  The Company had not yet drawn on thisarrangement as of March 27, 2010.

 

**J.****                                 ****SUBSEQUENTEVENT**

 

In April 2010, the Companyordered a fourth manroland press to expand four-color capacity in itsKendallville, Indiana facility. This new press is expected to be placed inservice in the first half of fiscal 2011 with a total project cost ofapproximately $17 million.

 

12

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**Item 2****.****                   ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF****FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

**Critical Accounting Policies and Estimates****:**

 

The Company’s consolidatedcondensed financial statements have been prepared in accordance with generallyaccepted accounting principles.  Thepreparation of these financial statements requires management to make estimatesand assumptions that affect the amounts reported in these financial statementsand accompanying notes.  On an ongoingbasis, management evaluates its estimates and judgments, including thoserelated to collectibility of accounts receivable, recovery of inventories,impairment of goodwill and other intangibles, prepublication costs and incometaxes.  Management bases its estimatesand judgments on historical experience and various other factors believed to bereasonable under the circumstances, the results of which form the basis formaking judgments about the carrying value of assets and liabilities at the dateof the financial statements and the reported amounts of revenues and expensesduring the periods presented.  Actualresults may differ from these estimates. The significant accounting policies which management believes are mostcritical to aid in fully understanding and evaluating the Company’s reportedfinancial results include the following:

 

# **Accounts Receivable.**   Management performs ongoing creditevaluations of the Company’s customers and adjusts credit limits based uponpayment history and the customer’s current creditworthiness.  Collections and payments from customers arecontinuously monitored.  A provision forestimated credit losses is determined based upon historical experience and anyspecific customer collection issues that have been identified.  If the financial condition of the Company’scustomers were to deteriorate, it may result in their inability to makepayments, and such events could possibly lead to their insolvency, andtherefore additional allowances may 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 intangible assets include customer lists and technology, which areamortized on a straight-line basis over periods ranging from five to fifteenyears. The Company evaluates possible impairment of goodwill and otherintangibles on an annual basis or whenever events or changes in circumstancesindicate that the carrying value of the assets may not be recoverable.  The Company completed its annual impairmenttest at September 26, 2009 resulting in no change to the nature or carryingamounts of its intangible assets.  Animpairment charge had been recorded in the second quarter of fiscal 2009 in thespecialty publishing segment related to Dover Publications, Inc. TheCompany continues to monitor the value of its intangible assets closely in eachof its segments.  Changes in marketconditions or poor operating results could result in a decline in the value ofthe Company’s goodwill and other intangible assets thereby potentiallyrequiring an additional impairment charge in the future.

 

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

 

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

 

13

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**Overview:**

 

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

 

**Results of Operations:**

 
| ** **                           | ** ** | **FINANCIAL HIGHLIGHTS  (dollars in thousands except per share amounts)** | ** ** |
|--------------------------------------|------------|---------------------------------------------------------------------------|------------|
| ** **                           | ** ** | **Quarter Ended**                                                         | ** ** | **Six Months Ended** | ** ** |
| ** **                           | ** ** | **March 27,  2010**                                                  | ** ** | **March 28,  2009** | ** ** | **%  Change** | ** ** | **March 27,  2010** | ** ** | **March 28,  2009** | ** ** | **%  Change** | ** ** |
|                                 |       |                                                                      |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                            |       | $                                                                         | 58,879     |   | $ | 59,360 |   | -0.8 | % | $ | 121,983 |   | $ | 119,007 |   | 2.5 | % |
| Cost of sales                        |       | 44,579                                                                    |       | 48,737 |   | -8.5 | % | 90,387 |   | 93,956 |   | -3.8 | % |
| Gross profit                         |       | 14,300                                                                    |       | 10,623 |   | 34.6 | % | 31,596 |   | 25,051 |   | 26.1 | % |
| As a percentage of sales             |       | 24.3                                                                      | %          | 17.9 | % |   |   | 25.9 | % | 21.1 | % |   |   |
| Selling and administrative  expenses |       | 11,846                                                                    |       | 12,081 |   | -1.9 | % | 24,497 |   | 25,157 |   | - 2.6 | % |
| Impairment charge                    |       | —                                                                    |       | 15,607 |   |   |   | — |   | 15,607 |   |   |   |
| Operating income (loss)              |       | 2,454                                                                     |       | (17,065 | ) |   |   | 7,099 |   | (15,713 | ) |   |   |
| Interest expense, net                |       | 119                                                                       |       | 194 |   | -38.7 | % | 237 |   | 421 |   | -43.7 | % |
| Pretax income (loss)                 |       | 2,335                                                                     |       | (17,259 | ) |   |   | 6,862 |   | (16,134 | ) |   |   |
| Income tax provision (benefit)       |       | 900                                                                       |       | (6,086 | ) |   |   | 2,643 |   | (5,664 | ) |   |   |
| Net income (loss)                    |       | $                                                                         | 1,435      |   | $ | (11,173 | ) |   |   | $ | 4,219 |   | $ | (10,470 | ) |   |   |
| Net income (loss) per diluted  share |       | $                                                                         | 0.12       |   | $ | (0.94 | ) |   |   | $ | 0.35 |   | $ | (0.88 | ) |   |   |

# ** **

# **Revenues in the second quarter of fiscal2010 were slightly below the same period last year at $58.9 million while salesfor the first half of the year increased 3% to $122.0 million compared tofiscal 2009.  Book manufacturing segmentrevenues grew slightly in the second quarter compared to last year andincreased 4% to $104.8 million for the first six months.  The year-to-date growth in sales wasprimarily due to increased demand for four-color books and religiousscriptures.  In the specialty publishingsegment, revenues were down 3% to $11.7 million in the quarter compared to lastyear’s second quarter, with sales growth at REA offset by sales declines atDover and Creative Homeowner. For the first half of the year, sales in thissegment were down 1% to $23.3 million compared to the first six months of lastyear with sales growth at both REA and Dover largely offset by a decline insales at Creative Homeowner. The winding down of Creative Homeowner’s bookdistribution services in January 2009 also contributed to its salesdecline compared to the first half of this year.**

# ** **

Net income was $1.4 million and $4.2 million for the second quarter andfirst six months of fiscal 2010, respectively, reflecting improved performancein both of the Company’s business segments. In the prior year, the Company recorded a second-quarter net loss of$11.2 million, or $.94 per diluted share, and for the first half of the year, anet loss of $10.5 million, or $.88 per diluted share.  These results included restructuring costsrelated to cost saving initiatives in both of the Company’s segments totaling$3.5 million for the second quarter and $3.7 million for the first sixmonths.  In addition, the Companyrecorded a pre-tax impairment charge of $15.6 million in last year’s secondquarter related to Dover’s goodwill. Pre-tax restructuring and impairmentcharges totaled $19.1 million in the second quarter, or $1.04 per dilutedshare, and $19.3 million for the first six months, or $1.05 per diluted share.

 

14

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*Business Acquisition*

 

On January 15, 2010,the Company acquired the assets ofHighcrest Media LLC (“Highcrest Media”), a Massachusetts-based providerof software solutions that streamline the production of customized textbooksfor use in colleges, universities and businesses.  The acquisition also complements the Company’sinvestment during fiscal 2010 in digital printing technology. The $3 millioncash acquisition, which has additional future “earn out” potential payments ofup to $1.2 million, was accounted for as apurchase, and accordingly, Highcrest Media’s financial results are included inthe book manufacturing segment in the consolidated financial statements fromthe date of acquisition.  Theacquisition of Highcrest Media is expected to be modestly accretive to theCompany’s earnings for fiscal 2010.

 

*RestructuringCosts*

 

In fiscal 2009, theCompany recorded restructuring costs of $3.5 million in the second quarter and$3.7 million in the first half of the year. Restructuring costs includedemployee severance expenses related to cost savings initiatives in both of theCompany’s segments, as well as winding down Creative Homeowner’s distributionservices and closing and consolidating the Book-mart Press manufacturingfacility during the second quarter of fiscal 2009.  The following table details restructuringcosts by segment and by classification in the accompanying consolidatedstatements of operations.

 
| ** **                                       | ** ** | **(000’s  Omitted)**        | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | **Quarter Ended**                | ** ** | **Six Months Ended** | ** ** |
| ** **                                       | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                             |       |                             |       |   |   |   |   |   |   |   |   |   |   |
| Included in cost of sales                        |       | $                                | 2,754      |   | $ | 107 |   | $ | 2,861 |   | $ | 2,754 |   | $ | 107 |   | $ | 2,861 |   |
| Included in selling and administrative  expenses |       | 475                              |       | 192 |   | 667 |   | 491 |   | 377 |   | 868 |   |
| Total restructuring costs                        |       | $                                | 3,229      |   | $ | 299 |   | $ | 3,528 |   | $ | 3,245 |   | $ | 484 |   | $ | 3,729 |   |

 

Forthe entire fiscal year 2009, the Company recorded restructuring costs totaling$4.8 million.  The following tabledepicts the accrual balances for these restructuring costs that remained as of September 26,2009 and March 27, 2010, which relate to closing and consolidating theBook-mart Press manufacturing facility.

 
| ** **                                           | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------------------|------------|--------------------------|------------|
| ** **                                           | ** ** | **Accrual at**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Accrual at** | ** ** |
| ** **                                           | ** ** | **September 26,**   | ** ** | **Additional** | ** ** | **Cash** | ** ** | **March 27,** | ** ** |
| ** **                                           | ** ** | **2009**                 | ** ** | **Charges** | ** ** | **Paid** | ** ** | **2010** | ** ** |
| Employee  severance and benefit costs                |       | $                        | 495        |   | $ | — |   | $ | (42 | ) | $ | 453 |   |
| Lease  termination, facility closure and other costs |       | 546                      |       | 140 |   | (303 | ) | 383 |   |
| Total                                                |       | $                        | 1,041      |   | $ | 140 |   | $ | (345 | ) | $ | 836 |   |

 

###### **In addition to the above, the Company recorded again on the disposition of Book-mart Press assets in the first quarter offiscal 2010 of $140,000.  Amounts accruedfor restructuring costs at March 27, 2010 and September 26, 2009 areincluded in “Other current liabilities” in the accompanying consolidatedbalance sheet.  The Company anticipatesthat payments associated with Book-mart Press, including rental paymentsrelated to the lease obligation and closing costs associated with thetermination of the lease, will be substantially completed by the end of thisfiscal year.**

 

15

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*Impairment Charge*

 

The Companyevaluates possible impairment of goodwill and other intangibles on an annualbasis or whenever events or circumstances indicate that the carrying value ofthe assets may not be recoverable. Due to a decline in sales and profits atDover during the second quarter of fiscal 2009, resulting from the continueddownturn in the economic environment and in consumer spending, the Companyperformed an interim test of Dover’s goodwill. As a result of the impairmenttests, the Company had concluded that the carrying value of Dover’s goodwillexceeded its estimated fair value and recorded a pre-tax impairment charge of$15.6 million, representing 100% of Dover’s goodwill, at the end of last year’ssecond quarter. On an after-tax basis, the impairment charge was $10.1 million,or $.86 per diluted share.

 

*Book Manufacturing Segment*

 
| ** **                           | ** ** | **SEGMENT HIGHLIGHTS  (dollars in thousands)** | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|
| ** **                           | ** ** | **Quarter Ended**                              | ** ** | **Six Months Ended** | ** ** |
| ** **                           | ** ** | **March 27,  2010**                       | ** ** | **March 28,  2009** | ** ** | **%  Change** | ** ** | **March 27,****2010** | ** ** | **March 28,****2009** | ** ** | **%  Change** | ** ** |
|                                 |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                            |       | $                                              | 49,980     |   | $ | 49,899 |   | 0.2 | % | $ | 104,821 |   | $ | 100,781 |   | 4.0 | % |
| Cost of sales                        |       | 40,243                                         |       | 43,870 |   | -8.3 | % | 82,009 |   | 84,140 |   | -2.5 | % |
| Gross profit                         |       | 9,737                                          |       | 6,029 |   | 61.5 | % | 22,812 |   | 16,641 |   | 37.1 | % |
| As a percentage of sales             |       | 19.5                                           | %          | 12.1 | % |   |   | 21.8 | % | 16.5 | % |   |   |
| Selling and administrative  expenses |       | 6,941                                          |       | 6,681 |   | 3.9 | % | 14,315 |   | 13,705 |   | 4.5 | % |
| Operating income (loss)              |       | $                                              | 2,796      |   | $ | (652 | ) |   |   | $ | 8,497 |   | $ | 2,936 |   | 189.4 | % |

 

Within the book manufacturing segment, the Company focuses primarily onthree key markets: education, religious and specialty trade.  In the second quarter of fiscal 2010, salesto the education market were down 2% to $21.1 million but increased 6% to $40.9million in the first six months compared to the same periods last year,primarily from sales of four-color textbooks to colleges and universities.However, sales of elementary and high school books were down reflectingcontinued pressure on state and local school budgets. Sales to the specialtytrade market grew 6% to $14.2 million in the quarter and grew 3% to $29.1million year to date compared to prior year periods, with growth in four-colorsales as well as a number of new customers. Sales to the religious market were comparable to the prior year secondquarter at $12.5 million and were up 7% to $30.8 million compared to the firsthalf of last year.

 

Cost of sales in the book manufacturing segment decreased by 8% to $40.2million for the quarter and by 3% to $82.0 million compared to the same periodslast year.  Cost of sales in the secondquarter and first six months of fiscal 2009 included $2.8 million ofrestructuring costs.  Excluding theserestructuring costs, the decrease in cost of sales for the quarter and firstsix months reflects the benefit of last year’s cost reductions.  Gross profit increased by 62% to $9.7 millionfor the quarter, and as a percentage of sales, was 19.5% compared to 12.1% inlast year’s second quarter.  For thefirst half of the year, gross profit increased 37% to $22.8 million and, as apercentage of sales, improved to 21.8% from 16.5% in the first six months offiscal 2009.  In addition to last year’srestructuring costs, the improvement in gross profit reflects the growth insales, improved capacity utilization and increased revenue from recyclingprograms, which were offset in part by continued industry-wide competitivepricing pressures.

 

Selling and administrative expenses for the segment increased 4% in boththe second quarter and first six months of fiscal 2010 compared to the sameperiods last year, which included approximately $0.5 million ofseverance-related restructuring costs. Cost savings from staff reductions in fiscal 2009 were offset by anincrease in variable compensation tied to this year’s increased sales andincome.

 

Operating income in the book manufacturing segment in the quarter was$2.8 million compared to an operating loss of $0.7 million in last year’ssecond quarter, which included restructuring costs of $3.2 million.  For the first six months of fiscal 2010,operating income was $8.5 million compared to $2.9 million in the correspondingperiod last year, reflecting the impact of last year’s restructuringinitiatives to reduce costs as well as the growth in sales.

 

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During the second quarter of fiscal 2010, the Company acquired HighcrestMedia, a softwaresolutions provider specializing in customized textbooks for use in colleges,universities and businesses.  Theacquisition of Highcrest Media is expected to be modestly accretive to theCompany’s earnings for fiscal 2010.  In addition, the Company installed a new HPdigital printing system during the second quarter.  Related start-up costs are anticipated to be$1 to $2 million in the second half of fiscal 2010.  In April 2010, the Company ordered afourth manroland press for its Kendallville, Indiana facility in order toexpand its four-color production capacity. The press is expected to be installed in the first half of fiscal 2011.

 

*Specialty Publishing Segment*

 
| ** **                           | ** ** | **SEGMENT HIGHLIGHTS  (dollars in thousands)** | ** ** |
|--------------------------------------|------------|------------------------------------------------|------------|
| ** **                           | ** ** | **Quarter Ended**                              | ** ** | **Six Months Ended** | ** ** |
| ** **                           | ** ** | **March 27,  2010**                       | ** ** | **March 28,  2009** | ** ** | **%  Change** | ** ** | **March 27,****2010** | ** ** | **March 28,****2009** | ** ** | **%  Change** | ** ** |
|                                 |       |                                           |       |   |   |   |   |   |   |   |   |   |   |
| Net sales                            |       | $                                              | 11,721     |   | $ | 12,058 |   | -2.8 | % | $ | 23,282 |   | $ | 23,561 |   | -1.2 | % |
| Cost of sales                        |       | 7,136                                          |       | 7,566 |   | -5.7 | % | 14,284 |   | 15,327 |   | -6.8 | % |
| Gross profit                         |       | 4,585                                          |       | 4,492 |   | 2.1 | % | 8,998 |   | 8,234 |   | 9.3 | % |
| As a percentage of sales             |       | 39.1                                           | %          | 37.3 | % |   |   | 38.6 | % | 34.9 | % |   |   |
| Selling and administrative  expenses |       | 4,572                                          |       | 5,058 |   | -9.6 | % | 9,499 |   | 10,727 |   | -11.4 | % |
| Operating income (loss)              |       | $                                              | 13         |   | $ | (566 | ) |   |   | $ | (501 | ) | $ | (2,493 | ) |   |   |

 

Within the Company’s specialtypublishing segment, sales in the second quarter were down 3% to $11.7 millionand down 1% for the first six months to $23.3 million, compared to thecorresponding periods in fiscal 2009. Sales were down 4% at Dover to $6.9 million after strong sales growth inthe first quarter compared to the corresponding prior year periods.  For the first half of the year, Dover’s salesgrew 7% to $15.3 million compared to the first six months of last year.  During the second quarter, sales to majorbook retailers declined, due in part to inventory reductions.  Dover’s second quarter and year-to-date salesreflect growth in direct-to-consumer sales and sales through online retailersresulting from enhanced marketing activity and promotional programs. Sales atREA increased 22% over last year’s second quarter to $2.2 million and grew 32%to $4.1 million in the first six months of fiscal 2010 compared to the firsthalf of last year.  REA’s sales growthresulted from a strong list of new titles as well as a robust market for testpreparation books.  Sales at CreativeHomeowner decreased 14% to $2.7 million, reflecting the persistent weakness inthe nation’s housing sector, which has reduced store traffic and sales in thehome center market, its largest channel. For the first half of fiscal 2010,Creative Homeowner’s sales decreased 37% to $3.9 million compared to the firstsix months of last year. The sales decrease on a year-to-date basis alsoreflects the cessation of Creative Homeowner’s book distribution services in January 2009,which supported one nationwide retailer and contributed approximately $1.2million of revenue last year. Creative Homeowner’s sales to other specialtyretailers as well as direct-to-consumer sales of home plans grew modestly inthe second quarter of fiscal 2010.

 

Cost of sales in the specialty publishing segment decreased 6% to $7.1million in the second quarter and decreased 7% to $14.3 million for the firstsix months of fiscal 2010 compared to the corresponding prior year periodsprimarily due to the cost reductions initiated in fiscal 2009.  Cost of sales in the second quarter and firsthalf of last year included approximately $100,000 of severance-relatedrestructuring costs.  Gross profit as apercentage of sales increasedto 39.1% from 37.3% in the second quarter and increased to 38.6% from 34.9% inthe first half of fiscal 2010 compared to the same periods last year, primarilyas a result of cost reductions.

 

Selling andadministrative expenses in this segment decreased 10% to $4.6 million in thesecond quarter and decreased 11% to $9.5 million in the first six monthscompared to the same periods in fiscal 2009. Selling and administrative expenses in the second quarter and first halfof last year included approximately $200,000 and $400,000, respectively, inseverance pay as well as other costs related to Creative Homeowner ending itsdistribution service.  Fiscal 2010expenses reflect the cost reductions

 

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achieved by prioryear initiatives, which also included centralizing back office and orderfulfillment operations.

 

The specialty publishing segment had operating income of $13,000 for thesecond quarter, compared to an operating loss of $0.6 million in last year’ssecond quarter.  For the first half offiscal 2010, the operating loss was $0.5 million compared to $2.5 million inthe first six month’s of last year, reflecting sales growth at REA and Dovercombined with the benefit of cost reductions initiated in fiscal 2009,particularly at Creative Homeowner.

 

*Total Consolidated Company*

 

Interest expense, net of interest income, was $119,000 in the secondquarter of fiscal 2010, compared to $194,000 of net interest expense in thesame period last year.  For the first sixmonths, interest expense, net of interest income, was $237,000 compared to$421,000 in the first half of fiscal 2009. Average debt under the revolvingcredit facility in the second quarter of fiscal 2010 was approximately $11.9million at an average annual interest rate of 0.7%, generating interest expenseof approximately $22,000.  Average debtunder the revolving credit facility in the second quarter of last year wasapproximately $26.7 million at an average annual interest rate of 1.0%,generating interest expense of approximately $65,000.  Average debt under the revolving creditfacility for the first six months of fiscal 2010 was approximately $11.9million at an average annual interest rate of 0.7%, generating interest expenseof approximately $44,000.  For the firsthalf of fiscal 2009, average debt under this facility was approximately $26.0million at an average annual interest rate of 2.0%, generating interest expenseof approximately $260,000.  Interestexpense also includes commitment fees and other costs associated withmaintaining the Company’s $100 million revolving credit facility.

 

Income tax expense for thesecond quarter was $0.9 million compared to an income tax benefit of $6.1million in the same quarter last year. On a year-to-date basis, income tax expense was $2.6 million compared toan income tax benefit of $5.7 million for the first six months of fiscal 2009.The tax benefit in fiscal 2009 related to Dover’s impairment charge wasrecognized at 35%; no state tax benefit was recognized as the Company fullyprovided a valuation allowance on the related deferred state tax asset.  Excluding the effect of the tax benefit ofthe impairment charge for Dover, the effective tax rate was 37.8% in the secondquarter and 38.3% for the first six months of fiscal 2009 compared to 38.5% inthe second quarter and first half of fiscal 2010, primarily because of a highereffective state tax rate in fiscal 2010.

 

For purposes of computing netincome per diluted share, weighted average shares outstanding increased byapproximately 99,000 shares and 90,000 from last year’s second quarter andfirst six months, respectively, primarily due to options exercised and sharesissued under the Company’s stock plans.

 

**Liquidity and Capital Resources****:**

 

During the first six months offiscal 2010, operations provided $13.7 million of cash, compared to $10.3million in the first half of last year. Net income was $4.2 million and depreciation and amortization were $10.3million.  Working capital used $1.4million of cash compared to $1.8 million in the first half of last year.

 

Investmentactivities in the first half of fiscal 2010 used $7.5 million of cash, of which$3.0 million was attributable to the acquisition of Highcrest Media inJanuary.  Proceeds of approximately $0.6million were received on the disposition of assets, including equipment fromthe Book-mart Press manufacturing facility.  Prepublication costs were $2.1 million,comparable to the first six months last year. For the full fiscal year, prepublication costs are projected to beslightly below last year’s $4.8 million. Capital expenditures for the first half of the year were $2.9million.  In April 2010, the Companyordered a fourth manroland press to expand four-color capacity in itsKendallville, Indiana facility. Spending in fiscal 2010 on this $17 millionproject is expected to be approximately $12 million.  This new press is expected to be placed inservice in the first half of fiscal 2011. Capital expenditures for fiscal 2010 are now projected to beapproximately $24 to $26 million.  Othermajor projects in fiscal 2010 include spending relating to the new digitalprint operation.

 

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###### ** **

Financing activities for the first six months of fiscal 2010 usedapproximately $6.7 million of cash.  Cashdividends of $5.0 million were paid and borrowings decreased by $1.9 millionduring the first half of fiscal 2010. The Company has a $100 million long-term revolving credit facility inplace under which the Company can borrow at a rate not to exceed LIBOR plus1.5%.  At March 27, 2010, theCompany had $11.6 million in borrowings under this facility at an interest rateof 0.7%.  The revolving credit facility,which matures in 2013, contains restrictive covenants including provisionsrelating to the maintenance of working capital, the incurrence of additionalindebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all suchcovenants at March 27, 2010.  Thefacility also provides for a commitment fee not to exceed 3/8% per annum on theunused portion.  The revolving creditfacility is used by the Company for both its long-term and short-term financingneeds. On March 26, 2010, the Company entered into a financing arrangementproviding up to $8 million for the digital print operation assets.  This arrangement has a four-year term and anannual interest rate of 3.9%.  TheCompany had not yet drawn on this arrangement as of March 27, 2010.  The Company believes that its cash on hand,cash from operations, new financing arrangement, and the available creditfacility will be sufficient to meet its cash requirements through 2010.

 

**RecentAccounting Pronouncements:**

 

At the beginning of fiscal 2010, the Company****adopted the provisions of the Financial Accounting Standards Board(“FASB”) authoritative literature on business combinations, which expands thedefinition of a business combination and changes the manner in which theCompany accounts for business combinations. Significant changes include thecapitalization of IPR&D as an indefinite-lived asset, the recognition ofcertain acquired contingent assets and liabilities at fair value, the expensingof acquisition-related restructuring actions and transaction costs, and therecognition of contingent purchase price consideration at fair value on theacquisition date. In addition, post-acquisition changes in deferred tax assetvaluation allowances and acquired income tax uncertainties will be recognizedas income tax expense or benefit. The accounting treatment for taxes will beapplicable to acquisitions that close both prior and subsequent to the adoptionof this guidance. The Company has applied this standard to the acquisition ofHighcrest Media in January 2010. Adoption of this guidance did not have amaterial impact on the Company’s financial statements; however, this guidancemay materially affect the accounting for future business combinations.

 

**Forward-Looking Information****:**

 

This QuarterlyReport on Form 10-Q includes forward-looking statements.  Statementsthat describe future expectations, plans or strategies are considered “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995 and releases issued by the Securities and ExchangeCommission.  The words “believe,” “expect,”“anticipate,” “intend,” “estimate” and other expressions which are predictionsof or indicate future events and trends and which do not relate to historicalmatters identify forward-looking statements. Such statements are subject to risks and uncertainties that could causeactual results to differ materially from those currently anticipated.  Some of the factors that could affect actual results are discussed in Item 1A ofthis Form 10-Q and include, among others, changes in customers’ demand forthe 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 creditmarkets.  Although the Companybelieves that the assumptions underlying the forward-looking statements arereasonable, any of the assumptions could be inaccurate, and therefore, therecan be no assurance that the forward-looking statements will prove to beaccurate.  The forward-looking statementsincluded herein are made as of the date hereof, and the Company undertakes noobligation to update publicly such statements to reflect subsequent events orcircumstances.

 

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

 

There have been no material changes from the information concerning theCompany’s “Quantitative and Qualitative Disclosures About Market Risk” aspreviously reported in the Company’s Annual Report on Form 10-K for theyear ended September 26, 2009.

 

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

#### ** **

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

 

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

 

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

 

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

 

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

#### ** **

**Item 1****.****                   ****LEGALPROCEEDINGS**

 

None.

 

**Item 1A****.****                ****RISKFACTORS**

 

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

 

**Industrycompetition and consolidation may increase pricing pressures and adverselyimpact our margins or result in a loss of customers.**

 

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

 

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**Areduction in orders or pricing from, or the loss of, any of our significantcustomers may adversely impact our operating results.**

 

Wederived approximately 44% of our fiscal 2009 revenues from two majorcustomers.  In fiscal 2008, we derivedapproximately 50% of our revenues from three major customers.  We expect similar concentrations in fiscal2010.  We do business with thesecustomers on a purchase order basis and they are not bound to purchase atparticular volume or pricing levels.  Asa result, any of these customers could determine to reduce their order volumewith us or demand reduced pricing.  Asignificant reduction in order volumes or price levels with, or the loss of,any of these customers could have a material adverse effect on our results ofoperations and financial condition.

 

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

 

Electronicdelivery of documents and data, including the online distribution and hostingof media content, offers alternatives to traditional delivery of printeddocuments.  Widespread consumeracceptance of electronic delivery of books is uncertain, as is the extent towhich consumers are willing to replace print materials with online hosted mediacontent.  To the extent that ourcustomers’ acceptance of these electronic alternatives should continue to grow,demand for our printed products may be adversely affected.

 

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

 

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

 

·      Fluctuations in federal or state government spending oneducation, including a reduction in tax revenues due to the current economicenvironment, could lead to a corresponding decrease in the demand foreducational materials, which are produced in our book manufacturing segment andcomprise a portion of our publishing products.

 

·      Consumer demand for books can be impacted by reductions indisposable income when costs such as electricity and gasoline reducediscretionary spending.

 

·      Tightness in credit markets may result in customers delayingorders to reduce inventory levels and may impact their ability to pay theirdebts as they become due and may disrupt supplies from vendors.

 

·      Changes in the housing market may impact the sale of CreativeHomeowner’s products.

 

·      Reduced fundraising by religious customers may decrease theirorder levels.

 

·      A slowdown in book purchases may result in retailersreturning an unusually large number of books to publishers who, in turn reducetheir reorders.

 

**Afailure to keep pace with rapid industrial and technological change may have anadverse impact on our business.**

 

Theprinting industry is in a period of rapid technological evolution.  Our future financial performance will depend,in part, upon the ability to anticipate and adapt to rapid industrial andtechnological changes occurring in the industry and upon the ability to offer,on a timely basis, services that meet evolving industry standards.  If we are unable to adapt to suchtechnological changes, we may lose customers and may not be able to maintainour competitive position.  In addition,we may encounter difficulties in the implementation and start-up of newequipment and technology.

 

We areunable to predict which of the many possible future product and service offeringswill be important to establish and maintain a competitive position or whatexpenditures will be required to develop and provide these products andservices.  We cannot assure investorsthat one or more of these factors will not vary unpredictably, which could havea material adverse effect on us. In addition, we cannot assure investors, evenif these factors turn out as we anticipate, that we will be able to implementour strategy or that the strategy will be successful in this rapidly evolving market.

 

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**Our operatingresults are unpredictable and fluctuate significantly, which may adverselyaffect our stock price.**

 

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 distributionby our major customers;

 

·      the lengthy and unpredictable sales cycles associatedwith sales of textbooks to the elementary and high school market;

 

·      our customers’ willingness and success in shifting ordersfrom the peak textbook season to the off-peak season to even out ourmanufacturing load over the year;

 

·      fluctuations in the currency market may makemanufacturing in the United States more or less attractive and make equipmentmore or less expensive for us to purchase;

 

·      issues that might arise from the integration ofacquired businesses, including their inability to achieve expected results; and

 

·      tightness in credit markets affecting the availabilityof 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.

 

**Our financial results could be negatively impacted byimpairments of goodwill or other intangible assets.**

 

We perform an annual assessment for impairment of goodwilland other intangible assets at the end of our fiscal year or whenever events orchanges in circumstances occur that would more likely than not reduce the fairvalue of a reporting unit below it’s carrying value.  A downward revision in the fair value of oneof our acquired businesses could result in impairments of goodwill and non-cashcharges.  Any impairment charge couldhave a significant negative effect on our reported results of operations.  For example, in the second quarter of fiscal2009, due to a decline in sales and profits at Dover resulting from thecontinued downturn in the economic environment and in consumer spending, theCompany recorded a non-cash, pre-tax impairment charge of $15.6 million, whichrepresented 100% of Dover’s goodwill.

 

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

 

Purchasesof paper and other raw materials represent a large portion of our costs.  In our book manufacturing segment, paper isnormally supplied by our customers at their expense or price increases 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.

 

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

 

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

 

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In addition, fluctuations in the markets for paper and rawmaterials may adversely affect the market for our waste byproducts, includingrecycled paper, used plates and used film, and therefore adversely affect ourincome from such sales.

 

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

 

Energycosts are incurred directly to run production equipment and facilities andindirectly through expenses such as freight and raw materials such as ink.  In a competitive market environment,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.

 

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

 

Certainof our publications are protected by copyright, primarily held in the Company’sname.  Such copyrights protect ourexclusive right to publish the work in the United States and in many othercountries for specified periods.  Ourability to continue to achieve anticipated results depends in part on ourability to defend our intellectual property against infringement.  Our operating results may be adverselyaffected by inadequate legal and technological protections for intellectualproperty and proprietary rights in some jurisdictions and markets.  In addition, some of our publications are ofworks in the public domain, for which there is nearly no intellectual propertyprotection.  Our operating results may beadversely affected by the increased availability of such works elsewhere,including on the Internet, either for free or for a lower price.

 

**Afailure to maintain or improve our operating efficiencies could adverselyimpact our profitability.**

 

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

 

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

 

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

 

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

 

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

 

**Afailure to successfully integrate acquired businesses may have a materialadverse effect on our business or operations.**

 

Overthe past several years, we have completed four acquisitions, including MooreLangen and

 

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CreativeHomeowner in fiscal year 2006, REA in fiscal 2004 and Highcrest Media in fiscal2010, and may continue to make acquisitions in the future.  We believe that these acquisitions providestrategic growth opportunities for us. Achieving the anticipated benefits of these acquisitions will depend inpart upon our ability to integrate these businesses in an efficient andeffective manner.  The challengesinvolved in successfully integrating acquisitions include:

 

·      we may find that the acquired companyor assets do not further our business strategy, or that we overpaid for thecompany or assets, or that economic conditions have changed, all of which mayresult in a future impairment charge;

 

·      we may have difficulty integratingthe operations and personnel of the acquired business and may have difficultyretaining the customers and/or the key personnel of the acquired business;

 

·      we may have difficulty incorporatingand integrating acquired technologies into our business;

 

·      our ongoing business and management’sattention may be disrupted or diverted by transition or integration issues andthe complexity of managing diverse locations;

 

·      we may have difficulty maintaininguniform standards, controls, procedures and policies across locations;

 

·      an acquisition may result inlitigation from terminated employees of the acquired business or third parties;and

 

·      we may experience significantproblems or liabilities associated with technology and legal contingencies ofthe acquired business.

 

Thesefactors could have a material adverse effect on our business, results ofoperations and financial condition or cash flows, particularly in the case of alarger acquisition or multiple acquisitions in a short period of time.  From time to time, we may enter into negotiationsfor 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.

 

The consideration that we pay in connection with anacquisition could affect our financial results. If we were to proceed with one or more significant acquisitions in whichthe consideration included cash, we could be required to use a substantialportion of our available cash and credit facilities to consummate suchacquisitions.  To the extent we issueshares of stock or other rights to purchase stock, including options or otherrights, our existing stockholders may experience dilution in their share ownershipin our company and their earnings per share may decrease.  In addition, acquisitions may result in theincurrence of debt, large one-time write-offs and restructuring charges.  They may also result in goodwill and otherintangible assets that are subject to impairment tests, which could result infuture impairment charges.  Any of thesefactors may materially and adversely affect our business and operations.

 

**Afailure to hire and train key executives and other qualified employees couldadversely affect our business.**

 

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

 

**A lackof skilled employees to manufacture our products may adversely affect ourbusiness.**

 

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

 

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our facilities. In addition, unions represent certain groups of employees at two of ourlocations, and periodically, contracts with those unions come up forrenewal.  The outcome of thosenegotiations 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.

 

**We aresubject to various laws and regulations that may require significantexpenditures.**

 

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

 

**Item 2****.****                   ****UNREGISTEREDSALES OF EQUITY SECURITIES AND USE OF PROCEEDS**

 

None.

 

**Item 3****.****                   ****DEFAULTS UPON SENIOR SECURITIES**

### ** **

None.

 

**Item 4****.**                    **REMOVED ANDRESERVED**

 

**Item 5****.****                   ****OTHERINFORMATION**

 

The Annual Meeting ofStockholders of the Company was held on January 20, 2010.  Following are the matters voted on at themeeting:

 

1)     All nominees of the Board of Directors ofthe Company were elected for a three-year term. Votes were cast as follows: Paul Braverman — 10,491,616 for and 202,264withheld; Peter K. Markell — 6,619,959 for and 4,073,921 withheld, and RonaldL. Skates — 6,628,399 for and 4,065,481 withheld; with 848,648 non votes foreach.

 

2)     Shareholders approved an amendment to the1999 Employee Stock Purchase Plan increasing the number of shares available forgrant under the plan. Votes were cast as follows: 10,025,988 for, 106,820against, 561,072 abstained and 848,648 non votes.

 

3)     Shareholders approved the adoption of the CourierCorporation 2010 Stock Equity Plan for Non-Employee Directors. Votes were castas follows: 9,871,170 for, 253,518 against, 569,192 abstained and 848,648 nonvotes.

 

4)     Stockholders voted to ratify and approve the selectionby the Audit and Finance Committee of the Board of Directors, of Deloitte &Touche LLP as independent public accountants for the Company for the fiscalyear ending September 25, 2010. Votes were cast as follows: 11,450,435 for, 54,357 against, and 37,736abstained.

 

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

 

**Item 6****.****                   ****EXHIBITS**

### ** **

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

 

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* Filed herewith.

 

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** **

**SIGNATURES**

 

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

 

 
| **COURIER CORPORATION** |
|-------------------------|
| **(Registrant)**        |
| * *                | * * |   | * * |
| * *                | * * |   | * * |
| *April 27, 2010*   | * * | By: | *s/James F. Conway III* |
| Date                    |   |   | James F. Conway III |
|                    |   |   | Chairman, President and Chief Executive Officer |
|                    |   |   |   |
|                    |   |   |   |
| *April 27, 2010*   | * * | By: | *s/Peter M. Folger* |
| Date                    |   |   | Peter M. Folger |
|                    |   |   | Senior Vice President and Chief Financial Officer |
|                    |   |   |   |
|                    |   |   |   |
| *April 27, 2010*   | * * | By: | *s/Kathleen M. Leon* |
| Date                    |   |   | Kathleen M. Leon |
|                    |   |   | Vice President and Controller |

 

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**EXHIBIT INDEX**

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

 

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* Filed herewith.

 

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