**UNITED STATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

**Form10-K**

** **

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

 

**For thefiscal year ended September 29, 2007**

** **

**OR**

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

 

**For thetransition period from                 to                 **

 

**Commissionfile number 0-7597**

** **

**CourierCorporation**

 

**AMassachusetts corporation**

** **

**I.R.S.Employer Identification No. 04-2502514**

 

**15Wellman Avenue, North Chelmsford, Massachusetts 01863**

**TelephoneNo. 978-251-6000**

 

**Securitiesregistered pursuant to Section 12(b) of the Act:  None**

** **

**Securitiesregistered pursuant to Section 12(g) of the Act:  Common Stock, $1par value**

 

Indicate by check mark whether the registrantis a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes o  No x

 

Indicate by check mark if the registrant isnot required to file reports pursuant to Section 13 or 15(d) of the Act.

Yes o  No x

 

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

 

Indicate by check mark if disclosure ofdelinquent filers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of the registrant’s knowledge,in definitive proxy or information statements incorporated by reference in PartIII of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check mark whether the registrantis a large accelerated filer, an accelerated filer or a non-accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

 

Large accelerated filer o  Acceleratedfiler x  Non-acceleratedfiler o

 

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

 

State the aggregate market value of thevoting and non-voting common equity held by non-affiliates computed byreference to the price at which the common equity was last sold as of the lastbusiness day of the registrant’s most recently completed second fiscal quarter(March 31, 2007).

 

CommonStock, $1 par value - $363,508,052

 

Indicate the number of shares outstanding ofeach of the registrant’s classes of common stock as of November 19, 2007.

 

CommonStock, $1 par value - 12,616,172

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

Portions of the registrant’s proxy statementdated December 7, 2007 for the Annual Meeting of Stockholders to be held onJanuary 16, 2008 are incorporated herein by reference to Part III of this Form10-K.

 

 

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TABLEOF CONTENTS

 
| ** ** | **Form  10-K** | ** ** | ** **                                                                                                             | ** ** |
|------------|----------------|------------|------------------------------------------------------------------------------------------------------------------------|------------|
| ** ** | **Item No.**   | ** ** | **Name of  Item**                                                                                                      | ** ** |
|       |           |       |                                                                                                                   |       |
| Part I     |           |       |                                                                                                                   |       |
|       | Item 1.        |       | Business                                                                                                               |       |
|       | Item 1A.       |       | Risk Factors                                                                                                           |       |
|       | Item 1B.       |       | Unresolved  Staff Comments                                                                                             |       |
|       | Item 2.        |       | Properties                                                                                                             |       |
|       | Item 3.        |       | Legal  Proceedings                                                                                                     |       |
|       | Item 4.        |       | Submission  of Matters to a Vote of Security Holders                                                                   |       |
|       |           |       |                                                                                                                   |       |
| Part II    |           |       |                                                                                                                   |       |
|       | Item 5.        |       | Market for the Registrant’s Common Equity, Related  Stockholder Matters and Issuer Purchases of Equity Securities |       |
|       |           |
|       | Item 6.        |       | Selected  Financial Data                                                                                               |       |
|       | Item 7.        |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                            |       |
|       | Item 7A.       |       | Quantitative  and Qualitative Disclosure About Market Risk                                                             |       |
|       | Item 8.        |       | Financial  Statements and Supplementary Data                                                                           |       |
|       | Item 9.        |       | Changes  in and Disagreements with Accountants on Accounting and Financial Disclosure                                  |       |
|       | Item 9A.       |       | Controls  and Procedures                                                                                               |       |
|       | Item 9B.       |       | Other Information                                                                                                      |       |
|       |           |       |                                                                                                                   |       |
| Part III   |           |       |                                                                                                                   |       |
|       | Item 10.       |       | Directors  and Executive Officers and Corporate Governance                                                             |       |
|       | Item 11.       |       | Executive  Compensation                                                                                                |       |
|       | Item 12.       |       | Security Ownership of Certain Beneficial Owners and  Management and Related Stockholder Matters                        |       |
|       |
|       | Item 13.       |       | Certain  Relationships and Related Transactions and Director Independence                                              |       |
|       | Item 14.       |       | Principal  Accounting Fees and Services                                                                                |       |
|       |           |       |                                                                                                                   |       |
| Part IV    |           |       |                                                                                                                   |       |
|       | Item 15.       |       | Exhibits and Financial Statement Schedules                                                                             |       |
|       |           |       | Signatures                                                                                                             |       |

 

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**PART I**

 

**Item 1. Business.**

 

**INTRODUCTION**

 

Courier Corporation, together with its subsidiaries, (“Courier”or the “Company”) is among America’s leading book manufacturers and specialtypublishers. Courier Corporation, founded in 1824, was incorporated under thelaws of Massachusetts on June 30, 1972. The Company has two business segments: book manufacturing and specialtypublishing.

 

The book manufacturing segment focuses on streamliningand enhancing the process of bringing books from the point of creation to thepoint of use.  Based on sales, Courier isthe third largest book manufacturer in the United States, offering servicesfrom prepress and production through storage and distribution. Courier’sprincipal book manufacturing markets are religious, educational and specialtytrade books with products including Bibles, educational textbooks and consumerbooks. On October 17, 2005, the Company acquired Moore-Langen Printing Company,Inc. (“Moore Langen”), an Indianapolis-based printer specializing in manufacturingbook covers, which is included in this segment. Revenues from this segment accounted for approximately 78% of Courier’sconsolidated revenues in 2007.

 

The specialty publishing segment consists of DoverPublications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”),which was acquired on January 6, 2004, and Federal Marketing Corporation, d/b/aCreative Homeowner (“Creative Homeowner”), which was acquired on April 28,2006.  Dover publishes over 9,000 titlesin more than 30 specialty categories ranging from literature to paper dolls,and from music scores to clip art. REA publishes test preparation andstudy-guide books for high school, college and graduate students, andprofessionals.  Creative Homeowner is aNew Jersey-based publisher and distributor of books, home plans and relatedproducts for the home and garden retail book market. The combination of Dover’s,REA’s, and Creative Homeowner’s publishing, sales and distribution skills withCourier’s book manufacturing, digital content conversion, and e-commerce skillsare providing a powerful end-to-end publishing solution for Courier.  Revenues in this segment were approximately25% of consolidated sales in 2007.

 
| **Sales by segment  (in thousands)** | ** ** | **2007** | ** ** | **%**  | ** ** | **2006** | ** ** | **%**  | ** ** | **2005** | ** ** | **%**  | ** ** |
|--------------------------------------|------------|----------|------------|--------|------------|----------|------------|--------|------------|----------|------------|--------|------------|
|                                 |       |     |       |   |       |     |       |   |       |     |       |   |       |
| Book  Manufacturing                  |       | $231,474 |       | 78     | %          | $220,115 |       | 82     | %          | $193,623 |       | 85     | %          |
| Specialty  Publishing                |       | 72,890   |       | 25     | %          | 57,549   |       | 21     | %          | 40,254   |       | 18     | %          |
| Intersegment  sales                  |       | (9,772   | )          | (3     | )%         | (8,613   | )          | (3     | )%         | (6,838   | )          | (3     | )%         |
| Total                                |       | $294,592 |       | 100    | %          | $269,051 |       | 100    | %          | $227,039 |       | 100    | %          |

 

 

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Additional segment information, including the amounts ofearnings before taxes and total assets, for each of the last three fiscalyears, is contained in Note I in the Notes to Consolidated Financial Statementson pages F-20 to F-22 included in this Annual Report on Form 10-K.

 

**BUSINESS SEGMENTS**

 

**BOOK MANUFACTURING SEGMENT**

 

                Courier’sbook manufacturing segment produces hard and softcover books, as well asrelated services involved in managing the process of creating and distributingthese products for publishers, religious organizations and other informationproviders.  Courier provides bookmanufacturing and related services from seven facilities in Westford, Stoughtonand North Chelmsford, Massachusetts; Philadelphia, Pennsylvania; North Bergen,New Jersey; and Kendallville and Terre Haute, Indiana.

 

                InOctober 2005, the Company acquired Moore Langen, an Indianapolis-based printerspecializing in book covers and known for innovative production techniques. Theacquisition, a $15 million cash transaction completed on October 17, 2005, wasaccounted for as a purchase and, accordingly, Moore Langen’s financial resultswere included in the consolidated financial statements from the date of acquisition.

 

                Courier’sbook manufacturing operations consist of both electronic and conventional filmprocessing, platemaking and printing and binding of soft and hard coverbooks.  Each of Courier’s sevenfacilities have certain specialties adapted to the needs of the market nichesCourier serves, such as short-run book manufacturing, printing on lightweightpaper, book cover production, and four-color book manufacturing.  These services are primarily sold to publishersof educational, religious and consumer books. During 2004, the Company began expanding its four-color bookmanufacturing capabilities with the addition of a major new four-color press atits Kendallville, Indiana facility. A second identical press was installed inDecember 2005 with a third such press installed in December 2006.

 

                Courier’sbook manufacturing sales force of 26****people isresponsible for all of the Company’s sales to over 500 book-manufacturingcustomers.  Courier’s salespeople operateout of sales offices located in New York, New York; Philadelphia, Pennsylvania;Indianapolis, Indiana; Hayward, California; North Chelmsford, Massachusetts;and North Bergen, New Jersey.

 

                Salesto The Gideons International aggregated approximately 20%****ofconsolidated sales in 2007, 23% in 2006, and 28% in 2005.  Sales to Pearson plc aggregated approximately16% of consolidated sales in 2007 and 2006, and 19% in 2005.  A significant reduction in order volumes orprice levels from either of these customers could have a material adverseeffect on the Company.  No other customeraccounted for more than 10% of consolidated sales.  The Company distributes products around theworld; export sales, as a percentage of consolidated sales, were approximately16% in 2007, 19% in 2006 and 21% in 2005. Approximately 90% of the export sales were in the book manufacturingsegment in each of these years.

 

 

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                Allphases of Courier’s business are highly competitive.  The printing industry, exclusive ofnewspapers, includes approximately 40,000 establishments.  While most of these establishments arerelatively small, several of the Company’s competitors are considerably largeror are affiliated with companies that are considerably larger and have greaterfinancial resources than Courier.  Inrecent years, consolidation of both customers and competitors within theCompany’s markets has increased pricing pressures.  The major competitive factors in Courier’sbook manufacturing business in addition to price are product quality, speed ofdelivery, customer service, availability of appropriate printing capacity andpaper, related services and technology support.

 

**SPECIALTY PUBLISHING SEGMENT**

 

                Dover,acquired by the Company in September 2000, is a publisher of books in over 30specialty categories, including fine and commercial arts, children’s books,crafts, music scores, graphic design, mathematics, physics and other areas ofscience, puzzles, games, social science, stationery items, and classics ofliterature for both juvenile and adult markets, including the Dover ThriftEditionsä.  In 2002, anew line of scholarly hardcover books valuable to scientists and mathematicianswas launched under the name of Dover Phoenix Editionsä.  In 2005, Dover began developing proprietary packagedproducts under its Dover Fun Kitsä line.

 

                Doversells its products through most American bookstore chains, independentbooksellers, children’s stores, craft stores and gift shops, as well as adiverse range of distributors around the world. Dover has also sold its books directly to consumers for over 50 yearsthrough its specialty catalogs and, since 2001, over the Internet atwww.doverpublications.com.  Dover mailsits proprietary catalogs to almost 400,000 consumers.  In 2002, Dover launched www.DoverDirect.com,which is a business-to-business site for its retailers and distributors*.*

 

                REA,acquired by the Company in January 2004, publishes more than 900 testpreparation and study-guide titles. Product lines include Problem Solvers®, Essentials®, Super Reviews® andTest Preparation books.  REA sells itsproducts around the world through major bookseller chains, college bookstores,and teachers’ supply stores, as well as directly to teachers and otherconsumers through catalogs and over the Internet at www.REA.com.

 

In April2006, the Company acquired Creative Homeowner, a New Jersey-based publisher anddistributor of books, home plans, and related products for the $340-millionhome and garden retail book market.  TheCompany purchased 100% of the stock of Creative Homeowner in a $37 million cashtransaction.  The acquisition wasaccounted for as a purchase and accordingly, Creative Homeowner’s financialresults were included in the consolidated financial statements from the date ofacquisition.  Creative Homeowner’s 120titles include books on home decoration, design and improvement, gardening andlandscaping, home arts, and hunting and fishing.  Its products are sold primarily through homeand garden centers, as well as bookstores and direct to consumers over theInternet at www.creativehomeowner.com. Creative Homeowner also manages the distribution of its own titles andbooks from third-party publishers to selected home centers.  From its line of home plan books, CreativeHomeowner offers 

 

 

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over 5,000 home plans from whichconsumers can order blueprints directly over the Internet atwww.ultimatehomeplans.com.

 

 

The U.S.publishing market is comprised of over 80,000 publishers.  Many of these publishers are very small, buta few are much larger than Dover, REA, or Creative Homeowner, or are part oforganizations that are much larger.  Inaddition, newer sources of competition have emerged with large retailers launchingor expanding publishing operations and new web-based publishing businessesstarting up, which compete in the specialty book publishing market, includingpublishing of electronic books.  Doverdistinguishes its products by offering an extremely wide variety of highquality books at modest prices.  REAoffers high editorial quality study guides and test preparation books andsoftware products in almost every academic area including many specializedareas such as teacher certification, adult education, and professionallicensing.  Creative Homeowner providesbooks on home improvement and landscaping that include high-qualityphotographs, illustrations and written content, as well as full-service bookdistribution at competitive prices.

 

**MATERIALS AND SUPPLIES**

 

                Courierpurchases its principal raw materials, primarily paper, but also platematerials, ink, adhesives, cover stock, casebinding materials and cartons, fromnumerous suppliers, and is not dependent upon any one source for itsrequirements.  Many of Courier’s bookmanufacturing customers purchase their own paper and furnish it at no charge toCourier for book production.  Dover andREA purchase a significant portion of their books from Courier’s bookmanufacturing operations.  CreativeHomeowner purchases most of its books under a contractual agreement, whichexpires in December 2007 and will not be renewed.  Paper prices increased slightly in each ofthe last three years.

 

**ENVIRONMENTAL REGULATIONS**

 

                The Company’s operations are subject to federal,state and local environmental laws and regulations relating to, among otherthings: air emissions; waste generation, handling, management and disposal;wastewater treatment and discharge; and remediation of soil and groundwatercontamination.  The Company periodicallymakes capital expenditures so that its operations comply, in all materialrespects, with applicable environmental laws and regulations.  No significant expenditures for this purposeare anticipated in 2008.  In 2007, theCompany adopted an “Environmental, Health and Safety Policy” which is availableon the Company’s website at www.courier.com. The Company does not believe thatits compliance with applicable environmental laws and regulations will have amaterial impact on the Company’s earnings or competitive position.

 

**EMPLOYEES**

 

                TheCompany employed 1,830 persons at September 29, 2007 compared to 1,724 a yearago.

 

 

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**OTHER**

 

                Courier’soverall business is not significantly seasonal in nature, although demand isnormally highest in the Company’s fourth quarter.  Educational publishers in the bookmanufacturing segment and Dover’s business all contribute to this higher fourthquarter demand. There is no portion of Courier’s business subject tocancellation of government contracts or renegotiation of profits.

 

Courierholds no material patents, licenses, franchises or concessions that areimportant to its operations, but does have trademarks, service marks, andUniversal Resource Locators (URL’s) on the World Wide Web in connection witheach of its business segments. Substantially all of REA’s and Creative Homeowner’s publications and amajority of Dover’s publications are protected by copyright, either in its ownname, in the name of the author of the work, or in the name of a predecessorpublisher from whom rights were acquired. Many of Dover’s publications include material that is in the publicdomain.

 

                TheCompany makes available free of charge (as soon as reasonably practicable afterthey are filed or furnished to the SEC) copies of its Annual Report on Form10-K, as well as all other reports required to be filed by Section 13(a) or15(d) of the Securities Exchange Act of 1934, via the Internet atwww.courier.com or upon written request to Peter M. Folger, Senior VicePresident and Chief Financial Officer, Courier Corporation, 15 Wellman Avenue,North Chelmsford, MA 01863.

 

**Item1A.  Risk Factors.**

 

The Company’sconsolidated results of operations, financial condition and cash flows can beadversely affected by various risks.  Ourbusiness is influenced by many factors that are difficult to predict, involveuncertainties that may materially affect actual results and are often beyondour control.  These risks include, butare not limited to, the principal factors listed below and the other mattersset forth in this Annual Report on Form 10-K. You should carefully consider all of these factors.  For other factors that may cause actualresults to differ materially from those indicated in any forward-lookingstatement contained in this report, see *Forward-LookingInformation* in *Management’s Discussionand Analysis of Financial Condition and Results of Operations*.

 

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

 

The printing industry isextremely competitive.  In the bookmanufacturing segment, consolidation over the past few years of both customersand competitors within the markets the Company competes has caused downwardpricing pressures.  In addition, excesscapacity and competition from printing companies in lower cost countries mayincrease competitive pricing pressures. Furthermore, some of our competitors have greater sales, assets andfinancial resources than us and others, particularly those in foreigncountries, may derive significant advantages from local governmentalregulation, including tax holidays and other subsidies.  All or any of these competitive pressurescould affect prices or customers’ demand for our products, impacting our profitmargins

 

 

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and/or resulting in a loss ofcustomers and market share.

 

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

 

We derived approximately35% of our 2007 revenues, 40% of our 2006 revenues, and 47% of our 2005revenues from two major customers.  Asignificant reduction in order volumes or price levels from either of themcould have a material adverse effect on the Company.

 

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

 

The printing industry isin a period of rapid technological evolution. Our future financial performance will depend, in part, upon the abilityto anticipate and adapt to rapid industry and technological changes occurringin the industry and upon the ability to offer, on a timely basis, services thatmeet evolving industry standards.  Wecannot assure investors that we will be able to adapt to such technologicalchanges or offer these services on a timely basis or establish or maintain acompetitive position.  We are unable topredict which of the many possible future product and service offerings will beimportant to establish and maintain competitive position or what expenditureswill be required to develop and provide these products and services.  We cannot assure investors that one or moreof these factors will not vary unpredictably, which could have a materialadverse effect on us. In addition, we cannot assure investors, even if thesefactors turn out as we anticipate, that we will be able to implement ourstrategy or that the strategy will be successful in this rapidly evolvingmarket.

 

**Our operatingresults are dependent in part on unpredictable order patterns.**

 

                Our quarterly andannual operating results have fluctuated in the past and are likely tofluctuate in the future due to a variety of factors, some of which are outsideof our control. Factors that may affect our future operating results include:

•                  the timing and size of the orders for ourbooks;

•                  the availability of markets for sales toour largest customer;

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

•                  our customers’ willingness and success inshifting orders from the busy textbook season to even out our press load overthe year;

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

•                  issues that might arise from theintegration of acquired entities or the inability to achieve expected resultsfrom such acquisitions.

 

As a result of these and other factors, period-to-period comparisons ofour operating results are not necessarily meaningful or indicative of futureperformance. In addition, the factors noted above may make it difficult for usto forecast and provide in a timely 

 

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manner public guidance (including updates to prior guidance) related toour projected financial performance. Furthermore, it is possible that in somefuture quarters our operating results will fall below the expectations ofsecurities analysts or investors. If this occurs, the trading price of ourcommon stock could decline.

 

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

 

Purchases of paper andother raw materials represent a large portion of our costs.  Historically, we have generally been able topass on these cost increases to customers through higher prices.  However, if we are unable to continue to passon these increases or substitute a less expensive grade of paper, our marginsand profits could be adversely affected. In addition, increases in the cost of paper and other materials mayadversely impact our book manufacturing customers’ demand for products.

 

Availability of paper isimportant to both the book manufacturing and specialty publishing segments ofthe Company.  Although we generally havenot experienced difficulty in obtaining adequate supplies of paper, unexpectedchanges in the paper markets could result in a shortage of supply.  If this were to occur in the future, it couldcause disruption to the business or increase paper costs, adversely impactingeither or both net sales or profits.

 

Fluctuations in thecosts and availability of raw materials could adversely affect operating costsor customer demand and thereby negatively impact our operating results,financial condition or cash flows.

 

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

 

Energy costs areincurred directly to run production equipment and facilities and indirectlythrough 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.

 

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

 

Because the markets inwhich we operate are highly competitive, we must continue to improve ouroperating efficiency in order to maintain or improve our profitability.  Although we have been able to expand ourcapacity, improve our productivity and reduce costs in the past, there is noassurance that we will continue to 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.

 

 

 

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**Protectionof intellectual property rights critical to publishing segment.**

 

**               **Certain of our publications are protected bycopyright, primarily held in the Company’s name.  Such copyrights protect the Company’sexclusive right to publish the work in the United States and in many othercountries for specified periods.  Theability of the Company to continue to achieve anticipated results depends inpart on our ability to defend our intellectual property against infringement.  The Company’s operating results may beadversely affected by inadequate legal and technological protections forintellectual property and proprietary rights in some jurisdictions and markets.

 

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

 

Economic conditions havethe potential to impact our financial results significantly.  Within the book manufacturing and specialtypublishing segments, a change in economic conditions can impact many areas ofspending, including government, business and individual spending.  Examples of the changes in spending that couldaffect our financial results include:

 

•                  Fluctuations in federal or state government spending oneducation could lead to a corresponding decrease or increase 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.

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

These changes mayadversely impact our business.

 

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

 

Electronic delivery ofdocuments and data, including the online distribution and hosting of mediacontent, offers alternatives to traditional delivery of printed documents.  Consumer acceptance of electronic delivery isuncertain, as is the extent to which consumers are replacing print materialswith online hosted media content.  To theextent that our customers accept these electronic alternatives, demand for ourprinted products may be adversely affected.

 

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

 

Postal costs are asignificant component of our direct marketing cost structure and postal ratechanges can influence the number of catalogs that we may mail.  In addition, increased postal rates canimpact the cost of delivering our products to customers.  Either of these results could adverselyaffect consumer demand and results of operations.

 

 

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**Our facilitiesare subject to environmental laws and regulations, which may subject us toliability or increase costs.**

 

We use various materialsin our operations which contain substances considered hazardous or toxic underenvironmental laws.  In addition, ouroperations are subject to federal, state, and local environmental laws relatingto, among other things, air emissions, waste generation, handling, managementand disposal, waste water treatment and discharge and remediation of soil andgroundwater contamination.  Permits arerequired for the operation of certain of our businesses and these permits aresubject to renewal, modification and in some circumstances, revocation.  Under certain environmental laws, includingthe Comprehensive Environmental Response, Compensation and Liability Act, asamended (“CERCLA,” commonly referred to as “Superfund”), and similar state lawsand regulations, we may be liable for costs and damages relating to soil andgroundwater contamination at off-site disposal locations or at our ownfacilities.  Future changes toenvironmental laws and regulations may give rise to additional costs orliabilities that could have a material adverse impact on our financial positionand results of operations.

 

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

 

Over the last fouryears, we have completed three acquisitions, including Moore Langen andCreative Homeowner in fiscal year 2006 and REA in fiscal 2004, and may continueto make acquisitions in the future.  Webelieve that these acquisitions provide strategic growth opportunities for theCompany.  Achieving the anticipatedbenefits of these acquisitions will depend in part upon our ability tointegrate these businesses in an efficient and effective manner.  The challenges involved in successfullyintegrating acquisitions include:

 

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

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

•                  we may havedifficulty incorporating and integrating acquired technologies into ourbusiness;

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

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

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

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

 

 

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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 intonegotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significantdiversion of management time from our business as well as significantout-of-pocket costs.

Theconsideration that we pay in connection with an acquisition could affect ourfinancial results.  If we were to proceedwith one or more significant acquisitions in which the consideration includedcash, we could be required to use a substantial portion of our available cashto consummate such acquisitions.  To theextent we issue shares of stock or other rights to purchase stock, includingoptions or other rights, our existing stockholders may experience dilution intheir share ownership in our company and their earnings per share maydecrease.  In addition, acquisitions mayresult in the incurrence of debt, large one-time write-offs and restructuringcharges.  They may also result in goodwilland other intangible assets that are subject to impairment tests, which couldresult in future impairment charges.  Anyof these factors may materially and adversely affect our business andoperations.

 

**Our ability tohire and train key executives and other qualified employees is crucial.**

 

**               **Our success depends, in part, on our abilityto continue to retain our executive officers and key management personnel.  Our business strategy also depends on ourability to attract, develop, motivate and retain employees who have relevantexperience in the printing and publishing industries.  There can be no assurance that we cancontinue to attract and retain the necessary talented employees, includingexecutive officers and other key members of management.  If that were to occur, it could adverselyaffect our business.

 

**We need skilled labor to manufactureour products.**

 

If we experience problemshiring and retaining skilled labor, our business may be negativelyaffected.  The timely manufacture anddelivery of our products requires an adequate supply of skilled labor, and theoperating costs of our manufacturing facilities can be adversely affected byhigh turnover in skilled positions. Accordingly, our ability to increase sales, productivity and netearnings will be limited to a degree by our ability to employ the skilledlaborers necessary to meet our requirements. Although our book manufacturing locations are geographically dispersed,individual locations may encounter strong competition with other manufacturersfor skilled labor.  There can be noassurance that we will be able to maintain an adequate skilled labor forcenecessary to efficiently operate our facilities.  In addition, unions represent certain groupsof employees at several of our locations, and periodically, contracts withthose unions come up for renewal.  Theoutcome of those negotiations could have an adverse affect on our operations atthose locations.

 

 

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**Compliance with changingregulation of corporate governance, public disclosure and accounting mattersmay result in additional expenses.**

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

 

**Item1B.  Unresolved Staff Comments.**

 

None.

 

**Item2.  Properties.**

**REAL PROPERTIES**

 

                Thefollowing schedule lists the facilities owned or leased by Courier at September29, 2007. Courier considers its plants and other facilities to be wellmaintained and suitable for the purposes intended.
| ** **                                                                          | ** ** | **Owned/** | ** ** | **Square** | ** ** |
|-------------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Principal Activity and Location (Year  Constructed)**                             |       | **Leased** |       | **Feet**   |       |
| **Corporate  headquarters and executive offices**                                   |       |       |       |       |       |
|  North Chelmsford, MA (1973, 1996)                                             |       | Owned      |       | 69,000     | (1)        |
| **Book  manufacturing and warehousing**                                             |       |       |       |       |       |
|  Westford plant, Westford, MA  (1922, 1959, 1963, 1966, 1967, 1980, 1990) |       |       |       |       |       |
|                                                                                | Owned      |       | 303,000    |       |
|  Kendallville plant, Kendallville, IN (1978,  2004, 2006, 2007)                |       | Owned      |       | 273,000    |       |
|  Kendallville warehouse, IN (1988)                                             |       | Leased     |       | 164,000    |       |
|  National plant, Philadelphia, PA (1974,  1997)                                |       | Owned      |       | 229,000    |       |
|  Stoughton plant, Stoughton, MA (1980)                                         |       | Leased     |       | 169,000    |       |
|  Book-mart plant, North Bergen, NJ (1917,  1935, 1997)                         |       | Leased     |       | 75,000     |       |
|  Moore Langen plant, Terre Haute, IN (1969,  1987)                             |       | Owned      |       | 43,000     |       |
| **Dover  offices and warehouses**                                                   |       |       |       |       |       |
|  Mineola, New York (1948-1983)                                                 |       | Leased     |       | 106,000    |       |
|  Westford, MA (1922, 1963, 1966)                                               |       | Owned      |       | 90,000     |       |
| **REA  offices and warehouse**                                                      |       |       |       |       |       |
|  Piscataway, New Jersey (1987)                                                 |       | Leased     |       | 39,000     |       |
| **Creative  Homeowner offices and warehouse**                                       |       |       |       |       |       |
|  Upper Saddle River, New Jersey (1987)                                         |       | Leased     |       | 42,000     |       |

 

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(1)                              Also houseswarehousing and end-user fulfillment operations supporting the bookmanufacturing segment.

 

 

11

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**EQUIPMENT**

 

               The Company’s products aremanufactured on equipment that in most cases is owned by the Company, althoughit leases computers, image setters and other electronic prepress equipment,which are subject to more rapid obsolescence. In addition, one printing press is leased whereby the lessor holds titleand the Company has an option to purchase the equipment upon expiration of thelease in 2008 at a price of $161,658. Capital expenditures amounted to approximately $26.4 million in 2007,$29.4 million in 2006, and $19.7 million in 2005. Capital expenditures in 2007included a four-color press that was installed in December 2006 in theKendallville, Indiana facility as well as a related bindery expansion. Thispress is identical to the presses installed in April 2004 and December 2005.  Fiscal 2007 capital expenditures also includepayments on equipment to expand printing and binding capacity in the religiousbook manufacturing operation in Philadelphia as well as additional investmentsto increase productivity, lower costs, and improve employee safety.  Fiscal 2008 capital expenditures are expectedto be approximately $20 to $25 million. This includes the construction of a200,000 square foot warehouse in Kendallville and the completion of thecapacity expansion program in Philadelphia. Courier considers its equipment tobe in good operating condition and adequate for its present needs.

 

**ENCUMBRANCES AND RENTALOBLIGATIONS**

 

               For a description of encumbranceson certain properties and equipment, see Note D of Notes to ConsolidatedFinancial Statements on page F-11 of this Annual Report on Form 10-K.Information concerning leased properties and equipment is disclosed in Note Eof Notes to Consolidated Financial Statements, which appears on page F-12 ofthis Annual Report on Form 10-K.

 

**Item 3.  Legal Proceedings.**

 

               In the ordinary course ofbusiness, the Company is subject to various legal proceedings and claims.  The Company believes that the ultimateoutcome of these matters will not have a material adverse effect on its financialstatements.

 

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

 

               There were no matters submittedto a vote of security holders during the quarter ended September 29, 2007.

 

 

**PART II**

 

**Item 5.  Market for the Registrant’s Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities.**

 

               Shares ofthe Company’s common stock are traded over-the-counter on the Nasdaq NationalMarket under the symbol “CRRC.”  AtNovember 19, 2007, there were 1,010 stockholders of record of the Company’scommon stock.  Quarterly prices of the 

 

 

12

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Company’s common stock and dividends paid per share duringthe years ended September 29, 2007 and September 30, 2006 are contained in thetable below:

 

| ** **     | ** ** | ** **         | ** ** | ** ** | ** ** | **Common Stock Prices** | ** ** |
|----------------|------------|--------------------|------------|------------|------------|-------------------------|------------|
| ** **     | ** ** | **Dividends Paid** | ** ** | **2007**   | ** ** | **2006**                | ** ** |
| ** **     | ** ** | **2007**           | ** ** | **2006**   | ** ** | **High**                | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| First quarter  |       | $                  | 0.18       |       | $          | 0.12                    |       | $ | 40.71 |   | $ | 36.22 |   | $ | 37.66 |   | $ | 32.71 |   |
| Second quarter |       | 0.18               |       | 0.12       |       | 40.84                   |       | 37.50 |   | 42.15 |   | 34.34 |   |
| Third quarter  |       | 0.18               |       | 0.12       |       | 42.02                   |       | 38.20 |   | 44.90 |   | 35.03 |   |
| Fourth quarter |       | 0.18               |       | 0.12       |       | 40.07                   |       | 34.17 |   | 40.02 |   | 33.03 |   |
|                |            |                    |            |            |            |                         |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

                On November 8,2007, the Company announced the approval by its Board of Directors for therepurchase of up to $10 million of the Company’s outstanding common stock fromtime to time at management’s discretion either through the open market orprivately negotiated transactions.  TheCompany also announced that the Board of Directors declared a dividend of $0.20per common share, an 11% increase over the dividend declared in the previousquarter.

 

**PEER PERFORMANCE TABLE**

 

The graph below compares the Corporation’s cumulativetotal stockholder return on its Common Stock with the cumulative total returnon the Standard & Poor’s 500 stock index (the “S&P 500 Index”), a newpeer group (the “New Peer Group”) of companies selected by the Corporation forpurposes of the comparison and the old peer group (the “Old Peer Group”) thatthe corporation had been using for comparison over the past several years.  Both peer groups are described more fullybelow including the reasons for making the changes. This graph assumes theinvestment of $100 on October 1, 2002 in each of Courier Common Stock, theS&P 500 Index, the New Peer Group and the Old Peer Group Common Stock, andreinvestment of quarterly dividends at the monthly closing stock prices.  The returns of each company have beenweighted annually for their respective stock market capitalizations incomputing the S&P 500 and Peer Group indices.

 

**    COMPARISON OF 5 YEAR CUMULATIVE TOTALRETURN**

**Courier Corporation,  S&P 500 Index, New Peer Group and Old PeerGroup**

 

 

 

13

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               The OldPeer Group is made up of the following companies: Bowne & Company, Inc.;Ennis Business Forms, Inc.; The Standard Register Company; and John Wiley &Sons, Inc. The following companies were part of the Old Peer Group but are nolonger included for the following reasons: Thomas Nelson, Inc. became a privately owned company in 2006; BantaCorporation was acquired by R. R. Donnelley & Sons Company in 2007; andCadmus Communications Corporation was acquired by Cenveo, Inc. in 2007.

 

With the loss of three of the seven companies in theOld Peer Group, the Corporation felt its Peer Group should be modified andadded the following three companies to its New Peer Group:  Borders Group, Inc., Consolidated Graphicsand Scholastic Corporation.

 

The New Peer Group now includes the following sevencompanies:  Borders Group, Inc., Bowne& Company, Inc., Consolidated Graphics, Ennis Business Forms, Inc.,Scholastic Corporation, The Standard Register Company, and John Wiley &Sons, Inc.

 

**Item 6.  Selected Financial Data.**

 

               Theinformation required by this Item is contained in the section captioned “Five-YearFinancial Summary” appearing on page F-23 of this Annual Report on Form 10-K.

 

**Item 7.  Management’s Discussion and Analysis ofFinancial Condition and****Results of Operations.**

 

               Theinformation required by this Item is contained in the section captioned “Management’sDiscussion and Analysis” on pages F-24 through F-33 of this Annual Report onForm 10-K.

 

**Item 7A.  Quantitative and Qualitative DisclosuresAbout Market Risk.**

 

                The Company doesnot hold any derivative financial instruments, derivative commodity instrumentsor other financial instruments except as noted in Notes A and K of Notes toConsolidated Financial Statements, which appear on pages F-7 through F-9 andF-22 of this Annual Report on Form 10-K. The Company engages neither in speculative nor derivative tradingactivities. The Company is exposed to market risk for changes in interest rateson invested funds as well as borrowed funds. The Company’s revolving bank credit facility bears interest at afloating rate, with further information contained in Note D on page F-11 ofthis Annual Report on Form 10-K.

 

**Item 8.  Financial Statements and Supplementary Data.**

 

               Theinformation required by this Item is contained on pages F-1 through F-22 ofthis Annual Report on Form 10-K.

 

 

14

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**Item 9.  Changes in and Disagreements With Accountantson Accounting and****Financial Disclosure.**

 

               None.

 

**Item 9A.  Controls and Procedures**

 

**(a)          Disclosure Controls and Procedures**

 

            As of the end of the period covered bythis Annual Report on Form 10-K, we carried out an evaluation under thesupervision and with the participation of our management, including the ChiefExecutive Officer and the Chief Financial Officer, of the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant toExchange Act Rules 13a-15(e) and 15d-15(e). Disclosure controls are proceduresthat are designed to ensure that information required to be disclosed in ourreports filed under the Securities Exchange Act of 1934 (the “Exchange Act”) isrecorded, processed, summarized and reported within the time periods specifiedby the Securities and Exchange Commission. Disclosure controls are alsodesigned to ensure that such information is accumulated and communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure. Based uponthat evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of theend of the period covered by this report.

 

**(b)          Changes in Internal Controls over Financial Reporting**

 

               Therewere no changes in the Company’s internal control over financial reportingduring the fourth quarter of fiscal year 2007 that have materially affected, orthat are reasonably likely to materially affect, the Company’s internal controlover financial reporting.

 

**(c)****                             ****Management’s Responsibility for Financial Statements**

 

Management of the Company is responsible for the preparation,integrity and objectivity of the Company’s consolidated financial statementsand other financial information contained in its Annual Report toStockholders.  Those consolidatedfinancial statements were prepared in conformity with accounting principlesgenerally accepted in the United States. In preparing those consolidated financial statements, the Company’smanagement was required to make certain estimates and judgments, which arebased upon currently available information and management’s view of currentconditions and circumstances.

 

The Audit Committee of the Board of Directors, which consistssolely of independent directors, oversees the Company’s process of reportingfinancial information and the audit of its consolidated financialstatements.  The Audit Committee staysinformed of the financial condition of the Company and regularly reviewsmanagement’s financial policies and procedures, the independence of theindependent auditors, the Company’s internal control and the objectivity of itsfinancial reporting. The independent 

 

 

15

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registered public accounting firm has free access to theAudit Committee and to meet with the Audit Committee periodically, both withand without management present.

 

The Company has retained Deloitte & Touche LLP, anindependent registered public accounting firm, to audit its consolidated financialstatements found in this Annual Report on Form 10-K for the year endedSeptember 29, 2007.  The Company has madeavailable to Deloitte & Touche LLP all of its financial records and relateddata in connection with their audit of the consolidated financial statements.

 

The Company has filed with the Securities and ExchangeCommission the required certifications related to its consolidated financialstatements as of and for the year ended September 29, 2007.  These certifications are exhibits to this AnnualReport on Form 10-K for the year ended September 29, 2007.

 

**(d)****                             ****Management’s Report on Internal Control Over Financial Reporting.**

 

Management has responsibility for establishing andmaintaining adequate internal control over financial reporting.  Internal control over financial reporting isa process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalreporting purposes in accordance with accounting principles generally acceptedin the United States.  Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements.  Management hasassessed the effectiveness of the Company’s internal control over financialreporting as of September 29, 2007.

 

In making its assessment of the Company’s internal controlover financial reporting, the Company’s management has utilized the criteriaset forth by the Committee of Sponsoring Organizations (“COSO”) of the TreadwayCommission in Internal Control-Integrated Framework.  Management concluded that based on itsassessment, the Company’s internal control over financial reporting waseffective as of September 29, 2007.  Deloitte & Touche LLP, an independent registered public accountingfirm that audited our financial statements included in this Annual Report, hasissued an attestation report on the effectiveness of internal control overfinancial reporting as of September 29, 2007, which appears within this AnnualReport on Form 10-K.

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directorsand Stockholders of Courier CorporationNorth Chelmsford, Massachusetts

We have audited the internalcontrol over financial reporting of Courier Corporation and subsidiaries (the “Company”)as of September 29, 2007, based on criteria established in *Internal Control — Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission. The Company’s management is responsible for maintaining effective internalcontrol over financial reporting and for its assessment of the effectiveness ofinternal control over financial reporting, included in the accompanyingManagement’s Report on Internal Control over Financial Reporting.  Our 

 

16

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responsibility is to expressan opinion on the Company’s internal control over financial reporting based onour audit.

We conducted our audit inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether effective internal controlover financial reporting was maintained in all material respects.  Ouraudit included obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considerednecessary in the circumstances.  We believe that our audit provides areasonable basis for our opinion.

A company’s internal controlover financial reporting is a process designed by, or under the supervision of,the company’s principal executive and principal financial officers, or personsperforming similar functions, and effected by the company’s board of directors,management, and other personnel to provide reasonable assurance regarding thereliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accountingprinciples.  A company’s internal control over financial reportingincludes those policies and procedures that (1) pertain to the maintenance ofrecords that, in reasonable detail, accurately and fairly reflect thetransactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

Because of the inherentlimitations of internal control over financial reporting, including thepossibility of collusion or improper management override of controls, materialmisstatements due to error or fraud may not be prevented or detected on atimely basis.  Also, projections of any evaluation of the effectiveness ofthe internal control over financial reporting to future periods are subject tothe risk that the controls may become inadequate because of changes inconditions, or that the degree of compliance with the policies or proceduresmay deteriorate.

In our opinion, the Companymaintained, in all material respects, effective internal control over financialreporting as of September 29, 2007, based on the criteria established in *Internal Control — Integrated Framework*issuedby the Committee of Sponsoring Organizations of the Treadway Commission.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the consolidated financial statements and financial statementschedule as of and for the year endedSeptember 29, 2007 of the Company, and our report dated November 28,2007 expressed an unqualified opinionon those financial statements and financial statement schedule and includes anexplanatory paragraph concerning the Company’s adoption of Statement ofFinancial Standards No. 

 

17

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158“Employers’ Accounting for Defined Benefit Pension and Other PostretirementPlans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).”

*/s/Deloitte & Touche LLP*

Boston, MassachusettsNovember 28, 2007

 

(e)                              **Limitations on Design andEffectiveness of Controls.**

 

The Company’s management, including our ChiefExecutive Officer and Chief Financial Officer, believes that our disclosurecontrols and procedures and internal control over financial reporting areeffective at the reasonable assurance level. However, the Company’s managementdoes not expect that our disclosure controls and procedures or our internalcontrol over financial reporting will prevent all errors and all fraud. A controlsystem, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met. Inaddition, the design of a control system must take into consideration resourceconstraints, and the benefits of controls must be considered relative to theircosts. Because of the inherent limitations in all control systems, noevaluation of controls can provide absolute assurance that all control issuesand instances of fraud, if any, within the Company have been detected in atimely manner. These inherent limitations include the fact that controls can becircumvented by individual acts, by collusion of two or more people or bymanagement override of the controls. The design of any system of controls alsois based in part upon certain assumptions about the likelihood of futureevents, and there can be no assurance that any design will succeed in achievingits stated goals under all potential future conditions.  Finally, over time, controls may becomeinadequate because of changes in conditions, or the degree of compliance withpolicies or procedures may deteriorate. Because of the inherent limitations ina cost-effective control system, misstatements due to error or fraud may occurand not be detected.

**Item9B.  Other Information**

               None.

 

 

18

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**PART III**

 

**Item 10.  Directors and Executive Officers andCorporate Governance.**

 

               Courier’s executive officers,together with their ages and all positions and offices with the Companypresently held by each person named, are as follows:

 
| James F. Conway III  |   | 55     |   | Chairman, President and Chief   |   |
|----------------------|--------|--------|--------|---------------------------------|--------|
|                 |   |   |   | Executive Officer               |   |
|                 |   |   |   |                            |   |
| George Q. Nichols    |   | 78     |   | Corporate Senior Vice President |   |
|                 |   |   |   | and Chairman of National        |   |
|                 |   |   |   | Publishing Company              |   |
|                 |   |   |   |                            |   |
| Robert P. Story, Jr. |   | 56     |   | Executive Vice President and    |   |
|                 |   |   |   | Chief Operating Officer         |   |
|                 |   |   |   |                            |   |
| Peter M. Folger      |   | 54     |   | Senior Vice President and       |   |
|                 |   |   |   | Chief Financial Officer         |   |
|                 |   |   |   |                            |   |
| Rajeev Balakrishna   |   | 37     |   | Vice President and              |   |
|                 |   |   |   | General Counsel                 |   |
|                 |   |   |   |                            |   |
| Eric J. Zimmerman    |   | 42     |   | Vice President, Publishing      |   |
|                 |   |   |   |                            |   |
|                 |   |   |   |                            |   |

               The terms of office of all of theabove executive officers continue until the first meeting of the Board ofDirectors following the next annual meeting of stockholders and the election orappointment and qualification of their successors, unless any officer soonerdies, resigns, is removed or becomes disqualified.

 

               Mr. Conway III was electedChairman of the Board in September 1994 after serving as acting Chairman sinceDecember 1992.  He has been ChiefExecutive Officer since December 1992 and President since July 1988.

 

               Mr. Nichols became an executiveofficer of Courier in June 1989.  He waselected a Director of the Company in March 1995 and became Senior VicePresident of the Company in November 1996. He became Chairman of National Publishing Company in December 1999.  He had previously been President of NationalPublishing Company since 1976.

 

               Mr. Story became Executive VicePresident and Chief Operating Officer in November 2006.  He had previously been Senior Vice Presidentand Chief Financial Officer since April 1989. He joined Courier in November 1986 as Vice President and Treasurer.  He was elected a Director of the Company inFebruary 1995.

 

               Mr. Folger became Senior VicePresident and Chief Financial Officer in November 2006.  He had previously been Controller since 1982and Vice President since November 1992.

 

 

19

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               Mr. Balakrishna became VicePresident and General Counsel of Courier Corporation in February 2007.  Prior to that, since 1996, he was an attorneyat the law firms of Proskauer Rose LLP and Goodwin Procter LLP and in houseCounsel at John Hancock Financial Services, Inc.

 

               Mr. Zimmerman became VicePresident, Publishing and an executive officer of Courier Corporation inOctober 2004.  He joined Courier inDecember 1994 as General Manager of its former Copyright Management Servicesoperation and became Vice President of e-Commerce for Courier in September2000.

 

               The Company has adopted a code ofethics entitled “Courier Corporation Business Conduct Guidelines,” which isapplicable to all of the Company’s directors, officers, and employees.  These Business Conduct Guidelines areavailable on the Company’s Internet website, located at www.courier.com.

 

               All otherinformation called for by Item 10 is contained in the definitive ProxyStatement, under the captions “Item 1: Election of Directors,” “CorporateGovernance” and “Section 16(a) Beneficial Ownership Reporting Compliance,” tobe delivered to stockholders in connection with the Annual Meeting ofStockholders scheduled to be held on Wednesday, January 16, 2008.  Such information is incorporated herein byreference.

 

**Item 11.  Executive Compensation.**

 

               Informationcalled for by Item 11 is contained in the definitive Proxy Statement, under thecaption “Compensation Discussion and Analysis,” to be delivered to stockholdersin connection with the Annual Meeting of Stockholders scheduled to be held onWednesday, January 16, 2008.  Suchinformation is incorporated herein by reference.

 

**Item 12.  Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters.**

 

The following table provides information as of September 29,2007 regarding shares of common stock of the Company that may be issued underits existing compensation plans, including the Courier Corporation Amended andRestated 1993 Stock Incentive Plan (the “1993 Plan”), the Courier Corporation2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”), and theCourier Corporation 1989 Deferred Income Stock Option Plan for Non-EmployeeDirectors, which was replaced by the 2005 Plan.

 

 

 

20

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**Equity Compensation PlanInformation**
| **Plan category**                                           | ** ** | **Number of securities to be issued upon exercise of outstanding options,  warrants and rights (1)** | ** ** | **Weighted-average exercise price of outstanding options, warrants and rights** | ** ** | **Number of securities remaining available for future issuance under  equity compensation plans (excluding securities reflected in column  (a))(2)(3)** | ** ** |
|-------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                              | ** ** | **(b)**                                                                         | ** ** | **(c)**                                                                                                                                                 | ** ** |
| Equity compensation  plans approved by security holders     |       | 554,608                                                                                              |       | $                                                                               | 27.29      |                                                                                                                                                    | 359,633    |   |
| Equity compensation  plans not approved by security holders |       | —                                                                                               |       | —                                                                          |       | —                                                                                                                                                  |       |
| Total                                                       |       | 554,608                                                                                              |       | $                                                                               | 27.29      |                                                                                                                                                    | 359,633    |   |

----

(1)            Does notinclude any restricted stock as such shares are already reflected in theCompany’s outstanding shares.

(2)            81,110shares of these 359,633 shares were reserved for future issuance under theCompany’s Employee Stock Purchase Plan.

(3)            Includes upto 185,241 securities that may be issued in the form of restricted stock.

 

All other information called for by Item 12 is contained inthe definitive Proxy Statement, under the captions “Security Ownership ofCertain Beneficial Owners and Management” and “Compensation Discussion andAnalysis,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Wednesday, January 16,2008.  Such information is incorporatedherein by reference.

 

**Item 13.  Certain Relationships and RelatedTransactions and Director Independence.**

 

               Informationcalled for by Item 13 is contained in the definitive Proxy Statement to bedelivered to stockholders in connection with the Annual Meeting of Stockholdersscheduled to be held on Wednesday, January 16, 2008.  Such information is incorporated herein byreference.

 

 

 

21

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**Item 14.  Principal Accounting Fees and Services**

 

**              **Informationcalled for by Item 14 is contained in the definitive Proxy Statement, under thecaption “Item 2: Ratification and Approval of Selection of IndependentAuditors,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Wednesday, January 16,2008.  Such information is incorporatedherein by reference.

 

 

**PART IV**

 

**Item 15.  Exhibits and Financial Statement Schedules.**

 
| **(a)**    | ** ** | **Documents filed as part of this  report** |         |
|------------|------------|---------------------------------------------|--------------|
|       |       |                                        |         |   |   |   |
| ** ** | ** ** | **1.**                                      | *** *** | ***Financial statements*** | ** ** | **Page(s)** |
|       |       |                                        |         |   |   |   |
|       |       |                                        | •       | Report of Independent Registered  Public Accounting Firm |   | F-1 |
|       |       |                                        | •       | Consolidated Statements of Income  for each of the three years in the period ended September 29, 2007 |   | F-2 |
|       |       |                                        | •       | Consolidated Balance Sheets as of  September 29, 2007 and September 30, 2006 |   | F-3 to F-4 |
|       |       |                                        | •       | Consolidated Statements of Cash  Flows for each of the three years in the period ended September 29, 2007 |   | F-5 |
|       |       |                                        | •       | Consolidated Statements of Changes  in Stockholders’ Equity for each of the three years in the period ended September  29, 2007 |   | F-6 |
|       |       |                                        | •       | Notes to Consolidated Financial  Statements |   | F-7 to F-22 |
|       |       |                                        |         |   |   |   |
| ** ** | ** ** | **2.**                                      | *** *** | ***Financial statement schedule*** |   |   |
|       |       |                                        |         |   |   |   |
|       |       |                                        |         | Schedule II - Consolidated  Valuation and Qualifying |   |   |
|       |       |                                        |         | Accounts |   | S-1 |
|       |       |                                        |         |   |   |   |
| ** ** | ** ** | **3.**                                      | *** *** | ***Exhibits*** |   |   |

 
| **Exhibit No.** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                             |
|-----------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|            |       |                                                                                                                                                                                                                                                                                                   |
| 3A-1            |       | Articles of Organization of Courier  Corporation, as of June 29, 1972 (filed as Exhibit                                                                                                                                                                                                                |
|            |       | 3A-1 to the Company’s Annual Report  on Form 10-K for the fiscal year ended September 26, 1981, and incorporated  herein by reference).                                                                                                                                                           |
|            |       |                                                                                                                                                                                                                                                                                                   |
| 3A-2            |       | Articles of Amendment of Courier  Corporation (changing stockholder vote required for merger or consolidation),  as of January 20, 1977 (filed as Exhibit 3A-2 to the Company’s Annual Report  on Form 10-K for the fiscal year ended September 26, 1981, and incorporated  herein by reference). |

 

22

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| 3A-3   |   | Articles of Amendment of Courier  Corporation (providing for staggered election of directors), as of January  20, 1977 (filed as Exhibit 3A-3 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 26, 1981, and incorporated herein by  reference).                                                                                                |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-4   |   | Articles of Amendment of Courier  Corporation (authorizing class of Preferred Stock), as of February 15, 1978  (filed as Exhibit 3A-4 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 26, 1981, and incorporated herein by reference).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-5   |   | Articles of Amendment of Courier  Corporation (increasing number of shares of authorized Common Stock), as of  January 16, 1986 (described in item #2 of the Company’s Proxy Statement for  the Annual Meeting of Stockholders held on January 16, 1986, and incorporated  herein by reference).                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-6   |   | Articles of Amendment of Courier  Corporation (providing for fair pricing procedures for stock to be sold in  certain business combinations), as of January 16, 1986 (filed as Exhibit A to  the Company’s Proxy Statement for the Annual Meeting of Stockholders held on  January 16, 1986, and incorporated herein by reference).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-7   |   | Articles of Amendment of Courier  Corporation (limiting personal liability of directors to the Corporation or  to any of its stockholders for monetary damages for breach of fiduciary duty),  as of January 28, 1988 (filed as Exhibit 3A-7 to the Company’s Annual Report  on Form 10-K for the fiscal year ended September 24, 1988, and incorporated  herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-8   |   | Articles of Amendment of Courier  Corporation (establishing Series A Preferred Stock), as of November 8, 1988  (filed as Exhibit 3A-8 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 24, 1988, and incorporated herein by reference).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-9   |   | Articles of Amendment of Courier  Corporation (increasing number of shares of authorized Common Stock), as of  January 17, 2002 (filed as Exhibit 3 to the Company’s Quarterly Report on  Form 10-Q for the period ended March 30, 2002, and incorporated herein by  reference).                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3B     |   | By-Laws of Courier Corporation,  amended and restated as of March 24, 2005 (filed as Exhibit 3 to the  Company’s Current Report on Form 8-K, dated March 24, 2005, and incorporated  herein by reference).                                                                                                                                                                      |

 

23

----

 
| 10A+   |   | Letter Agreement, dated February 8,  1990, of Courier Corporation relating to supplemental retirement benefit and  consulting agreement with James F. Conway, Jr. (filed as Exhibit 10B to the  Company’s Annual Report on Form 10-K for the fiscal year ended September 29,  1990, and incorporated herein by reference). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10B-1+ |   | Courier Corporation 1989 Deferred  Income Stock Option Plan for Non-employee Directors, effective September 28,  1989 (filed as Exhibit A to the Company’s Proxy Statement for the Annual  Meeting of Stockholders held January 18, 1990, and incorporated herein by  reference).                                          |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10B-2+ |   | Amendment, effective November 4,  1993, to the 1989 Deferred Income Stock Option Plan for Non-employee  Directors (filed as Exhibit 10C-2 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 25, 1993, and incorporated herein by  reference).                                               |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10B-3+ |   | Amendment, effective September 24,  1998, to the 1989 Deferred Income Stock Option Plan for Non-employee  Directors (filed as Exhibit 10C-3 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 26, 1998, and incorporated herein by  reference).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10B-4+ |   | Amendment, effective January 21,  1999, to the 1989 Deferred Income Stock Option Plan for Non-employee  Directors (described in Item 3 of the Company’s Proxy Statement for the  Annual Meeting of Stockholders held January 21, 1999, and incorporated herein  by reference).                                             |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10C-1+ |   | Courier Corporation 1983 Stock  Option Plan (filed as Exhibit A to the Company’s Proxy Statement for the  Annual Meeting of Stockholders held on January 20, 1983, and incorporated  herein by reference).                                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10C-2+ |   | Amendment, effective January 17,  1985, to the Courier Corporation 1983 Stock Option Plan (described in Item 2  of the Company’s Proxy Statement for the Annual Meeting of Stockholders held  on January 17, 1985, and incorporated herein by reference).                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10C-3+ |   | Amendment, effective January 19,  1989, to the Courier Corporation 1983 Stock Option Plan (described in Item 3  of the Company’s Proxy Statement for the Annual Meeting of Stockholders held  January 19, 1989, and incorporated herein by reference).                                                                     |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10D-1+ |   | The Courier Executive Compensation  Program, as amended and restated on December 5, 2005 (filed as Exhibit 10.2  to the Company’s Current Report on Form 8-K on December 7, 2005, and  incorporated herein by reference).                                                                                                  |

 

24

----

 
| 10D-2+ |   | The Management Incentive  Compensation Program, effective October 4, 1993 (filed as Exhibit 10E-3 to  the Company’s Annual Report on Form 10-K for the fiscal year ended September  25, 1993, and incorporated herein by reference).                                                                         |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10.1+* |   | Amendment, effective September 18,  2007, to the Courier Executive Compensation Program, as amended and restated  on December 5, 2005.                                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10E+   |   | Courier Corporation Senior  Executive Severance Program, as amended and restated on December 5, 2005  (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K on  December 7, 2005, and incorporated herein by reference).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10F-1  |   | Rights Agreement between Courier  Corporation and State Street Bank and Trust Company dated March 18, 1999  (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, dated  March 18, 1999, and incorporated herein by reference).                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10F-2  |   | Amendment, dated November 8, 2001,  to Rights Agreement between Courier Corporation and EquiServe Trust Company  NA dated March 18, 1999 (filed as Exhibit 10.2 to the Company’s Quarterly  Report on Form 10-Q for the period ended March 26, 2005, and incorporated  herein by reference).                 |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10G+   |   | Courier Corporation 1999 Employee  Stock Purchase Plan (filed as Exhibit A to the Company’s Proxy Statement for  the Annual Meeting of Stockholders held on January 21, 1999, and incorporated  herein by reference).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10H-1+ |   | Agreement, as of March 3, 1993, of  Courier Corporation relating to employment contract and supplemental  retirement benefit with George Q. Nichols (filed as Exhibit 10J to the  Company’s Annual Report on Form 10-K for the fiscal year ended September 25,  1993, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10H-2+ |   | Amendment, as of April 16, 1997, to  supplemental retirement benefit agreement with George Q. Nichols (filed as  Exhibit 10J-2 to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 27, 1997, and incorporated herein by reference).                                             |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10H-3+ |   | Amendment, as of November 9, 2000,  to supplemental retirement benefit agreement with George Q. Nichols (filed as  Exhibit 10I-3 to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 29, 2001, and incorporated herein by reference).                                           |
|   |   |                                                                                                                                                                                                                                                                                                              |
| 10I-1  |   | Amended and Restated Revolving  Credit Agreement, dated as of March 31, 2003, between Courier Corporation,  Fleet National Bank, KeyBank National Association, Citizens Bank of  Massachusetts and Sovereign                                                                                                      |

 

25

----

 
|   |   | Bank, providing for a $60 million  revolving credit facility (filed as Exhibit 10 to the Company’s Quarterly  Report on Form 10-Q for the period ended June 28, 2003, and incorporated  herein by reference).                                                                                                                                                                                                                                                                   |
|--------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10I-2  |   | Amendment, dated March 31, 2004, to  Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003,  between Courier Corporation, Fleet National Bank, KeyBank National  Association, Citizens Bank of Massachusetts and Sovereign Bank, providing for  a $60 million revolving credit facility (filed as Exhibit 10 to the Company’s  Quarterly Report on Form 10-Q for the period ended March 27, 2004, and  incorporated herein by reference).                 |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10I-3  |   | Amendment, dated April 29, 2005, to  Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003,  between Courier Corporation, KeyBank National Association, Citizens Bank of  Massachusetts and Sovereign Bank, providing for a $45 million revolving  credit facility (filed as Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q for the period ended March 26, 2005, and incorporated herein by  reference).                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10I-4  |   | Amendment, dated May 11, 2006, to  Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003,  between Courier Corporation, KeyBank National Association, Citizens Bank of  Massachusetts and Sovereign Bank, providing for a $60 million revolving  credit facility (filed as Exhibit 10 to the Company’s Current Report on Form  8-K on May 17, 2006, and incorporated herein by reference).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10I-5  |   | Amendment, dated November 9, 2006,  to Amended and Restated Revolving Credit Agreement, dated as of March 31,  2003, between Courier Corporation, KeyBank National Association, Citizens  Bank of Massachusetts, Sovereign Bank, JP Morgan Chase Bank, N.A., and Wells  Fargo Bank, N.A. providing for a $100 million revolving credit facility  (filed as Exhibit 10 to the Company’s Current Report on Form 8-K on November  15, 2006, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2*  |   | Amendment, dated September 24,  2007, to Amended and Restated Revolving Credit Agreement, dated as of March  31, 2003, between Courier Corporation, KeyBank National Association, Citizens  Bank of Massachusetts, Sovereign Bank, JP Morgan Chase Bank, N.A., and Wells  Fargo Bank, N.A. providing for a $100 million revolving credit facility.                                                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10J-1+ |   | Courier Corporation Amended and  Restated 1993 Stock Incentive Plan (filed January 19, 2005 as Exhibit 10.5 to  the Company’s Registration Statement No. 333-122136 and incorporated herein  by reference).                                                                                                                                                                                                                                                                     |

 

26

----

 
| 10J-2+  |   | Form of Incentive Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan (filed as  Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 25, 2004, and incorporated herein by reference).                                             |
|---------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-3+  |   | Form of Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan (filed as  Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 25, 2004, and incorporated herein by reference).                                         |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-4+  |   | Form of Stock Grant Agreement for  the Courier Corporation 1993 Stock Incentive Plan (filed as Exhibit 10.3 to  the Company’s Annual Report on Form 10-K for the fiscal year ended September  25, 2004, and incorporated herein by reference).                                                        |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-5+  |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for J. F.  Conway, III dated September 23, 2004 (filed as Exhibit 10.4 to the Company’s  Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-6+  |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for J. F. Conway, III dated  September 23, 2004 (filed as Exhibit 10.5 to the Company’s Annual Report on  Form 10-K for the fiscal year ended September 25, 2004, and incorporated  herein by reference).                |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-7+  |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for R. P.  Story, Jr. dated September 23, 2004 (filed as Exhibit 10.6 to the Company’s  Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference).  |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-8+  |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for R. P. Story, Jr. dated  September 23, 2004 (filed as Exhibit 10.7 to the Company’s Annual Report on  Form 10-K for the fiscal year ended September 25, 2004, and incorporated  herein by reference).                 |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-9+  |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. D.  Tobin dated September 23, 2004 (filed as Exhibit 10.8 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference).       |
|    |   |                                                                                                                                                                                                                                                                                                       |
| 10J-10+ |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for P. D. Tobin dated September  23, 2004 (filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 25, 2004, and incorporated herein by  reference).                      |

 

27

----

 
| 10J-11+ |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. M.  Folger dated September 23, 2004 (filed as Exhibit 10.10 to the Company’s  Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference).    |
|---------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10J-12+ |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for P. M. Folger dated September  23, 2004 (filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 25, 2004, and incorporated herein by  reference).                   |
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10J-13+ |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for E. J.  Zimmerman dated September 23, 2004 (filed as Exhibit 10.12 to the Company’s  Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10J-14+ |   | Stock Grant Agreement for the Courier  Corporation 1993 Stock Incentive Plan for E. J. Zimmerman dated September 23,  2004 (filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for  the fiscal year ended September 25, 2004, and incorporated herein by  reference).                |
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10J-15+ |   | Incentive Stock Option Agreement  for the Courier Corporation 1993 Stock Incentive Plan for E. J. Zimmerman  dated September 23, 2004 (filed as Exhibit 10.14 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated  herein by reference).     |
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10K-1+  |   | Courier Corporation 2005 Stock Equity Plan for  Non-Employee Directors (filed January 19, 2005 as Exhibit 10.1 to the  Company’s Registration Statement No. 333-122137 and incorporated herein by  reference).                                                                                       |
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10K-2+  |   | Form of Non-Qualified Stock Option  Agreement for the Courier Corporation 2005 Stock Equity Plan for Non-employee  Directors (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 25, 2004, and incorporated herein by  reference).              |
|    |   |                                                                                                                                                                                                                                                                                                      |
| 10K-3+  |   | Form of Stock Unit Agreement for  the Courier Corporation 2005 Stock Equity Plan for Non-employee Directors  (filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 25, 2004, and incorporated herein by reference).                               |

 

28

----

 
| 10L    |   | Stock Purchase Agreement by and  among Courier Corporation and the stockholders of Book-mart Press, Inc.,  dated as of July 21, 1997 (filed as Exhibit 2.1 to the Company’s Current  Report on Form 8-K dated July 21, 1997, and incorporated herein by  reference).                                                                                                                                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10M-1+ |   | Courier Corporation Deferred  Compensation Program dated November 6, 1997 including Messrs. Conway III,  Nichols, and Story (filed as Exhibit 10 to the Company’s Quarterly Report on  Form 10-Q for the period ended December 27, 1997, and incorporated herein by  reference).                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10M-2+ |   | Amendment to Courier Corporation  Deferred Compensation Program, effective January 1, 2005, (filed as Exhibit  10.1 to the Company’s Current Report on Form 8-K on December 7, 2005, and  incorporated herein by reference).                                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10N    |   | Master Lease Finance Agreement,  dated as of September 23, 1998 between Courier Corporation and General  Electric Capital Corporation (filed as Exhibit 10R to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 26, 1998, and  incorporated herein by reference).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10O    |   | Stock Purchase Agreement by and  among Courier Corporation, Mrs. Blanche Cirker, individually, the Estate of  Hayward Francis Cirker, by Blanche Cirker, executrix, and each of the  stockholders of Dover Publications, Inc., Dover Book Store Inc. and  Transfolio Express, Inc. dated as of August 14, 2000 (filed as Exhibit 2.1 to  the Company’s Current Report on Form 8-K dated September 22, 2000, and  incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10P    |   | Master Lease Finance Agreement,  dated as of September 25, 2000 between Courier Corporation and Eastern Bank  (filed as Exhibit 10T to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 30, 2000, and incorporated herein by reference).                                                                                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10Q+   |   | Amendment, effective March 1, 2005,  to the Courier Corporation 1999 Employee Stock Purchase Plan (filed as  Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 24, 2005, and incorporated herein by reference).                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10R    |   | Stock Purchase Agreement, dated  April 27, 2006, by and among Courier Corporation, Federal Marketing  Corporation, d/b/a Creative Homeowner (“Creative Homeowner”), and the  stockholders of Creative Homeowner (filed as Exhibit 10.1 to the Company’s  Current Report on Form 8-K on May 3, 2006, and incorporated herein by  reference).                                                                                               |

 

29

----

 
| 10S    |   | Lease Agreement, dated April 27,  2006, between Courier Corporation and Thomas Minor Associates, LLC (filed as  Exhibit 10.2 to the Company’s Current Report on Form 8-K on May 3, 2006, and  incorporated herein by reference). |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                  |
| 21*    |   | Schedule of Subsidiaries.                                                                                                                                                                                                             |
|   |   |                                                                                                                                                                                                                                  |
| 23*    |   | Consent of Deloitte & Touche  LLP, independent registered public accounting firm.                                                                                                                                                 |
|   |   |                                                                                                                                                                                                                                  |
| 31.1*  |   | Certification of Chief Executive  Officer pursuant to 15 U.S.C. Section 10A, as adopted                                                                                                                                               |
|   |   | pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                  |
| 31.2*  |   | Certification of Chief Financial  Officer pursuant to 15 U.S.C. Section 10A, as adopted                                                                                                                                               |
|   |   | pursuant to Section 302 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                  |
| 32.1*  |   | Certification of Chief Executive  Officer pursuant to 18 U.S.C. Section 1350, as adopted                                                                                                                                              |
|   |   | pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                  |
| 32.2*  |   | Certification of Chief Financial  Officer pursuant to 18 U.S.C. Section 1350, as adopted                                                                                                                                              |
|   |   | pursuant to Section 906 of the  Sarbanes-Oxley Act of 2002.                                                                                                                                                                           |

----

* Exhibit is furnished herewith.

+ Designates a Company compensation plan or arrangement.

 

30

----

**SIGNATURES**

 

       Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theCompany has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, on November 28, 2007.

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

 

       Pursuant to therequirements of the Securities Exchange Act of 1934, this report has beensigned below by the following persons on behalf of the registrant in thecapacities indicated, on November 28, 2007.

 
| */s/James F. Conway III*   |     | */s/George Q. Nichols*     |
|----------------------------|----------|----------------------------|
| James  F. Conway III       |     | George  Q. Nichols         |
| Chairman,  President and   |     | Director                   |
| Chief  Executive Officer   |     |                       |
|                       |     |                       |
| */s/Kathleen Foley Curley* |     | */s/Ronald L. Skates*      |
| Kathleen  Foley Curley     |     | Ronald  L. Skates          |
| Director                   |     | Director                   |
|                       |     |                       |
| */s/Richard K. Donahue*    |     | */s/Robert P. Story, Jr.*  |
| Richard  K. Donahue        |     | Robert  P. Story, Jr.      |
| Director                   |     | Director                   |
|                       |     |                       |
| */s/Edward J. Hoff*        | * * | */s/W. Nicholas Thorndike* |
| Edward  J. Hoff            |     | W.  Nicholas Thorndike     |
| Director                   |     | Director                   |
|                       |     |                       |
| */s/Arnold S. Lerner*      | * * | */s/Susan L. Wagner*       |
| Arnold  S. Lerner          |     | Susan  L. Wagner           |
| Director                   |     | Director                   |
|                       |     |                       |
| */s/Peter K. Markell*      | * * | * *                   |
| Peter  K. Markell          |     |                       |
| Director                   |     |                       |

 

 

31

----

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directorsand Stockholders of Courier CorporationNorth Chelmsford, Massachusetts

We have audited theaccompanying consolidated balance sheets of Courier Corporation andsubsidiaries (the “Company”) as of September 29, 2007 and September 30, 2006,and the related consolidated statements of income, changes in stockholders’equity, and cash flows for each of the three years in the period endedSeptember 29, 2007.  Our audits also included the financial statementschedule listed in the Index at Item 15(a)2.  These financial statementsand financial statement schedule are the responsibility of the Company’smanagement.  Our responsibility is to express an opinion on the financialstatements and financial statement schedule based on our audits.

We conducted our audits inaccordance with the standards of the Public Company Accounting Oversight Board(United States).  Those standards require that we plan and perform theaudit to obtain reasonable assurance about whether the financial statements arefree of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating theoverall financial statement presentation.  We believe that our auditsprovide a reasonable basis for our opinion.

In our opinion, suchconsolidated financial statements present fairly, in all material respects, thefinancial position of Courier Corporation and subsidiaries as of September 29,2007 and September 30, 2006, and the results of their operations and their cashflows for each of the three years in the period ended September 29, 2007, inconformity with accounting principles generally accepted in the United Statesof America.  Also, in our opinion, such financial statement schedule, whenconsidered in relation to the basic consolidated financial statements taken asa whole, present fairly, in all material respects, the information set forththerein.

We have also audited, inaccordance with the standards of the Public Company Accounting Oversight Board(United States), the Company’s internal control over financial reporting as ofSeptember 29, 2007, based on the criteria established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission,and our report dated November 28, 2007 expressed an unqualified opinion on theeffectiveness of the Company’s internal control over financial reporting.

As disclosed in Note G tothe consolidated financial statements, the Company adopted Statement ofFinancial Accounting Standards No. 158 “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans, anamendment of FASB Statements No. 87, 88, 106 and 132(R).”

*/s/Deloitte & Touche LLP*

Boston, MassachusettsNovember 28, 2007

 

F-1

----

**COURIERCORPORATION**

**CONSOLIDATED STATEMENTS OF INCOME**

(Dollars in thousandsexcept per share amounts)

 

| ** **                              | ** ** | **For the Years Ended** | ** ** |
|-----------------------------------------|------------|-------------------------|------------|
| ** **                              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | **September 29,**       | ** ** | **September 30,** | ** ** | **September 24,** | ** ** |
| ** **                              | ** ** | **2007**                | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                              | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales (Note A)                      |       | $                       | 294,592    |   | $ | 269,051 |   | $ | 227,039 |   |
| Cost of sales                           |       | 198,229                 |       | 180,535 |   | 151,853 |   |
|                                    |       |                    |       |   |   |   |   |
| Gross profit                            |       | 96,363                  |       | 88,516 |   | 75,186 |   |
|                                    |       |                    |       |   |   |   |   |
| Selling and administrative expenses     |       | 53,926                  |       | 50,144 |   | 42,823 |   |
| Interest (income) expense, net (Note A) |       | 1,571                   |       | 182 |   | (388 | ) |
|                                    |       |                    |       |   |   |   |   |
| Pretax income                           |       | 40,866                  |       | 38,190 |   | 32,751 |   |
|                                    |       |                    |       |   |   |   |   |
| Provision for income taxes (Note C)     |       | 15,121                  |       | 9,810 |   | 11,883 |   |
|                                    |       |                    |       |   |   |   |   |
| Net income                              |       | $                       | 25,745     |   | $ | 28,380 |   | $ | 20,868 |   |
|                                    |       |                    |       |   |   |   |   |
| Net income per share (Notes A and J):   |       |                    |       |   |   |   |   |
|                                    |       |                    |       |   |   |   |   |
| Basic                                   |       | $                       | 2.06       |   | $ | 2.30 |   | $ | 1.72 |   |
|                                    |       |                    |       |   |   |   |   |
| Diluted                                 |       | $                       | 2.03       |   | $ | 2.25 |   | $ | 1.67 |   |
|                                    |       |                    |       |   |   |   |   |
| Cash dividends declared per share       |       | $                       | 0.72       |   | $ | 0.48 |   | $ | 0.33 |   |

 

*Theaccompanying notes are an integral part of the consolidated financialstatements.*

*Fiscal year 2006 was a 53-weekperiod.*

 

F-2

----

 

**COURIER CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(Dollars in thousands)

 
| ** **                                                                                                    | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
|---------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                    | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| ASSETS                                                                                                        |       |              |       |              |       |
|                                                                                                          |       |              |       |              |       |
| Current assets:                                                                                               |       |              |       |              |       |
| Cash and cash equivalents (Note A)                                                                            |       | $                 | 1,549      |              | $          | 1,483 |   |
| Accounts receivable, less allowance for uncollectible accounts of  $1,531 in 2007 and $1,593 in 2006 (Note A) |       | 47,673            |       | 46,002            |       |
| Inventories (Note B)                                                                                          |       | 38,183            |       | 29,565            |       |
| Deferred income taxes (Note C)                                                                                |       | 3,469             |       | 3,703             |       |
| Other current assets                                                                                          |       | 1,550             |       | 1,110             |       |
|                                                                                                          |       |              |       |              |       |
| Total current assets                                                                                          |       | 92,424            |       | 81,863            |       |
|                                                                                                          |       |              |       |              |       |
| Property, plant and equipment (Note A):                                                                       |       |              |       |              |       |
| Land                                                                                                          |       | 1,296             |       | 1,296             |       |
| Buildings and improvements                                                                                    |       | 35,110            |       | 29,539            |       |
| Machinery and equipment                                                                                       |       | 190,127           |       | 163,395           |       |
| Furniture and fixtures                                                                                        |       | 1,837             |       | 1,973             |       |
| Construction in progress                                                                                      |       | 10,487            |       | 18,368            |       |
|                                                                                                          |       |              |       |              |       |
|                                                                                                          |       | 238,857           |       | 214,571           |       |
|                                                                                                          |       |              |       |              |       |
| Less-Accumulated depreciation and amortization                                                                |       | (141,079          | )          | (129,323          | )          |
|                                                                                                          |       |              |       |              |       |
| Property, plant and equipment, net                                                                            |       | 97,778            |       | 85,248            |       |
|                                                                                                          |       |              |       |              |       |
| Goodwill, net (Notes A, H and I)                                                                              |       | 55,199            |       | 55,406            |       |
| Other intangibles, net (Notes A and H)                                                                        |       | 12,904            |       | 13,691            |       |
| Prepublication costs, net (Note A)                                                                            |       | 10,220            |       | 9,327             |       |
| Other assets (Note G)                                                                                         |       | 1,310             |       | 1,653             |       |
|                                                                                                          |       |              |       |              |       |
| Total assets                                                                                                  |       | $                 | 269,835    |              | $          | 247,188 |   |

* *

* *

* *

* *

*Theaccompanying notes are an integral part of the consolidated financialstatements.*

 

F-3

----

 

**COURIERCORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

(Dollars in thousands)

 
| ** **                                                                                                           | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **                                                                                                           | ** ** | **2007**          | ** ** | **2006**          | ** ** |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                            |       |              |       |              |       |
|                                                                                                                 |       |              |       |              |       |
| Current liabilities:                                                                                                 |       |              |       |              |       |
| Current maturities of long-term debt (Note D)                                                                        |       | $                 | 91         |              | $          | 88 |   |
| Accounts payable (Note A)                                                                                            |       | 20,111            |       | 15,778            |       |
| Accrued payroll                                                                                                      |       | 7,409             |       | 9,534             |       |
| Accrued taxes (Note C)                                                                                               |       | 2,129             |       | 3,362             |       |
| Other current liabilities (Note G)                                                                                   |       | 6,652             |       | 6,928             |       |
| Total current liabilities                                                                                            |       | 36,392            |       | 35,690            |       |
|                                                                                                                 |       |              |       |              |       |
| Long-term debt (Notes A and D)                                                                                       |       | 17,375            |       | 17,222            |       |
| Deferred income taxes (Note C)                                                                                       |       | 9,446             |       | 8,913             |       |
| Other liabilities                                                                                                    |       | 3,511             |       | 3,037             |       |
|                                                                                                                 |       |              |       |              |       |
| Total liabilities                                                                                                    |       | 66,724            |       | 64,862            |       |
|                                                                                                                 |       |              |       |              |       |
| Commitments and contingencies (Note E)                                                                               |       |              |       |              |       |
|                                                                                                                 |       |              |       |              |       |
| Stockholders’ equity (Notes A, F and G):                                                                        |       |              |       |              |       |
| Preferred stock, $1 par value - authorized  1,000,000 shares; none issued                                            |       |              |       |              |       |
| Common stock, $1 par value - authorized  18,000,000 shares; issued 12,612,000 shares  in 2007 and 12,445,000 in 2006 |       | 12,612            |       | 12,445            |       |
| Additional paid-in capital                                                                                           |       | 12,977            |       | 8,592             |       |
| Retained earnings                                                                                                    |       | 178,027           |       | 161,289           |       |
| Accumulated other comprehensive loss                                                                                 |       | (505              | )          | —            |       |
|                                                                                                                 |       |              |       |              |       |
| Total stockholders’ equity                                                                                      |       | 203,111           |       | 182,326           |       |
|                                                                                                                 |       |              |       |              |       |
| Total liabilities and stockholders’ equity                                                                      |       | $                 | 269,835    |              | $          | 247,188 |   |

* *

* *

* *

* *

* *

*The accompanying notes are anintegral part of the consolidated financial statements.*

 

F-4

----

**COURIERCORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Dollarsin thousands)**

 
| ** **                                                                       | ** ** | **For the Years Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                       | ** ** | **September 29,**       | ** ** | **September 30,** | ** ** | **September 24,** | ** ** |
|                                                                             | ** ** | **2007**                | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                                             |       |                    |       |   |   |   |   |
| Operating Activities:                                                            |       |                    |       |   |   |   |   |
| Net income                                                                       |       | $                       | 25,745     |   | $ | 28,380 |   | $ | 20,868 |   |
| Adjustments to reconcile net income to cash provided from operating  activities: |       |                    |       |   |   |   |   |
| Depreciation and amortization                                                    |       | 18,856                  |       | 14,804 |   | 11,660 |   |
| Stock-based compensation (Notes A and F)                                         |       | 1,460                   |       | 1,431 |   | 1,835 |   |
| Deferred income taxes (Note C)                                                   |       | 1,098                   |       | 1,093 |   | (830 | ) |
| Changes in assets and liabilities:                                               |       |                    |       |   |   |   |   |
| Accounts receivable                                                              |       | (1,671                  | )          | (2,845 | ) | (135 | ) |
| Inventory                                                                        |       | (8,618                  | )          | (895 | ) | (343 | ) |
| Accounts payable                                                                 |       | 4,333                   |       | 219 |   | 475 |   |
| Accrued taxes                                                                    |       | (1,233                  | )          | (2,408 | ) | 35 |   |
| Other elements of working capital                                                |       | (2,966                  | )          | (204 | ) | 486 |   |
| Other long-term, net                                                             |       | 451                     |       | (351 | ) | 111 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Cash provided from operating activities                                          |       | 37,455                  |       | 39,224 |   | 34,162 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Investment Activities:                                                           |       |                    |       |   |   |   |   |
| Capital expenditures                                                             |       | (26,378                 | )          | (29,429 | ) | (19,683 | ) |
| Business acquisitions (Note H)                                                   |       | —                  |       | (51,164 | ) | — |   |
| Prepublication costs (Note A)                                                    |       | (5,417                  | )          | (4,253 | ) | (2,867 | ) |
|                                                                             |       |                    |       |   |   |   |   |
| Cash used for investment activities                                              |       | (31,795                 | )          | (84,846 | ) | (22,550 | ) |
|                                                                             |       |                    |       |   |   |   |   |
| Financing Activities:                                                            |       |                    |       |   |   |   |   |
| Long-term debt borrowings (repayments)                                           |       | 156                     |       | 16,800 |   | (83 | ) |
| Cash dividends                                                                   |       | (9,007                  | )          | (5,927 | ) | (4,066 | ) |
| Proceeds from stock plans                                                        |       | 2,608                   |       | 1,691 |   | 1,632 |   |
| Excess tax benefits from stock-based compensation                                |       | 649                     |       | 503 |   | 978 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Cash provided from (used for) financing activities                               |       | (5,594                  | )          | 13,067 |   | (1,539 | ) |
|                                                                             |       |                    |       |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                                 |       | 66                      |       | (32,555 | ) | 10,073 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Cash and cash equivalents at the beginning of the period                         |       | 1,483                   |       | 34,038 |   | 23,965 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Cash and cash equivalents at the end of the period                               |       | $                       | 1,549      |   | $ | 1,483 |   | $ | 34,038 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Supplemental cash flow information:                                              |       |                    |       |   |   |   |   |
| Interest paid                                                                    |       | $                       | 1,604      |   | $ | 564 |   | $ | 219 |   |
| Income taxes paid (net of refunds)                                               |       | $                       | 14,447     |   | $ | 10,725 |   | $ | 11,707 |   |
|                                                                             |       |                    |       |   |   |   |   |
| Supplemental disclosure of noncash investing and financing  activities:          |       |                    |       |   |   |   |   |
| Property and equipment costs included in accounts payable and accrued  expenses  |       | $                       | 5,301      |   | $ | 3,204 |   | $ | 2,057 |   |

* *

*The accompanying notes are an integral part of the consolidated financialstatements.*

* *

* *

 

F-5

----

 

**COURIER CORPORATION**

**CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY**

**(Dollarsin thousands)**

 
| ** **                              | ** ** | **Total  Stockholders’  Equity** | ** ** | **Common  Stock** | ** ** | **Additional  Paid-In Capital** | ** ** | **Retained  Earnings** | ** ** | **Accumulated  Other  Comprehensive  Loss** | ** ** |
|-----------------------------------------|------------|---------------------------------------|------------|-------------------|------------|---------------------------------|------------|------------------------|------------|---------------------------------------------|------------|
| ** **                              | ** ** | ** **                            | ** ** | ** **        | ** ** | ** **                      | ** ** | ** **             | ** ** | ** **                                  | ** ** |
| Balance, September 25, 2004             |       | $                                     | 135,383    |              | $          | 8,031                           |       | $                      | 5,318      |                                        | $          | 122,034 |   | $ | 0 |   |
|                                    |       |                                  |       |              |       |                            |       |                   |       |                                        |       |
| Net income                              |       | 20,868                                |       | —            |       | —                          |       | 20,868                 |       | —                                      |       |
| Cash dividends                          |       | (4,066                                | )          | —            |       | —                          |       | (4,066                 | )          | —                                      |       |
| Stock dividend                          |       | —                                |       | 4,061             |       | (4,061                          | )          | —                 |       | —                                      |       |
| Stock-based compensation (Note F)       |       | 1,835                                 |       | 8                 |       | 1,827                           |       | —                 |       | —                                      |       |
| Other stock plan activity               |       | 2,440                                 |       | 213               |       | 2,227                           |       | —                 |       | —                                      |       |
|                                    |       |                                  |       |              |       |                            |       |                   |       |                                        |       |
| Balance, September 24, 2005             |       | 156,460                               |       | 12,313            |       | 5,311                           |       | 138,836                |       | —                                      |       |
|                                    |       |                                  |       |              |       |                            |       |                   |       |                                        |       |
| Net income                              |       | 28,380                                |       | —            |       | —                          |       | 28,380                 |       | —                                      |       |
| Cash dividends                          |       | (5,927                                | )          | —            |       | —                          |       | (5,927                 | )          | —                                      |       |
| Stock-based compensation (Note F)       |       | 1,431                                 |       | 6                 |       | 1,425                           |       | —                 |       | —                                      |       |
| Other stock plan activity               |       | 1,982                                 |       | 126               |       | 1,856                           |       | —                 |       | —                                      |       |
|                                    |       |                                  |       |              |       |                            |       |                   |       |                                        |       |
| Balance, September 30, 2006             |       | 182,326                               |       | 12,445            |       | 8,592                           |       | 161,289                |       | —                                      |       |
|                                    |       |                                  |       |              |       |                            |       |                   |       |                                        |       |
| Net income                              |       | 25,745                                |       | —            |       | —                          |       | 25,745                 |       | —                                      |       |
| Cash dividends                          |       | (9,007                                | )          | —            |       | —                          |       | (9,007                 | )          | —                                      |       |
| SFAS 158 transition adjustment (Note G) |       | (505                                  | )          | —            |       | —                          |       | —                 |       | (505                                        | )          |
| Stock-based compensation (Note F)       |       | 1,460                                 |       | 5                 |       | 1,455                           |       | —                 |       | —                                      |       |
| Other stock plan activity               |       | 3,092                                 |       | 162               |       | 2,930                           |       | —                 |       | —                                      |       |
|                                    |       |                                  |       |              |       |                            |       |                   |       |                                        |       |
| Balance, September 29, 2007             |       | $                                     | 203,111    |              | $          | 12,612                          |       | $                      | 12,977     |                                        | $          | 178,027 |   | $ | (505 | ) |

 

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

 

F-6

----

 

**NOTESTO CONSOLIDATED FINANCIAL STATEMENTS**

 

**A.  Summary of SignificantAccounting Policies**

 

**Business:**  CourierCorporation and its subsidiaries (“Courier” or the “Company”) print, publishand sell books.  Courier has two businesssegments: book manufacturing and specialty book publishing.  On April 28, 2006, the Company acquired FederalMarketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”), a NewJersey-based publisher and distributor of books, home plans, and relatedproducts for the home and garden retail book market. On October 17, 2005, theCompany acquired Moore-Langen Printing Company, Inc. (“Moore Langen”) anIndianapolis-based printer specializing in manufacturing book covers.  CreativeHomeowner is included in the specialty publishing segment and Moore Langen isincluded in the book manufacturing segment (see Note H).

 

**Principles of Consolidation and Presentation:** The consolidatedfinancial statements, prepared on a fiscal year basis, include the accounts ofCourier Corporation and its subsidiaries after elimination of all intercompanytransactions.  Such financial statementshave been prepared in conformity with accounting principles generally acceptedin the United States of America (“generally accepted accounting principles”).  Fiscal years 2007 and 2005 were 52-weekperiods compared with fiscal year 2006, which was a 53-week period.

 

**Financial Instruments:** Financial instruments consistprimarily of cash, accounts receivable, accounts payable and debtobligations.  The Company classifies ascash and cash equivalents amounts on deposit in banks and cash investedtemporarily in various instruments with maturities of three months or less attime of purchase.  At September 29, 2007and September 30, 2006, the fair market value of the Company’s financialinstruments approximated their carrying values. Interest income from these instruments was $450,000 in 2006 and $666,000in 2005 and is included in the caption “Interest (income) expense, net” in theaccompanying Consolidated Statements of Income. There was no such interest income in fiscal 2007.

 

**Property, Plant and Equipment:** Property, plant and equipmentare recorded at cost, including interest on funds borrowed to finance theacquisition or construction of major capital additions.  Interest capitalized in 2007 was $169,000; nosuch interest was capitalized in 2006 and 2005. The Company provides for depreciation of property, plant and equipmenton a straight-line basis over periods ranging from 10 to 40 years on buildingsand improvements and from 3 to 11 years on equipment and furnishings.

 

Leasehold improvements are amortized on a straight-line basis over theshorter of their useful life or the term of the lease.  Expenditures for maintenance and repairs arecharged against income as incurred; betterments that increase the value ormaterially extend the life of the related assets are capitalized.  When assets are sold or retired, the cost andaccumulated depreciation are removed from the accounts and any gain or loss isincluded in income.

 

 

F-7

----

 

 

**Goodwill and Other Intangibles:**The Company evaluates possible impairment annually orwhenever events or circumstances indicate that the carrying value of the assetsmay not be recoverable. There were no such events or circumstances in theperiods presented.  Goodwill has beenallocated $14.8 million and $40.4 million, net of accumulated amortization of$2.1 million and $0.9 million, to the book manufacturing and specialtypublishing segments, respectively.  Thefollowing table reflects the components of other intangibles at September 29,2007:

 
| ** **                                    | ** ** | **(000’s omitted)**       | ** ** |
|-----------------------------------------------|------------|--------------------------------|------------|
| **Other intangibles:**                        | ** ** | **Book Manufacturing Segment** | ** ** | **Specialty Publishing  Segment** | ** ** | **Total** | ** ** |
| Trade name                                    |       | $                              | 931        |   | $ | 1,370 |   | $ | 2,301 |   |
| Customer lists                                |       | 231                            |       | 11,502 |   | 11,733 |   |
| Total other  intangibles                      |       | $                              | 1,162      |   | $ | 12,872 |   | $ | 14,034 |   |
| Accumulated  amortization                     |       | (38                            | )          | (1,092 | ) | (1,130 | ) |
| Other  intangibles, net at September 29, 2007 |       | $                              | 1,124      |   | $ | 11,780 |   | $ | 12,904 |   |

 

Customer lists for Moore Langen and Creative Homeownerare being amortized over 10-year and 15-year periods, respectively.  Such amortization expense was $787,000 and$343,000 in fiscal years 2007 and 2006, respectively.  Annual amortization expense for the next fiveyears will be approximately $800,000. Trade names are not being amortized as they are assumed to haveindefinite lives.

 

**Long-Lived Assets:**Management periodically reviewslong-lived assets for impairment and has not recorded an impairment of anyasset of the Company.

 

**Prepublication Costs:**Prepublication costs, associatedwith creating new titles in the specialty publishing segment, are amortized tocost of sales using the straight-line method over estimated useful lives ofthree years for REA, four years for Dover Publications, Inc. (“Dover”), andfive years for Creative Homeowner.

 

**Income Taxes:** Deferred income tax liabilities and assets aredetermined based upon the differences between the financial statement and taxbases of assets and liabilities, and are measured by applying enacted tax ratesand laws for the taxable years in which these differences are expected toreverse.

 

**Revenue Recognition:**Revenue is recognized uponshipment of goods to customers or upon the transfer of ownership for thosecustomers for whom the Company provides manufacturing and distributionservices.  Revenue for distributionservices is recognized as services are provided.  Shipping and handling fees billed to customersare classified as revenue.  In thespecialty publishing segment, revenue is recognized net of an allowance forsales returns.  The process which theCompany uses to determine its sales reserve, and the related reserve allowancenetted from revenue, is based upon applying an estimated return rate to currentyear sales.  This estimated return rateis based on actual historical return experience.

 

 

F-8

----

 

**Use of Estimates:**The process of preparingfinancial statements in conformity with generally accepted accountingprinciples requires management to make estimates and assumptions that affectthe reported amounts at the date of the financial statements.  Actual results may differ from theseestimates.

 

**Net Income per Share:** Basic net income per share isbased on the weighted average number of common shares outstanding eachperiod.  Diluted net income per sharealso includes potentially dilutive items such as stock options (Note J).

 

**Adoption of New Accounting Principles: **As more fully discussed inNote G below, the Company adopted Statement of Financial Accounting Standards No. 158, “Employers’Accounting for Defined Benefit Pension and Other Postretirement Plans” (“SFAS158”).  The effective date of this newstandard was the end of the Company’s 2007 fiscal year.

 

**New Accounting Pronouncements:** In July 2006, the FASB issued Interpretation No. 48, “Accountingfor Uncertainty in Income Taxes” (“FIN No. 48”), an interpretation of FASBStatement No. 109, “Accounting for Income Taxes.”  FIN No. 48 applies to fiscal years beginningafter December 15, 2006, the Company’s 2008 fiscal year.  The Company does not believe the adoption ofFIN No. 48 will have a material effect on its consolidated financial position,results of operations or cash flows.

#  

## **B.Inventories**

 

Inventories are valued at the lower of cost or market.Cost is determined using the last-in, first-out (LIFO) method for approximately45% and 37% of the Company’s inventories at September 29, 2007 and September30, 2006, respectively.  Otherinventories, primarily in the specialty publishing segment, are determined on afirst-in, first-out (FIFO) basis.

 

Inventories consisted of the following at September 29, 2007 andSeptember 30, 2006:

 
| ** **      | ** ** | **(000’s omitted)** | ** ** |
|-----------------|------------|--------------------------|------------|
| ** **      | ** ** | **2007**                 | ** ** | **2006** | ** ** |
|            |       |                     |       |   |   |
| Raw materials   |       | $                        | 5,295      |   | $ | 3,910 |   |
| Work in process |       | 8,274                    |       | 6,295 |   |
| Finished goods  |       | 24,614                   |       | 19,360 |   |
| Total           |       | $                        | 38,183     |   | $ | 29,565 |   |

 

On a FIFO basis, reported year-end inventorieswould have been higher by $5.3 million in fiscal 2007 and $5.5 million infiscal 2006.

 

 

 

F-9

----

 

**C.  Income Taxes**

 

The provision for income taxes differs from that computed using thestatutory federal income tax rates for the following reasons:

 
| ** **                              | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|
| ** **                              | ** ** | **2007**                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                    |       |                     |       |   |   |   |   |
| Federal taxes at statutory rate         |       | $                        | 14,303     |   | $ | 13,367 |   | $ | 11,463 |   |
| State taxes, net of federal tax benefit |       | 1,312                    |       | 1,168 |   | 947 |   |
| Federal manufacturer’s deduction   |       | (349                     | )          | (335 | ) | — |   |
| Tax benefit of export related income    |       | (165                     | )          | (674 | ) | (805 | ) |
| Stock based compensation (Note F)       |       | 57                       |       | 148 |   | 300 |   |
| Reversal of tax reserves                |       | —                   |       | (3,800 | ) | — |   |
| Other                                   |       | (37                      | )          | (64 | ) | (22 | ) |
| Total                                   |       | $                        | 15,121     |   | $ | 9,810 |   | $ | 11,883 |   |

 

During the fourthquarter of fiscal 2006, the Company reversed an income tax reserve for $3.8million pursuant to receipt of a state tax audit report and the expiration ofcertain statutory limitations.

 

The provision for income taxes consisted of the following:

 
| ** **               | ** ** | **(000’s omitted)** | ** ** |
|--------------------------|------------|--------------------------|------------|
| ** **               | ** ** | **2007**                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| Current:                 |       |                     |       |   |   |   |   |
| Federal                  |       | $                        | 12,410     |   | $ | 10,930 |   | $ | 11,371 |   |
| State                    |       | 1,613                    |       | 1,587 |   | 1,342 |   |
| Reversal of tax reserves |       | —                   |       | (3,800 | ) | — |   |
|                     |       | 14,023                   |       | 8,717 |   | 12,713 |   |
| Deferred:                |       |                     |       |   |   |   |   |
| Federal                  |       | 652                      |       | 906 |   | (945 |   |
| State                    |       | 446                      |       | 187 |   | 115 |   |
|                     |       | 1,098                    |       | 1,093 |   | (830 | ) |
| Total                    |       | $                        | 15,121     |   | $ | 9,810 |   | $ | 11,883 |   |

 

 

 

F-10

----

 

 

The following is a summary of the significantcomponents of the Company’s deferred tax assets and liabilities as of September29, 2007 and September 30, 2006:

 
| ** **                                  | ** ** | **(000’s omitted)** | ** ** |
|---------------------------------------------|------------|--------------------------|------------|
| ** **                                  | ** ** | **2007**                 | ** ** | **2006** | ** ** |
| Deferred tax assets:                        |       |                     |       |   |   |
| Vacation accrual not currently deductible   |       | $                        | 824        |   | $ | 886 |   |
| Other accruals not currently deductible     |       | 356                      |       | 497 |   |
| Non-deductible reserves                     |       | 2,076                    |       | 2,073 |   |
| Other                                       |       | 213                      |       | 247 |   |
| Classified as current                       |       | 3,469                    |       | 3,703 |   |
| Deferred compensation arrangements          |       | 2,208                    |       | 1,854 |   |
| Tax benefits of stock option activity       |       | 674                      |       | 375 |   |
| SFAS 158 transition adjustment (Note G)     |       | 310                      |       | — |   |
| Other                                       |       | 591                      |       | 47 |   |
| Total deferred tax assets                   |       | $                        | 7,252      |   | $ | 5,979 |   |
|                                        |       |                     |       |   |   |
| Deferred tax liabilities:                   |       |                     |       |   |   |
| Accelerated depreciation                    |       | 8,389                    |       | 7,772 |   |
| Goodwill and other intangibles amortization |       | 4,840                    |       | 3,417 |   |
| Total deferred tax liabilities              |       | $                        | 13,229     |   | $ | 11,189 |   |

 

The Company also has deferred tax assets for state net operating losscarryforwards of approximately $172,000 and $660,000 as of September 29, 2007and September 30, 2006, respectively, for which the Company has fully providedvaluation allowances.

 

Non-current deferred tax assets have been netted against non-currentdeferred tax liabilities for balance sheet classification purposes.

 

**D.  Long-Term Debt**

 

At September 29, 2007 and September 30, 2006, the Company had $17.1million and $16.9 million, respectively, in borrowings under its long-termrevolving credit facility.  Otherlong-term debt at September 29, 2007 and September 30, 2006 consisted of anobligation under an industrial development bond arrangement totaling $337,000and $425,000, respectively, including current maturities of $91,000 and$88,000, respectively.  This industrialbond arrangement bears interest at 3%. At September 29, 2007, scheduled aggregate principal payments of theseobligations were $91,000 in 2008, $93,000 in 2009, $96,000 in 2010, and$17,186,000 in 2011.  The industrial bondarrangement provides for a lien on the assets acquired with the proceeds.

 

The Company has a $100 million long-termrevolving credit facility in place under which the Company can borrow at a ratenot to exceed LIBOR plus 1.5%.  TheCompany’s interest rate at September 29, 2007 was 6.0%. In November 2006, the revolving creditfacility was increased from $60 million to $100 million, the bank group wasexpanded from three banks to five banks and the maturity date was extended to2011.  The revolving credit facility is available to the Company for both itslong-term and short-term financing needs.

 

 

F-11

----

 

The revolving credit facility contains restrictive covenants includingprovisions relating to the maintenance of working capital, the incurring ofadditional indebtedness and a quarterly test of EBITDA to debt service.  During 2007, the revolving credit facilitywas amended to remove a restrictive covenant on the level of capitalexpenditures.  The facility also providesfor a commitment fee not to exceed 3/8% per annum on the unused portion.  These fees are included in the caption “Interest(income) expense, net” in the accompanying Consolidated Statements of Income.

 

**E.  Commitments and Contingencies**

 

The Company is committed under various operating leases to make annualrental payments for certain buildings and equipment. Amounts charged tooperations under such leases approximated $3,436,000 in 2007, $3,108,000 in2006 and $3,363,000 in 2005.  As ofSeptember 29, 2007, minimum annual rental commitments under the Company’slong-term operating leases were approximately $2,676,000 in 2008, $1,815,000 in2009, $1,757,000 in 2010, $938,000 in 2011, $716,000 in 2012, and $1,096,000 inthe aggregate thereafter.  The Companyleases one of its facilities from a corporation owned in part by an executiveof one of the Company’s subsidiaries. The lease agreement requires annual payments of approximately $312,000through July 2012.  At September 29, 2007and September 30, 2006, the Company had letters of credit outstanding of$1,525,000 and $1,270,000, respectively.

 

In the ordinary course of business, the Company is subject to variouslegal proceedings and claims.  TheCompany believes that the ultimate outcome of these matters will not have amaterial adverse effect on its consolidated financial statements.

## ** **

## **F.  Stock Arrangements**

 

In fiscal 2006, the Company adopted the provisions ofSFAS 123R.  All prior periods presentedhave been restated on a retrospective basis consistent with the pro formadisclosures required for those periods by SFAS No. 123, “Accounting forStock-Based Compensation” (“SFAS 123”), as amended by SFAS No. 148.  Under the provisions of SFAS 123R, theCompany records stock-based compensation expense for the cost of stock options,stock grants, and shares issued under the Company’s Employee Stock PurchasePlan (“ESPP”). The fair value of each option awarded was calculated on the dateof grant using the Black-Scholes option-pricing model.

 

 

F-12

----

 

Stock-based compensation recognized in selling andadministrative expenses in the accompanying financial statements, and therelated tax benefit, were as follows:

 
| ** **                                            | ** ** | **(000’s omitted)** | ** ** |
|-------------------------------------------------------|------------|--------------------------|------------|
| ** **                                            | ** ** | **2007**                 | ** ** | **2006** | ** ** | **2005** | ** ** |
|                                                  |       |                     |       |   |   |   |   |
| Stock-based compensation expense                      |       | $                        | 1,460      |   | $ | 1,431 |   | $ | 1,835 |   |
| Related tax benefit                                   |       | (454                     | )          | (352 | ) | (341 | ) |
| Stock-based compensation, net of related  tax benefit |       | $                        | 1,006      |   | $ | 1,079 |   | $ | 1,494 |   |

 

Unrecognizedstock-based compensation cost at September 29, 2007 was $2.4 million to berecognized over a weighted-average period of 2.4****years.

 

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

 

The following is a summary of all option activity for this plan:

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted Average**  | ** ** | **Aggregate****Intrinsic**  | ** ** |
|-------------------------------|------------|------------|------------|-----------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | **Shares** | ** ** | **Exercise****Price** | ** ** | **Remaining****Term (yrs)** | ** ** | ** Value    (in 000’s)** | ** ** |
| Outstanding at Sept. 25, 2004 |       | 625,262    |       | $                     | 14.57      |                        |       |   |   |   |
| Issued                        |       | 30,131     |       | 35.61                 |       |                        |       |   |   |
| Exercised                     |       | (222,252   | )          | 9.32                  |       |                        |       |   |   |
| Cancelled                     |       | (7,104     | )          | 22.38                 |       |                        |       |   |   |
| Outstanding at Sept. 24, 2005 |       | 426,037    |       | $                     | 18.66      |                        |       |   |   |   |
| Issued                        |       | 40,780     |       | 37.09                 |       |                        |       |   |   |
| Exercised                     |       | (64,926    | )          | 11.53                 |       |                        |       |   |   |
| Outstanding at Sept. 30, 2006 |       | 401,891    |       | $                     | 21.69      |                        |       |   |   |   |
| Issued                        |       | 66,154     |       | 36.70                 |       |                        |       |   |   |
| Exercised                     |       | (80,377    | )          | 15.47                 |       |                        |       | $ | 1,941 |   |
| Cancelled                     |       | (157       | )          | 35.51                 |       |                        |       |   |   |
| Outstanding at Sept. 29, 2007 |       | 387,511    |       | $                     | 25.53      |                        | 3.2        |   | $ | 3,937 |   |
|                          |       |       |       |                  |       |                        |       |   |   |
| Exercisable at Sept. 29, 2007 |       | 284,291    |       | $                     | 21.48      |                        | 2.6        |   | $ | 3,937 |   |
| Available for future grants   |       | 185,241    |       |                  |       |                        |       |   |   |

 

 

F-13

----

 

There were 35,970 non-vested stock grants outstanding at the beginning offiscal 2007 with a weighted-average fair value of $33.77 per share.  During 2007, 22,328 stock grants were awardedwith a weighted-average fair value of $37.49 per share.  There were 14,405 stock grants that vested in2007 with a weighted-average fair value of $28.01 per share.  Also, 1,141 non-vested stock shares, with aweighted-average fair value of $42.56, were forfeited during 2007. At September29, 2007, there were 42,752 non-vested stock grants outstanding with aweighted-average fair value of $37.42.

 

**Directors’ Option Plan:** In January 2005, stockholdersapproved the Courier Corporation 2005 Stock Equity Plan for Non-EmployeeDirectors (the “2005 Plan”). Under the plan provisions, non-qualified stockoptions to purchase shares of the Company’s common stock may be granted tonon-employee directors up to a total of 225,000 shares.  The option price per share is the fair marketvalue of stock at the time the option is granted.  The options are immediately exercisable andhave a term of five years. The 2005 Plan replaced the previous non-employeedirectors’ plan which had been adopted in 1989 (the “1989 Plan”).  The 1989 Plan allowed directors to make anelection to apply their annual retainer fee toward the granting of stockoptions at a price per share that was $5 below the fair market value at thetime of the option award.  In the firstquarter of fiscal 2005, 9,000 options were granted under the 1989 Plan. Nofurther options will be granted under the 1989 Plan.

 

 The following is a summary of alloption activity for these plans:

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted Average**  | ** ** | **Aggregate****Intrinsic**  | ** ** |
|-------------------------------|------------|------------|------------|-----------------------|------------|-----------------------------|------------|
| ** **                    | ** ** | **Shares** | ** ** | **Exercise****Price** | ** ** | **Remaining****Term (yrs)** | ** ** | **Value****(in 000’s)** | ** ** |
| Outstanding at Sept. 25, 2004 |       | 189,288    |       | $                     | 13.33      |                        |       |   |   |   |
| Issued                        |       | 45,000     |       | 32.47                 |       |                        |       |   |   |
| Exercised                     |       | (60,112    | )          | 9.39                  |       |                        |       |   |   |
| Outstanding at Sept. 24, 2005 |       | 174,176    |       | $                     | 19.64      |                        |       |   |   |   |
| Issued                        |       | 43,752     |       | 36.34                 |       |                        |       |   |   |
| Exercised                     |       | (32,801    | )          | 7.23                  |       |                        |       |   |   |
| Outstanding at Sept. 30, 2006 |       | 185,127    |       | $                     | 25.78      |                        |       |   |   |   |
| Issued                        |       | 38,064     |       | 39.18                 |       |                        |       |   |   |
| Exercised                     |       | (56,094    | )          | 18.25                 |       |                        |       | $ | 1,121 |   |
| Outstanding at Sept. 29, 2007 |       | 167,097    |       | $                     | 31.36      |                        | 2.6        |   | $ | 837 |   |
|                          |       |       |       |                  |       |                        |       |   |   |
| Exercisable at Sept. 29, 2007 |       | 167,097    |       | $                     | 31.36      |                        | 2.6        |   | $ | 837 |   |
| Available for future grants   |       | 93,282     |       |                  |       |                        |       |   |   |

 

Directors may also elect to receive their annual retainer and committeechair fees as shares of stock in lieu of cash. Such shares issued in 2007, 2006 and 2005 were 4,338 shares, 5,504shares and 4,062 shares at a fair market value of $39.18, $36.34 and $34.49,respectively.

 

 

F-14

----

 

**Employee Stock Purchase Plan:** The Company’s 1999 EmployeeStock Purchase Plan (“ESPP”), as amended, covers an aggregate of 337,500 sharesof Company common stock for issuance under the plan.  Eligible employees may purchase shares ofCompany common stock at not less than 85% of fair market value at the end ofthe grant period.  During 2007, 2006, and2005, 20,066 shares, 18,433 shares, and 21,439 shares, respectively, wereissued under the plan at an average price of $31.46 per share, $32.36 pershare, and $26.49 per share, respectively. Since inception, 256,390****shares have beenissued.  At September 29, 2007, anadditional 81,110 shares were reserved for future issuances.

 

**Stockholders’ Rights Plan:** In March 1999, the Board ofDirectors adopted a ten-year stockholders’ rights plan.  Under the plan, the Company’s stockholders ofrecord at March 19, 1999 received a right to purchase a unit (“Unit”) comprisedof one one-thousandth of a share of preferred stock for each share of commonstock held on that date at a price of $100, subject to adjustment.  Until such rights become exercisable, onesuch right will also attach to subsequently issued shares of common stock.  The rights become exercisable if a person orgroup acquires 15% or more of the Company’s common stock or after commencementof a tender or exchange offer which would result in a person or groupbeneficially owning 15% or more of the Company’s common stock.  When exercisable, under certain conditions,each right entitles the holder thereof to purchase Units of the Company’spreferred stock or shares of common stock of the acquirer, in each case havinga market value at that time of twice the right’s exercise price.  The Board of Directors will be entitled toredeem the rights at one cent per right, under certain circumstances.  The rights expire in 2009.

 

**Stock-Based Compensation:** The fair value of each optiongrant was estimated on the date of the grant using the Black-Scholesoption-pricing model.

 

The following key assumptions were used to valueoptions issued:
| ** **                       | ** ** | **2007**     | ** ** | **2006**   | ** ** | **2005**   | ** ** |
|----------------------------------|------------|--------------|------------|------------|------------|------------|------------|
| Risk-free interest rate          |       | 4.2—4.7 | %          | 4.5        | %          | 4.1        | %          |
| Expected volatility              |       | 25—27   | %          | 30         | %          | 22         | %          |
| Expected dividend yield          |       | 1.8—2   | %          | 1.3        | %          | 1.1        | %          |
| Estimated life for grants under: |       |         |       |       |       |       |       |
| Stock Incentive Plans            |       | 5  years     |       | 5  years   |       | 7  years   |       |
| Directors’ Option Plans     |       | 5  years     |       | 5  years   |       | 5  years   |       |
| ESPP                             |       | 0.5  years   |       | 0.5  years |       | 0.5  years |       |

 

The following is a summary of the weighted average fair value per shareof options granted during each of the past three fiscal years, based on theBlack-Scholes option-pricing model.

 
| ** **                           | ** ** | **Stock Incentive Plan** | ** ** | **Directors’ Option Plans** | ** ** |
|--------------------------------------|------------|--------------------------|------------|----------------------------------|------------|
| **On grant date:**                   | ** ** | **2007**                 | ** ** | **2006**                         | ** ** | **2005** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| Exercise price equal to stock price  |       | $                        | 9.00       |                             | $          | 11.19 |   | $ | 10.43 | ** ** | $ | 10.40 |   | $ | 9.14 |   | $ | 10.17 | ** ** |
| Exercise price less than stock price |       | —                   |       | —                           |       | — |   | — |   | — |   | $ | 10.03 |   |
|                                      |            |                          |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

 

F-15

----

 

**G.  Retirement Plans**

 

The Company and its consolidated subsidiaries maintain various definedcontribution retirement plans covering substantially all of its employees.  Dover, acquired in September 2000, alsoprovides retirement benefits through a defined benefit plan (“the Dover plan”)as described below.

 

Retirement costs of multi-employer union plans consistof contributions determined in accordance with the respective collectivebargaining agreements.  Retirement benefitsfor non-union employees are provided through the Courier Profit Sharing andSavings Plan (“PSSP”), whichincludes an Employee Stock Ownership Plan (“ESOP”).  Retirement costs included in the accompanyingfinancial statements amounted to approximately $3,940,000 in 2007, $3,870,000in 2006 and $3,820,000 in 2005. At September 29, 2007 and September 30, 2006,the Company had $2.3 million and $2.6 million, respectively, accrued for thePSSP, which is included in theaccompanying consolidated balance sheet under the caption “Other currentliabilities.”

 

The PSSP is qualified under Section 401(k) of the Internal RevenueCode.  The plan allows eligible employeesto contribute up to 100% of their compensation, subject to IRS limitations,with the Company making a matching contribution.  Effective July 1, 2007, the Company increasedthe matching contribution to 100% of the first 2% of pay plus 25% of the next4% of pay contributed by the employee. Previously, the Company match was 25% of the first 6% of pay contributedby the employee.  The Company also makescontributions to the plan annually based on profits each year for the benefitof all eligible non-union employees.

 

Shares of Company common stock may be allocated to participants’ ESOPaccounts annually based on their compensation as defined in the plan.  During the last three years, no such shareswere allocated to eligible participants. At September 29, 2007, the ESOP held 374,511****shareson behalf of the participants.

 

Dover has a noncontributory, defined benefit pension plancovering substantially all of its employees. As of December 31, 2001, Doveremployees became eligible to participate in the PSSP.  As such, plan benefits under the Doverdefined benefit plan were frozen as of that date. In 2007, $19,000 incontributions were made to the Dover plan; no contributions were made in 2006or 2005.

 

On September 29, 2007, the Company adopted therecognition and disclosure requirements of Statement of Financial AccountingStandards No. 158, “Employers’ Accounting for Defined Pension and OtherPostretirement Plans, an amendment of FASB Statements No. 87, 88, 106, and 132(R)”  (“SFAS 158”).  The Dover pension obligation was measured asof September 29, 2007 and calculated using generally accepted actuarial methods.  Actuarial gains and losses are amortizedusing the corridor method over the average remaining service life of its activeemployees.  SFAS 158 requires the Companyto recognize the funded status of its postretirement benefit plans in theconsolidated 

 

 

F-16

----

 

statement of financial position at September 29, 2007,with a corresponding adjustment to “accumulated other comprehensive income.”  The funded status is the difference betweenthe fair value of plan assets and benefit obligations.  The adjustment to accumulated othercomprehensive income at adoption represents the net unrecognized actuarialgains or losses and unrecognized prior service costs.  Future actuarial gains or losses that are notrecognized as net periodic benefits cost in the same periods will be recognizedas a component of other comprehensive income.

 

The incremental effect of adopting the provisions ofSFAS 158 on the Company’s consolidated balance sheet at September 29, 2007 arepresented in the following table.   Theadoption of SFAS 158 had no effect on the Company’s income statement for theyear ended September 29, 2007, or for any prior period presented, and it willnot affect the Company’s operating results in future periods.  Prior to the Company’s adoption of SFAS 158,it recognized an additional liability of $34,000 and $51,000 at September 29,2006 and 2005 respectively.  The amountsrecognized in the balance sheet upon adoption were as follows:

 
| **(000’s omitted)**              | ** ** | **Prior to   adopting SFAS   158** | ** ** | **Effect of   adopting SFAS   158** | ** ** | **As reported   September 29,   2007** | ** ** |
|---------------------------------------|------------|------------------------------------|------------|-------------------------------------|------------|----------------------------------------|------------|
|                                  |       |                               |       |                                |       |                                   |       |
| Prepaid pension  cost                 |       | $                                  | 690        |                                | $          | (690                                   | )          | — |   |
| Accrued pension  liability            |       | —                             |       | 126                                 |       | $                                      | 126        |   |
| Deferred tax  asset                   |       | —                             |       | 311                                 |       | 311                                    |       |
| Accumulated  other comprehensive loss |       | —                             |       | (505                                | )          | (505                                   | )     |
|                                       |            |                                    |            |                                     |            |                                        |            |  |  |  |

 

Accumulated other comprehensive income(loss) at September 29, 2007 includes actuarial losses, net of tax, of$505,000, related to the Dover plan, that have not yet been recognized in netperiodic pension cost.  The actuarialloss included in accumulated other comprehensive income and expected to berecognized in net periodic pension cost during the fiscal year ended September27, 2008 is $26,000, net of tax.

 

 

 

F-17

----

 

 

The following tables provide information regarding the Doverplan for the years ended September 29, 2007 and September 30, 2006:

 
| ** **                               | ** ** | **(000’s omitted)** | ** ** |
|------------------------------------------|------------|--------------------------|------------|
|                                     |       | **2007**                 | ** ** | **2006** |   |
| Change in  projected benefit obligation: |       |                     |       |   |   |
| Obligation at  beginning of year         |       | $                        | 3,138      |   | $ | 3,464 |   |
| Administrative  cost                     |       | 7                        |       | 7 |   |
| Interest cost                            |       | 184                      |       | 173 |   |
| Actuarial (gain)  loss                   |       | 270                      |       | (123 | ) |
| Benefits paid                            |       | (529                     | )          | (383 | ) |
| Obligation at  end of year               |       | $                        | 3,070      |   | $ | 3,138 |   |

 
| Change in plan  assets:                         |   |   |   |   |   |
|-------------------------------------------------|--------|--------|--------|--------|--------|
| Fair value of  plan assets at beginning of year |   | $      | 3,238  |   | $      | 3,559 |   |
| Actual return on  plan assets                   |   | 235    |   | 62     |   |
| Benefits paid                                   |   | (529   | )      | (383   | )      |
| Fair value of  plan assets at end of year       |   | $      | 2,944  |   | $      | 3,238 |   |

 
| Reconciliation  of funded status:         |   |   |   |   |   |
|-------------------------------------------|--------|--------|--------|--------|--------|
| Funded status at  end of year             |   | $      | (126   | )      | $      | 100 |   |
| Unrecognized net actuarial loss and other |   | — |   | 623    |   |
| Prepaid (accrued) pension cost            |   | $      | (126   | )      | $      | 723 |   |

 
|                                          | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Components of  the net periodic benefit cost: |       |     |       |     |       |     |       |
| Administrative  cost                          |       | $        | 7          |     | $          | 7        |       | $ | 8 |   |
| Interest cost                                 |       | 184      |       | 173      |       | 185      |       |
| Expected return  on plan assets               |       | (207     | )          | (235     | )          | (244     | )          |
| Amortization of  unrecognized net loss        |       | 49       |       | 21       |       | —   |       |
| Net periodic  benefit cost (income)           |       | $        | 33         |     | $          | (34      | )          | $ | (51 | ) |

 
| Actuarial assumptions used to determine costs and benefit obligations: |   |   |   |   |   |   |   |
|------------------------------------------------------------------------|--------|--------|--------|--------|--------|--------|--------|
| Discount rate                                                          |   | 5.8    | %      | 5.8    | %      | 5.3    | %      |
| Compensation  increases                                                |   | None   |   | None   |   | None   |   |
| Return on assets  for the year                                         |   | 7.0    | %      | 7.0    | %      | 7.0    | %      |

 

The Company’sstrategy is to achieve a long-term rate of return sufficient to satisfy planliabilities while minimizing plan expenses and mitigating downside risks.Assets are currently allocated 100% to Guaranteed Insurance Contracts, howeverthe Company reviews this weighting from time to time in order to achieveoverall objectives in light of current circumstances.

 

Accruedpension cost at September 29, 2007 is included in the accompanying consolidatedbalance sheet under the caption “Other liabilities” while prepaid pension costat September 30, 2006 was included in “Other assets.”

 

 

F-18

----

 

**H. Business Acquisitions**

 

On October 17, 2005, the Company acquired Moore-LangenPrinting Company, Inc. (“Moore Langen”), an Indianapolis-based printerspecializing in manufacturing book covers, in a $15 million cashtransaction.  The acquisition was accountedfor as a purchase, and accordingly, Moore Langen’s financial results wereincluded in the book manufacturing segment in the consolidated financialstatements from the date of acquisition. The allocation of the purchase price to assets acquired included, in theaccompanying financial statements, approximately $5.5 million to goodwill, $0.9million to trade name, and $0.2 million to customer lists.

 

On April 28, 2006, the Company acquired CreativeHomeowner, a New Jersey-based publisher and distributor of books, home plansand related products for the home and garden retail book market.  The Company purchased 100% of the stock in a$37 million cash transaction.  Theacquisition was accounted for as a purchase, and accordingly, CreativeHomeowner’s financial results were included in the specialty publishing segmentin the consolidated financial statements from the date of acquisition. In the third quarter of fiscal 2007, adjustments were made to theallocation of Creative Homeowner’s purchase price to assets resulting in areduction in goodwill of approximately $0.2 million.  The final allocation of purchase price toassets acquired was as follows:

 
| ** **                     | ** ** | **(000’s omitted)** | ** ** |
|--------------------------------|------------|--------------------------|------------|
| Goodwill                       |       | $                        | 16,414     |   |
| Customer lists                 |       | 11,502                   |       |
| Prepublication  costs          |       | 3,046                    |       |
| Trade name                     |       | 1,370                    |       |
| Accounts  receivable           |       | 7,485                    |       |
| Inventory                      |       | 2,876                    |       |
| Property, plant  and equipment |       | 440                      |       |
| Accounts payable               |       | (4,863                   | )          |
| Other  liabilities assumed     |       | (2,230                   | )          |
| Other assets                   |       | 971                      |       |
| Total purchase  price          |       | $                        | 37,011     |   |

 

For both the Moore Langen and Creative Homeowneracquisitions, goodwill and trade names are tax deductible.

 

The following unaudited pro forma informationpresents a summary of consolidated results of operations of the Company andCreative Homeowner as if the acquisition had occurred at the beginning offiscal 2006 and 2005, with pro forma adjustments to give

 

 

F-19

----

 

effect to amortization of customer lists,interest expense on acquisition debt and certain other purchase accountingadjustments, together with related income tax effects.

 
| **Unaudited  (Dollars in thousands, except per share amounts)** | ** ** | **2006** | ** ** | **2005** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Net sales                                                       |       | $        | 284,014    |     | $          | 249,801 |   |
| Net income                                                      |       | 28,273   |       | 20,887   |       |
| Net income per  diluted share                                   |       | 2.24     |       | 1.67     |       |
|                                                                 |            |          |            |          |            |  |  |

 

**I.  Business Segments**

 

The Company has two business segments: book manufacturing and specialtypublishing. The book manufacturing segment offers a full range of services fromproduction through storage and distribution for religious, educational andspecialty trade book publishers.  TheCompany has aggregated its book manufacturing business into one segment becauseof strong similarities in the economic characteristics, the nature of productsand services, production processes, class of customer and distribution methodsused. Moore Langen, acquired in October 2005, was added to this segment infiscal 2006.  The specialty publishingsegment consists of Dover, REA, and Creative Homeowner, beginning with itsacquisition in April 2006 (see Note H).

 

The accounting policies of the segments are the same as those describedin Note A.  In evaluating segmentperformance, management primarily focuses on income or loss before taxes,stock-based compensation, and other income. The elimination of intersegmentsales and related profit represents sales from the book manufacturing segmentto the specialty publishing segment. Interest is allocated to the specialty publishing segment based on theacquisition costs of Dover, REA, and Creative Homeowner, reduced by cashgenerated by each business since acquisition. Interest allocated to the book manufacturing segment includes interestassociated with funding the Moore Langen acquisition.  Stock-based compensation is reflected as “unallocated”in the following table.  Corporateexpenses that are allocated to the segments include various support functionssuch as information technology services, finance, human resources andengineering, and include depreciation and amortization expense related tocorporate assets.  The correspondingcorporate asset balances are not allocated to the segments.  Unallocated corporate assets consistprimarily of cash and cash equivalents and fixed assets used by the corporatesupport functions.

 

 

F-20

----

 

 

Thefollowing table provides segment information as required under SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information.”  Dollar amounts in the table are presented inthousands.

 
| ****                                           | ** ** | **Total  Company** | ** ** | **Book Manu-****facturing** | ** ** | **Specialty  Publishing** | ** ** | **Unallo-  cated** | ** ** | **Intersegment  Elimination** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-----------------------------|------------|---------------------------|------------|--------------------|------------|-------------------------------|------------|
| Fiscal 2007                                    |       |               |       |                        |       |                      |       |               |       |                          |       |
| Net sales                                      |       | $                  | 294,592    |                        | $          | 231,474                   |       | $                  | 72,890     |                          | $          | — |   | $ | (9,772 | ) |
| Earnings before  income taxes                  |       | 40,866             |       | 36,415                      |       | 5,586                     |       | (1,460             | )          | 325                           |       |
| Total assets                                   |       | 269,835            |       | 157,703                     |       | 103,284                   |       | 8,848              |       | —                        |       |
| Goodwill, net                                  |       | 55,199             |       | 14,771                      |       | 40,428                    |       | —             |       | —                        |       |
| Depreciation and  amortization                 |       | 18,856             |       | 12,084                      |       | 6,096                     |       | 676                |       | —                        |       |
| Capital  expenditures and prepublication costs |       | 31,795             |       | 25,088                      |       | 5,863                     |       | 844                |       | —                        |       |
| Interest  (income)/expense                     |       | 1,571              |       | (279                        | )          | 1,850                     |       | —             |       | —                        |       |
|                                           |       |               |       |                        |       |                      |       |               |       |                          |       |
| Fiscal 2006                                    |       |               |       |                        |       |                      |       |               |       |                          |       |
| Net sales                                      |       | $                  | 269,051    |                        | $          | 220,115                   |       | $                  | 57,549     |                          | $          | — |   | $ | (8,613 | ) |
| Earnings before income taxes                   |       | 38,190             |       | 33,606                      |       | 6,122                     |       | (1,431             | )          | (107                          | )          |
| Total assets                                   |       | 247,188            |       | 138,053                     |       | 100,441                   |       | 8,694              |       | —                        |       |
| Goodwill, net                                  |       | 55,406             |       | 14,772                      |       | 40,634                    |       | —             |       | —                        |       |
| Depreciation and amortization                  |       | 14,804             |       | 9,885                       |       | 4,307                     |       | 612                |       | —                        |       |
| Capital expenditures and prepublication costs  |       | 33,682             |       | 28,248                      |       | 4,557                     |       | 877                |       | —                        |       |
| Interest (income)/expense                      |       | 182                |       | (733                        | )          | 915                       |       | —             |       | —                        |       |
|                                           |       |               |       |                        |       |                      |       |               |       |                          |       |
| Fiscal 2005                                    |       |               |       |                        |       |                      |       |               |       |                          |       |
| Net sales                                      |       | $                  | 227,039    |                        | $          | 193,623                   |       | $                  | 40,254     |                          | $          | — |   | $ | (6,838 | ) |
| Earnings before income taxes                   |       | 32,751             |       | 31,115                      |       | 3,883                     |       | (1,835             | )          | (412                          | )          |
| Total assets                                   |       | 196,965            |       | 99,449                      |       | 59,160                    |       | 38,356             |       | —                        |       |
| Goodwill, net                                  |       | 33,255             |       | 9,240                       |       | 24,015                    |       | —             |       | —                        |       |
| Depreciation and amortization                  |       | 11,660             |       | 8,263                       |       | 3,029                     |       | 368                |       | —                        |       |
| Capital expenditures and prepublication costs  |       | 22,550             |       | 15,689                      |       | 6,489                     |       | 372                |       | —                        |       |
| Interest (income)/expense                      |       | (388               | )          | (700                        | )          | 312                       |       | —             |       | —                        |       |

 

 

 

F-21

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Export sales as a percentage of consolidated sales were approximately 16%in 2007, 19% in 2006 and 21% in 2005. Approximately 90% of export sales were in the book manufacturing segmentin fiscal years 2007, 2006, and 2005. Sales to the Company’s largest customer amounted to approximately 20%****of consolidated sales in 2007, 23% in 2006 and 28% in 2005.In addition, sales to another customer amounted to 16% of consolidated sales in2007 and 2006, and 19% in 2005.  Both ofthese customers are in the book manufacturing segment and no other customeraccounted for more than 10% of consolidated sales.  Customers are granted credit on an unsecuredbasis.  Receivables for the two largestcustomers, as a percentage of consolidated accounts receivable, were 21% atSeptember 29, 2007 and 24% at September 30, 2006.

 

## **J.  Net Income per Share**

 

Following is a reconciliation of the shares used in thecalculation of basic and diluted net income per share.  Potentially dilutive shares, calculated usingthe treasury stock method, consist of shares issued under the Company’s stockoption plans.

 
| ** **                              | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------|------------|--------------------------|------------|
| ** **                              | ** ** | **2007**                 | ** ** | **2006** | ** ** | **2005** | ** ** |
| Average shares outstanding for basic    |       | 12,470                   |       | 12,322 |   | 12,125 |   |
| Effect of potentially dilutive shares   |       | 219                      |       | 277 |   | 356 |   |
| Average shares outstanding for dilutive |       | 12,689                   |       | 12,599 |   | 12,481 |   |

** **

**K. Derivative Financial Instruments**

 

At the end of fiscal 2006, the Company had a forwardexchange contract to purchase approximately 800,000 euros as a hedge against aforeign currency equipment purchase commitment, designated as a cash flowhedge.  The equipment was delivered andthe forward exchange contract settled in the first quarter of fiscal 2007.  The Company does not use derivative financialinstruments for trading or speculative purposes.

 

 

F-22

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COURIER CORPORATION

 

FIVE-YEAR FINANCIALSUMMARY

 
| **(Dollar amounts in millions   except per share data)** | ** ** | **2007** | ** ** | **2006*** | ** ** | **2005** | ** ** | **2004** | ** ** | **2003** | ** ** |
|----------------------------------------------------------|------------|----------|------------|-----------|------------|----------|------------|----------|------------|----------|------------|
|                                                     |       |     |       |      |       |     |       |     |       |     |       |
| Net sales                                                |       | $        | 294.6      |      | $          | 269.1    |       | $        | 227.0      |     | $          | 211.2 |   | $ | 202.0 |   |
| Gross profit                                             |       | 96.4     |       | 88.5      |       | 75.2     |       | 68.6     |       | 67.4     |       |
| Net income                                               |       | 25.7     |       | 28.4      |       | 20.9     |       | 19.2     |       | 18.3     |       |
| Net income per  diluted share                            |       | 2.03     |       | 2.25      |       | 1.67     |       | 1.56     |       | 1.50     |       |
| Dividends per  share                                     |       | 0.72     |       | 0.48      |       | 0.33     |       | 0.23     |       | 0.20     |       |
| Working capital                                          |       | 56.0     |       | 46.2      |       | 66.9     |       | 57.3     |       | 50.9     |       |
| Current ratio                                            |       | 2.5      |       | 2.3       |       | 3.2      |       | 2.9      |       | 2.9      |       |
| Capital  expenditures                                    |       | 26.4     |       | 29.4      |       | 19.7     |       | 13.4     |       | 10.9     |       |
| Depreciation and  amortization                           |       | 18.9     |       | 14.8      |       | 11.7     |       | 10.9     |       | 9.8      |       |
| Total assets                                             |       | 269.8    |       | 247.2     |       | 197.0    |       | 175.2    |       | 151.5    |       |
| Long-term debt                                           |       | 17.4     |       | 17.2      |       | 0.4      |       | 0.5      |       | 0.6      |       |
| Long-term debt  as a percentage of capitalization        |       | 7.9      | %          | 8.6       | %          | 0.3      | %          | 0.4      | %          | 0.5      | %          |
| Stockholders’  equity                               |       | 203.1    |       | 182.3     |       | 156.5    |       | 135.4    |       | 115.7    |       |
| Return on  stockholders’ equity                     |       | 13.4     | %          | 16.8      | %          | 14.3     | %          | 15.3     | %          | 17.3     | %          |
| Stockholders’  equity per share                     |       | 16.10    |       | 14.65     |       | 12.71    |       | 11.24    |       | 9.73     |       |
| Shares  outstanding (in 000’s)                      |       | 12,612   |       | 12,445    |       | 12,313   |       | 12,047   |       | 11,897   |       |
| Number of  employees                                     |       | 1,830    |       | 1,724     |       | 1,479    |       | 1,465    |       | 1,420    |       |
|                                                          |            |          |            |           |            |          |            |          |            |          |            |  |  |  |  |  |

----

*Prior yearamounts were retroactively adjusted to reflect the adoption of SFAS 123R infiscal 2006 (Note F).*

* *

*Net incomeper diluted share is based on weighted average shares outstanding;stockholders’ equity per share is*

*based onshares outstanding at year end. Shares outstanding and per share amounts wereretroactively*

*adjusted toreflect three-for-two stock splits distributed on May 27, 2005 and December 5,2003 (Note A).*

* *

*Net sales,gross profit, net income, net income per diluted share and return on stockholders’equity for 2003*

*reflectcontinuing operations.  Results fromdiscontinued operations was income of $848,000 (including a gain on*

*disposal)in 2003.*

 

** Fiscal 2006 was a 53-week period.  Fiscal 2006 results include the reversal of a$3.8 million, or $.30 per diluted**share, income tax reserve (Note C).*

 

 

 

F-23

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###### **MANAGEMENT’S DISCUSSION AND ANALYSIS**

 

***FORWARD-LOOKING INFORMATION***

 

*The Annual Report to shareholdersincludes forward-looking statements. Statements that describe future expectations, plans or strategies areconsidered “forward-looking statements” as that term is defined under thePrivate Securities Litigation Reform Act of 1995 and releases issued by theSecurities and Exchange Commission.  Thewords “believe”, “expect”, “anticipate”, “intend”, “estimate” and otherexpressions which are predictions of or indicate future events and trends andwhich do not relate to historical matters identify forward-lookingstatements.  Such statements are subject torisks and uncertainties that could cause actual results to differ materiallyfrom those currently anticipated. Factors that could affect actual results include, among others, changesin customers’ demand for the Company’s products, including seasonal changes incustomer orders and shifting orders to lower cost regions, changes in marketgrowth rates such as the housing market, changes in raw material costs andavailability, pricing actions by competitors and other competitive pressures inthe markets in which the Company competes, consolidation among customers andcompetitors, success in the execution of acquisitions and the performance andintegration of acquired businesses, changes in operating expenses includingmedical and energy costs, changes in technology including migration frompaper-based books to digital, difficulties in the start up of new equipment orinformation technology systems, changes in copyright laws, changes in taxregulations, changes in the Company’s effective income tax rate, and generalchanges in economic conditions, including currency fluctuations and changes ininterest rates.  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 no obligationto update publicly such statements to reflect subsequent events orcircumstances.*

 

## ** **

## **OVERVIEW**

 

Courier Corporation, founded in 1824, is one of America’s leading bookmanufacturers and specialty publishers. The Company has two business segments: book manufacturing and specialtypublishing.  The book manufacturingsegment streamlines the process of bringing books from the point of creation tothe point of use.  Based on sales,Courier is the third largest book manufacturer in the United States, offeringservices from prepress and production, through storage and distribution.  The specialty publishing segment consists ofDover Publications, Inc. (“Dover”), Research & Education Association, Inc.(“REA”), and Federal Marketing Corporation, d/b/a Creative Homeowner (“CreativeHomeowner”), acquired in April 2006. Dover publishes over 9,000 titles in more than 30 specialty categoriesranging from literature to paper dolls, and 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 and distributes books, home plans and related products tothe home and garden market.

 

 

 

 

F-24

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**RESULTS OF OPERATIONS**

 

FINANCIALHIGHLIGHTS

(dollars in thousandsexcept per share amounts)

 
| ** **                           | ** **                     | ** ** | ** ** | ** **                     | ** ** | ** ** | ** **                     | **Percent Change** | ** ** |
|--------------------------------------|--------------------------------|------------|------------|--------------------------------|------------|------------|--------------------------------|--------------------|------------|
| ** **                           | ** **                     | ** ** | ** ** | ** **                     | ** ** | ** ** | ** **                     | **2007 vs.**       | ** ** | **2006 vs.** | ** ** |
| ** **                           | ** **                     | **2007**   | ** ** | **2006**                       | ** ** | **2005**   | ** **                     | **2006**           | ** ** | **2005** | ** ** |
| Net sales                            |       | $          | 294,592    |       | $          | 269,051    |       | $                  | 227,039    |       | 9.5 | %   | 18.5 | % |
| Gross profit                         |                           | 96,363     |       | 88,516                         |       | 75,186     |                           | 8.9                | %          | 17.7 | % |
| As a percentage  of sales            |                           | 32.7       | %          | 32.9                           | %          | 33.1       | %                              |               |       |   |   |
| Selling and  administrative expenses |                           | 53,926     |       | 50,144                         |       | 42,823     |                           | 7.5                | %          | 17.1 | % |
| Interest  (income)/expense, net      |                           | 1,571      |       | 182                            |       | (388       | )                              |               |       |   |   |
| Pretax income                        |                           | 40,866     |       | 38,190                         |       | 32,751     |                           | 7.0                | %          | 16.6 | % |
| Provision for  income taxes          |                           | 15,121     |       | 9,810                          |       | 11,883     |                           |               |       |   |   |
| Net income                           |                           | $          | 25,745     |                           | $          | 28,380     |                           | $                  | 20,868     |   | -9.3 | % | 36.0 | % |
|                                 |                           |       |       |                           |       |       |                           |               |       |   |   |
| Net income per  diluted share        |                           | $          | 2.03       |                           | $          | 2.25       |                           | $                  | 1.67       |   | -9.8 | % | 34.7 | % |

 

Fiscal years 2007 and 2005 were 52-week periods compared witha 53-week period in fiscal year 2006. The pro rata effect of the extra weekcontributed approximately 2% to fiscal 2006 sales and earnings results.

 

Revenues in fiscal 2007 increased in bothof the Company’s operating segments compared to the prior year.  Book manufacturing revenues were up 5% infiscal 2007 compared to the 53-week period last year, reflecting continuedgrowth in education sales.  Sales in thespecialty publishing segment for fiscal 2007 were up 27% compared to the prioryear due largely to the inclusion of full-year results from Creative Homeowner,acquired in April 2006. Net income for fiscal 2007 was $25.7 million, or $2.03per diluted share. For fiscal 2006, net income was $28.4 million, whichincluded a reduction in taxes of $3.8 million, or $.30 per diluted share, fromthe reversal of tax reserves.  Withoutthe effect of this tax adjustment, net income in fiscal 2007 increased 5% overthe prior year, or 8% on a comparable 52-week basis.  For fiscal 2006, revenues in both of theCompany’s operating segments also increased compared to the prior year.  Acquisitions made during fiscal 2006contributed $24 million to the growth in revenues compared to fiscal 2005, inaddition to higher textbook sales in the book manufacturing segment and growthin both of the previously existing businesses in the specialty publishingsegment.

 

***Business Acquisitions***

On April 28, 2006, the Company acquired Creative Homeowner, a NewJersey-based publisher and distributor of books, home plans, and relatedproducts for the $340-million home and garden retail book market. On October17, 2005, the Company acquired Moore-Langen Printing Company, Inc. (“MooreLangen”) an Indianapolis-based printer specializing in manufacturing bookcovers. Each of these acquisitions was accounted for

 

F-25

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as a purchase, and accordingly, the financial results of CreativeHomeowner were included in the specialty publishing segment from the date ofacquisition and the financial results of Moore Langen were included in the bookmanufacturing segment from the date of acquisition.

 

***Book Manufacturing Segment***

 

SEGMENT HIGHLIGHTS(dollars in thousands)

 
| ** **                           | ** **                     | ** ** | ** ** | ** **                     | ** ** | ** ** | ** **                     | **Percent Change** | ** ** |
|--------------------------------------|--------------------------------|------------|------------|--------------------------------|------------|------------|--------------------------------|--------------------|------------|
| ** **                           | ** **                     | ** ** | ** ** | ** **                     | ** ** | ** ** | ** **                     | **2007 vs.**       | ** ** | **2006 vs.** | ** ** |
| ** **                           | ** **                     | **2007**   | ** ** | **2006***                      | ** ** | **2005**   | ** **                     | **2006**           | ** ** | **2005** | ** ** |
|                                 |                           |       |       |                           |       |       |                           |               |       |   |   |
| Net sales                            |       | $          | 231,474    |       | $          | 220,115    |       | $                  | 193,623    |       | 5.2 | %   | 13.7 | % |
| Gross profit                         |                           | 65,356     |       | 63,156                         |       | 57,110     |                           | 3.5                | %          | 10.6 | % |
| As a percentage  of sales            |                           | 28.2       | %          | 28.7                           | %          | 29.5       | %                              |               |       |   |   |
| Selling and  administrative expenses |                           | 29,220     |       | 30,283                         |       | 26,695     |                           | -3.5               | %          | 13.4 | % |
| Interest income,  net                |                           | (279       | )          | (733                           | )          | (700       | )                              | -61.9              | %          | 4.7 | % |
| Pretax income                        |                           | $          | 36,415     |                           | $          | 33,606     |                           | $                  | 31,115     |   | 8.4 | % | 8.0 | % |

----

* Fiscal year 2006 was a 53-week period.

 

Within thissegment, the Company focuses on three key publishing markets: education,religious and specialty trade.  Sales tothe education market were $99.7 million in fiscal 2007, up 15% over fiscal 2006(or 18% on a comparable 52-week basis) reflecting share gains with keycustomers and continued strong demand for four-color textbooks for elementaryand high schools.  The newest 4-colorpress installation in December 2006, as well as new bindery equipment, providedthe necessary capacity to meet the growing demand for educational books.  Moore Langen, the Company’s cover printingoperation that specializes in textbook covers, also experienced revenue growthfrom the education market.  In thereligious market, sales were $63.1 million, down 6% from fiscal 2006 (or 4% ona comparable 52-week basis), reflecting slower than expected growth during thephase-in of a multi-year expansion program for the Company’s largest religiouscustomer.  The objective of this programis to enable our customer to increase their distribution of scriptures aroundthe world by reducing our production costs through manufacturing efficienciesand the use of alternative materials, and sharing the resulting savings withour customer.  In support of thisprogram, the Company added new binding equipment, to be followed in early 2008with the installation of a major new press, which increases capacity andefficiency at our Philadelphia plant. Sales to the specialty trade market were $56.1 million, up 14% comparedto fiscal 2006 (or 16% on a comparable 52-week basis), as a result of several large one-time orders early in the year, combinedwith growth from new customers and share gains from existing customers.  In fiscal 2006, sales to the education marketrose 11% to $86.3 million compared with fiscal 2005, with 4% of this increaseattributed to the addition of Moore Langen. Sales increased in all levels of the market, with particular strength infour-color textbooks for elementary and high schools, enabled by a newfour-color press installed in December 2005. Sales growth in the religious andthe specialty trade markets in fiscal 2006 increased 2% to 

 

F-26

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$67.0 million and9% to $49.3 million, respectively, compared with the prior year.

 

Cost of sales in the book manufacturing segment increased 6% to $166.1million in fiscal 2007 compared to the prior year, reflecting sales growth andhigher benefit costs.  The new press,which began operation in the Kendallville, Indiana plant in December 2006, hada smooth start up without significant additional costs.  Gross profit in this segment decreasedslightly to 28.2% from 28.7% in fiscal 2006 resulting from competitive pricingpressures, fluctuations in sales mix and increases in benefit costs.  The impact of rising utility costs waspartially mitigated during 2007 by contractually fixing certain rates throughMay 2009.  Cost of sales in this segmentin fiscal 2006 increased 15% over the prior year to $157.0 million, includingthe addition of Moore Langen in October 2005 and a $1.8 million increase in utility costs.  In fiscal 2006, gross profit in this segmentincreased 11% over 2005 to $63.2 million, and as a percentage of sales,decreased slightly to 28.7% from 29.5% in fiscal 2005, reflecting an increasein utility costs as well as the impact of a highly competitive industryenvironment.

 

Selling and administrative expensesin the book manufacturing segment were $29.2 million in fiscal 2007, a decreaseof 4% from fiscal 2006 reflecting a $1.8 million reduction in incentivecompensation which was offset in part by an increase in selling expenses. As apercentage of sales, selling and administrative expenses were 12.6% in fiscal2007 compared to 13.8% in the prior year. In fiscal 2006, selling and administrative expenses were $30.3 million,up $3.6 million or 13% over the prior year. This increase was primarily due to the addition of Moore Langen and the53rd week in fiscal 2006.  Asa percentage of sales, selling and administrative expenses were 13.8% in 2006,comparable to the prior year.

 

Intercompany interest incomeallocated to the book manufacturing segment in fiscal 2007 decreased to$279,000 from $733,000 in the prior year, reflecting the impact of increasedworking capital as well as increased capital investments for the expansion ofthe Kendallville, Indiana facility and an ongoing capacity expansion program inPhiladelphia for the religious market. In fiscal 2006, allocated intercompany interest income increased to$733,000 compared to $700,000 in fiscal 2005. This increase was primarily theresult of higher interest rates offset in part by interest expense allocatedfor the funding of the acquisition of Moore Langen.

 

Pretax income in the Company’s bookmanufacturing segment in fiscal 2007 was $36.4 million, an increase of 8% overthe prior year (or 11% on a comparable 52-week basis). Pretax income in fiscal2006 increased 8% to $33.6 million, compared to $31.1 million in fiscal 2005.

 

F-27

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***Specialty Publishing Segment***

 

SEGMENT HIGHLIGHTS(dollars inthousands)

 
| ** **                           | ** **                     | ** ** | ** ** | ** **                     | ** ** | ** ** | ** **                     | **Percent Change** | ** ** |
|--------------------------------------|--------------------------------|------------|------------|--------------------------------|------------|------------|--------------------------------|--------------------|------------|
| ** **                           | ** **                     | ** ** | ** ** | ** **                     | ** ** | ** ** | ** **                     | **2007 vs.**       | ** ** | **2006 vs.** | ** ** |
| ** **                           | ** **                     | **2007**   | ** ** | **2006***                      | ** ** | **2005**   | ** **                     | **2006**           | ** ** | **2005** | ** ** |
|                                 |                           |       |       |                           |       |       |                           |               |       |   |   |
| Net sales                            |       | $          | 72,890     |       | $          | 57,549     |       | $                  | 40,254     |       | 26.7 | %   | 43.0 | % |
| Gross profit                         |                           | 30,682     |       | 25,468                         |       | 18,487     |                           | 20.5               | %          | 37.8 | % |
| As a percentage  of sales            |                           | 42.1       | %          | 44.3                           | %          | 45.9       | %                              |               |       |   |   |
| Selling and  administrative expenses |                           | 23,246     |       | 18,431                         |       | 14,292     |                           | 26.1               | %          | 29.0 | % |
| Interest  expense, net               |                           | 1,850      |       | 915                            |       | 312        |                           | 102.2              | %          | 193.3 | % |
| Pretax income                        |                           | $          | 5,586      |                           | $          | 6,122      |                           | $                  | 3,883      |   | -8.8 | % | 57.7 | % |

----

* Fiscal year 2006 was a 53-week period.

 

The Company’sspecialty publishing segment is comprised of Dover, REA, and Creative Homeownersince its acquisition on April 28, 2006. Sales in fiscal 2007 were $72.9 million, an increase of 27% over fiscal2006, largely due to the inclusion of full-year results for CreativeHomeowner.  Sales at Dover were down infiscal 2007 to $37.1 million from $39.0 million in 2006. Sales gains wereachieved among smaller retailers and certain larger retail chains, helped bythe expansion of proprietary packaged products, including new “Dover Fun Kitsä”.  Sales to large booksellers however fluctuatedduring the year in response to the slow retail environment.  REA’s sales were $7.7 million in fiscal 2007,a 16% increase over the prior year, reflecting sales growth in the educationaltesting market, including new titles for high-stakes test preparation books,such as Advanced Placement and high school exit exams.  Creative Homeowner’s sales in fiscal 2007were $28.0 million, contributing $16 million of sales growth to the specialtypublishing segment as last year included five months of its sales afteracquisition.  Creative Homeowner’s saleswere relatively flat from a comparable period in 2006, reflecting a softhousing market and reduced traffic at home improvement centers, whichconstitute Creative Homeowner’s largest sales channel.  Fiscal 2006 sales in this segment were $57.5million, a 43% increase over the prior year, with approximately $12 million ofthe increase attributable to the addition of Creative Homeowner.  Dover’s sales increased 12% in fiscal 2006 to$39.0 million compared to fiscal 2005, including a 17% increase in trade sales,a 16% increase in international sales, and a 6% increase in direct-to-consumersales.  Sales at REA were $6.7 million infiscal 2006, a 20% increase compared to the prior year.  The sales growth in fiscal 2006 at both Doverand REA reflected the success of new marketing and merchandising programs aswell as the completion of information technology and distribution upgrades,which enhanced customer service and accelerated deliveries.

 

Cost of sales in this segmentincreased by 32% to $42.2 million in fiscal 2007 compared to the same periodlast year, reflecting the incremental impact of Creative Homeowner.  Gross profit as a percentage of sales for thesegment decreased to 42.1% from 44.3% 

 

F-28

----

 

compared to fiscal 2006.  Creative Homeowner reduced the overall grossprofit percentage in the segment because of their lower-margin distributionbusiness.  In fiscal 2006, cost of salesin the specialty publishing segment increased 47% to $32.1 million compared tofiscal 2005, reflecting the impact of the April 2006 acquisition of CreativeHomeowner and the extra week in fiscal 2006. Gross profit in this segment increased 38% to $25.5 million in fiscal2006 due to the improvement in Dover’s sales and the contribution of CreativeHomeowner.  As a percentage of sales,gross profit was 44.3 % compared to 45.9% in 2005, resulting from costsassociated with the acquisition of Creative Homeowner.  Creative Homeowner’s gross profit percentageafter acquisition in fiscal 2006 was 32%, including the cost associated with arequired purchase accounting write-up to fair market value of approximately$370,000 in their opening inventory and which had been sold and charged to costof sales during 2006.

 

Selling and administrative expensesfor this segment increased $4.8 million in fiscal 2007 to $23.2 million as aresult of the full-year results of Creative Homeowner, acquired during fiscal2006.  This more than offset the impactof the additional week in fiscal 2006. As a percentage of sales, selling and administrative expenses were 31.9%compared to 32.0% in fiscal 2006. Selling and administrative expenses were$18.4 million in fiscal 2006, up from $14.3 million in 2005.  The acquisition of Creative Homeownerrepresented approximately $3.0 million of the increase.  Creative Homeowner’s selling andadministrative expenses include approximately $325,000 for amortization ofintangibles.  Selling and administrativeexpenses for Dover and REA increased by $1.1 million, or 8%, compared to theprior year, primarily as a result of increased sales and related marketingexpenses.  As a percentage of sales,selling and administrative expenses in fiscal 2006 decreased to 32.0% from35.5% in the prior year.

 

Intercompany interest expense isallocated to the specialty publishing segment based on acquisition costs,reduced by cash generated by each business since acquisition.  Interest expense for fiscal 2007 was $1.9million compared to $0.9 million in 2006. The increase reflects the $37 million purchase of Creative Homeowner inApril 2006.  Intercompany interestexpense for Dover and REA decreased in fiscal 2007 reflecting the benefit ofcash generated by these businesses. Intercompany interest expense in fiscal 2006 was $915,000 compared to$312,000 in 2005, reflecting the acquisition of Creative Homeowner.

 

In fiscal 2007, pretax income in thespecialty publishing segment was $5.6 million, a decrease of 9% from fiscal2006, primarily as a result of the impact of the soft housing market on demandfor Creative Homeowner’s products.  Forfiscal 2006, pretax income in this segment increased 58% over the prior year to$6.1 million.

 

***Total Consolidated Company***

Interest expense, net of interest income,was $1.6 million in fiscal 2007 compared to $182,000 in 2006, while interest income,net of interest expense, was $388,000 in 2005. The increase in interest expense in 2007 was principally due to the $37million acquisition of Creative Homeowner in April 2006.  The Company funded this acquisition withavailable cash and borrowing approximately $20 million under its revolvingcredit facility.  Average debt under therevolving credit facility in fiscal 2007 was approximately $23.3 million at anaverage annual interest rate of 5.9%.  Infiscal 2006, 

 

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average debt under the revolving creditfacility was approximately $6.9 million at an average annual interest rate of5.7%.  Interest expense also includescommitment fees and other costs associated with maintaining this creditfacility.  Cash investments in 2006averaged approximately $11.6 million at an average annual interest rate of3.9%.  Capitalized interest, related to anew four-color press, was $169,000 in 2007. No interest was capitalized in fiscal years 2006 or 2005.

 

The Company’s effective tax rate forfiscal 2007 was 37.0% compared to 25.7% in 2006.  During the fourth quarter of fiscal 2006, theCompany reversed an income tax accrual pursuant to receipt of a state tax auditreport and the expiration of certain statutes of limitations.  As a result, the Company’s 2006 effective taxrate reflects a reduction in its income tax expense of $3.8 million, or $.30per diluted share. Without the effect of this tax accrual reversal, theeffective tax rate was 35.6%.  Theincrease in the effective tax rate in fiscal 2007 to 37.0% reflects the phaseout of the tax benefit on export related income and a slower phase in of thedomestic manufacturing deduction.  Inaddition, there was a slight increase in the Company’s effective state tax rate.  The effective tax rate for fiscal 2006 of35.6 %, without the effect of the reversal of tax reserves, declined from 36.3%in 2005.  This decline was due in largepart to the impact of the retrospective adoption of SFAS 123R at the beginningof fiscal 2006.  Although non-deductiblestock compensation costs increased the effective tax rate by 0.4% in fiscal2006, the impact in fiscal 2005 was higher at 0.9%.  In addition, the fiscal 2006 tax ratereflects the benefit of the domestic manufacturers deduction.

 

For purposes of computing net income per diluted share, weightedaverage shares outstanding increased by approximately 90,000 shares in fiscal2007 and 118,000 shares in fiscal 2006. These increases were primarily due to options exercised and sharesissued under the Company’s stock plans and the impact of potentially dilutiveshares.  On November 8, 2007, the Companyannounced the approval by its Board of Directors for the repurchase of up to$10 million of the Company’s outstanding common stock from time to time atmanagement’s discretion either through the open market or privately negotiatedtransactions.

 

### **LIQUIDITY ANDCAPITAL RESOURCES**

 

Operating activities provided $37.5million of cash in 2007 compared to $39.2 million in fiscal 2006.  Net income for 2007 was $25.7 million andstock-based compensation was $1.5 million, depreciation was $13.5 million,amortization of prepublication costs was $4.5 million, and amortization ofintangible assets was $0.8 million. Working capital changes used approximately $10.2 million of cash,primarily as a result of increased inventories.

 

Investment activities in fiscal 2007 used $31.8 million of cash. Capitalexpenditures were approximately $26.4 million, which included the four-colorpress that was installed in December 2006 in the Kendallville, Indiana facilityas well as a related bindery expansion. This press is identical to the pressesinstalled in April 2004 and December 2005. This amount also includes payments on equipment to expand printing andbinding capacity in the religious book manufacturing operation inPhiladelphia.  Capital also included investments toincrease productivity, lower costs and improve employee safety.

 

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For fiscal 2008, capital expenditures are expected to be approximately$20 to $25 million.  This includes theconstruction of a 200,000 square foot warehouse in Kendallville, Indiana andthe completion of our capacity expansion program in our Philadelphiafacility.  Prepublication costs in the specialty publishing segment were $5.4million compared to $4.3 million last year, with the increase resultingprimarily from the addition of Creative Homeowner.  These costs are expected to be approximately$5 to $6 million in 2008.

 

Financing activities used approximately $5.6 million of cash in2007.  As a result of a 50% increase inthe Company’s dividend rate in November 2006, dividend payments in fiscal 2007were $9.0 million, 52% higher than the $5.9 million paid in fiscal 2006.  Proceeds from stock plans were $2.6 millionin fiscal 2007, primarily from the exercise of stock options.  At September 29, 2007 and September 30, 2006,the Company had $17.2 million and $16.9 million, respectively, in borrowingsunder its $100 million long-term revolving credit facility.  The revolving credit facility, which bearsinterest at a floating rate, is used by the Company for both its long-term andshort-term financing needs.  In November2006, the revolving credit facility was increased from $60 million to $100million, the bank group was expanded from three banks to five banks and thematurity date was extended to 2011.  OnNovember 8, 2007, the Company announced the approval by its Board of Directorsfor the repurchase of up to $10 million of the Company’s outstanding commonstock from time to time at management’s discretion either through the openmarket or privately negotiated transactions. The Company also announced that the Board of Directors declared adividend of $0.20 per common share, an 11% increase over the dividend declaredin the previous quarter.  The Companybelieves that its cash on hand, cash from operations and the available creditfacility will be sufficient to meet its cash requirements through 2008.

 

The following table summarizes the Company’s contractual obligationsand commitments at September 29, 2007 to make future payments as well as itsexisting commercial commitments.  Theamounts in the table do not include interest expense.  Purchase obligations represent amounts forcapital commitments.

 
| ** **                  | ** ** | ** ** | ** ** | **(000’s omitted)**   | ** ** |
|-----------------------------|------------|------------|------------|----------------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **Payments due by period** | ** ** |
| **Contractual Payments:**   | ** ** | **Total**  | ** ** | **Less than****1 Year**    | ** ** | **1 to 3  Years** | ** ** | **3 to 5  Years** | ** ** | **More  than  5 Years** | ** ** |
| Long-Term Debt              |       | $          | 17,466     |                       | $          | 91 |   | $ | 189 |   | $ | 17,186 |   | $ | — |   |
| Operating Leases            |       | 8,998      |       | 2,676                      |       | 3,572 |   | 1,654 |   | 1,096 |   |
| Purchase Obligations        |       | 3,381      |       | 3,381                      |       | — |   | — |   | — |   |
| Other Long-Term Liabilities |       | 3,511      |       | —                     |       | 1,667 |   | 350 |   | 1,494 |   |
| Total                       |       | $          | 33,356     |                       | $          | 6,148 |   | $ | 5,428 |   | $ | 19,190 |   | $ | 2,590 |   |

 

Long-term debt includes $17.2 million under the Company’s long-termrevolving credit facility, which has a maturity date of March 2011.

 

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### **NEW ACCOUNTING PRONOUNCEMENTS**

 

In July 2006, theFASB issued Interpretation No. 48, “Accounting for Uncertainty in Income Taxes”(“FIN No. 48”), an interpretation of FASB Statement No. 109, “Accounting forIncome Taxes.”  FIN No. 48 applies tofiscal years beginning after December 15, 2006; the Company’s 2008 fiscalyear.  The Company does not believe theadoption of FIN No. 48 will have a material effect on its consolidatedfinancial position, results of operations or cash flows.

 

### **RISKS**

 

Our businesses operate in markets that are highly competitive, and theCompany faces competition on the basis of price, product quality, speed ofdelivery, customer service, availability of appropriate printing capacity andpaper, related services and technology support. Some of our competitors have greater sales, assets and financialresources than our Company and others, particularly those in foreign countries,may derive significant advantages from local governmental regulation, includingtax holidays and other subsidies. These competitive pressures could affectprices or customers’ demand for our products, impacting our profit marginsand/or resulting in a loss of customers and market share. The Company derivedapproximately 35% of its fiscal 2007 revenues, 40% of its 2006 revenues, and47% of its 2005 revenues from two major customers.  A significant reduction in order volumes orprice levels from either of them could have a material adverse effect on theCompany.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

The Company’s consolidated financial statementshave been prepared in accordance with accounting principles generally acceptedin the United States of America.  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  Managementperforms ongoing credit evaluations of the Company’s customers and adjustscredit limits based upon payment history and the customer’s current creditworthiness.  Collections and paymentsfrom customers are continuously monitored. A provision for estimated credit losses is determined based uponhistorical experience and any specific customer collection issues that havebeen identified.  If the financialcondition of the Company’s customers were to deteriorate, 

 

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resulting in an impairment of their ability to make payments,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 intangibles include customer lists which are amortized on astraight-line basis over periods ranging from ten to fifteen years. The Companyevaluates possible impairment of goodwill and other intangibles annually orwhenever events or circumstances indicate that the carrying value of the assetsmay not be recoverable.  The Companycompleted the annual impairment test at September 29, 2007 resulting in no changeto the nature or carrying amounts of its intangible assets.  Changes in market conditions or pooroperating results could result in a decline in value thereby potentiallyrequiring an impairment charge in the future.

 

Prepublication Costs   The Companycapitalizes prepublication costs, which include the costs of acquiring rightsto publish a work and costs associated with bringing a manuscript topublication such as artwork and editorial efforts.  Prepublication costs are amortized on astraight-line basis over periods ranging from three to five years.  Management regularly evaluates the sales andprofitability of the products based upon historical and forecasted demand.  Based upon this evaluation, adjustments maybe required to amortization expense.

 

Income Taxes   The incometax provision and related accrued taxes are based on amounts reported on theCompany’s tax returns and changes in deferred taxes.  Deferred incometax 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.

 

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COURIER CORPORATION

 

SCHEDULE II

 

CONSOLIDATED VALUATIONAND QUALIFYING ACCOUNTS

 
|                                   |   | **BALANCE AT  BEGINNING  OF PERIOD** |      | **ADDITIONS  CHARGED TO  COSTS AND  EXPENSES** |   | **DEDUCTIONS** |   | **OTHER  CHANGES(1)** |      | **BALANCE  AT END  OF PERIOD** |   |
|----------------------------------------|--------|--------------------------------------|-----------|------------------------------------------------|--------|----------------|--------|-----------------------|-----------|--------------------------------|--------|
| Allowance for  uncollectible accounts: |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
|                                   |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
| Fiscal year  ended September 29, 2007  |   | $                                    | 1,593,000 |                                           | $      | 163,000        |   | $                     | 225,000   |                           |   |   | $ | 1,531,000 |   |
|                                   |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
| Fiscal year  ended September 30, 2006  |   | $                                    | 1,139,000 |                                           | $      | 241,000        |   | $                     | 87,000    |                           | $      | 300,000 |   | $ | 1,593,000 |   |
|                                   |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
| Fiscal year  ended September 24, 2005  |   | $                                    | 1,630,000 |                                           | $      | 200,000        |   | $                     | 691,000   |                           |   |   | $ | 1,139,000 |   |
|                                   |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
| Returns  allowance:                    |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
|                                   |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
| Fiscal year  ended September 29, 2007  |   | $                                    | 1,630,000 |                                           | $      | 4,694,000      |   | $                     | 4,640,000 |                           |   |   | $ | 1,684,000 |   |
|                                   |   |                                 |      |                                           |   |           |   |                  |      |                           |   |
| Fiscal year  ended September 30, 2006  |   | $                                    | 202,000   |                                           | $      | 2,363,000      |   | $                     | 2,335,000 |                           | $      | 1,400,000 |   | $ | 1,630,000 |   |

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(1)           Other changesreflect amounts related to business acquisitions.

 

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