Table of Contents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**Form 10-K**

 

**(MARKONE)**

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

 

**Forthe fiscal year ended September 27, 2008**

** **

**OR**

 

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

 

**Forthe transition 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**

 

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

 

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

 

**Indicateby check mark whether the registrant is a well-known seasoned issuer, asdefined in Rule 405 of the Securities Act.**

**Yes   ****o       No   ****x**

 

**Indicateby check mark if the registrant is not required to file reports pursuant to Section 13or 15(d) of the Act.**

**Yes   ****o       No   ****x**

 

**Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days. Yes****x  No****o**

 

**Indicateby check mark if disclosure of delinquent filers pursuant to Item 405 ofRegulation S-K is not contained herein, and will not be contained, to the bestof the registrant’s knowledge, in definitive proxy or information statementsincorporated by reference in Part III of this Form 10-K or anyamendment to this Form 10-K. ****o**

 

**Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,”“accelerated filer” and “smaller reporting company” in Rule 12b-2 oftheExchange Act.**

 

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

 

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

 

**Statethe aggregate market value of the voting and non-voting common equity held bynon-affiliates computed by reference to the price at which the common equitywas last sold as of the last business day of the registrant’s most recentlycompleted second fiscal quarter (March 29, 2008).**

 

**CommonStock, $1 par value - $240,498,678**

 

**Indicatethe number of shares outstanding of each of the registrant’s classes of commonstock as of November 17, 2008.**

 

**CommonStock, $1 par value - 11,878,461**

 

**DOCUMENTSINCORPORATED BY REFERENCE**

 

**Portionsof the registrant’s proxy statement dated December 5, 2008 for the AnnualMeeting of Stockholders to be held on**

**January 14,2009 are incorporated herein by reference to Part III of this Form 10-K.**

 

 

 

----

Table of Contents

 

TABLE OF CONTENTS

 
| ** **    | **Form 10-K** | ** ** | ** **                                                                                                              | ** ** | ** ** |
|---------------|--------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **    | **Item No.**  | ** ** | **Name of Item**                                                                                              | ** ** | **Page**   |
|          |               |       |                                                                                                                    |       |       |
| Part I   |               |       |                                                                                                                    |       |       |
|          | Item 1.            |       | Business                                                                                                                |       | 1          |
|          | Item 1A.           |       | Risk Factors                                                                                                            |       | 6          |
|          | Item 1B.           |       | Unresolved Staff  Comments                                                                                              |       | 12         |
|          | Item 2.            |       | Properties                                                                                                              |       | 13         |
|          | Item 3.            |       | Legal Proceedings                                                                                                       |       | 14         |
|          | Item 4.            |       | Submission of  Matters to a Vote of Security Holders                                                                    |       | 14         |
|          |               |       |                                                                                                                    |       |       |
| Part II  |               |       |                                                                                                                    |       |       |
|          | Item 5.            |       | Market for the  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 14         |
|          | Item 6.            |       | Selected Financial  Data                                                                                                |       | 16         |
|          | Item 7.            |       | Management’s  Discussion and Analysis of Financial Condition  and Results of  Operations                      |       | 16         |
|          | Item 7A.           |       | Quantitative and  Qualitative Disclosure About Market Risk                                                              |       | 16         |
|          | Item 8.            |       | Financial  Statements and Supplementary Data                                                                            |       | 16         |
|          | Item 9.            |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                                   |       | 17         |
|          | Item 9A.           |       | Controls and  Procedures                                                                                                |       | 17         |
|          | Item 9B.           |       | Other Information                                                                                                       |       | 20         |
|          |               |       |                                                                                                                    |       |       |
| Part III |               |       |                                                                                                                    |       |       |
|          | Item 10.           |       | Directors and  Executive Officers and Corporate Governance                                                              |       | 21         |
|          | Item 11.           |       | Executive  Compensation                                                                                                 |       | 22         |
|          | Item 12.           |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                        |       | 22         |
|          | Item 13.           |       | Certain  Relationships and Related Transactions and Director Independence                                               |       | 23         |
|          | Item 14.           |       | Principal Accounting  Fees and Services                                                                                 |       | 24         |
|          |               |       |                                                                                                                    |       |       |
| Part IV  |               |       |                                                                                                                    |       |       |
|          | Item 15.           |       | Exhibits and  Financial Statement Schedules                                                                             |       | 24         |
|          |               |       | Signatures                                                                                                              |       | 32         |

 

----

Table of Contents

 

**PART I**

 

**Item1.  Business.**

 

**INTRODUCTION**

 

Courier Corporation, together with its subsidiaries, (“Courier,”the “Company,” “We,” “Our,” or “Us”) is among America’s leading bookmanufacturers and specialty publishers. Courier Corporation, founded in 1824,was incorporated under the laws of Massachusetts on June 30, 1972.  The Company has two business segments: bookmanufacturing and specialty publishing.

 

The book manufacturingsegment focuses on streamlining the process of bringing books from the point ofcreation to the point of use.  Based onsales, Courier is the third largest book manufacturer in the United States,offering services from prepress and production through storage anddistribution. Courier’s principal book manufacturing markets are religious,educational and specialty trade books with products including Bibles,educational textbooks and consumer books. On October 17, 2005, the Companyacquired Moore-Langen Printing Company, Inc. (“Moore Langen”), anIndianapolis-based printer specializing in manufacturing book covers, which isincluded in this segment.  Revenues fromthis segment accounted for approximately 82% of Courier’s consolidated revenuesin 2008.

 

The specialty publishing segment consists of DoverPublications, Inc. (“Dover”), Research & Education Association, Inc.(“REA”), which was acquired on January 6, 2004, and Federal MarketingCorporation, d/b/a Creative Homeowner (“Creative Homeowner”), which wasacquired on April 28, 2006.  Doverpublishes over 9,000 titles in more than 30 specialty categories ranging fromliterature to paper dolls, and from music scores to clip art. REA publishestest preparation and study-guide books for high school, college and graduatestudents, and professionals.  CreativeHomeowner is a New Jersey-based publisher and distributor of books on homedesign, decorating, landscaping and gardening, and sells home plans. Thecombination of Dover’s, REA’s, and Creative Homeowner’s publishing, sales anddistribution skills with Courier’s book manufacturing, digital content conversion,and e-commerce skills are providing a powerful end-to-end publishing solutionfor Courier.  Revenues in this segmentwere approximately 22% of consolidated sales in 2008.

 
| **Sales by segment  (in thousands)** | ** ** | **2008** | ** ** | **%**  | ** ** | **2007** | ** ** | **%**   | ** ** | **2006** | ** ** | **%**  | ** ** |
|-----------------------------------------------------|------------|----------|------------|--------|------------|----------|------------|---------|------------|----------|------------|--------|------------|
|                                                |       |     |       |   |       |     |       |    |       |     |       |   |       |
| Book  Manufacturing                                 |       | $        | 229,792    |   | 82         | %        | $          | 231,474 |       | 78       | %          | $      | 220,115    |   | 82 | % |
| Specialty  Publishing                               |       | 61,767   |       | 22     | %          | 72,890   |       | 25      | %          | 57,549   |       | 21     | %          |
| Intersegment  sales                                 |       | (11,235  | )          | (4     | )%         | (9,772   | )          | (3      | )%         | (8,613   | )          | (3     | )%         |
| Total                                               |       | $        | 280,324    |   | 100        | %        | $          | 294,592 |       | 100      | %          | $      | 269,051    |   | 100 | % |

 

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-21 to F-24 included in this Annual Report on Form 10-K.

 

1

----

Tableof Contents

 

**BUSINESS SEGMENTS**

 

**BOOK MANUFACTURING SEGMENT**

 

Courier’s book manufacturing segment produces hard andsoftcover books, as well as related services involved in managing the processof creating and distributing these products for publishers, religiousorganizations and other information providers. Courier provides book manufacturing and related services from sevenfacilities in Westford, Stoughton and North Chelmsford, Massachusetts;Philadelphia, Pennsylvania; North Bergen, New Jersey; and Kendallville andTerre Haute, Indiana.

 

In October 2005,the Company acquired Moore Langen, an Indianapolis-based printer specializingin book covers and known for innovative production techniques. The acquisition,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 ofacquisition.

 

Courier’s book manufacturing operations consist of bothelectronic and conventional film processing and platemaking combined withprinting and binding of soft and hard cover books.  Each of Courier’s seven facilities havecertain specialties adapted to the needs of the market niches Courier serves,such as short-run book manufacturing, printing on lightweight paper, book coverproduction, and four-color book manufacturing. These services are primarily sold to publishers of educational,religious and consumer books.  During2004, the Company began expanding its four-color book manufacturingcapabilities with the addition of a major new four-color press at itsKendallville, Indiana facility. A second identical press was installed in December 2005with a third such press installed in December 2006.

 

Courier’s book manufacturing sales force of 27****people is responsible for all of the Company’s sales toover 500 book-manufacturing customers. Courier’s salespeople operate out of sales offices located in New York,New York; Philadelphia, Pennsylvania; Terre Haute, Indiana; Hayward,California; North Chelmsford and Westford, Massachusetts; and North Bergen, NewJersey.

 

Sales to The Gideons International aggregatedapproximately 22%****of consolidated sales in 2008,20% in 2007, and 23% in 2006.  Sales toPearson plc aggregated approximately 17% of consolidated sales in 2008 and 16%in each of 2007 and 2006. With the acquisition of Harcourt by Houghton MifflinCompany in December 2007, sales to the combined entity, Houghton MifflinHarcourt Publishing Company, aggregated approximately 11% of consolidated salesin 2008, but was less than 10% in prior years for each of the separateentities. A significant reduction in order volumes or price levels from any ofthese customers could have a material adverse effect on the Company.  No other customer accounted for more than 10%of consolidated sales.  The Companydistributes products around the world; export sales, as a percentage ofconsolidated sales, were approximately 18% in 2008, 16% in 2007, and 19% in2006.  Approximately 90% of the exportsales were in the book manufacturing segment in each of these years.

 

2

----

Tableof Contents

 

All phases of Courier’s business are highly competitive.  The printing industry, exclusive ofnewspapers, includes almost 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.  In recentyears, consolidation of both customers and competitors within the Company’smarkets has increased pricing pressures. The major competitive factors in Courier’s book manufacturing businessin addition to price are product quality, speed of delivery, customer service,availability of appropriate printing capacity and paper, related services andtechnology support.

 

**SPECIALTY PUBLISHING SEGMENT**

 

Dover,acquired by the Company in September 2000, is a publisher of books in over30 specialty 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 2005,Dover began developing proprietary packaged products under its Dover Fun Kitsä line.  In 2008, Dover introduced both a new craftsline, Dover DesignWorksä, and a new premium series of hardcover reproductions,Dover Calla Editionsä.

 

Dover sells its products through most American bookstorechains, independent booksellers, children’s stores, craft stores and giftshops, as well as a diverse range of distributors around the world.  Dover has also sold its books directly toconsumers for over 50 years through its specialty catalogs and over theInternet at www.doverpublications.com. Dover mails its proprietary catalogs to nearly 400,000 consumers andannually sends over 100 million emails to electing customers.  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, publishesmore than 900 test preparation and study-guide titles.  Product lines include Problem Solvers®,Essentials®, Super Reviews® and Test Preparation books.  REA sells its products around the worldthrough major bookseller chains, college bookstores, and teachers’ supplystores, as well as directly to teachers and other consumers through catalogsand over the Internet at www.REA.com.

 

In April 2006,the Company acquired Creative Homeowner, a New Jersey-based publisher anddistributor of books, home plans, and related products for the home and gardenretail book market.  The Companypurchased 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. From its line of home plan books, Creative Homeowner offers over 5,000home plans from which consumers can order blueprints 

 

3

----

Tableof Contents

 

directlyover the Internet at www.ultimatehomeplans.com. In the third quarter of fiscal 2008, Creative Homeowner experienced aprecipitous decline in sales and profits, due in large part to the continueddowntown in the housing market and reduction in store traffic at homeimprovement centers and other large retail chain stores.  As a result, the Company recorded a non-cash,pre-tax impairment charge of $23.6 million in fiscal 2008.  In addition to other remedial measures, theCompany decided to exit from Creative Homeowner’s book distribution business,allowing it to concentrate on its principal publishing operations.  This transition is expected to be completedin the first quarter of fiscal 2009.

 

Courierlaunched a Company-wide green initiative late last year.  As part of that initiative, Courier obtainedchain of custody certification from the Forestry Stewardship Council.  In addition, Dover, REA and CreativeHomeowner launched a new line of books under a new mark owned by Courier, GreenEditionä.  In order tobe eligible to bear the mark, books must not only be manufactured from recycledpaper but also be manufactured in the United States.  As a result, books that carry this mark havea smaller environmental impact than most books. The mark is being licensed to other publishers who have also expressed adesire to use it.

 

The U.S.publishing market is comprised of approximately 72,000 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 retailerslaunching or expanding publishing operations and new web-based publishingbusinesses starting up, which compete in the specialty book publishing market,including publishing of electronic books. Dover distinguishes its products by offering an extremely wide varietyof high quality books at modest prices. REA offers high quality study guides, test preparation books andsoftware products in almost every academic area including many specializedareas such as teacher certification, adult education, and professional licensing.  Creative Homeowner provides books on homeimprovement and landscaping that include high-quality photographs,illustrations and written content.

 

**MATERIALS AND SUPPLIES**

 

Courier purchases its principal raw materials, primarilypaper, but also plate materials, ink, adhesives, cover stock, casebindingmaterials and cartons, from numerous suppliers, and is not dependent upon anyone source for its requirements.  Many ofCourier’s book manufacturing customers purchase their own paper and furnish itat no charge to Courier for book production. Dover, REA and Creative Homeowner purchase a significant portion oftheir books from Courier’s book manufacturing operations. Paper pricesincreased slightly in each of the last three years.

 

4

----

Tableof Contents

** **

**ENVIRONMENTAL REGULATIONS**

 

TheCompany’s operations are subject to federal, state and local environmental lawsand regulations relating to, among other things: air emissions; wastegeneration, handling, management and disposal; wastewater treatment anddischarge; and remediation of soil and groundwater contamination.  The Company periodically makes capitalexpenditures so that its operations comply, in all material respects, withapplicable environmental laws and regulations. No significant expenditures for this purpose were made in 2008 or areanticipated in 2009.  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 financial condition or liquidity.

 

**EMPLOYEES**

 

The Company employed 1,825 persons at September 27, 2008compared to 1,830 a year ago.  TheCompany’s relations with its employees are satisfactory.

 

**OTHER**

 

Courier’s overall business is not significantly seasonal innature, although demand is normally highest in the Company’s fourthquarter.  Educational publishers in thebook manufacturing segment and Dover’s business all contribute to this higherfourth quarter 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 Internet in connection with each ofits business segments.  Substantially allof REA’s and Creative Homeowner’s publications and a majority of Dover’spublications are protected by copyright, either in its own name, in the name ofthe author of the work, or in the name of a predecessor publisher from whomrights were acquired.  Many of Dover’spublications include material that is in the public domain.

 

The Company makes available free of charge (as soon asreasonably practicable after they are filed or furnished to the Securities andExchange Commission) copies of its Annual Report on Form 10-K, as well asall other reports required to be filed by Section 13(a) or 15(d) ofthe Securities Exchange Act of 1934, via the Internet at www.courier.com orupon written request to Peter M. Folger, Senior Vice President and Chief FinancialOfficer, Courier Corporation, 15 Wellman Avenue, North Chelmsford, MA 01863.

 

5

----

Tableof Contents

 

**Item 1A.  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 thesefactors.  For other factors that maycause actual results to differ materially from those indicated in anyforward-looking statement contained in this report, see *Forward-LookingInformation* in *Management’s Discussionand Analysis of Financial Condition and Results of Operations*.

 

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

 

The book industry 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, particularly those in foreign countries, who mayderive significant advantages from local governmental regulation, including taxholidays and other subsidies.  All or anyof these competitive pressures could affect prices or customers’ demand for ourproducts, impacting our profit margins and/or resulting in a loss of customersand market share.

 

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

 

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

 

·                  the timing andsize of the orders for our books;

 

6

----

Table of Contents

 

·                  the availabilityof markets for sales or distribution by our major customers;

 

·                  the lengthy andunpredictable sales cycles associated with sales of textbooks to the elementaryand high school market;

 

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

 

·                  fluctuations inthe currency market may make manufacturing in the United States more or lessattractive and make equipment more or less expensive for us to purchase;

 

·                  issues thatmight arise from the integration of acquired businesses, including theirinability to achieve expected results; and

 

·                  tightness incredit markets affecting the availability of capital for ourselves and/or ourcustomers.

 

As a result of these andother factors, period-to-period comparisons of our operating results are notnecessarily meaningful or indicative of future performance. In addition, the factorsnoted above may make it difficult for us to forecast and provide in a timelymanner public guidance (including updates to prior guidance) related to ourprojected 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.  In our book manufacturing segment, paper isnormally supplied by our customers at their expense or price increases arepassed through to our customers.  In ourspecialty publishing segment, cost increases have generally been passed on tocustomers through higher prices or we have substituted a less expensive gradeof paper.  However, if we are unable tocontinue to pass on these increases or substitute a less expensive grade ofpaper, our margins and profits could be adversely affected.

 

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

 

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

 

In addition, fluctuationsin the markets for paper and raw materials may adversely affect the market forour waste byproducts, including recycled paper, used plates and used film, andtherefore adversely affect our income from such sales.

 

7

----

Tableof Contents

 

**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 be able to do so in the future.  In addition, reducing operating costs in thefuture may require significant initial costs to reduce headcount, close orconsolidate operations, or upgrade equipment and technology.

 

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

 

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

 

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

 

We derived approximately50% of our 2008 revenues from three major customers, and in 2007 and 2006 wederived approximately 35% and 40%, respectively, of our revenues from two majorcustomers.  A significant reduction inorder volumes or price levels from any of these customers could have a materialadverse effect on the Company.

 

8

----

Tableof Contents

 

**Declinesin general economic conditions may adversely impact our business.**

** **

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

 

·                  Fluctuations in federal or state governmentspending on education, including a reduction in tax revenues due to the currenteconomic environment, could lead to a corresponding decrease or increase in thedemand for educational materials, which are produced in our book manufacturingsegment and comprise a portion of our publishing products.

 

·                  Consumer demand for books can be impactedby reductions in disposable income when costs such as electricity and gasolinereduce discretionary spending.

 

·                  Tightness in credit markets may result incustomers delaying orders to reduce inventory levels and may impact theirability to pay their debts as they become due.

 

·                  Changes in the housing market may impactthe sale of Creative Homeowner’s products.

 

·                  Fundraising by religious customers.

 

·                  A slowdown in book purchases may result inretailers returning an unusually large number of books to publishers who, inturn reduce their reorders.

 

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

** **

Electronicdelivery of documents and data, including the online distribution and hostingof media content, offers alternatives to traditional delivery of printeddocuments.  Consumer acceptance ofelectronic delivery of books is uncertain, as is the extent to which consumersare willing to replace print materials with online hosted media content.  To the extent that our customers accept theseelectronic alternatives, demand for our printed products may be adverselyaffected.

 

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

** **

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

 

9

----

Tableof Contents

 

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

** **

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

 

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

** **

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

10

----

Tableof Contents

 

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. Tightness in credit markets may also affect our ability toconsummate such acquisitions.

 

The considerationthat we pay in connection with an acquisition could affect our financialresults.  If we were to proceed with oneor more significant acquisitions in which the consideration included cash, wecould be required to use a substantial portion of our available cash and creditfacilities to consummate such acquisitions. To the extent we issue shares of stock or other rights to purchasestock, including options or other rights, our existing stockholders mayexperience dilution in their share ownership in our company and their earningsper share may decrease.  In addition,acquisitions may result in the incurrence of debt, large one-time write-offsand restructuring charges.  They may alsoresult in goodwill and other intangible assets that are subject to impairmenttests, which could result in future impairment charges.  Any of these factors may materially andadversely affect our business and operations.

 

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

** **

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

 

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

** **

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

 

11

----

Tableof Contents

 

**Compliancewith changing regulation of corporate governance, public disclosure andaccounting matters may result in additional expenses.**

 

##### ***Changing laws, regulations and standards relating to corporategovernance and public disclosure, including the Sarbanes-Oxley Act of 2002 andnew rules subsequently implemented by the Securities and ExchangeCommission and The NASDAQ Stock Market, as well as new accountingpronouncements, are creating uncertainty and additional complexities forcompanies.  To maintain high standards ofcorporate governance and public disclosure, we continue to invest resources tocomply with evolving standards.  Thisinvestment may result in increased general and administrative expenses and adiversion of management time and attention from revenue generating and costmanagement activities.***

##### *** ***

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

** **

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

 

**Item 1B.  UnresolvedStaff Comments.**

** **

None.

 

12

----

Tableof Contents

 

**Item 2.  Properties.**

 

**REAL PROPERTIES**

 

The following schedule lists the facilities owned or leasedby Courier at September 27, 2008. Courier considers its plants and otherfacilities to be well maintained 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  warehouses, IN (1988)                                             |       | Leased     |       | 164,000    | (2)        |
| 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     |       |

 

----

(1)                              Also houseswarehousing and fulfillment operations supporting the book manufacturingsegment and sales and marketing offices for both the book manufacturing andspecialty publishing segments.

(2)                              The Companyis constructing a 150,000 square foot warehouse to replace the leasedwarehouses.

 

**EQUIPMENT**

 

The Company’sproducts are manufactured on equipment that in most cases is owned by theCompany, although it leases certain computers, image setters and otherelectronic prepress equipment, which are subject to more rapidobsolescence.  Capital expendituresamounted to approximately $12.9 million in 2008, $26.4 million in 2007, and$29.4 million in 2006. Capital expenditures in 2008 included completion of the expansion of printing and binding capacity inthe religious book manufacturing operation in Philadelphia and approximatelyhalf the costs of construction, starting in the fourth quarter of fiscal 2008,of a 150,000 square foot warehouse to replace existing leased warehouse spaceand to better support the significant expansion of the nearby manufacturingplant in Kendallville, Indiana.  Fiscal2009 capital expenditures are expected to be approximately $14 to $16 million,including approximately $4 million to complete the Kendallville warehouse.Courier considers its equipment to be in good operating condition and adequatefor its present needs.

 

13

----

Tableof Contents

** **

**ENCUMBRANCES AND RENTALOBLIGATIONS**

 

For a description of encumbrances oncertain properties and equipment, see Note D of Notes to Consolidated FinancialStatements on page F-13 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-14of this Annual Report on Form 10-K.

 

**Item 3.  Legal Proceedings.**

 

In the ordinary course of business,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 itsfinancial statements.

 

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

 

There were no matters submitted to avote of security holders during the quarter ended September 27, 2008.

 

**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 on the Nasdaq Global Select Market underthe symbol “CRRC.”  At November 17,2008, there were 1,051 stockholders of record of the Company’s commonstock.  Quarterly prices of the Company’scommon stock and dividends paid per share during the years ended September 27,2008 and September 29, 2007 are contained in the table below:

 
| ** **     | ** ** | ** **              | ** ** | ** ** | ** ** | **Common Stock Prices** | ** ** |
|----------------|------------|-------------------------|------------|------------|------------|-----------------------------------|------------|
| ** **     | ** ** | **Dividends Paid** | ** ** | **2008**   | ** ** | **2007**                          | ** ** |
| ** **     | ** ** | **2008**                | ** ** | **2007**   | ** ** | **High**                          | ** ** | **Low** | ** ** | **High** | ** ** | **Low** | ** ** |
| First quarter  |       | $                       | 0.20       |       | $          | 0.18                              |       | $ | 38.91 |   | $ | 31.37 |   | $ | 40.71 |   | $ | 36.22 |   |
| Second quarter |       | 0.20                    |       | 0.18       |       | 33.01                             |       | 23.94 |   | 40.84 |   | 37.50 |   |
| Third quarter  |       | 0.20                    |       | 0.18       |       | 26.19                             |       | 20.28 |   | 42.02 |   | 38.20 |   |
| Fourth quarter |       | 0.20                    |       | 0.18       |       | 22.54                             |       | 15.84 |   | 40.07 |   | 34.17 |   |
|                |            |                         |            |            |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

On November 6, 2008,the Company announced that the Board of Directors declared a dividend of $0.21per common share, a 5% increase over the dividend declared in the previousquarter.

 

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.  OnMay 8, 2008, the Board of Directors of the Company expanded the Company’sshare repurchase plan and authorized the repurchase 

 

14

----

Tableof Contents

 

of up to anadditional $5 million of the Company’s outstanding common stock. On August 6, 2008, the Company’s Board ofDirectors further expanded the share repurchase program by authorizing therepurchase of up to an additional $5 million of the Company’s common stock,bringing the total amount authorized under the plan to $20 million. Since theinception of the share repurchase program through September 27, 2008, theCompany has repurchased approximately856,000 shares of common stock for approximately $19.6 million.  The Company currently has no plan torepurchase additional shares in fiscal 2009. The following table summarizes the purchases under this programduring the fourth quarter of the Company’s fiscal year 2008.

 

###### **ISSUER PURCHASES OF EQUITY SECURITIES**

 
| **Fiscal Period**                               | ** ** | **(a) Total  Number  of Shares  Purchased** | ** ** | **(b)  Average  Price Paid  per Share** | ** ** | **(c) Total  Number of  Shares Purchased  As Part of  Publicly  Announced  Plans or  Programs** | ** ** | **(d) Maximum  number (or  Approximate  Dollar Value) of  Shares that May  Yet be Purchased  Under the Plans or  Programs** | ** ** |
|-------------------------------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| June 29,  2008 - July 26, 2008        |       | —                                                |       | —                                            |       | —                                                                                                                        |       | $                                                                                                                                                                                  | 2,945,000  |   |
| July 27,  2008 - August 23, 2008      |       | 289,735                                               |       | $                                                 | 18.169     |                                                                                                                          | 289,735    |                                                                                                                                                                               | $          | 2,664,000 | (1) |
| August 24,  2008 - September 27, 2008 |       | 109,088                                               |       | $                                                 | 20.621     |                                                                                                                          | 109,088    |                                                                                                                                                                               | $          | 408,000 |   |
| Total                                           |       | 398,823                                               |       | $                                                 | 18.839     |                                                                                                                          | 398,823    |                                                                                                                                                                               |       |   |

 

----

(1) Includesadditional $5 million approved by the Company’s Board of Directors on August 6,2008.

 

**PEER PERFORMANCE TABLE**

** **

The graph below comparesthe Company’s cumulative total stockholder return on its Common Stock with thecumulative total return on the Standard & Poor’s 500 stock index (the “S&P500 Index”) and a peer group of companies selected by the Corporation forpurposes of the comparison and described more fully below (the “Peer Group”).  This graph assumes the investment of $100 on October 1,2003 in each of Courier Common Stock, the S&P 500 Index, and the Peer GroupCommon Stock, and reinvestment of quarterly dividends at the monthly closingstock prices.  The returns of eachcompany have been weighted annually for their respective stock marketcapitalizations in computing the S&P 500 and Peer Group indices.

 

15

----

Tableof Contents

** **

**COMPARISON OF 5 YEAR CUMULATIVETOTAL RETURN**

**Courier Corporation, S&P 500Index, Peer Group**

** **

 

The Peer Group includesthe following seven companies:  BordersGroup, Inc., Bowne & Company, Inc., Consolidated Graphics,Ennis Business Forms, Inc., Scholastic Corporation, The Standard RegisterCompany, 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-25 of this Annual Report on Form 10-K.

 

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

 

Theinformation required by this Item is contained in the section captioned “Management’sDiscussion and Analysis” on pages F-26 through F-38 of this Annual Reporton Form 10-K.

 

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

 

The Company does not hold any derivative financialinstruments, derivative commodity instruments or other financial instrumentsexcept as noted in Note A of Notes to Consolidated Financial Statements, whichappear on pages F-7 through F-11 of this Annual Report on Form 10-K.  The Company engages neither in speculativenor derivative trading activities. The Company is exposed to market risk forchanges in interest rates on invested funds as well as borrowed funds.  The Company’s revolving bank credit facilitybears interest at a floating rate, with further information contained in Note Don page F-13 of this Annual Report on Form 10-K.  The Company believes it is remote that thiscould have a material impact on results of operations.

 

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

 

Theinformation required by this Item is contained on pages F-1 through F-24of this Annual Report on Form 10-K.

 

16

----

Tableof Contents

 

**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 by this AnnualReport on Form 10-K, we carried out an evaluation under the supervisionand with the participation of our management, including the Chief ExecutiveOfficer and the Chief Financial Officer, of the effectiveness of the design andoperation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and15d-15(e). Disclosure controls are procedures that are designed to ensure thatinformation required to be disclosed in our reports filed under the SecuritiesExchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarizedand reported within the time periods specified by the Securities and ExchangeCommission. Disclosure controls are also designed to ensure that suchinformation is accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allowtimely decisions regarding required disclosure. Based upon that evaluation, ourChief Executive Officer and Chief Financial Officer concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered 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 2008 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**

** **

Managementof the Company is responsible for the preparation, integrity and objectivity ofthe Company’s consolidated financial statements and other financial informationcontained in its Annual Report to Stockholders. Those consolidated financial statements were prepared in conformity withaccounting principles generally accepted in the United States.  In preparing those consolidated financialstatements, the Company’s management was required to make certain estimates andjudgments, which are based upon currently available information and management’sview of current conditions and circumstances.

 

The Audit Committee of the Board of Directors (“AuditCommittee”), which consists solely of independent directors, oversees theCompany’s process of reporting financial information and the audit of itsconsolidated financial statements.  TheAudit Committee stays informed of the financial condition of the Company andregularly reviews management’s financial policies and procedures, theindependence of the independent auditors, the Company’s internal control andthe objectivity of its financial 

 

17

----

Tableof Contents

 

reporting. The independent registered public accounting firmhas free access to the Audit Committee and to meet with the Audit Committeeperiodically, both with and without management present.

 

TheCompany retained Deloitte & Touche LLP, an independent registeredpublic accounting firm, to audit its consolidated financial statements found inthis Annual Report on Form 10-K for the year ended September 27,2008.  The Company has made available toDeloitte & Touche LLP all of its financial records and related data inconnection with their audit of the consolidated financial statements.

 

TheCompany has filed with the Securities and Exchange Commission the requiredcertifications related to its consolidated financial statements as of and forthe year ended September 27, 2008.  Thesecertifications are exhibits to this Annual Report on Form 10-K for theyear ended September 27, 2008.

 

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

** **

Managementhas responsibility for establishing and maintaining adequate internal controlover financial reporting.  Internalcontrol over financial reporting is a process designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external reporting purposes in accordance withaccounting principles generally accepted in the United States.  Because of its inherent limitations, internalcontrol over financial reporting may not prevent or detect misstatements.  Management has assessed the effectiveness ofthe Company’s internal control over financial reporting as of September 27,2008.

 

Inmaking its assessment of the Company’s internal control over financialreporting, the Company’s management has utilized the criteria set forth by theCommittee of Sponsoring Organizations (“COSO”) of the Treadway Commission in *Internal Control-Integrated Framework*.  Management concluded that based on itsassessment, the Company’s internal control over financial reporting waseffective as of September 27, 2008.  Deloitte & Touche LLP, an independent registered publicaccounting firm that audited our financial statements included in this AnnualReport, has issued an audit report on the effectiveness of internal controlover financial reporting as of September 27, 2008, which appears withinthis Annual Report on Form 10-K.

 

18

----

Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders ofCourier CorporationNorth Chelmsford, Massachusetts

 

We have audited the internal control over financialreporting of Courier Corporation and subsidiaries (the “Company”) as of September 27,2008, based on criteria established in *InternalControl — Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.  The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal Controlover Financial Reporting.  Our responsibility is to express an opinion onthe Company’s internal control over financial reporting based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether effective internal control overfinancial reporting was maintained in all material respects.  Our auditincluded 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 on theassessed risk, and performing such other procedures as we considered necessaryin the circumstances.  We believe that our audit provides a reasonablebasis for our opinion.

 

A company’s internal control over financialreporting is a process designed by, or under the supervision of, the company’sprincipal executive and principal financial officers, or persons performingsimilar 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 maintenanceof records 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 preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also,projections of any evaluation of the effectiveness of the internal control overfinancial reporting to future periods are subject to the risk that the controlsmay become 

 

19

----

Table of Contents

 

inadequate because of changes in conditions, or thatthe degree of compliance with the policies or procedures may deteriorate.

 

In our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of September 27,2008, based on the criteria established in *InternalControl — Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedule as of and for the year ended September 27,2008 of the Company and our report dated November 26, 2008 expressed an unqualified opinion on thosefinancial statements and financial statement schedule.

 

***/****s/Deloitte & Touche LLP*

 

Boston,MassachusettsNovember 26, 2008

 

**(e)****                                 ****Limitations on Design and Effectiveness of Controls.**

 

TheCompany’s management, including our Chief Executive Officer and Chief FinancialOfficer, believes that our disclosure controls and procedures and internalcontrol over financial reporting are effective at the reasonable assurancelevel. However, the Company’s management does not expect that our disclosurecontrols and procedures or our internal control over financial reporting willprevent all errors and all fraud. A control system, no matter how wellconceived and operated, can provide only reasonable, not absolute, assurancethat the objectives of the control system are met. In addition, the design of acontrol system must take into consideration resource constraints, and thebenefits of controls must be considered relative to their costs. Because of theinherent limitations in all control systems, no evaluation of controls canprovide absolute assurance that all control issues and instances of fraud, ifany, within the Company have been detected in a timely manner. These inherentlimitations include the fact that controls can be circumvented by individualacts, by collusion of two or more people or by management override of thecontrols. The design of any system of controls also is based in part uponcertain assumptions about the likelihood of future events, and there can be noassurance that any design will succeed in achieving its stated goals under allpotential future conditions.  Finally,over time, controls may become inadequate because of changes in conditions, orthe degree of compliance with policies or procedures may deteriorate. Becauseof the inherent limitations in a cost-effective control system, misstatementsdue to error or fraud may occur and not be detected.

 

**Item 9B.  Other Information**

 

None.

 

20

----

Table of Contents

 

**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       |   | 56     |   | Chairman,  President and Chief Executive Officer                 |
|----------------------------|--------|--------|--------|------------------------------------------------------------------|
|                       |   |   |   |                                                             |
| Robert  P. Story, Jr. |   | 57     |   | Director,  Executive Vice President, and Chief Operating Officer |
|                       |   |   |   |                                                             |
| Peter  M. Folger           |   | 55     |   | Senior  Vice President and Chief Financial Officer               |
|                       |   |   |   |                                                             |
| Rajeev  Balakrishna        |   | 38     |   | Vice  President, General Counsel, Secretary and Clerk            |
|                       |   |   |   |                                                             |
| Eric  J. Zimmerman         |   | 43     |   | 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 Chairmansince December 1992.  He has been ChiefExecutive Officer since December 1992 and President since July 1988.

 

Mr. Story became Executive Vice Presidentand 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 asVice President and Treasurer.  He waselected a Director of the Company in February 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.

 

Mr. Balakrishna became VicePresident and General Counsel in February 2007 and became Secretary andClerk in January 2008.  Prior tothat, since 1996, he was an attorney at the law firms of Proskauer Rose LLP andGoodwin Procter LLP and in house Counsel at John Hancock Financial Services, Inc.

 

Mr. Zimmerman became VicePresident, Publishing and an executive officer of Courier Corporation in October 2004.  He joined Courier in December 1994 asGeneral Manager of its former Copyright Management Services operation andbecame Vice President of e-Commerce for Courier in September 2000.

 

21

----

Table of Contents

 

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.

 

Allother information 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 ReportingCompliance,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Wednesday, January 14,2009.  Such information is incorporatedherein by reference.

 

**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 14, 2009.  Suchinformation is incorporated herein by reference.

 

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

 

Thefollowing table provides information as of September 27, 2008 regardingshares of common stock of the Company that may be issued under its existingcompensation plans, including the Courier Corporation Amended and Restated 1993Stock Incentive Plan (the “1993 Plan”), the Courier Corporation 1999 EmployeeStock Purchase Plan, the Courier Corporation 2005 Stock Equity Plan forNon-Employee Directors (the “2005 Plan”), and the Courier Corporation 1989Deferred Income Stock Option Plan for Non-Employee Directors, which wasreplaced by the 2005 Plan.

 

22

----

Table of Contents

 

**EquityCompensation Plan Information**

 
| **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     |       | 593,086                                                                                                                                           |       | $                                                                                                           | 27.45      |                                                                                                                                                                                                                 | 368,162    |   |
|                                                        |       |                                                                                                                                              |       |                                                                                                        |       |                                                                                                                                                                                                                 |       |
| Equity  compensation plans not approved by security holders |       | —                                                                                                                                            |       | —                                                                                                      |       | —                                                                                                                                                                                                               |       |
|                                                        |       |                                                                                                                                              |       |                                                                                                        |       |                                                                                                                                                                                                                 |       |
| Total                                                       |       | 593,086                                                                                                                                           |       | $                                                                                                           | 27.45      |                                                                                                                                                                                                                 | 368,162    |   |

 

----

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

(2)            52,336shares of these 368,162 shares were reserved for future issuance under theCompany’s Employee Stock Purchase Plan.

(3)            Includes upto 255,216 securities that may be issued in the form of restricted stock.

 

Allother information called for by Item 12 is contained in the definitive ProxyStatement, under the captions “Security Ownership of Certain Beneficial Ownersand Management” and “Compensation Discussion and Analysis,” to be delivered tostockholders in connection with the Annual Meeting of Stockholders scheduled tobe held on Wednesday, January 14, 2009. Such information is incorporated herein by reference.

 

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

 

Informationcalled for by Item 13 is contained in the definitive Proxy Statement, under thecaptions “Director Independence” and “Related Party Transactions,” to bedelivered to stockholders in connection with the Annual Meeting of Stockholdersscheduled to be held on Wednesday, January 14, 2009.  Such information is incorporated herein byreference.

 

23

----

Table of Contents

 

**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 14,2009.  Such information is incorporatedherein by reference.

 

**PART IV**

 

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

 

**(a)****                             ****Documents filed as part of this report**

 
| ** ** | ** ** | ** **                                                                                                                                | ** ** | **Page(s)**  | ** ** |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|------------|
| **1.**     | ** ** | ***Financial statements***                                                                                                                | ** ** | ** **   | ** ** |
|       |       |                                                                                                                                      |       |         |       |
|       | ·     | Report of Independent Registered Public Accounting  Firm                                                                                  |       | F-1          |       |
|       | ·     | Consolidated Statements of Operations for each of the  three years in the period ended September 27, 2008                            |       | F-2          |       |
|       | ·     | Consolidated  Balance Sheets as of September 27, 2008 and September 29, 2007                                                    |       | F-3 to  F-4  |       |
|       | ·     | Consolidated Statements of Cash Flows for each of the  three years in the period ended September 27, 2008                            |       | F-5          |       |
|       | ·     | Consolidated Statements of Changes in Stockholders’  Equity for each of the three years in the period ended September 27,  2008 |       | F-6          |       |
|       | ·     | Notes to Consolidated Financial Statements                                                                                                |       | F-7 to  F-24 |       |
|       |       |                                                                                                                                      |       |         |       |
| **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). |

 

24

----

Table of Contents

 
| 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-1   |   | 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).                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                      |
| 3B-2   |   | Amendment  No. 1 to Amended and Restated Bylaws dated as of August 6, 2008  (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K,  dated August 7, 2008, and incorporated herein by reference).                                                                                                                                                                |

 

25

----

Table of Contents

 
| 10.1+* |   | Non-Qualified  Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan  for Rajeev Balakrishna dated March 14, 2007.                                                                                                                                                                                                            |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 10.2+* |   | Stock  Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for  Rajeev Balakrishna dated March 14, 2007.                                                                                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                      |
| 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).                                                                                    |

 

26

----

Table of Contents

 
| 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).                                                                                    |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 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).                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10D-3+ |   | Amendment,  effective September 18, 2007, to the Courier Executive Compensation  Program, as amended and restated on December 5, 2005 (filed as  Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 29, 2007, and incorporated herein by  reference).         |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 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).                                             |

 

27

----

Table of Contents

 
| 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    |   | Second  Amended and Restated Revolving Credit Agreement, dated May 23, 2008,  between Courier Corporation, RBS Citizens, KeyBank, Wells Fargo Bank, and J P  Morgan Chase Bank providing for a $100 million revolving credit facility  (filed as Exhibit 10 to the Company’s Current Report on Form 8-K on  May 29, 2008, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 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).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 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).                                                       |

 

28

----

Table of Contents

 
| 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. 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-10+ |   | 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-11+ |   | 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-12+ |   | 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-13+ |   | 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).                               |

 

29

----

Table of Contents

 
| 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).                                                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10M-3+ |   | Amendment to Courier  Corporation Deferred Compensation Program, effective January 1, 2008  (filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q  for the period ended December 29, 2007, and incorporated herein by  reference).                                                                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10N    |   | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10O+   |   | 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).                                                                                                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10P    |   | 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).                                                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         |
| 10Q    |   | 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).                                                                                                                                                                                                                                   |

 

30

----

Table of Contents

 
| 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.

 

31

----

Table of Contents

** **

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Company has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized, on November 26, 2008.

 
|   | 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 |

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant in thecapacities indicated, on November 26, 2008.

 
| */s/James F. Conway III*   |     | */s/Ronald L. Skates*          |
|----------------------------|----------|--------------------------------|
| James  F. Conway III       |     | Ronald L. Skates               |
| Chairman, President and    |     | Director                       |
| Chief Executive Officer    |     |                           |
|                       |     |                           |
| */s/Kathleen Foley Curley* |     | */s/Robert P. Story, Jr.* |
| Kathleen  Foley Curley     |     | 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                   |     |                           |

 

32

----

Table of Contents

 

REPORT OF INDEPENDENTREGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders ofCourier CorporationNorth Chelmsford, Massachusetts

 

We have audited the accompanying consolidatedbalance sheets of Courier Corporation and subsidiaries (the “Company”) as of September 27,2008 and September 29, 2007, and the related consolidated statements ofoperations, changes in stockholders’ equity, and cash flows for each of thethree years in the period ended September 27, 2008.  Our audits alsoincluded the financial statement schedule listed in the Index at Item15(a)2.  These financial statements and financial statement schedule arethe responsibility of the Company’s management.  Our responsibility is toexpress an opinion on the financial statements and financial statement schedulebased on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement.  An audit includes examining, on a test basis,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, such consolidated financialstatements present fairly, in all material respects, the financial position ofCourier Corporation and subsidiaries as of September 27, 2008 and September 29,2007, and the results of their operations and their cash flows for each of thethree years in the period ended September 27, 2008, in conformity withaccounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered inrelation to the basic consolidated financial statements taken as a whole,presents fairly, in all material respects, the information set forth therein.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of September 27,2008, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission, and our report dated November 26,2008 expressed an unqualified opinion on the Company’s internal control overfinancial reporting.

 

As disclosed in Note G to the consolidated financialstatements, the Company adopted on September 29, 2007 Statement ofFinancial Accounting Standards No. 158 “Employers’ Accounting for DefinedBenefit Pension and Other Postretirement Plans, an amendment of FASB StatementsNo. 87, 88, 106 and 132(R).”

 

*/s/ Deloitte & Touche LLP*

* *

* *

Boston, MassachusettsNovember 26, 2008

 

F-1

----

Table of Contents

 

**COURIERCORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(Dollarsin thousands except per share amounts)

 
| ** **                                    | ** ** | **For the Years Ended** | ** ** |
|-----------------------------------------------|------------|----------------------------------------|------------|
| ** **                                    | ** ** | **September 27,**                 | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **                                    | ** ** | **2008**                               | ** ** | **2007** | ** ** | **2006** | ** ** |
| ** **                                    | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales (Note  A)                           |       | $                                      | 280,324    |   | $ | 294,592 |   | $ | 269,051 |   |
| Cost of sales                                 |       | 202,445                                |       | 198,229 |   | 180,535 |   |
|                                          |       |                                   |       |   |   |   |   |
| Gross profit                                  |       | 77,879                                 |       | 96,363 |   | 88,516 |   |
|                                          |       |                                   |       |   |   |   |   |
| Selling and  administrative expenses          |       | 53,034                                 |       | 53,926 |   | 50,144 |   |
| Impairment  charge (Note A)                   |       | 23,643                                 |       | — |   | — |   |
| Interest  expense, net (Note A)               |       | 1,133                                  |       | 1,571 |   | 182 |   |
|                                          |       |                                   |       |   |   |   |   |
| Pretax income                                 |       | 69                                     |       | 40,866 |   | 38,190 |   |
|                                          |       |                                   |       |   |   |   |   |
| Provision for  income taxes (Note C)          |       | 439                                    |       | 15,121 |   | 9,810 |   |
|                                          |       |                                   |       |   |   |   |   |
| Net income  (loss)                            |       | $                                      | (370       | ) | $ | 25,745 |   | $ | 28,380 |   |
|                                          |       |                                   |       |   |   |   |   |
| Net income  (loss) per share (Notes A and J): |       |                                   |       |   |   |   |   |
|                                          |       |                                   |       |   |   |   |   |
| Basic                                         |       | $                                      | (0.03      | ) | $ | 2.06 |   | $ | 2.30 |   |
|                                          |       |                                   |       |   |   |   |   |
| Diluted                                       |       | $                                      | (0.03      | ) | $ | 2.03 |   | $ | 2.25 |   |
|                                          |       |                                   |       |   |   |   |   |
| Cash dividends  declared per share            |       | $                                      | 0.80       |   | $ | 0.72 |   | $ | 0.48 |   |

 

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

 

*Fiscalyear 2006 was a 53-week period.*

 

F-2

----

Table of Contents

 

**COURIERCORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(Dollars in thousands)

 
| ** **                                                                                                     | ** ** | **September 27,** | ** ** | **September 29,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                     | ** ** | **2008**               | ** ** | **2007**               | ** ** |
| ASSETS                                                                                                         |       |                   |       |                   |       |
|                                                                                                           |       |                   |       |                   |       |
| Current assets:                                                                                                |       |                   |       |                   |       |
| Cash and cash  equivalents (Note A)                                                                            |       | $                      | 178        |                   | $          | 1,549 |   |
| Investments  (Note A)                                                                                          |       | 820                    |       | —                 |       |
| Accounts  receivable, less allowance for uncollectible accounts of $1,611 in 2008 and  $1,531 in 2007 (Note A) |       | 45,626                 |       | 47,673                 |       |
| Inventories  (Note B)                                                                                          |       | 37,166                 |       | 38,183                 |       |
| Deferred income  taxes (Note C)                                                                                |       | 4,680                  |       | 3,469                  |       |
| Other current  assets                                                                                          |       | 1,528                  |       | 1,550                  |       |
|                                                                                                           |       |                   |       |                   |       |
| Total current  assets                                                                                          |       | 89,998                 |       | 92,424                 |       |
|                                                                                                           |       |                   |       |                   |       |
| Property, plant  and equipment (Note A):                                                                       |       |                   |       |                   |       |
| Land                                                                                                           |       | 1,934                  |       | 1,296                  |       |
| Buildings and  improvements                                                                                    |       | 35,541                 |       | 35,110                 |       |
| Machinery and  equipment                                                                                       |       | 205,537                |       | 190,127                |       |
| Furniture and  fixtures                                                                                        |       | 2,341                  |       | 1,837                  |       |
| Construction in  progress                                                                                      |       | 3,945                  |       | 10,487                 |       |
|                                                                                                           |       |                   |       |                   |       |
|                                                                                                           |       | 249,298                |       | 238,857                |       |
|                                                                                                           |       |                   |       |                   |       |
| Less-Accumulated  depreciation and amortization                                                                |       | (153,606               | )          | (141,079               | )          |
|                                                                                                           |       |                   |       |                   |       |
| Property, plant  and equipment, net                                                                            |       | 95,692                 |       | 97,778                 |       |
|                                                                                                           |       |                   |       |                   |       |
| Goodwill, net  (Notes A, H and I)                                                                              |       | 39,912                 |       | 55,199                 |       |
| Other  intangibles, net (Notes A and H)                                                                        |       | 3,920                  |       | 12,904                 |       |
| Prepublication  costs, net (Note A)                                                                            |       | 9,595                  |       | 10,220                 |       |
| Other assets  (Note G)                                                                                         |       | 1,381                  |       | 1,310                  |       |
|                                                                                                           |       |                   |       |                   |       |
| Total assets                                                                                                   |       | $                      | 240,498    |                   | $          | 269,835 |   |

 

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

 

F-3

----

Table of Contents

 

**COURIER CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(Dollars in thousands)

 
| ** **                                                                                                           | ** ** | **September 27,** | ** ** | **September 29,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                           | ** ** | **2008**               | ** ** | **2007**               | ** ** |
| LIABILITIES AND  STOCKHOLDERS’ EQUITY                                                                           |       |                   |       |                   |       |
|                                                                                                                 |       |                   |       |                   |       |
| Current  liabilities:                                                                                                |       |                   |       |                   |       |
| Current  maturities of long-term debt (Note D)                                                                       |       | $                      | 93         |                   | $          | 91 |   |
| Accounts payable  (Note A)                                                                                           |       | 16,966                 |       | 20,111                 |       |
| Accrued payroll                                                                                                      |       | 6,587                  |       | 7,409                  |       |
| Accrued taxes  (Note C)                                                                                              |       | 3,560                  |       | 2,129                  |       |
| Other current  liabilities (Note G)                                                                                  |       | 5,970                  |       | 6,652                  |       |
| Total current  liabilities                                                                                           |       | 33,176                 |       | 36,392                 |       |
|                                                                                                                 |       |                   |       |                   |       |
| Long-term debt  (Notes A and D)                                                                                      |       | 23,646                 |       | 17,375                 |       |
| Deferred income  taxes (Note C)                                                                                      |       | 4,687                  |       | 9,446                  |       |
| Other  liabilities (Notes C and G)                                                                                   |       | 2,765                  |       | 3,619                  |       |
|                                                                                                                 |       |                   |       |                   |       |
| Total  liabilities                                                                                                   |       | 64,274                 |       | 66,832                 |       |
|                                                                                                                 |       |                   |       |                   |       |
| Commitments and  contingencies (Note E)                                                                              |       |                   |       |                   |       |
|                                                                                                                 |       |                   |       |                   |       |
| Stockholders’  equity (Notes A, C, 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 11,878,000 shares in 2008  and 12,612,000 in 2007 |       | 11,878                 |       | 12,612                 |       |
| Additional  paid-in capital                                                                                          |       | 14,788                 |       | 12,977                 |       |
| Retained  earnings                                                                                                   |       | 149,920                |       | 177,919                |       |
| Accumulated  other comprehensive loss                                                                                |       | (362                   | )          | (505                   | )          |
|                                                                                                                 |       |                   |       |                   |       |
| Total  stockholders’ equity                                                                                     |       | 176,224                |       | 203,003                |       |
|                                                                                                                 |       |                   |       |                   |       |
| Total  liabilities and stockholders’ equity                                                                     |       | $                      | 240,498    |                   | $          | 269,835 |   |

 

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

 

F-4

----

Table of Contents

 

**COURIERCORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Dollars in thousands)**

 
| ** **                                                                       | ** ** | **For the Years Ended** | ** ** |
|----------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                       | ** ** | **September 27,**                 | ** ** | **September 29,** | ** ** | **September 30,** | ** ** |
| ** **                                                                       | ** ** | **2008**                               | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                                                             |       |                                   |       |   |   |   |   |
| Operating  Activities:                                                           |       |                                   |       |   |   |   |   |
| Net  income (loss)                                                               |       | $                                      | (370       | ) | $ | 25,745 |   | $ | 28,380 |   |
| Adjustments  to reconcile net income to cash provided from operating activities: |       |                                   |       |   |   |   |   |
| Depreciation  and amortization                                                   |       | 21,373                                 |       | 18,856 |   | 14,804 |   |
| Impairment  charge (Note A)                                                      |       | 23,643                                 |       | — |   | — |   |
| Stock-based  compensation (Notes A and F)                                        |       | 1,313                                  |       | 1,460 |   | 1,431 |   |
| Deferred  income taxes (Note C)                                                  |       | (5,970                                 | )          | 1,098 |   | 1,093 |   |
| Changes  in assets and liabilities:                                              |       |                                   |       |   |   |   |   |
| Accounts  receivable                                                             |       | 2,047                                  |       | (1,671 | ) | (2,845 | ) |
| Inventory                                                                        |       | 1,017                                  |       | (8,618 | ) | (895 | ) |
| Accounts  payable                                                                |       | (3,145                                 | )          | 4,333 |   | 219 |   |
| Accrued  taxes                                                                   |       | 1,431                                  |       | (1,233 | ) | (2,408 | ) |
| Other  elements of working capital                                               |       | (1,482                                 | )          | (2,966 | ) | (204 | ) |
| Other  long-term, net                                                            |       | (1,118                                 | )          | 451 |   | (351 | ) |
|                                                                             |       |                                   |       |   |   |   |   |
| Cash  provided from operating activities                                         |       | 38,739                                 |       | 37,455 |   | 39,224 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Investment  Activities:                                                          |       |                                   |       |   |   |   |   |
| Capital  expenditures                                                            |       | (12,865                                | )          | (26,378 | ) | (29,429 | ) |
| Business  acquisitions (Note H)                                                  |       | —                                 |       | — |   | (51,164 | ) |
| Prepublication  costs (Note A)                                                   |       | (5,000                                 | )          | (5,417 | ) | (4,253 | ) |
| Short-term  investments                                                          |       | (820                                   | )          | — |   | — |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Cash  used for investment activities                                             |       | (18,685                                | )          | (31,795 | ) | (84,846 | ) |
|                                                                             |       |                                   |       |   |   |   |   |
| Financing  Activities:                                                           |       |                                   |       |   |   |   |   |
| Long-term  debt borrowings                                                       |       | 6,273                                  |       | 156 |   | 16,800 |   |
| Cash  dividends                                                                  |       | (9,881                                 | )          | (9,007 | ) | (5,927 | ) |
| Proceeds  from stock plans                                                       |       | 1,749                                  |       | 2,608 |   | 1,691 |   |
| Share  repurchases (Note K)                                                      |       | (19,592                                | )          | — |   | — |   |
| Excess  tax benefits from stock-based compensation                               |       | 26                                     |       | 649 |   | 503 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Cash  provided from (used for) financing activities                              |       | (21,425                                | )          | (5,594 | ) | 13,067 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                |       | (1,371                                 | )          | 66 |   | (32,555 | ) |
|                                                                             |       |                                   |       |   |   |   |   |
| Cash  and cash equivalents at the beginning of the period                        |       | 1,549                                  |       | 1,483 |   | 34,038 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Cash  and cash equivalents at the end of the period                              |       | $                                      | 178        |   | $ | 1,549 |   | $ | 1,483 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Supplemental  cash flow information:                                             |       |                                   |       |   |   |   |   |
| Interest  paid                                                                   |       | $                                      | 1,246      |   | $ | 1,604 |   | $ | 564 |   |
| Income  taxes paid (net of refunds)                                              |       | $                                      | 4,926      |   | $ | 14,447 |   | $ | 10,725 |   |
|                                                                             |       |                                   |       |   |   |   |   |
| Supplemental  disclosure of noncash investing and financing activities:          |       |                                   |       |   |   |   |   |
| Property  and equipment costs included in accounts payable and accrued expenses  |       | $                                      | 3,246      |   | $ | 5,301 |   | $ | 3,204 |   |

 

*Theaccompanying notes are an integral part of the consolidated financial statements.*

 

F-5

----

Table of Contents

 

**COURIER CORPORATION**

**CONSOLIDATED STATEMENTS OF CHANGESIN STOCKHOLDERS’ EQUITY**

**(Dollarsin thousands)**

 
| ** **                                                                         | ** ** | ** **             | ** ** | ** ** | ** ** | ** **               | ** ** | ** **   | ** ** | **Accumulated**   | ** ** |
|------------------------------------------------------------------------------------|------------|------------------------|------------|------------|------------|--------------------------|------------|--------------|------------|-------------------|------------|
| ** **                                                                         | ** ** | **Total**              | ** ** | ** ** | ** ** | ** **               | ** ** | ** **   | ** ** | **Other**         | ** ** |
| ** **                                                                         | ** ** | **Stockholders’** | ** ** | **Common** | ** ** | **Additional**           | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** |
| ** **                                                                         | ** ** | **Equity**             | ** ** | **Stock**  | ** ** | **Paid-In Capital** | ** ** | **Earnings** | ** ** | **Loss**          | ** ** |
|                                                                               |       |                   |       |       |       |                     |       |         |       |              |       |
| 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                    |       | —       |       | —            |       |
| Cumulative  effect of change in accounting principle (“FIN 48”) (Note C) |       | (108                   | )          | —     |       | —                   |       | (108         | )          | —            |       |
|                                                                               |       |                   |       |       |       |                     |       |         |       |              |       |
| Balance,  September 29, 2007                                                  |       | 203,003                |       | 12,612     |       | 12,977                   |       | 177,919      |       | (505              | )          |
|                                                                               |       |                   |       |       |       |                     |       |         |       |              |       |
| Net  loss                                                                          |       | (370                   | )          | —     |       | —                   |       | (370         | )          | —            |       |
| Cash  dividends                                                                    |       | (9,881                 | )          | —     |       | —                   |       | (9,881       | )          | —            |       |
| Change  in pension obligation, net of tax (Note G)                                 |       | 143                    |       | —     |       | —                   |       | —       |       | 143               |       |
| Stock-based  compensation (Note F)                                                 |       | 1,313                  |       | 6          |       | 1,307                    |       | —       |       | —            |       |
| Share  repurchases (Note K)                                                        |       | (19,592                | )          | (856       | )          | (988                     | )          | (17,748      | )          | —            |       |
| Other  stock plan activity                                                         |       | 1,608                  |       | 116        |       | 1,492                    |       | —       |       | —            |       |
|                                                                               |       |                   |       |       |       |                     |       |         |       |              |       |
| Balance,  September 27, 2008                                                  |       | $                      | 176,224    |       | $          | 11,878                   |       | $            | 14,788     |              | $          | 149,920 |   | $ | (362 | ) |

 

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

 

F-6

----

Table of Contents

 

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

** **

**A.  Summary of SignificantAccounting Policies**

 

**Business:**  Courier Corporation and its subsidiaries (“Courier”or the “Company”) print, publish and sell books.  Courier has two business segments: bookmanufacturing and specialty book publishing. On April 28, 2006, the Company acquired Federal MarketingCorporation, 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,the Company acquired Moore-Langen Printing Company, Inc. (“Moore Langen”)an Indianapolis-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 consolidated financial statements, preparedon a fiscal year basis, include the accounts of Courier Corporation and itssubsidiaries after elimination of all intercompany transactions.  Such financial statements have been preparedin conformity with accounting principles generally accepted in the UnitedStates of America (“generally accepted accounting principles”).  Fiscal years 2008 and 2007 were 52-weekperiods compared with fiscal year 2006, which was a 53-week period.

 

**Financial Instruments:** Financial instruments consist primarily of cash, investments in mutualfunds, accounts receivable, accounts payable and debt obligations.  The Company classifies as cash and cashequivalents amounts on deposit in banks and classifies as investments cashinvested temporarily in various instruments with maturities of three months orless at time of purchase.  Suchshort-term investments are held for trading purposes.  At September 27, 2008 and September 29,2007, the fair market value of the Company’s financial instruments approximatedtheir carrying values.  A loss of $19,000was incurred on these instruments in fiscal 2008 and earnings from theseinstruments were $144,000 and $521,000 in 2007 and 2006, respectively.  Such amounts are included in the caption “Interestexpense, net” in the accompanying Consolidated Statements of Operations.

 

**Property, Plant and Equipment:** Property, plant and equipment are recorded at cost, including intereston funds borrowed to finance the acquisition or construction of major capitaladditions.  Interest capitalized was$123,000 in 2008 and $169,000 in 2007; no such interest was capitalized in2006.  The Company provides fordepreciation of property, plant and equipment on a straight-line basis overperiods ranging from 10 to 40 years on buildings and improvements and from 3 to11 years on equipment and furnishings.

 

Leasehold improvementsare amortized on a straight-line basis over the shorter of their useful life orthe term of the lease.  Expenditures formaintenance and repairs are charged against income as incurred; bettermentsthat increase the value or materially extend the life of the related assets arecapitalized.  When assets are sold orretired, the cost and accumulated depreciation are removed from the accountsand any gain or loss is included in income.

 

F-7

----

Table of Contents

 

**Goodwill and Other Intangibles:**The Company evaluatespossible impairment annually at the end of its fiscal year or whenever eventsor circumstances indicate that the carrying value of the assets may not be recoverable.These tests are performed at the reporting unit level, or one level below theoperating segment.  In the third quarterof fiscal 2008, the Company performed an interim test of goodwill and otherintangible assets for Creative Homeowner, one of the companies in its specialtypublishing segment. These additional tests were performed as a result of aprecipitous decline in sales and profits at Creative Homeowner in the thirdquarter, due in large part to the continued downturn in the housing market andreduction in store traffic at home improvement centers and other large retailchain stores.

 

The goodwill impairmenttest is a two-step test.  In the firststep, the Company compares the fair value of each reporting unit to itscarrying value. If the fair value of the reporting unit exceeds the carryingvalue of its net assets, then goodwill is not impaired and the Company is notrequired to perform further testing.  Ifthe carrying value of the net assets of the reporting unit exceeds its fairvalue, then the Company must perform the second step in order to determine theimplied fair value of the reporting unit’s goodwill and compare it to thecarrying value of its goodwill.  TheCompany used a valuation methodology to estimate the fair value of CreativeHomeowner based primarily on the discounted cash flow approach.  Key assumptions and estimates includedrevenue and operating income forecasts and the assessed growth rate after theforecast period.  After performing thestep-one test, the Company determined that the fair value of Creative Homeownerat the end of the third quarter was below its carrying value and as such thesecond step was required.  The secondstep of the impairment test included valuing the tangible and intangible assetsand liabilities of the impaired reporting unit based on their fair value anddetermining the fair value of the impaired reporting unit’s impliedgoodwill.  The implied goodwill is theresidual of the total fair value of the reporting unit less the accumulatedfair value of identified tangible and intangible assets and liabilities.  Based on the step-two valuations, the Companyrecorded a pre-tax impairment charge of $15.3 million in 2008 relating toCreative Homeowner’s goodwill.

 

Trade names withindefinite lives are also not subject to amortization and are reviewed at leastannually for potential impairment at the end of the fiscal year or wheneverevents or circumstances indicate that the carrying value of the assets may notbe recoverable.  As a result of theimpairment analysis performed in fiscal 2008 for Creative Homeowner, theCompany determined that the carrying value of Creative Homeowner’s trade nameexceeded its estimated fair value. Accordingly, the Company recorded a pre-tax impairment charge of $0.8million relating to Creative Homeowner’s trade name.

 

“Other intangibles” alsoincludes customer lists related to Creative Homeowner and Moore Langen.  As a result of the impairment analysisperformed for Creative Homeowner, the Company determined that the carryingvalue of Creative Homeowner’s customer list exceeded its estimated fairvalue.  Accordingly, the Company recordeda pre-tax impairment charge of $7.5 million in 2008 for Creative Homeowner’scustomer list.

 

F-8

----

Table of Contents

 

For fiscal 2008, thetotal impairment charge recorded for Creative Homeowner’s goodwill, trade name,and customer list intangible assets was $23.6 million.  The Company had recorded an estimated pre-taximpairment charge of $23.8 million in the third quarter and, based upon thecompletion of its fair value determination of the tangible and intangibleassets and liabilities of Creative Homeowner, decreased the amount of theimpairment charge by $0.2 million in the fourth quarter of fiscal 2008.

 

Amortization related tocustomer lists for Moore Langen and Creative Homeowner was $629,000 for fiscal2008 compared with $787,000 and $343,000 in fiscal years 2007 and 2006,respectively.  Customer lists for MooreLangen and Creative Homeowner are being amortized over 10-year and 15-yearperiods, respectively.  Annualamortization expense for the next five years will be approximately $200,000prospectively.

 

The following tablereflects the components of “Goodwill” at September 27, 2008:

 
| ** **                          | ** ** | **(000’s omitted)** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|
| ** **                          | ** ** | **Book  Manufacturing**       | ** ** | **Specialty  Publishing** | ** ** | **Total** | ** ** |
| Balance at  September 29, 2007 |       | $                             | 14,771     |   | $ | 40,428 |   | $ | 55,199 |   |
| Impairment  charge                  |       | —                        |       | (15,287 | ) | (15,287 | ) |
| Balance at  September 27, 2008 |       | $                             | 14,771     |   | $ | 25,141 |   | $ | 39,912 |   |

 

The above amounts forgoodwill at September 27, 2008 are net of accumulated amortization of  $2.1 million and $0.9 million for the bookmanufacturing and specialty publishing segments, respectively.

 

The following tablereflects the components of “Other Intangibles” at September 27, 2008:

 
| ** **                          | ** ** | **(000’s omitted)** | ** ** |
|-------------------------------------|------------|-------------------------------|------------|
| ** **                          | ** ** | **Book Manufacturing**   | ** ** | **Specialty Publishing** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Trade  Name**               | ** ** | **Customer  Lists** | ** ** | **Trade  Name** | ** ** | **Customer  Lists** | ** ** | **Total** | ** ** |
| Balance at  September 29, 2007 |       | $                             | 931        |   | $ | 193 |   | $ | 1,370 |   | $ | 10,410 |   | $ | 12,904 |   |
| Impairment  charge                  |       |                          |       |   |   | (820 | ) | (7,535 | ) | (8,355 | ) |
| Amortization  expense               |       |                          |       | (23 | ) |   |   | (606 | ) | (629 | ) |
|                                |       |                          |       |   |   |   |   |   |   |   |   |
| Balance at  September 27, 2008 |       | $                             | 931        |   | $ | 170 |   | $ | 550 |   | $ | 2,269 |   | $ | 3,920 |   |

 

The above amounts forother intangibles at September 27, 2008 are net of accumulatedamortization of  $0.1 million and $1.7million for the book manufacturing and specialty publishing segments,respectively.

 

**Long-Lived Assets:**Management periodically reviews long-lived assets for impairment and hasnot recorded an impairment of any asset of the Company, other than the assetsof Creative Homeowner discussed above in the caption “Goodwill and Other Intangibles.”

 

F-9

----

Table of Contents

 

**Prepublication Costs:**Prepublication costs, associated with creating new titles in thespecialty publishing segment, are amortized to cost of sales using thestraight-line method over estimated useful lives of three to five years.In fiscal 2008, such amortization includes approximately $0.5 million to writedown the investment in underperforming titles at Creative Homeowner.

 

**Income Taxes:**Deferred income tax liabilities and assets are determined based upon thedifferences between the financial statement and tax bases of assets andliabilities, and are measured by applying enacted tax rates and laws for thetaxable years in which these differences are expected to reverse.

 

**Revenue Recognition:**Revenue is recognized upon shipment of goods to customers or upon thetransfer of ownership for those customers for whom the Company providesmanufacturing and distribution services. Revenue for distribution services is recognized as services areprovided.  Shipping and handling feesbilled to customers are classified as revenue. In the specialty publishing segment, revenue is recognized net of anallowance for sales returns.  The processwhich the Company uses to determine its net sales, including the relatedreserve allowance for returns, is based upon applying an estimated return rateto current year sales.  This estimatedreturn rate is based on actual historical return experience.

 

**Use of Estimates:**Theprocess of preparing financial statements in conformity with generally acceptedaccounting principles requires management to make estimates and assumptionsthat affect the reported amounts at the date of the financial statements.  Actual results may differ from theseestimates.

 

**Net Income per Share:** Basic net income per share is based on the weighted average number ofcommon shares outstanding each period. Diluted net income per share also includes potentially dilutive itemssuch as stock options (Note J).  Shares used to calculate basic and diluted amounts per share for fiscalyear 2008 are the same due to the Company incurring a loss in that period.

 

**New Accounting Pronouncements:** In December 2007,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), “Business Combinations,” (“SFAS No. 141R”), which replacesSFAS No. 141. This statement retains the purchase method of accounting forbusiness acquisitions, but requires a number of changes in the recognition ofassets acquired and liabilities assumed as well as the treatment ofacquisition-related costs.  SFAS No. 141Rwill be effective at the beginning of the Company’s fiscal year 2010 and willapply prospectively to business combinations completed on or after that date.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”).SFAS No. 161 changes the disclosure requirements for derivativeinstruments and hedging activities and will also be effective at the beginningof the Company’s fiscal year 2010.

 

F-10

----

Table of Contents

 

In April 2008,the FASB issued FSP 142-3, “Determining the Useful Life of Intangible Assets” (“FSP142-3”). FSP 142-3 amends the factors to be considered in determining theuseful life of intangible assets. Its intent is to improve the consistencybetween the useful life of an intangible asset and the period of expected cashflows used to measure its fair value. FSP 142-3 will be effective at thebeginning of the Company’s fiscal year 2010.

 

The Company doesnot believe the adoption of SFAS No. 141R, SFAS No. 161 or FSP 142-3will have a material effect on its consolidated financial position, results ofoperations, or cash flows.

 

## **B. Inventories**

## ** **

Inventories are valued at the lower of costor market. Cost is determined using the last-in, first-out (LIFO) method forapproximately 44% and 45% of the Company’s inventories at September 27,2008 and September 29, 2007, respectively. Other inventories, primarily in the specialty publishing segment, aredetermined on a first-in, first-out (FIFO) basis.

 

Inventories consisted ofthe following at September 27, 2008 and September 29, 2007:

 
| ** **      | ** ** | **(000’s omitted)** | ** ** |
|-----------------|------------|-------------------------------|------------|
| ** **      | ** ** | **2008**                      | ** ** | **2007** | ** ** |
|            |       |                          |       |   |   |
| Raw materials   |       | $                             | 5,263      |   | $ | 5,295 |   |
| Work in process |       | 8,091                         |       | 8,274 |   |
| Finished goods  |       | 23,812                        |       | 24,614 |   |
| Total           |       | $                             | 37,166     |   | $ | 38,183 |   |

 

Ona FIFO basis, reported year-end inventories would have been higher by $5.9million in fiscal 2008 and $5.3 million in fiscal 2007.

 

**C.  Income Taxes**

 

At the beginningof fiscal 2008, the Company adopted the provisions of FIN 48, which contains a two-step approach to recognizing andmeasuring uncertain tax positions accounted for in accordance with SFAS No. 109,“Accounting for Income Taxes.”  The firststep is to evaluate the tax position for recognition by determining if theweight of available evidence indicates that it is more likely than not that theposition will be sustained on audit, including resolution of related appeals orlitigation processes, if any.  The secondstep is to measure the tax benefit, quantified as the largest amount that iscumulatively more than 50% likely to be realized upon ultimate settlement.  The Company recognizes interest and penaltiesrelated to unrecognized tax benefits in income tax expense.  The cumulative effect of adopting FIN 48 atthe beginning of fiscal 2008 was $108,000 and was recorded as a reduction inretained earnings with a corresponding liability included under the caption “OtherLiabilities” in the accompanying consolidated balance sheet as of September 29,2007. During fiscal 2008, certain federal and state statutes of limitationsexpired. As such, the unrecognized tax benefits and accrued interest werereduced to approximately $65,000 and the impact, if recognized, would 

 

F-11

----

Table of Contents

 

favorably affect the Company’s effective income tax rate in futureperiods. The Company does not anticipate any significant changes in the amountof unrecognized tax benefits over the next twelve months.

 

The Company files federal and state income tax returns in variousjurisdictions of the United States. With few exceptions, the Company is nolonger subject to income tax examinations for years prior to fiscal 2005.  Substantially all U.S. federal tax yearsprior to fiscal 2005 have been audited by the Internal Revenue Service andclosed.

 

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

 
| ** **                              | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **2008**                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                    |       |                          |       |   |   |   |   |
| Federal taxes at statutory rate         |       | $                             | 24         |   | $ | 14,303 |   | $ | 13,367 |   |
| State taxes, net of federal tax benefit |       | 800                           |       | 1,312 |   | 1,168 |   |
| Federal manufacturer’s deduction   |       | (374                          | )          | (349 | ) | (335 | ) |
| Tax benefit of export related income    |       | —                        |       | (165 | ) | (674 | ) |
| Reversal of tax reserves                |       | —                        |       | — |   | (3,800 | ) |
| Other                                   |       | (11                           | )          | 20 |   | 84 |   |
| Total                                   |       | $                             | 439        |   | $ | 15,121 |   | $ | 9,810 |   |

 

The tax benefit infiscal 2008 related to the impairment charge for Creative Homeowner wasrecognized at 35% (see Note A).  No statetax benefit was recognized as the Company fully provided a valuation allowanceon the related deferred state tax asset. During the fourth quarter of fiscal 2006, the Company reversed an incometax reserve for $3.8 million pursuant to receipt of a state tax audit reportand the expiration of certain statutory limitations.

 

The provision for income taxes consisted of the following:

 
| ** **               | ** ** | **(000’s omitted)** | ** ** |
|--------------------------|------------|-------------------------------|------------|
| ** **               | ** ** | **2008**                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Current:                 |       |                          |       |   |   |   |   |
| Federal                  |       | $                             | 5,121      |   | $ | 12,410 |   | $ | 10,930 |   |
| State                    |       | 1,288                         |       | 1,613 |   | 1,587 |   |
| Reversal of tax reserves |       | —                        |       | — |   | (3,800 | ) |
|                     |       | 6,409                         |       | 14,023 |   | 8,717 |   |
| Deferred:                |       |                          |       |   |   |   |   |
| Federal                  |       | (6,109                        | )          | 652 |   | 906 |   |
| State                    |       | 139                           |       | 446 |   | 187 |   |
|                     |       | (5,970                        | )          | 1,098 |   | 1,093 |   |
| Total                    |       | $                             | 439        |   | $ | 15,121 |   | $ | 9,810 |   |

 

F-12

----

Tableof Contents

 

Thefollowing is a summary of the significant components of the Company’s deferredtax assets and liabilities as of September 27, 2008 and September 29,2007:

 
| ** **                                       | ** ** | **(000’s omitted)** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|
| ** **                                       | ** ** | **2008**                      | ** ** | **2007** | ** ** |
| Deferred tax assets:                             |       |                          |       |   |   |
| Vacation accrual not currently deductible        |       | $                             | 809        |   | $ | 824 |   |
| Other accruals not currently deductible          |       | 634                           |       | 356 |   |
| Non-deductible reserves                          |       | 3,012                         |       | 2,076 |   |
| Other                                            |       | 225                           |       | 213 |   |
| Classified as current                            |       | 4,680                         |       | 3,469 |   |
| Deferred compensation arrangements               |       | 2,213                         |       | 2,208 |   |
| Tax benefits of stock option activity            |       | (55                           | )          | 674 |   |
| Goodwill and other intangibles impairment charge |       | 9,658                         |       | — |   |
| State NOL carryforwards                          |       | 819                           |       | 172 |   |
| Pension obligation (Note G)                      |       | 222                           |       | 310 |   |
| Other                                            |       | 351                           |       | 591 |   |
| Total deferred tax assets                        |       | 17,888                        |       | 7,424 |   |
| Valuation allowance                              |       | (2,202                        | )          | (172 | ) |
| Total deferred tax assets, net                   |       | $                             | 15,686     |   | $ | 7,252 |   |
|                                             |       |                          |       |   |   |
| Deferred tax liabilities:                        |       |                          |       |   |   |
| Accelerated depreciation                         |       | 9,495                         |       | 8,389 |   |
| Goodwill and other intangibles amortization      |       | 6,198                         |       | 4,840 |   |
| Total deferred tax liabilities                   |       | $                             | 15,693     |   | $ | 13,229 |   |

 

The Company fully provided valuation allowances for state net operatingloss carryforwards.  The Company has alsoprovided a valuation allowance of approximately $1.4 million for a deferredstate tax asset related to Creative Homeowner’s impairment charge, asmanagement believes that its realization is uncertain.

 

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

 

**D.  Long-Term Debt**

 

At September 27, 2008 and September 29, 2007, the Company had$23.5 million and $17.1 million, respectively, in borrowings under itslong-term revolving credit facility. Other long-term debt at September 27, 2008 and September 29,2007 consisted of an obligation under an industrial development bondarrangement totaling $247,000 and $337,000, respectively, including currentmaturities of $93,000 and $91,000, respectively.  This industrial bond arrangement bearsinterest at 3%.  At September 27,2008, scheduled aggregate principal payments of these obligations were $93,000in 2009, $96,000 in 2010, $58,000 in 2011 and $23,492,000 in 2013.  The industrial bond arrangement provides fora lien on the assets acquired with the proceeds.

 

The Company has a $100 million long-term revolving credit facility inplace under which the Company can borrow at a rate not to exceed LIBOR plus1.5%.  The Company’s 

 

F-13

----

Table of Contents

 

interest rate at September 27, 2008 was 3.7%. In May 2008,the revolving credit agreement was amended and restated, including reducing thebank group from five to four banks and extending the maturity date by two yearsto March 2013.  The revolving credit facility is available to theCompany for both its long-term and short-term financing needs.

 

The revolving credit facility contains restrictive covenants includingprovisions relating to the maintenance of working capital, the incurrence ofadditional indebtedness and a quarterly test of EBITDA to debt service. Thefacility also provides for a commitment fee not to exceed 3/8% per annum on theunused portion.  These fees are includedin the caption “Interest expense, net” in the accompanying ConsolidatedStatements of Operations.

 

**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 $3,343,000 in 2008, $3,436,000 in2007, and $3,108,000 in 2006.  As of September 27,2008, minimum annual rental commitments under the Company’s long-term operatingleases were approximately $2,100,000 in 2009, $1,939,000 in 2010, $1,053,000 in2011, $811,000 in 2012, $541,000 in 2013 and $663,000 in the aggregatethereafter.  At September 27, 2008and September 29, 2007, the Company had letters of credit outstanding of$1,650,000 and $1,525,000, 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**

 

The Company records stock-basedcompensation expense for the cost of stock options, stock grants, and sharesissued under the Company’s Employee Stock Purchase Plan. The fair value of eachoption awarded is calculated on the date of grant using the Black-Scholesoption-pricing model.

 

Stock-based compensationrecognized in selling and administrative expenses in the accompanying financialstatements, and the related tax benefit, were as follows:

 
| ** **                           | ** ** | **(000’s omitted)** | ** ** |
|--------------------------------------|------------|-------------------------------|------------|
| ** **                           | ** ** | **2008**                      | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                 |       |                          |       |   |   |   |   |
| Stock-based compensation expense     |       | $                             | 1,313      |   | $ | 1,460 |   | $ | 1,431 |   |
| Related tax benefit                  |       | (405                          | )          | (454 | ) | (352 | ) |
| Stock-based compensation, net of tax |       | $                             | 908        |   | $ | 1,006 |   | $ | 1,079 |   |

 

Unrecognizedstock-based compensation cost at September 27, 2008 was $2.2 million to berecognized over a weighted-average period of 2.3****years.

 

F-14

----

Table of Contents

 

**Stock Incentive Plan:** The Company’s stock incentive plan provides for the granting of stockoptions and stock grants up to a total of 2,064,375 shares.  Under the plan provisions, both non-qualifiedand incentive stock options to purchase shares of the Company’s common stockmay be granted to key employees.  Theoption price per share may not be less than the fair market value of stock atthe time the option is granted and incentive stock options must expire notlater than ten years from the date of grant. The Company annually issues a combination of stock options and stockgrants to its key employees.  Stockoptions and stock grants generally vest over three years.

 

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

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted Average** | ** ** | **Aggregate**                  | ** ** |
|-------------------------------|------------|------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **Shares** | ** ** | **Exercise****Price**     | ** ** | **Remaining  Term (yrs)** | ** ** | **Intrinsic  Value** | ** ** |
| ** **                    | ** ** | ** ** | ** ** | ** **                | ** ** | ** **                     | ** ** | **(in 000’s)** | ** ** |
| 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                     |       |                           |       |   |   |
| Cancelled                     |       | (157       | )          | 35.51                     |       |                           |       |   |   |
| Outstanding at Sept. 29, 2007 |       | 387,511    |       | $                         | 25.53      |                           |       |   |   |   |
| Issued                        |       | 106,465    |       | 21.17                     |       |                           |       |   |   |
| Exercised                     |       | (46,674    | )          | 11.07                     |       |                           |       | $ | 586 |   |
| Cancelled                     |       | (6,048     | )          | 36.57                     |       |                           |       |   |   |
| Expired                       |       | (11,788    | )          | 25.86                     |       |                           |       |   |   |
| Outstanding at Sept. 27, 2008 |       | 429,466    |       | $                         | 25.86      |                           | 3.1        |   | $ | 287 |   |
|                          |       |       |       |                      |       |                           |       |   |   |
| Exercisable at Sept. 27, 2008 |       | 268,607    |       | $                         | 25.50      |                           | 2.3        |   | $ | 287 |   |
| Available for future grants   |       | 255,216    |       |                      |       |                           |       |   |   |

 

There were 42,752 non-vested stock grants outstanding at the beginning offiscal 2008 with a weighted-average fair value of $37.42 per share.  During 2008, 21,005 stock grants were awardedwith a weighted-average fair value of $21.44 per share.  There were 10,705 stock grants that vested in2008 with a weighted-average fair value of $36.99 per share.  Also, 1,893 non-vested stock grants, with a weighted-averagefair value of $36.39, were forfeited during 2008. At September 27, 2008,there were 51,159 non-vested stock grants outstanding with a weighted-averagefair value of $30.99.

 

**Directors’ Option Plan:** In January 2005, stockholders approved the Courier Corporation 2005Stock Equity Plan for Non-Employee Directors (the “2005 Plan”). Under the planprovisions, non-qualified stock options to purchase shares of the Company’scommon stock may be granted to non-employee directors up to a total of 225,000shares.  The option price per share isthe fair market value 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 

 

F-15

----

Table of Contents

 

to apply their annual retainer fee toward the granting of stock optionsat a price per share that was $5 below the fair market value at the time of theoption award.  No further options will begranted under the 1989 Plan.

 

The following is a summary of all option activity for these plans:

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted Average** | ** ** | **Aggregate**                  | ** ** |
|-------------------------------|------------|------------|------------|---------------------------|------------|--------------------------------|------------|
| ** **                    | ** ** | **Shares** | ** ** | **Exercise  Price**       | ** ** | **Remaining  Term (yrs)** | ** ** | **Intrinsic  Value** | ** ** |
| ** **                    | ** ** | ** ** | ** ** | ** **                | ** ** | ** **                     | ** ** | **(in 000’s)** | ** ** |
| 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                     |       |                           |       |   |   |
| Outstanding at Sept. 29, 2007 |       | 167,097    |       | $                         | 31.36      |                           |       |   |   |   |
| Issued                        |       | 42,000     |       | 26.86                     |       |                           |       |   |   |
| Exercised                     |       | (30,750    | )          | 21.26                     |       |                           |       | $ | 121 |   |
| Canceled                      |       | (14,727    | )          | 36.69                     |       |                           |       |   |   |
| Outstanding at Sept. 27, 2008 |       | 163,620    |       | $                         | 31.63      |                           | 2.5        |   | $ | — |   |
|                          |       |       |       |                      |       |                           |       |   |   |
| Exercisable at Sept. 27, 2008 |       | 163,620    |       | $                         | 31.63      |                           | 2.5        |   | $ | — |   |
| Available for future grants   |       | 60,610     |       |                      |       |                           |       |   |   |

 

Directors may also elect to receive their annual retainer and committeechair fees as shares of stock in lieu of cash. Such shares issued in 2008, 2007 and 2006 were 5,399 shares, 4,338shares, and 5,504 shares at a fair market value of $26.86, $39.18 and $36.34,respectively.

 

**Employee Stock Purchase Plan:** The Company’s 1999 Employee Stock Purchase Plan (“ESPP”), as amended,covers an aggregate of 337,500 shares of Company common stock for issuanceunder the plan.  Eligible employees maypurchase shares of Company common stock at not less than 85% of fair marketvalue at the end of the grant period. During 2008, 2007, and 2006, 28,774 shares, 20,066 shares, and 18,433shares, respectively, were issued under the plan at an average price of $20.44per share, $31.46 per share, and $32.36 per share, respectively.  Since inception, 285,164****shareshave been issued.  At September 27,2008, an additional 52,336 shares were reserved for future issuances.

 

**Stockholders’ Rights Plan:** In March 1999, the Board of Directors adopted a ten-yearstockholders’ rights plan.  Under theplan, the Company’s stockholders of record at March 19, 1999 received aright to purchase a unit (“Unit”) comprised of one one-thousandth of a share ofpreferred stock for each share of common stock held on that date at a price of$100, subject to adjustment.  Until suchrights become exercisable, one such right will also attach to subsequentlyissued shares of common stock.  Therights become exercisable if a person or group acquires 15% or more of theCompany’s common stock or after commencement of a tender or exchange offerwhich would result in a person or 

 

F-16

----

Table of Contents

 

group beneficially owning 15% or more of the Company’s common stock.  When exercisable, under certain conditions,each right entitles the holder thereof to purchase Units or shares of commonstock of the acquirer, in each case having a market value at that time of twicethe right’s exercise price.  The Board ofDirectors will be entitled to redeem the rights at one cent per right, undercertain circumstances.  The rights expirein 2009.

 

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

 

Thefollowing key assumptions were used to value options issued:

 
| ** **                       | ** ** | **2008**       | ** ** | **2007**       | ** ** | **2006**   | ** ** |
|----------------------------------|------------|----------------|------------|----------------|------------|------------|------------|
| Risk-free interest rate          |       | 3.0%–3.1% |       | 4.2%–4.7% |       | 4.5%       |       |
| Expected volatility              |       | 27%–31%   |       | 25%–27%   |       | 30%        |       |
| Expected dividend yield          |       | 2.6%–3.8% |       | 1.8%–2%   |       | 1.3%       |       |
| Estimated life for grants under: |       |           |       |           |       |       |       |
| Stock Incentive Plans            |       | 5  years       |       | 5  years       |       | 5  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:**                 | ** ** | **2008**                           | ** ** | **2007**                                 | ** ** | **2006** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
| Exercise price equal to stock price |       | $                                  | 4.52       |                                     | $          | 9.00 |   | $ | 11.19 |   | $ | 5.77 |   | $ | 10.40 |   | $ | 9.14 |   |
|                                     |            |                                    |            |                                          |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**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 ofmulti-employer union plans consist of contributions determined in accordancewith the respective collective bargaining agreements.  Retirement benefits for non-union employeesare provided through the Courier Profit Sharing and Savings Plan (“PSSP”),which includes an Employee Stock Ownership Plan (“ESOP”).  Retirement costs included in the accompanyingfinancial statements amounted to approximately $3,468,000 in 2008, $3,940,000in 2007, and $3,870,000 in 2006. At September 27, 2008 and September 29,2007, the Company had $1.5 million and $2.3 million, respectively, accrued forthe PSSP, which is included in theaccompanying consolidated balance sheet under the caption “Other currentliabilities.”

 

The PSSP is qualified under Section 401(k) of the InternalRevenue Code.  The plan allows eligibleemployees to contribute up to 100% of their compensation, subject to IRSlimitations, with the Company making a matching contribution.  Effective July 1, 2007, 

 

F-17

----

Table of Contents

 

the Company increased the matching contribution to 100% of the first 2%of pay plus 25% of the next 4% of pay contributed by the employee.  Previously, the Company match was 25% of thefirst 6% of pay contributed by the employee. The Company also makes contributions to the plan annually based onprofits each year for the benefit of 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 27, 2008, the ESOP held 364,567 shares on behalf ofthe participants.

 

Dover has a noncontributory, defined benefit pension plancovering substantially all of its employees. As of December 31, 2001,Dover employees became eligible to participate in the PSSP.  As such, plan benefits under the Doverdefined benefit plan were frozen as of that date.

 

On September 29, 2007, theCompany adopted the recognition and disclosure requirements of SFAS No. 158,“Employers’ Accounting for Defined Pension and Other Postretirement Plans, anamendment of FASB Statements No. 87, 88, 106, and 132(R)”  (“SFAS 158”). The Dover pension obligation was measured as of September 29, 2007and 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 statement of financial position at September 29, 2007, with acorresponding 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 effects ofadopting the provisions of SFAS 158 on the Company’s consolidated balance sheetat September 29, 2007 are presented in the following table.   The adoption of SFAS 158 had no effect onthe Company’s income statement for the year ended September 29, 2007, orfor any prior period presented, and it will not affect the Company’s operatingresults in future periods.

 

F-18

----

Table of Contents

 

The amounts recognized in thebalance sheet upon adoption of SFAS 158 were as follows:

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

 

Accumulated othercomprehensive income (loss) at September 29, 2007 includes actuariallosses, net of tax, of $505,000, related to the Dover plan, of which $23,000,net of tax, has been recognized in net periodic pension cost during the fiscalyear ended September 27, 2008.  Theactuarial loss included in accumulated other comprehensive income and expectedto be recognized in net periodic pension cost during the fiscal year ended September 26,2009 is $17,000, net of tax. The following tables provide information regardingthe Dover plan:

 
| **Other changes in plan assets and obligations** | ** ** | **(000’s omitted)** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------|------------|
| **recognized in other comprehensive income:**              | ** ** | **2008**                      | ** ** | **2007** | ** ** |
| Accumulated  other comprehensive loss at beginning of year                     |       | $                             | (505       | ) |   |   |
| Net gain  incurred in year, net of tax                                         |       | 120                           |       |   |   |
| Amortization of  actuarial net losses, net of tax                              |       | 23                            |       |   |   |
| Accumulated  other comprehensive loss at end of year                           |       | $                             | (362       | ) | $ | (505 | ) |
|                                                                                |            |                               |            |  |  |  |  |

 
| **Change in projected benefit obligation:** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------------|------------|----------|------------|----------|------------|
| Benefit obligation at beginning of year                         |       | $        | 3,070      |     | $          | 3,138 |   |
| Administrative  cost                                            |       | 7        |       | 7        |       |
| Interest cost                                                   |       | 169      |       | 184      |       |
| Actuarial loss  (gain)                                          |       | (274     | )          | 270      |       |
| Benefits paid                                                   |       | (408     | )          | (529     | )          |
| Benefit  obligation at end of year                              |       | $        | 2,564      |     | $          | 3,070 |   |

 

F-19

----

Table of Contents

 
| **Change in plan assets:**       | ** ** | **2008** | ** ** | **2007** | ** ** | ** ** | ** ** |
|-------------------------------------------------|------------|----------|------------|----------|------------|------------|------------|
| Fair value of  plan assets at beginning of year |       | $        | 2,944      |     | $          | 3,238      |       |   |   |
| Actual return on  plan assets                   |       | 112      |       | 235      |       |       |       |
| Employer  contributions                         |       | 27       |       | —   |       |       |       |
| Benefits paid                                   |       | (408     | )          | (529     | )          |       |       |
| Fair value of  plan assets at end of year       |       | $        | 2,675      |     | $          | 2,944      |       |   |   |
|                                            |       |     |       |     |       |       |       |
| Funded status at  end of year                   |       | $        | 111        |     | $          | (126       | )          |   |   |

 
| **Components of net periodic benefit cost:** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Administrative  cost                                                  |       | $        | 7          |     | $          | 7        |       | $ | 7 |   |
| Interest cost                                                         |       | 169      |       | 184      |       | 173      |       |
| Expected return  on plan assets                                       |       | (192     | )          | (207     | )          | (235     | )          |
| Amortization of  unrecognized net loss                                |       | 37       |       | 49       |       | 21       |       |
| Net periodic  benefit cost (income)                                   |       | $        | 21         |     | $          | 33       |       | $ | (34 | ) |

 
| **Actuarial assumptions used to  determine costs and benefit obligations:** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate                                                                                                  |       | 6.0      | %          | 5.8      | %          | 5.8      | %          |
| Compensation  increases                                                                                        |       | None     |       | None     |       | None     |       |
| Expected return  on plan assets                                                                                |       | 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.

 

Prepaid pension cost of$111,000 at September 27, 2008 is included in the accompanyingconsolidated balance sheet under the caption “Other assets” while accruedpension cost of $126,000 at September 29, 2007 is included in “Otherliabilities”.

 

F-20

----

Table of Contents

 

**H. Business Acquisitions**

 

On October 17, 2005,the Company acquired Moore-Langen Printing Company, Inc. (“Moore Langen”),an Indianapolis-based printer specializing in manufacturing book covers, in a$15 million cash transaction.  Theacquisition was accounted for as a purchase, and accordingly, Moore Langen’sfinancial results were included in the book manufacturing segment in theconsolidated financial statements from the date of acquisition.  The allocation of the purchase price toassets acquired included, in the accompanying financial statements,approximately $5.5 million to goodwill, $0.9 million to trade name, and $0.2million to customer lists, all of which aredeductible for tax purposes.

 

On April 28,2006, the Company acquired Creative Homeowner, a New Jersey-based publisher anddistributor of books, home plans and related products for the home and gardenretail book market.  The Companypurchased 100% of the stock in a $37 million cash transaction.  The acquisition was accounted for as apurchase, and accordingly, Creative Homeowner’s financial results were includedin the specialty publishing segment in the consolidated financial statementsfrom the date of acquisition.  Theallocation of the purchase price to assets acquired included approximately$16.4 million to goodwill, $11.5 million to customer lists, and $1.4 million totrade name, all of which are deductible for tax purposes.  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, with pro forma adjustments to give effect to amortization ofcustomer lists, interest expense on acquisition debt and certain other purchaseaccounting adjustments, together with related income tax effects.

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

 

In fiscal 2008, Creative Homeowner incurred apre-tax charge of $23.6 million related to impairment of goodwill, customerlists and trade names (see Note A).

 

F-21

----

Table of Contents

 

**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, legal, 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.

 

The followingtable provides segment information as required under SFAS No. 131, “Disclosuresabout Segments of an Enterprise and Related Information.”  The impairment charge of $23.6 million infiscal 2008 (discussed more fully in Note A) is included in the results of thespecialty publishing segment.  Dollaramounts in the table are presented in thousands.

 

F-22

----

Tableof Contents

 
| ** **                                     | ** ** | **Total  Company** | ** ** | **Book  Manufacturing** | ** ** | **Specialty****Publishing** | ** ** | **Unallocated** | ** ** | **Intersegment  Elimination** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------------------|------------|-----------------|------------|-------------------------------|------------|
| Fiscal 2008                                    |       |               |       |                    |       |                        |       |            |       |                          |       |
| Net sales                                      |       | $                  | 280,324    |                    | $          | 229,792                     |       | $               | 61,767     |                          | $          | — |   | $ | (11,235 | ) |
| Earnings (loss)  before income taxes           |       | 69                 |       | 26,496                  |       | (25,205                     | )          | (1,313          | )          | 91                            |       |
| Total assets                                   |       | 240,498            |       | 157,891                 |       | 73,244                      |       | 9,363           |       | —                        |       |
| Goodwill, net                                  |       | 39,912             |       | 14,771                  |       | 25,141                      |       | —          |       | —                        |       |
| Depreciation and  amortization                 |       | 21,373             |       | 13,666                  |       | 6,945                       |       | 762             |       | —                        |       |
| Capital  expenditures and prepublication costs |       | 17,865             |       | 12,139                  |       | 5,308                       |       | 418             |       | —                        |       |
| Interest  (income)/expense                     |       | 1,133              |       | (323                    | )          | 1,456                       |       | —          |       | —                        |       |
|                                           |       |               |       |                    |       |                        |       |            |       |                          |       |
| 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                         |       | —          |       | —                        |       |

 

F-23

----

Table ofContents

 

Export sales as a percentage of consolidated sales were approximately 18%in 2008, 16% in 2007 and 19% in 2006. Approximately 90% of export sales were in the book manufacturing segmentin fiscal years 2008, 2007, and 2006. Sales to the Company’s largest customer amounted to approximately 22%****of consolidated sales in 2008, 20% in 2007 and 23% in 2006.In addition, sales to another customer amounted to 17% of consolidated sales in2008, and 16% in 2007 and 2006.  Sales toa third customer amounted to approximately 11% of consolidated sales in 2008,but were less than 10% in prior years. These three customers are in the book manufacturing segment and no othercustomer accounted for more than 10% of consolidated sales.  Customers are granted credit on an unsecuredbasis.  Receivables for the three largestcustomers, as a percentage of consolidated accounts receivable, were 41% at September 27,2008 and for the two largest customers, were 21% at September 29, 2007.

 

## **J.  Net Incomeper Share**

## ** **

Following is areconciliation of the shares used in the calculation of basic and diluted netincome (loss) per share.  Potentiallydilutive shares, calculated using the treasury stock method, consist of sharesissued under the Company’s stock option plans. In fiscal 2008, approximately 72,000potentially dilutive shares were excluded due to the Company incurring a lossin that period.

 
| ** **                              | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **2008**                      | ** ** | **2007** | ** ** | **2006** | ** ** |
| Average shares outstanding for basic    |       | 12,294                        |       | 12,470 |   | 12,322 |   |
| Effect of potentially dilutive shares   |       | —                        |       | 219 |   | 277 |   |
| Average shares outstanding for dilutive |       | 12,294                        |       | 12,689 |   | 12,599 |   |

 

**K. ShareRepurchase Plan**

 

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.  OnMay 8, 2008, the Board of Directors of the Company expanded the Company’sShare Repurchase Plan and authorized the repurchase of up to an additional $5million of the Company’s outstanding common stock.  On August 6,2008, the Company’s Board of Directors further expanded the share repurchaseprogram by authorizing the repurchase of up to an additional $5 million of theCompany’s common stock, bringing the total amount authorized under theplan to $20 million. Since the inception of the share repurchase programthrough September 27, 2008, the Company has repurchased approximately 856,000 shares of common stock forapproximately $19.6 million. The Company currently has no plan to repurchaseadditional shares in fiscal 2009.

 

F-24

----

Tableof Contents

 

COURIER CORPORATION

 

FIVE-YEAR FINANCIAL SUMMARY

 
| **(Dollar amounts in millions**    | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **except per share data)**         | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006***  | ** ** | **2005**   | ** ** | **2004**   | ** ** |
|                                              |       |       |       |       |       |       |       |       |       |       |       |
| Net sales                                         |       | $          | 280.3      |       | $          | 294.6      |       | $          | 269.1      |       | $          | 227.0 |   | $ | 211.2 |   |
| Gross profit                                      |       | 77.9       |       | 96.4       |       | 88.5       |       | 75.2       |       | 68.6       |       |
| Net income  (loss)                                |       | (0.4       | )          | 25.7       |       | 28.4       |       | 20.9       |       | 19.2       |       |
| Net income  (loss) per diluted share              |       | (0.03      | )          | 2.03       |       | 2.25       |       | 1.67       |       | 1.56       |       |
| Dividends per  share                              |       | 0.80       |       | 0.72       |       | 0.48       |       | 0.33       |       | 0.23       |       |
| Working capital                                   |       | 56.8       |       | 56.0       |       | 46.2       |       | 66.9       |       | 57.3       |       |
| Current ratio                                     |       | 2.7        |       | 2.5        |       | 2.3        |       | 3.2        |       | 2.9        |       |
| Capital  expenditures                             |       | 12.9       |       | 26.4       |       | 29.4       |       | 19.7       |       | 13.4       |       |
| Depreciation and  amortization                    |       | 21.4       |       | 18.9       |       | 14.8       |       | 11.7       |       | 10.9       |       |
| Total assets                                      |       | 240.5      |       | 269.8      |       | 247.2      |       | 197.0      |       | 175.2      |       |
| Long-term debt                                    |       | 23.6       |       | 17.4       |       | 17.2       |       | 0.4        |       | 0.5        |       |
| Long-term debt  as a percentage of capitalization |       | 11.8       | %          | 7.9        | %          | 8.6        | %          | 0.3        | %          | 0.4        | %          |
| Stockholders’  equity                        |       | 176.2      |       | 203.0      |       | 182.3      |       | 156.5      |       | 135.4      |       |
| Return on  stockholders’ equity              |       | -0.2       | %          | 13.4       | %          | 16.8       | %          | 14.3       | %          | 15.3       | %          |
| Stockholders’  equity per share              |       | 14.84      |       | 16.10      |       | 14.65      |       | 12.71      |       | 11.24      |       |
| Shares  outstanding (in 000’s)               |       | 11,878     |       | 12,612     |       | 12,445     |       | 12,313     |       | 12,047     |       |
| Number of  employees                              |       | 1,825      |       | 1,830      |       | 1,724      |       | 1,479      |       | 1,465      |       |
|                                                   |            |            |            |            |            |            |            |            |            |            |            |  |  |  |  |  |

 

*Fiscal2008 results include a non-cash impairment charge of $23.6 million (Note A). Onan after-tax basis, the impairment charge was $15.4 million, or $1.25 perdiluted share. Fiscal 2006 results include the reversal of a $3.8 million, or$.30 per diluted share, income tax reserve (Note C).*

 

*Prioryear amounts were retroactively adjusted to reflect the adoption of SFAS 123Rin fiscal 2006 (Note F).*

 

*Netincome per diluted share is based on weighted average shares outstanding;stockholders’ equity per share is based on shares outstanding at year end.Shares outstanding and per share amounts were retroactively adjusted to reflecta three-for-two stock split distributed on May 27, 2005.*

 

----

** Fiscal2006 was a 53-week period.*

 

F-25

----

Tableof Contents

 

###### **MANAGEMENT’S DISCUSSIONAND ANALYSIS**

###### ** **

#### **FORWARD-LOOKING INFORMATION**

####  

*Statements contained hereininclude forward-looking statements. **Statements that describefuture expectations, plans or strategies are considered “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995 and releases issued by the Securities and ExchangeCommission.  The words “believe,” “expect,”“anticipate,” “intend,” “estimate” and other expressions which are predictionsof or indicate future events and trends and which do not relate to historicalmatters identify forward-looking statements. Such statements are subject to risks and uncertainties that could causeactual results to differ materially from those currently anticipated.  Factors that could affect actual resultsinclude, among others, changes in customers’ demand for the Company’s products,including seasonal changes in customer orders and shifting orders to lower costregions, changes in market growth rates, 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 including carrying value of intangibleassets, restructuring and impairment charges required under generally acceptedaccounting principles, changes in operating expenses including medical andenergy costs, changes in technology including migration from paper-based booksto digital, difficulties in the start up of new equipment or informationtechnology systems, changes in copyright laws, changes in environmentalregulations, changes in tax regulations, changes in the Company’s effectiveincome tax rate and general changes in economic conditions, including currencyfluctuations, changes in interest rates, changes in consumer confidence,changes in the housing market, and tightness in the credit markets.  Although the Company believes that theassumptions underlying the forward-looking statements are reasonable, any ofthe assumptions could be inaccurate, and therefore, there can be no assurancethat the forward-looking statements will prove to be accurate.  The forward-looking statements includedherein are made as of the date hereof, and the Company undertakes no obligationto update publicly such statements to reflect subsequent events orcircumstances.*

 

F-26

----

## **Table ofContents**

 

## **OVERVIEW**

## ** **

CourierCorporation, founded in 1824, is one of America’s leading book manufacturersand specialty publishers.  The Companyhas two business segments: book manufacturing and specialty publishing.  The book manufacturing segment streamlinesthe process of bringing books from the point of creation to the point ofuse.  Based on sales, Courier is thethird largest book manufacturer in the United States, offering services fromprepress and production, through storage and distribution.  The specialty publishing segment consists ofDover Publications, Inc. (“Dover”), Research & EducationAssociation, Inc. (“REA”), and Federal Marketing Corporation, d/b/aCreative Homeowner (“Creative Homeowner”), acquired in April 2006.  Dover publishes over 9,000 titles in morethan 30 specialty categories ranging from literature to paper dolls, and musicscores to clip art.  REA publishes testpreparation and study-guide books and software for high school, college andgraduate students, as well as professionals. Creative Homeowner publishes and distributes books on home design,decorating, landscaping and gardening, and sells home plans.

 

**RESULTS OF OPERATIONS**

 

**FINANCIAL HIGHLIGHTS**

(dollars inthousands except per share amounts)

 
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent Change** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2008 vs.**       | ** ** | **2007 vs.** | ** ** |
| ** **                           | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006**   | ** ** | **2007**                | ** ** | **2006** | ** ** |
| Net sales                            |       | $          | 280,324    |       | $          | 294,592    |       | $                       | 269,051    |   | -4.8 | % | 9.5 | % |
| Gross profit                         |       | 77,879     |       | 96,363     |       | 88,516     |       | -19.2                   | %          | 8.9 | % |
| As a percentage  of sales            |       | 27.8       | %          | 32.7       | %          | 32.9       | %          |                    |       |   |   |
| Selling and  administrative expenses |       | 53,034     |       | 53,926     |       | 50,144     |       | -1.7                    | %          | 7.5 | % |
| Impairment  charge                   |       | 23,643     |       | —     |       | —     |       |                    |       |   |   |
| Interest  expense, net               |       | 1,133      |       | 1,571      |       | 182        |       |                    |       |   |   |
| Pretax income                        |       | 69         |       | 40,866     |       | 38,190     |       |                    |       | 7.0 | % |
| Provision for  income taxes          |       | 439        |       | 15,121     |       | 9,810      |       |                    |       |   |   |
| Net income  (loss)                   |       | $          | (370       | )          | $          | 25,745     |       | $                       | 28,380     |   |   |   | -9.3 | % |
| Net income  (loss) per diluted share |       | $          | (0.03      | )          | $          | 2.03       |       | $                       | 2.25       |   |   |   | -9.8 | % |

 

Fiscalyears 2008 and 2007 were 52-week periods compared with a 53-week period infiscal year 2006. The pro rata effect of the extra week added approximately 2%to fiscal 2006 sales and earnings.

 

Revenuesin fiscal 2008 were down 5% to $280 million compared to the prior year,reflecting the impact of industry consolidation and the sluggish nationaleconomy. Book manufacturing revenues of $230 million were down 1% from lastyear while revenues in the specialty publishing segment declined 15% to $62million compared to fiscal 2007.  TheCompany incurred a non-cash, pre-tax impairment charge of $23.6 million ($15.4 

 

F-27

----

Table of Contents

 

millionafter tax or $1.25 per diluted share) related to poor financial performance atCreative Homeowner as discussed below. As a result, the Company incurred a net loss for fiscal 2008 of $370,000or $.03 per diluted share.

 

Infiscal 2007, revenues increased in both of the Company’s operating segmentscompared to fiscal 2006.  Bookmanufacturing revenues were up 5% in fiscal 2007 compared to the 53-week periodin fiscal 2006, reflecting continued growth in education sales.  Sales in the specialty publishing segment forfiscal 2007 were up 27% compared to the prior year due largely to the inclusionof full-year results from Creative Homeowner, acquired in April 2006. Netincome for fiscal 2007 was $25.7 million, or $2.03 per diluted share. Netincome for fiscal 2006 was $28.4 million, which included a reduction in taxesof $3.8 million, or $.30 per diluted share, from the reversal of taxreserves.  Without the effect of this taxadjustment, net income in fiscal 2007 increased 5% over the prior year.

 

***Impairment Charge***

 

The Company evaluatespossible impairment of goodwill and other intangibles at the reporting unitlevel, or one level below an operating segment, on an annual basis or wheneverevents or circumstances indicate that the carrying value of the assets may notbe recoverable. In the third quarter of fiscal 2008, the Company performed anadditional test of goodwill and other intangible assets for Creative Homeowneras a result of a precipitous decline in sales and profits at Creative Homeownerin the quarter, due in large part to the continued downturn in the housingmarket and reduction in store traffic at home improvement centers and otherlarge retail chain stores.  As a resultof the impairment tests, the Company concluded that the carrying value ofCreative Homeowner’s goodwill and other intangible assets exceeded their fairvalue. The total pre-tax impairment charge related to the goodwill, trade name,and customer list intangible assets of Creative Homeowner was $23.6 million, or$15.4 million on an after-tax basis.

 

The followingtable summarizes the impact of the impairment charge on net income and is presented in addition to, and not a substitutefor or superior to, net income (loss) determined in accordance with generallyaccepted accounting principles.

 
| ** **                                              | ** ** | **(Dollars in thousands,  except per share amounts)** | ** ** |
|---------------------------------------------------------|------------|--------------------------------------------------------------------------------|------------|
| ** **                                              | ** ** | **September 27,  2008**                                                   | ** ** | **September 29,  2007** | ** ** |
|                                                    |       |                                                                           |       |   |   |
| Net income (loss) as reported                           |       | $                                                                              | (370       | ) | $ | 25,745 |   |
| Impairment charge, after tax benefit                    |       | (15,368                                                                        | )          | — |   |
| Net income before impairment charge                     |       | $                                                                              | 14,998     |   | $ | 25,745 |   |
| Net income per diluted share  before  impairment charge |       | $                                                                              | 1.22       |   | $ | 2.03 |   |

 

F-28

----

Table of Contents

 

***Book Manufacturing Segment***

 

**SEGMENT HIGHLIGHTS**

**(dollars in thousands)**

 
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent Change** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2008 vs.**       | ** ** | **2007 vs.** | ** ** |
| ** **                           | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006***  | ** ** | **2007**                | ** ** | **2006** | ** ** |
|                                 |       |       |       |       |       |       |       |                    |       |   |   |
| Net sales                            |       | $          | 229,792    |       | $          | 231,474    |       | $                       | 220,115    |   | -0.7 | % | 5.2 | % |
| Gross profit                         |       | 55,042     |       | 65,356     |       | 63,156     |       | -15.8                   | %          | 3.5 | % |
| As a percentage  of sales            |       | 24.0       | %          | 28.2       | %          | 28.7       | %          |                    |       |   |   |
| Selling and  administrative expenses |       | 28,869     |       | 29,220     |       | 30,283     |       | -1.2                    | %          | -3.5 | % |
| Interest income                      |       | (323       | )          | (279       | )          | (733       | )          | 15.8                    | %          | -61.9 | % |
| Pretax income                        |       | $          | 26,496     |       | $          | 36,415     |       | $                       | 33,606     |   | -27.2 | % | 8.4 | % |

 

----

*Fiscal year 2006was a 53-week period.

 

*Revenues*

 

Within thissegment, the Company focuses on three key publishing markets: education,religious and specialty trade.  Sales tothe education market were $96.5 million, down 5% from fiscal 2007, reflectingunexpectedly slow sales earlier in the year following the consolidation of twolarge educational publishers as well as cautious ordering throughout theindustry. Sales to the religious market increased 4% to $65.7 million,including a 7% increase with the Company’s largest customer. During 2008, theCompany completed its multi-year technology upgrade and expansion program atits Philadelphia plant with the installation of a new press and bindingequipment, providing both additional capacity to meet the volume needs of theCompany’s largest religious customer and significant gains in efficiency.  These investments are an important part of amulti-year program designed to lower costs and support this customer’s need forexpanded scripture distribution around the world.  In the specialty trade market, fiscal 2008sales were $55.8 million, up 3% from the prior year, reflecting the acquisitionof new customers as well as additional four-color business from CreativeHomeowner following the expiration of its external manufacturing contract,which was in place when this business was acquired in 2006.

 

For fiscal 2007, salesto the education market were $101.4 million, up 17% over fiscal 2006 reflectingshare gains with key customers and strong demand for four-color textbooks forelementary and high schools.  The Company’snewest four-color press was installed in December 2006, as well as newbindery equipment, which provided additional capacity to meet demand foreducational books.  In the religiousmarket, sales in fiscal 2007 were $63.1 million, down 6% from fiscal 2006,reflecting slower than expected growth during the phase-in of the multi-yearexpansion program for the Company’s largest religious customer.  The objective of this program is to enableour customer to increase its distribution of scriptures around the world byreducing our production costs through manufacturing efficiencies and the use ofalternative materials, and sharing the resulting savings with ourcustomer.  Sales to the specialty trademarket were $54.4 million in fiscal 2007, up 12% compared to fiscal 2006, as a result of several

 

F-29

----

Tableof Contents

 

large one-time orders early in the year, combined with growth from newcustomers and share gains from existing customers.

 

*Cost of Sales /Gross Profit*

 

Cost of sales in the book manufacturing segment increased 5% to $174.8million in fiscal 2008 compared to the prior year, including increaseddepreciation expense of $1.0 million related to the capital investments inrecent years to expand capacity, as well as increased benefit costs. Grossprofit decreased 16% to $55.0 million and decreased as a percentage of sales to24.0% from 28.2%, reflecting competitive pricing pressures and lower capacityutilization combined with the increases in depreciation expense and benefitcosts.

 

In fiscal 2007, cost of sales increased 6% to $166.1 million compared tothe prior year, reflecting sales growth and higher benefit costs.  Gross profit in this segment decreasedslightly in fiscal 2007 to 28.2% from 28.7% in 2006 resulting from competitivepricing pressures, fluctuations in sales mix and increases in benefit costs.

 

*Selling and Administrative Expenses*

 

Sellingand administrative expenses in the book manufacturing segment were $28.9 millionin fiscal 2008, a decrease of 1% from 2007, reflecting cost savings initiativescompleted during the year and a decrease in variable compensation. As apercentage of sales, selling and administrative expenses were 12.6% of sales inboth fiscal 2008 and 2007.

 

Sellingand administrative expenses in fiscal 2007 were $29.2 million, a decrease of 4%from fiscal 2006, reflecting a $1.8 million reduction in incentive compensationwhich was offset in part by an increase in selling expenses. As a percentage ofsales, selling and administrative expenses were 12.6% in fiscal 2007 comparedto 13.8% in the prior year.

 

*Interest*

 

Intercompanyinterest income allocated to the book manufacturing segment in fiscal 2008increased to $323,000 from $279,000 in the prior year, reflecting the benefitof cash generated by this segment in 2008.

 

Infiscal 2007, allocated intercompany interest income decreased to $279,000 from$733,000 in the prior year, reflecting the impact of increased working capitalas well as increased capital investments for the expansion of the Kendallville,Indiana facility and the capacity expansion program in Philadelphia for thereligious market.

 

*Pretax Income*

 

Pretaxincome in the Company’s book manufacturing segment in fiscal 2008 was $26.5million, down 27% from fiscal 2007, due primarily to lower capacity utilizationcombined with higher depreciation expense and pricing pressures, which resultedin a drop in gross profit.

 

Infiscal 2007, pretax income in this segment was $36.4 million, an increase of 8%over the prior year.

 

F-30

----

Table of Contents

 

***Specialty Publishing Segment***

 

SEGMENT HIGHLIGHTS

(dollars in thousands)

 
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent Change** | ** ** |
|-------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------|------------|
| ** **                                      | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2008 vs.**       | ** ** | **2007 vs.** | ** ** |
| ** **                                      | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006***  | ** ** | **2007**                | ** ** | **2006** | ** ** |
|                                            |       |       |       |       |       |       |       |                    |       |   |   |
| Net sales                                       |       | $          | 61,767     |       | $          | 72,890     |       | $                       | 57,549     |   | -15.3 | % | 26.7 | % |
| Gross profit                                    |       | 22,746     |       | 30,682     |       | 25,468     |       | -25.9                   | %          | 20.5 | % |
| As a percentage  of sales                       |       | 36.8       | %          | 42.1       | %          | 44.3       | %          |                    |       |   |   |
| Selling and  administrative expenses            |       | 22,852     |       | 23,246     |       | 18,431     |       | -1.7                    | %          | 26.1 | % |
| Interest expense                                |       | 1,456      |       | 1,850      |       | 915        |       |                    |       |   |   |
| Income (loss)  before tax and impairment charge |       | (1,562     | )          | 5,586      |       | 6,122      |       |                    |       | -8.8 | % |
| Impairment  charge                              |       | 23,643     |       | —     |       | —     |       |                    |       |   |   |
| Pretax income  (loss)                           |       | $          | (25,205    | )          | $          | 5,586      |       | $                       | 6,122      |   |   |   | -8.8 | % |
|                                                 |            |            |            |            |            |            |            |                         |            |  |  |  |  |  |  |  |

 

----

*Fiscal year 2006was a 53-week period.

 

*Revenues*

** **

**The Company’s specialty publishing segment is comprised ofDover, REA, and Creative Homeowner since its acquisition on April 28,2006.  Sales in fiscal 2008 were $61.8million, down 15% from fiscal 2007.  Thesales shortfall was largely due to Creative Homeowner where sales decreased 27%to $20.5 million. The continued slowdown in the housing market has reducedstore traffic and sales in the home center market, which is Creative Homeowner’slargest channel. In addition, Creative Homeowner experienced unusually highreturns in all retail channels in the latter half of the year and, as a result,increased its returns reserve by approximately $1 million over historicallevels.  The weakness in the housingmarket and its impact on the overall economy reduced consumer spending andsales for both Dover and REA. Sales at Dover in fiscal 2008 were $33.7 million,a 9% decrease compared to the prior year. Sales were down across most of Dover’ssales channels as retailers ordered cautiously and managed inventoriescarefully.  Sales at REA decreased 2%versus 2007 to $7.6 million for the year.**

 

In fiscal 2007, sales in the specialty publishing segment were $72.9million, an increase of 27% over fiscal 2006, largely due to the inclusion offull-year results for Creative Homeowner. Sales at Dover were down in fiscal 2007 to $37.1 million from $39.0million in 2006, a 3% decrease on a comparable 52-week basis. Sales gains wereachieved among smaller retailers and certain larger retail chains, helped bythe expansion of proprietary packaged products, including new “Dover Fun Kits”.  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, suchas Advanced Placement and high school exit exams.  Creative Homeowner’s sales in fiscal 2007were $28.0 million, contributing $16

 

F-31

----

Tableof Contents

 

**million of sales growth to the specialty publishingsegment as fiscal 2006 included five months of its sales after acquisition.**

** **

*Cost ofSales/Gross Profit*

 

Cost ofsales in the specialty publishing segment in fiscal 2008 decreased 8% to $39.0million compared to 2007, reflecting the 15% lower sales volume combined withadditional charges at Creative Homeowner. Creative Homeowner incurred costs of approximately $1.4 million toincrease inventory reserves and to write down its investment in titles thathave not performed up to expectations. Gross profit for this segment decreased26% to $22.7 million in fiscal 2008 compared to 2007 and, as a percentage ofsales, decreased to 36.8% from 42.1% in the prior year.  Creative Homeowner reduced the overall grossprofit percentage in the segment because of its lower-margin distributionbusiness and the previously discussed increased inventory reserve and othercharges. Gross profit as a percentage of sales for Dover and REA combined was47%, comparable to the prior year, as the benefit of productivity gains andcost reductions were offset by the impact of lower sales.

 

Infiscal 2007, cost of sales in this segment increased by 32% to $42.2 millioncompared to the prior year, reflecting the acquisition of CreativeHomeowner.  Gross profit as a percentageof sales for the segment decreased to 42.1% from 44.3% compared to fiscal2006.  Creative Homeowner reduced the overallgross profit percentage in the segment because of their lower-margin distributionbusiness.

 

*Selling and Administrative Expenses*

 

Sellingand administrative expenses for this segment were down 2% in fiscal 2008 to$22.9 million compared to 2007, reflecting the impact of cost reductionprograms in the latter half of fiscal 2008, particularly reductions inpersonnel at Creative Homeowner.

 

Infiscal 2007, selling and administrative expenses increased $4.8 million to$23.2 million as a result of the full-year results of Creative Homeowner,acquired during fiscal 2006.  This morethan offset the impact of the additional week in fiscal 2006.  As a percentage of sales, selling andadministrative expenses were 37% in fiscal 2008 compared to 32% in both 2007and 2006.

 

*Interest*

 

Intercompanyinterest expense is allocated to the specialty publishing segment based onacquisition costs, reduced by cash generated by each business sinceacquisition.  Interest expense allocatedto this segment in fiscal 2008 was $1.5 million, a decrease of 21% from the prioryear, largely due to the write down of impaired assets at Creative Homeowner atthe end of the third quarter of fiscal 2008.

 

Interestexpense for this segment for fiscal 2007 was $1.9 million compared to $0.9million in 2006.  The increase was due tothe purchase of Creative Homeowner in April 2006.  Intercompany interest expense for Dover andREA decreased in both fiscal 2008 and 2007 reflecting the benefit of cashgenerated by these businesses.

 

F-32

----

Table of Contents

 

*Pretax Income/(Loss)*

 

For fiscal 2008, the pretax loss in the specialtypublishing segment was $25.2 million, including the $23.6 million impairmentcharge for Creative Homeowner. Excluding the impairment charge, the pretax lossfor this segment was $1.6 million, including a loss at Creative Homeowner of$6.5 million (which included allocated interest expense of $1.6 million).  In response, the Company took a variety of measures to streamlineCreative Homeowner’s operations and reduce market risks, including headcountreductions, inventory writedowns, and a tightening of editorial focus, and in November 2008announced that Creative Homeowner will exit the book distribution business.Taken together, these measures are expected to reduce the loss at CreativeHomeowner by more than $3 million in 2009.

 

In fiscal 2007, pretax income in the specialtypublishing segment was $5.6 million, a decrease of 9% from fiscal 2006,primarily as a result of the impact of the soft housing market on demand forCreative Homeowner’s products.

 

***Total Consolidated Company***

 

Interest expense, net ofinterest income, decreased $0.4 million to $1.1 million in fiscal 2008 comparedto last year, primarily due to lower interest rates. In 2007, interest expense,net of interest income, was $1.6 million compared to $182,000 in 2006.  The increase in interest expense in 2007 wasprincipally due to the acquisition of Creative Homeowner in April 2006.  The Company funded this acquisition with availablecash and borrowing approximately $20 million under its revolving creditfacility.  The following table summarizesthe average borrowings and average annual interest rate under the Company’srevolving credit facility for the past three fiscal years.

 
| ** **                              | ** ** | **(Dollars in millions)** | ** ** |
|-----------------------------------------|------------|-------------------------------------|------------|
| ** **                              | ** ** | **2008**                            | ** ** | **2007** | ** ** | **2006** | ** ** |
|                                    |       |                                |       |   |   |   |   |
| Average  revolving credit facility debt |       | $                                   | 24.8       |   | $ | 23.3 |   | $ | 6.9 |   |
| Average annual  interest rate           |       | 4.0                                 | %          | 5.9 | % | 5.7 | % |
|                                         |            |                                     |            |  |  |  |  |  |  |  |

 

Interest expense alsoincludes commitment fees and other costs associated with maintaining thiscredit facility.  Cash investments infiscal 2006 averaged approximately $11.6 million at an average annual interestrate of 3.9%.  Interest capitalized infiscal 2008 was $123,000, related primarily to the new press at thePhiladelphia facility.  Interestcapitalized in fiscal 2007 was $169,000, primarily related to the expansion ofthe Kendallville, Indiana facility.  Nointerest was capitalized in fiscal year 2006.

 

The tax benefit infiscal 2008 related to the impairment charge for Creative Homeowner wasrecognized at 35%.  No state tax benefitwas recognized as the Company fully provided a valuation allowance on therelated deferred state tax asset. Excluding the impact of the impairment charge, the effective tax ratefor fiscal 2008 was 36.8% compared to 37.0% in fiscal 2007.  During the fourth quarter of fiscal 2006, theCompany reversed an income tax reserve of $3.8 million pursuant to receipt of astate tax audit report and the expiration of certain statutorylimitations.  Excluding the reversal ofthe income tax reserve, the effective tax rate was 35.6% in fiscal 2006compared to 37.0% in

 

F-33

----

Tableof Contents

 

2007.  The increase in the effective tax rate infiscal 2007 reflects the phase out of the tax benefit on export related incomeand a slower phase in of the domestic manufacturing deduction, as well as aslight increase in the Company’s effective state tax rate.

 

At the beginning offiscal 2008, the Company adopted the provisions of the Financial AccountingStandards Board (“FASB”) Interpretation No. 48, “Accounting forUncertainty in Income Taxes – an interpretation of FASB Statement No. 109”(“FIN 48”).  FIN 48 contains a two-step approach to recognizing andmeasuring uncertain tax positions.  Thefirst step is to evaluate the tax position for recognition by determining ifthe weight of available evidence indicates that it is more likely than not thatthe position will be sustained on audit, including resolution of relatedappeals or litigation processes, if any. The second step is to measure the tax benefit, quantified as the largestamount that is cumulatively more than 50% likely to be realized upon ultimatesettlement.  The cumulative effect ofadopting FIN 48 at the beginning of fiscal 2008 was $108,000 and was recordedas a reduction in retained earnings with a corresponding liability includedunder the caption “Other Liabilities” in the accompanying consolidated balancesheet at September 29, 2007.  Duringfiscal 2008, certain federal and state statutes of limitations expired.  As such, the unrecognized tax benefits andaccrued interest were reduced to approximately $65,000 and the impact, if recognized,would favorably affect the Company’s effective income tax rate in futureperiods. The Company does not anticipate any significant changes in the amountof unrecognized tax benefits over the next twelve months.

 

On November 8, 2007,the Company announced the approval by its Board of Directors for the repurchaseof up to $10 million of the Company’s outstanding common stock from time totime at management’s discretion either through the open market or privatelynegotiated transactions.  On May 8,2008, the Board of Directors of the Company expanded the Company’s sharerepurchase plan and authorized the repurchase of up to an additional $5 millionof the Company’s outstanding common stock. On August 6, 2008, the Company’sBoard of Directors further expanded the share repurchase program by authorizingthe repurchase of up to an additional $5 million of the Company’s common stock,bringing the total amount authorized under the plan to $20 million. Since theinception of the share repurchase program through September 27, 2008, theCompany has repurchased approximately856,000 shares of common stock for approximately $19.6 million.  The Company currently has no plan torepurchase additional shares in fiscal 2009.

 

For purposes of computingnet income or loss per diluted share, weighted average shares outstanding forfiscal 2008 decreased by approximately 395,000 shares compared to the prioryear, reflecting the Company’s repurchase of approximately 856,000 sharesduring fiscal 2008.  In fiscal 2007,weighted average shares outstanding increased by approximately 90,000 sharescompared to the prior year, primarily due to options exercised and sharesissued under the Company’s stock plans and the impact of potentially dilutiveshares.

 

F-34

----

Tableof Contents

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Operatingactivities in fiscal 2008 provided $38.7 million of cash compared to $37.5million in fiscal 2007.  A net loss of$0.4 million included the non-cash, after-tax impairment charge of $15.4million.  In addition, stock-basedcompensation was $1.3 million, depreciation was $14.9 million, amortization ofprepublication costs was $5.6 million, and amortization of other intangibleassets was $0.9 million.  The Companyexpects that depreciation and amortization expense in fiscal 2009 will becomparable to 2008, as a decrease in amortization of intangible assets will offsetan increase in depreciation expense. Working capital in 2008 was comparable tothe 2007 level.

 

Investment activities in fiscal 2008 used $18.7 million of cash. Capitalexpenditures were $12.9 million, compared with $26.4 million in fiscal2007.  Capital expenditures in fiscal2008 included $3.0 million for the completion of the expansion of the religiousbook manufacturing operation in Philadelphia and $4.3 million for a newwarehouse being constructed to support the expanded capacity at theKendallville, Indiana facility. Construction of the 150,000 square foot warehouse is expected to becomplete in the second quarter of fiscal 2009. Capital expenditures also included investments to increaseproductivity, lower costs and improve employee safety.  For fiscal 2009, capital expenditures areexpected to be approximately $14 to $16 million, including $4 million tocomplete the warehouse in Kendallville.  Prepublication costs in the specialty publishingsegment in 2008 were $5.0 million compared to $5.4 million last year, with thedecrease primarily due to narrowing the focus of Creative Homeowner’spublishing program.  These costs areexpected to be $4 to $5 million in 2009.

 

Financing activities in fiscal 2008 used $21.4 million of cash.  Cash dividends used $9.9 million while $19.6million was used to repurchase 856,000 shares of common stock under the Company’sshare repurchase program authorized in November 2007 and expanded in May andAugust 2008.  Borrowings increasedby $6.3 million during fiscal 2008.  At September 27,2008 and September 29, 2007, the Company had $23.5 million and $17.1million, respectively, in borrowings under its $100 million long-term revolvingcredit facility, which bears interest at a floating rate.  In May 2008, the revolving creditagreement was amended and restated, including reducing the bank group from fiveto four banks and extending the maturity date by two years to March 2013.  The revolving credit facility is used by theCompany for both its long-term and short-term financing needs.  The Company believes that its cash on hand,cash from operations and the available credit facility will be sufficient tomeet its cash requirements through fiscal 2009.

 

F-35

----

Table of Contents

 

The following tablesummarizes the Company’s contractual obligations and commitments at September 27,2008 to make future payments as well as its existing commercialcommitments.  The amounts in the table donot include interest expense.  Purchaseobligations represent commitments for capital expenditures.

 
| ** **                     | ** ** | ** ** | ** ** | **(000’s omitted)**             | ** ** |
|--------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                     | ** ** | ** ** | ** ** | **Payments due by period** | ** ** |
| ** **                     | ** ** | ** ** | ** ** | **Less than**                        | ** ** | **1 to 3** | ** ** | **3 to 5** | ** ** | **More  than** | ** ** |
| **Contractual Payments:** | ** ** | **Total**  | ** ** | **1 Year**                           | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Long-Term Debt                 |       | $          | 23,739     |                                      | $          | 93 |   | $ | 154 |   | $ | 23,492 |   | $ | — |   |
| Operating Leases               |       | 7,107      |       | 2,100                                     |       | 2,992 |   | 1,352 |   | 663 |   |
| Purchase Obligations           |       | 3,543      |       | 3,543                                     |       | — |   | — |   | — |   |
| Other Long-Term  Liabilities   |       | 2,765      |       | —                                    |       | 1,093 |   | 311 |   | 1,361 |   |
| Total                          |       | $          | 37,154     |                                      | $          | 5,736 |   | $ | 4,239 |   | $ | 25,155 |   | $ | 2,024 |   |

 

Long-term debt includes$23.5 million under the Company’s long-term revolving credit facility, whichhas a maturity date of March 2013.

 

### **NEW ACCOUNTING PRONOUNCEMENTS**

###  

In December 2007,the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 141(revised 2007), “Business Combinations,” (“SFAS No. 141R”), which replacesSFAS No. 141. This statement retains the purchase method of accounting forbusiness acquisitions, but requires a number of changes in the recognition ofassets acquired and liabilities assumed as well as the treatment ofacquisition-related costs.  SFAS No. 141Rwill be effective at the beginning of the Company’s fiscal year 2010 and willapply prospectively to business combinations completed on or after that date.

 

In March 2008,the FASB issued SFAS No. 161, “Disclosures about Derivative Instrumentsand Hedging Activities,” an amendment of FASB Statement No. 133 (“SFAS No. 161”).SFAS No. 161 changes the disclosure requirements for derivative instrumentsand hedging activities and will also be effective at the beginning of theCompany’s fiscal year 2010.

 

In April 2008,the FASB issued FSP 142-3, “Determining the Useful Life of Intangible Assets” (“FSP142-3”). FSP 142-3 amends the factors to be considered in determining theuseful life of intangible assets. Its intent is to improve the consistencybetween the useful life of an intangible asset and the period of expected cashflows used to measure its fair value. FSP 142-3 will be effective at the beginningof the Company’s fiscal year 2010.

 

The Company doesnot believe the adoption of SFAS No. 141R, SFAS No. 161 or FSP 142-3will have a material effect on its consolidated financial position, results ofoperations, or cash flows.

 

F-36

----

### Tableof Contents

 

### **RISKS**

###  

Our businesses operate inmarkets that are highly competitive, and the Company faces competition on thebasis of price, product quality, speed of delivery, customer service,availability of appropriate printing capacity and paper, related services andtechnology support.  Some of ourcompetitors have greater sales, assets and financial resources than our Companyand others, particularly those in foreign countries, may derive significantadvantages from local governmental regulation, including tax holidays and othersubsidies. These competitive pressures could affect prices or customers’ demandfor our products, impacting our profit margins and/or resulting in a loss ofcustomers and market share. The Company derived approximately 50% of its fiscal2008 revenues from three major customers and 35% and 40% of its fiscal 2007 and2006 revenues, respectively, from two major customers.  A significant reduction in order volumes orprice levels from any of these customers could have a material adverse effecton the Company.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

TheCompany’s consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States ofAmerica.  The preparation of thesefinancial statements requires management to make estimates and assumptions thataffect the amounts reported in these financial statements and accompanyingnotes.   On an ongoing basis, managementevaluates its estimates and judgments, including those related tocollectibility of accounts receivable, recovery of inventories, impairment ofgoodwill and other intangibles, prepublication costs and income taxes.  Management bases its estimates and judgmentson historical experience and various other factors believed to be reasonableunder the circumstances, the results of which form the basis for making judgmentsabout the carrying value of assets and liabilities at the date of the financialstatements and the reported amounts of revenues and expenses during the periodspresented.  Actual results may differfrom these estimates.  The significantaccounting policies which management believes are most critical to aid in fullyunderstanding and evaluating the Company’s reported financial results includethe following:

 

# AccountsReceivable  Management performs ongoing creditevaluations of the Company’s customers and adjusts credit limits based upon paymenthistory and the customer’s current credit worthiness.  Collections and payments from customers arecontinuously monitored.  A provision forestimated credit losses is determined based upon historical experience and anyspecific customer collection risks that have been identified.  If the financial condition of the Company’scustomers were to deteriorate, resulting in an impairment of their ability tomake payments, additional allowances may be required.

#  

Inventories  Managementrecords reductions in the cost basis of inventory for excess and obsoleteinventory based primarily upon historical and forecasted product demand.  If actual market conditions are lessfavorable than those projected by management, additional inventory charges maybe required.

 

F-37

----

Tableof Contents

 

##### ***Goodwill and Other Intangibles***   Other intangibles include customer lists,which are amortized on a straight-line basis over periods ranging from ten tofifteen years. The Company evaluates possible impairment of goodwill and otherintangibles at the reporting unit level, or one level below an operatingsegment, on an annual basis or whenever events or circumstances indicate thatthe carrying value of the assets may not be recoverable.  The Company completed the annual impairmenttest at September 27, 2008, which resulted in no change to the nature orcarrying amounts of its intangible assets in its book manufacturingsegment.  In the third quarter of fiscal2008, the Company performed an interim impairment test for Creative Homeownerdue to a precipitous decline in sales and profits at Creative Homeowner in thequarter.  As a result of the impairmenttests, the Company concluded that the carrying value of Creative Homeowner’sgoodwill and other intangible assets exceeded their estimated fair value. Thetotal pre-tax impairment charge recorded in fiscal 2008 related to thegoodwill, trade name, and customer list intangible assets of Creative Homeownerwas $23.6 million.  Changes in marketconditions or poor operating results could result in a decline in value of theCompany’s goodwill and other intangible assets thereby potentially requiring anadditional impairment charge in the future.

##### *** ***

Prepublication Costs   The Company capitalizes prepublicationcosts, which include the costs of acquiring rights to publish a work and costsassociated with bringing a manuscript to publication such as artwork andeditorial efforts. Prepublication costs are amortized on a straight-line basisover periods ranging from three to five years. Management regularly evaluates the sales and profitability of theproducts based upon historical and forecasted demand.  Based upon this evaluation, adjustments maybe required to amortization expense.  Infiscal 2008, such an adjustment was made for $0.5 million to write down theinvestment in underperforming titles at Creative Homeowner.

 

Income Taxes   The income tax provision and related accruedtaxes are based on amounts reported on the Company’s tax returns and changes indeferred taxes.  Deferred income tax liabilities and assets are determinedbased upon the differences between the financial statement and tax bases ofassets and liabilities.  Changes in therecoverability of the Company’s deferred tax assets or audits by taxauthorities could result in future charges or credits to income tax expense,and related accrued and deferred taxes.

 

F-38

----

Table of Contents

 

COURIER CORPORATION

 

SCHEDULE II

 

CONSOLIDATEDVALUATION AND QUALIFYING ACCOUNTS

 
| ** **                                 | ** ** | ** **          | ** ** | **ADDITIONS**       | ** ** | ** **     | ** ** | ** **     | ** ** | ** **         | ** ** |
|--------------------------------------------|------------|---------------------|------------|---------------------|------------|----------------|------------|----------------|------------|--------------------|------------|
| ** **                                 | ** ** | **BALANCE AT** | ** ** | **CHARGED TO** | ** ** | ** **     | ** ** | ** **     | ** ** | **BALANCE**        | ** ** |
| ** **                                 | ** ** | **BEGINNING**       | ** ** | **COSTS AND**  | ** ** | ** **     | ** ** | **OTHER**      | ** ** | **AT END**    | ** ** |
| ** **                                 | ** ** | **OF PERIOD**  | ** ** | **EXPENSES**        | ** ** | **DEDUCTIONS** | ** ** | **CHANGES(1)** | ** ** | **OF PERIOD** | ** ** |
|                                       |       |                |       |                |       |           |       |           |       |               |       |
| Allowance for  uncollectible accounts:     |       |                |       |                |       |           |       |           |       |               |       |
|                                       |       |                |       |                |       |           |       |           |       |               |       |
| Fiscal year  ended September 27, 2008 |       | $                   | 1,531,000  |                | $          | 385,000        |       | $              | 305,000    |               |       |   | $ | 1,611,000 |   |
|                                       |       |                |       |                |       |           |       |           |       |               |       |
| 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 |   |
|                                       |       |                |       |                |       |           |       |           |       |               |       |
| Returns  allowance:                        |       |                |       |                |       |           |       |           |       |               |       |
|                                       |       |                |       |                |       |           |       |           |       |               |       |
| Fiscal year  ended September 27, 2008 |       | $                   | 1,684,000  |                | $          | 6,596,000      |       | $              | 5,675,000  |               |       |   | $ | 2,605,000 |   |
|                                       |       |                |       |                |       |           |       |           |       |               |       |
| 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 |   |

 

----

(1)             Other changes reflectamounts related to business acquisitions.

 

S-1

----