**UNITED STATES****SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**Form 10-K**

 

| **(MARK  ONE)**                                                                                                                                                                                                                                                             |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| **ý**                                                                                                                                                                                                                                                                  | ** ** | **ANNUAL  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT  OF 1934** |
| ** **                                                                                                                                                                                                                                                                  |
| **For the fiscal year ended September 25,  2004**                                                                                                                                                                                                                      |
| ** **                                                                                                                                                                                                                                                                  |
| **OR**                                                                                                                                                                                                                                                                      |
| ** **                                                                                                                                                                                                                                                                  |
| **o**                                                                                                                                                                                                                                                                       | ** ** | **TRANSITION  REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT  OF 1934** |
| ** **                                                                                                                                                                                                                                                                  |
| **For the transition period from                    to                     ** |

 

**Commission file number 0-7597**

 

**Courier Corporation**

 

**A Massachusetts corporation**

 

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

 

**15 Wellman Avenue**

**North Chelmsford, Massachusetts  01863**

Telephone No.**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 (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.  Yes****ý 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 any amendment tothis Form 10-K. ****o**

 

**Indicateby check mark whether the registrant is an accelerated filer (as defined inExchange Act Rule 12b-2).  Yes****ý No****o**

 

**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.**

 

**Common Stock, $1 par value -$261,284,499**

 

**Indicatethe number of shares outstanding of each of the registrant’s classes of commonstock as of November 22, 2004.**

 

**Common Stock, $1 par value -8,043,860**

 

**DOCUMENTS INCORPORATED BY REFERENCE**

 

**Portionsof the registrant’s proxy statement for the annual meeting of stockholdersscheduled to be held on January 20, 2005 (Part III).**

 

 

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**PART I**

 

**Item 1.  Business.**

 

**INTRODUCTION**

 

CourierCorporation and its subsidiaries (“Courier” or the “Company”) are among America’sleading book manufacturers and specialty publishers. Courier Corporation,founded in 1824, was incorporated under the laws of Massachusetts on June 30,1972.  The Company has two businesssegments: full-service book manufacturing and specialty book publishing.  In fiscal 2003, Courier sold all of theassets of Courier Custom Publishing, Inc. which comprised all of the remainingactivities of the customized education segment.

 

The book manufacturingsegment focuses on streamlining and enhancing the process of bringing booksfrom the point of creation to the point of use. Based on sales, Courier is the fifth largest book manufacturer in the UnitedStates and largest in the Northeast, offering services from content management,prepress and production through storage and distribution. Courier’s principalbook manufacturing markets are religious, educational and specialty trade bookswith products including Bibles, educational texts and consumer books. Revenuesfrom this segment accounted for approximately 84% of Courier’s consolidatedrevenues in 2004.

 

Thespecialty publishing segment consists of Dover Publications, Inc. (“Dover”),acquired by Courier on September 22, 2000, as well as Research & EducationAssociation, Inc. (“REA”), which was acquired on January 6, 2004.  Dover publishes over 8,500 titles in morethan 30 specialty categories ranging from literature and poetry classics topaper dolls, and from musical scores to typographical fonts.  Revenues in this segment were approximately19% of consolidated sales in 2004. REA publishes test preparation andstudy-guide books and software for high school, college, graduate students andprofessionals.  The combination of Dover’sand REA’s publishing, sales and distribution skills with Courier’s bookmanufacturing, digital content conversion, and e-commerce skills are providinga powerful end-to-end publishing solution for Courier.

 
| **Sales by segment (in thousands)** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                |       |     |       |     |       |     |       |
| Book  Manufacturing                 |       | $        | 177,225    |     | $          | 171,858  |       | $ | 170,382 |   |
| Specialty  Publishing               |       | 40,787   |       | 36,391   |       | 36,004   |       |
| Intersegment  sales                 |       | (6,833   | )          | (6,247   | )          | (5,362   | )          |
| Total                               |       | $        | 211,179    |     | $          | 202,002  |       | $ | 201,024 |   |

 

Additionalsegment information, including the amounts of earnings before taxes and totalassets, for each of the last three fiscal years, is contained in Note J in theNotes to Consolidated Financial Statements on pages F-17 to F-19 included inthis Annual Report on Form 10-K.

 

OnDecember 17, 2002, the Company sold the assets of its wholly owned subsidiary,Courier Custom Publishing, Inc.  CourierCustom Publishing provided customized coursepacks and textbooks.  The disposition was accounted for as adiscontinued operation.  Additionalinformation is contained in Note I in the Notes to Consolidated FinancialStatements on pages F-16 and F-17 included in this Annual Report on Form10-K.  In March 2001, Courier soldsubstantially all of the assets of The Home School and ceased operating thisbusiness.  The Company had purchased theassets of The Home School Books & Supplies in September 1997.  The Home School was a direct marketer ofeducational materials to families engaged in educating children at home and hadbeen included in the customized education segment prior to its sale.

 

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** **

**BUSINESS SEGMENTS**

 

**BOOK MANUFACTURING SEGMENT**

 

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

 

Courier’sbook manufacturing operations consist of both electronic and conventional filmprocessing, platemaking, printing and binding of soft and hard boundbooks.  Each of Courier’s six facilitieshave certain specialties adapted to the needs of the market niches Courierserves, such as short-run book manufacturing, printing on lightweight paper andfour-color book manufacturing.  Theseservices are primarily sold to publishers of educational, religious andconsumer books.  During 2004, the Companyexpanded its four-color book manufacturing capabilities with the addition of amajor new four-color press at its Kendallville, Indiana facility.

 

Courier’sbook manufacturing sales force of 18****people isresponsible for all of the Company’s sales to over 400 book-manufacturingcustomers.  Courier’s salespeople operateout of sales offices located in New York, New York; Chicago, Illinois;Philadelphia, Pennsylvania; Hayward, California; North Chelmsford,Massachusetts; and North Bergen and North Caldwell, New Jersey.

 

Sales toThe Gideons International aggregated approximately 27%****ofconsolidated sales in 2004 and 28% in both 2003 and 2002.  Sales to Pearson plc aggregated approximately17% of consolidated sales in both 2004 and 2003, and 15% in 2002.  The loss of either of these customers or asignificant reduction in order volumes from either of them would have amaterial adverse effect on the Company. No other customer accounted for more than 10% of consolidatedsales.  The Company distributes productsaround the world; export sales, as a percentage of consolidated sales, wereapproximately 21% in 2004, 22% in 2003 and 21% in 2002.  Approximately 90% of the export sales were inthe book manufacturing segment in each of these years.

 

Allphases of Courier’s business are highly competitive.  The printing industry, exclusive ofnewspapers, includes approximately 45,000 establishments.  While most of these establishments arerelatively small, several of the Company’s competitors are considerably largeror are affiliated with companies that are considerably larger and have greaterfinancial resources than Courier.  Inrecent years, consolidation of both customers and competitors within theCompany’s markets has increased pricing pressures.  The major competitive factors in Courier’sbook manufacturing business in addition to price are product quality, speed ofdelivery, customer service, availability of appropriate printing capacity,related services and technology support.

 

**SPECIALTY BOOK PUBLISHING SEGMENT**

 

Dover,acquired by the Company in September 2000, is a publisher of books in over 30specialty categories, including fine and commercial arts, children’s books,crafts, musical 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 ThriftEditions.  In 2002, a new line ofscholarly hardcover books valuable to scientists and mathematicians waslaunched under the name of Dover Phoenix Editions.

 

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Doversells its products through most American bookstore chains, independentbooksellers, children’s stores, craft stores and gift shops, as well as adiverse range of distributors around the world. Dover has also sold its books directly to consumers for over 50 yearsthrough its specialty catalogs and, since 2001, over the Internet atwww.doverpublications.com.  Dover mailsits proprietary catalogs to over 500,000 consumers.  In 2002, Dover launched www.DoverDirect.com,which is a business-to-business site for its retailers and distributors*.*

 

REA,acquired by the Company in January 2004, publishes more than 800 testpreparation and study-guide titles. Product lines include Problems Solvers®, Essentials®, Super Reviews® andTest Preparation books.  REA sells itsproducts around the world through major bookseller chains, college bookstores,and teachers’ supply stores as well as directly to teachers and other consumersthrough catalogs and over the Internet at www.REA.com.

 

The U.S.publishing market is comprised of approximately 75,000 publishers.  Many of these publishers are very small, buta few are much larger than Dover and REA or are part of organizations that aremuch larger.  In addition, newer sourcesof competition have emerged with large retailers launching or expandingpublishing operations and new web-based publishing businesses starting up,which compete in the specialty book publishing market, including publishing ofelectronic books.  Dover distinguishesits products by offering an extremely wide variety of high quality books atmodest prices.  REA offers high editorialquality study guides and test preparation books and software products in almostevery academic area including many specialized areas such as teachercertification, adult education, and professional licensing.

 

**MATERIALS AND SUPPLIES**

 

Courierpurchases its principal raw materials, primarily paper, but also platematerials, ink, adhesives, cover stock, casebinding materials and cartons, fromnumerous suppliers, and is not dependent upon any one source for itsrequirements.  Many of Courier’s bookmanufacturing customers purchase their own paper and furnish it at no charge toCourier for book production.  Dover andREA purchase a significant portion of their books from Courier’s bookmanufacturing operations.  Paper pricesincreased in 2004 after a slight decrease last year, returning to levelscomparable to 2002.

 

**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, with applicableenvironmental laws and regulations.  Nosignificant expenditures for this purpose are anticipated in 2005.  The Company does not believe that itscompliance with applicable environmental laws and regulations will have amaterial impact on the Company’s earnings or competitive position.

 

**EMPLOYEES**

 

TheCompany employed 1,465 persons at September 25, 2004 compared to 1,420 a yearago.

 

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**OTHER**

 

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

 

Courierholds no material patents, licenses, franchises or concessions that areimportant to its operations, but does have trademarks, service marks, andUniversal Resource Locators (URL’s) on the World Wide Web in connection witheach of its businesses.  Substantiallyall of Dover’s and REA’s publications are protected by copyright, either in itsown name, in the name of the author of the work, or in the name of apredecessor publisher from whom rights were acquired.

 

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

 

**Item 2.  Properties.**

 

**REAL PROPERTIES**

 

Thefollowing schedule lists the facilities owned or leased by Courier at September25, 2004. Courier considers its plants and other facilities to be wellmaintained and suitable for the purposes intended.

 
| **Principal Activity and Location  (Year Constructed)**      | ** ** | **Owned/  Leased** | ** ** | **Sq. Ft.** | ** ** |
|--------------------------------------------------------------|------------|--------------------|------------|-------------|------------|
| **Corporate  headquarters and executive offices**            |       |               |       |        |       |
| North  Chelmsford, MA (1973, 1996)                           |       | Owned              |       | 69,000      | (1)        |
| **Book  manufacturing and warehousing**                      |       |               |       |        |       |
| Westford plant,  Westford, MA (1900, 1968, 1969, 1981, 1990) |       | Owned              |       | 393,000     | (2)        |
| Kendallville  plant, Kendallville, IN (1978, 2004)           |       | Owned              |       | 205,000     |       |
| National plant,  Philadelphia, PA (1975, 1997)               |       | Owned              |       | 229,000     |       |
| Stoughton plant,  Stoughton, MA (1980)                       |       | Leased             |       | 169,000     |       |
| Book-mart plant,  North Bergen, NJ (1917, 1935, 1997)        |       | Leased             |       | 75,000      |       |
| **Dover  offices and warehouses**                            |       |               |       |        |       |
| Mineola, New  York (1948-1981)                               |       | Leased             |       | 106,000     |       |
| New Hyde Park,  NY (1949-1969)                               |       | Leased             |       | 78,000      |       |
| **REA  offices and warehouse**                               |       |               |       |        |       |
| Piscataway, New  Jersey (1990)                               |       | Leased             |       | 39,000      |       |

 

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

(2)                                In May 2004,the Company completed the sale of approximately 200,000 square feet ofunoccupied and underutilized portions of its multi-building manufacturingcomplex in Westford, MA for $1.7 million. The Company will continue its current levels of book manufacturing atthe site.  Additional information iscontained in Note K on page F-19 of this Annual Report on Form 10-K.

 

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**EQUIPMENT**

 

TheCompany’s products are manufactured on equipment that in most cases is owned bythe Company, although it leases computers, image setters and other electronicprepress equipment which are subject to more rapid obsolescence.  In addition, one printing press is leasedwhereby the lessor holds title and the Company has an option to purchase theequipment upon expiration of the lease in 2008 at a price of $161,658.  Capital expenditures amounted toapproximately $13.4 million in 2004, $10.9 million in 2003 and  $4.9 million in 2002. Capital expenditures in2004 included approximately $10 million for a new four-color press installationand related building expansion at the Kendallville, Indiana facility.  Fiscal 2005 capital expenditures are expectedto increase to $18 to $20 million with approximately half of this amount to bepayments on another four-color press, which will expand the Company’s capacityto produce four-color textbooks.  OnOctober 29, 2004, the Company entered into an agreement to purchase this newpress, which is identical to the press installed in 2004 and which is expectedto be installed early in fiscal 2006. Courier considers its equipment to be in good operating condition andadequate for its present needs.

 

**ENCUMBRANCES AND RENTALOBLIGATIONS**

 

For adescription of encumbrances on certain properties and equipment, see Note D ofNotes to Consolidated Financial Statements on page F-11 of this Annual Reporton Form 10-K. Information concerning leased properties and equipment isdisclosed in Note E of Notes to Consolidated Financial Statements, whichappears on page F-11 of this Annual Report on Form 10-K.

 

**Item 3.  Legal Proceedings.**

 

In theordinary course of business, the Company is subject to various legalproceedings and claims.  The Companybelieves that the ultimate outcome of these matters will not have a materialadverse effect on its financial statements.

 

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

 

Therewere no matters submitted to a vote of security holders during the quarterended September 25, 2004.

 

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**PART II**

 

**Item 5.  Market for the Registrant’s Common Equity andRelated Stockholder Matters.**

 

Theinformation required by this Item is contained in the section captioned “SelectedQuarterly Financial Data (Unaudited)” which appears on page F-20 of this AnnualReport on Form 10-K.

 

**Item 6.  Selected Financial Data.**

 

Theinformation required by this Item is contained in the section captioned “Five-YearFinancial Summary” appearing on page F-21 of this Annual Report on Form 10-K.

 

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

 

Theinformation required by this Item is contained in the section captioned “Management’sDiscussion and Analysis” on pages F-22 through F-28 of this Annual Report onForm 10-K.

 

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

 

The Company does not holdany derivative financial instruments, derivative commodity instruments or otherfinancial instruments except as noted in Notes A and M of Notes to ConsolidatedFinancial Statements, which appear on pages F-7 through F-9 and F-19 of thisAnnual Report on Form 10-K.  The Companyengages neither in speculative nor derivative trading activities. The Companyis exposed to market risk for changes in interest rates on invested funds aswell as borrowed funds.  The Company’srevolving bank credit facility bears interest at a floating rate.  There were no borrowings under this facilityat any time during 2004.

 

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

 

Theinformation required by this Item is contained on pages F-1 through F-19 ofthis Annual Report on Form 10-K.

 

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

 

None.

 

**Item 9A.  Controls and Procedures**

 

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

 

Asrequired by Rule 13a-15 under the Securities Exchange Act of 1934, as of theend of the period covered by this annual report, the Company carried out anevaluation under the supervision and with the participation of the Company’smanagement, including the Company’s Chief Executive Officer and Chief FinancialOfficer, of the effectiveness of the design and operation of the Company’sdisclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and ChiefFinancial Officer concluded that the Company’s disclosure controls andprocedures are effective to ensure that information required to be disclosed bythe Company in the reports it files or submits under the Exchange Act isrecorded, processed, summarized and reported, within the time

 

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periods specified in the Securitiesand Exchange Commission’s rules and forms. The Company continually reviews its disclosure controls and procedures,and its internal controls over financial reporting, and may from time to timemake changes aimed at enhancing their effectiveness and to ensure that itssystems evolve with its business.  Indesigning and evaluating the disclosure controls and procedures, the Company’smanagement recognized that any controls and procedures, no matter how welldesigned and operated, can provide only reasonable assurances of achieving thedesired control objectives, and management necessarily was required to applyits judgment in designing and evaluating the controls and procedures.

 

**(b)           Changes in internal controls over financial reporting**

 

Therewas no change in the Company’s internal control over financial reporting thatoccurred during the fourth quarter of fiscal 2004 that has materially affected,or that is reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.

 

**Item 9B.  Other Information**

 

Thefollowing table sets forth information concerning the granting on September 23,2004 of restricted stock awards and stock options under the Courier Corporation1993 Stock Incentive Plan to each of the Executive Officers.

 
| ** **         | ** ** | **Number of Shares Underlying** | ** ** |
|--------------------|------------|---------------------------------|------------|
| **Name**           | ** ** | **Options  Granted**            | ** ** | **Restricted  Stock  Awards** | ** ** |
|               |       |                            |       |   |   |
| J. F. Conway,  III |       | 5,173                           |       | 1,442 |   |
| R. P. Story, Jr.   |       | 4,484                           |       | 1,250 |   |
| G. Q. Nichols      |       | —                          |       | — |   |
| P. D. Tobin        |       | 1,552                           |       | 433 |   |
| P. M. Folger       |       | 966                             |       | 269 |   |
| E. J. Zimmerman    |       | 1,897                           |       | 529 |   |

 

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**PART III**

 

**Item 10.  Directors and Executive Officers of theRegistrant.**

 

Courier’sexecutive officers, together with their ages and all positions and offices withthe Company presently held by each person named, are as follows:

 
| James F. Conway III  |   | 52     |   | Chairman, President and Chief  Executive Officer                                                            |
|----------------------|--------|--------|--------|-------------------------------------------------------------------------------------------------------------|
|                 |   |   |   |                                                                                                        |
| George Q. Nichols    |   | 75     |   | Corporate Senior Vice President and  Chairman of National Publishing Company                                |
|                 |   |   |   |                                                                                                        |
| Robert P. Story, Jr. |   | 53     |   | Senior Vice President and Chief  Financial Officer                                                          |
|                 |   |   |   |                                                                                                        |
| Peter M. Folger      |   | 51     |   | Vice President and Controller                                                                               |
|                 |   |   |   |                                                                                                        |
| Peter D. Tobin       |   | 49     |   | Corporate Vice President and  Executive Vice President of Courier Companies and National Publishing Company |
|                 |   |   |   |                                                                                                        |
| Eric J. Zimmerman    |   | 39     |   | Vice President, Publishing                                                                                  |

 

Theterms of office of all of the above executive officers continue until the firstmeeting of the Board of Directors following the next annual meeting ofstockholders and the election or appointment and qualification of theirsuccessors, unless any officer sooner dies, resigns, is removed or becomesdisqualified.

 

Mr.Conway III was elected Chairman of the Board in September 1994 after serving asacting Chairman since December 1992.  Hehas been Chief Executive Officer since December 1992 and President since July1988.

 

Mr.Nichols became an executive officer of Courier in June 1989.  He was elected a Director of the Company inMarch 1995 and became Senior Vice President of the Company in November 1996.  He became Chairman of National PublishingCompany in December 1999.  He hadpreviously been President of National Publishing Company since 1976.

 

Mr.Story became Senior Vice President and Chief Financial Officer in April1989.  He joined Courier in November 1986as Vice President and Treasurer.  He waselected a Director of the Company in February 1995.

 

Mr.Folger has been Controller since 1982 and became Vice President in November1992.

 

Mr.Tobin became Vice President of Courier Corporation and Executive Vice Presidentof Courier Companies in October 2000, and Executive Vice President of NationalPublishing Company in March 2002.  Hejoined Courier Companies as National Sales Manager in 1994 and became VicePresident of Sales and Marketing in 1997.

 

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Effective October 1, 2004, Mr. Zimmerman became VicePresident, Publishing and an executive officer of Courier Corporation.  He joined Courier in December 1994 as GeneralManager of its former Copyright Management Services operation and became VicePresident of e-Commerce for Courier in September 2000.

 

TheCompany has adopted a code of ethics entitled “Courier Corporation BusinessConduct Guidelines,” which is applicable to all of the Company’s directors,officers, and employees.  These BusinessConduct Guidelines are available on the Company’s Internet website, located atwww.courier.com.

 

Allother information called for by Item 10 is contained in the definitive ProxyStatement, under the captions “Item 1: Election of Directors” and “Section16(a) Beneficial Ownership Reporting Compliance,” to be delivered tostockholders in connection with the Annual Meeting of Stockholders scheduled tobe held on Thursday, January 20, 2005. Such information is incorporated herein by reference.

 

**Item 11.  Executive Compensation.**

 

Informationcalled for by Item 11 is contained in the definitive Proxy Statement, under thecaption “Executive Compensation,” to be delivered to stockholders in connectionwith the Annual Meeting of Stockholders scheduled to be held on Thursday,January 20, 2005.  Such information isincorporated herein by reference.

 

**Item 12.  Security Ownership of Certain BeneficialOwners and Management.**

 

Informationcalled for by Item 12 is contained in the definitive Proxy Statement, under thecaptions “Security Ownership of Certain Beneficial Owners and Management” and “ExecutiveCompensation,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Thursday, January 20,2005.  Such information is incorporatedherein by reference.

 

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

 

Informationcalled for by Item 13 is contained in the definitive Proxy Statement to bedelivered to stockholders in connection with the Annual Meeting of Stockholdersscheduled to be held on Thursday, January 20, 2005.  Such information is incorporated herein byreference.

 

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

 

Informationcalled for by Item 14 is contained in the definitive Proxy Statement, under thecaption “Item 4: Ratification and Approval of Selection of IndependentAuditors,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Thursday, January 20,2005.  Such information is incorporatedherein by reference.

 

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** **

**PART IV**

 

**Item 15.  Exhibits, Financial Statement Schedules andReports on Form 8-K.**

 
| **(a)**    | **Documents filed as part of this  report** |                               |
|------------|---------------------------------------------|------------------------------------|
|       |                                        |                               |   |
| ** ** | ** **                                  | ** **                         | ** ** |
|       |                                        |                               |   |
|       | **1.**                                      | ***Financial statements***         |   |
|       | ** **                                  | *** ***                       |   |
|       |                                        | •                             | Report of Independent Registered  Public Accounting Firm |   |
|       |                                        | •                             | Consolidated  Statements of Income for each of the three  years in the period ended September 25, 2004 |   |
|       |                                        | •                             | Consolidated Balance Sheets  as of September 25, 2004  and September 27, 2003 |   |
|       |                                        | •                             | Consolidated  Statements of Cash Flows for each of the  three years in the period ended September 25, 2004 |   |
|       |                                        | •                             | Consolidated  Statements of Changes in Stockholders’ Equity  for each of the three years in the period ended  September 25, 2004 |   |
|       |                                        | •                             | Notes to  Consolidated Financial Statements |   |
|       | ** **                                  |                               |   |
|       | **2.**                                      | ***Financial statement schedule*** |   |
|       |                                        |                               |   |
|       |                                        |                               | Schedule  II - Consolidated Valuation and Qualifying Accounts |   |
|       |                                        |                               |   |
|       | **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). |
|            |       |                                                                                                                                                                                                                                                                                                   |
| 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                                                                                                                                           |

 

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|    |   | Company’s Proxy Statement for the  Annual Meeting of Stockholders held on January 16, 1986, and incorporated  herein by reference).                                                                                                                                                                                                                                             |
|---------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-6    |   | Articles of Amendment of Courier  Corporation (providing for fair pricing procedures for stock to be sold in  certain business combinations), as of January 16, 1986 (filed as Exhibit A to  the Company’s Proxy Statement for the Annual Meeting of Stockholders held on  January 16, 1986, and incorporated herein by reference).                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-7    |   | Articles of Amendment of Courier  Corporation (limiting personal liability of directors to the Corporation or  to any of its stockholders for monetary damages for breach of fiduciary  duty), as of January 28, 1988 (filed as Exhibit 3A-7 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated  herein by reference). |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-8    |   | Articles of Amendment of Courier  Corporation (establishing Series A Preferred Stock), as of November 8, 1988  (filed as Exhibit 3A-8 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 24, 1988, and incorporated herein by reference).                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3A-9    |   | Articles of Amendment of Courier  Corporation (increasing number of shares of authorized Common Stock), as of  January 17, 2002 (filed as Exhibit 3 to the Company’s Quarterly Report on  Form 10-Q for the period ended March 30, 2002, and incorporated herein by  reference).                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 3B      |   | By-Laws of Courier Corporation,  amended and restated as of March 18, 1999 (filed as Exhibit 3.2 to the  Company’s Current Report on Form 8-K, dated March 18, 1999, and incorporated  herein by reference).                                                                                                                                                                    |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.1+*  |   | Form of Incentive Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan.                                                                                                                                                                                                                                                                                     |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.2+*  |   | Form of Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan.                                                                                                                                                                                                                                                                                 |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.3+*  |   | Form of Stock Grant Agreement for  the Courier Corporation 1993 Stock Incentive Plan.                                                                                                                                                                                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.5+*  |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for J. F.  Conway, III dated September 23, 2004.                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.6+*  |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for R. P.  Story, Jr. dated September 23, 2004.                                                                                                                                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.7+*  |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for R. P. Story, Jr. dated September  23, 2004.                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.8+*  |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. D.  Tobin dated September 23, 2004..                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.9+*  |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for P. D. Tobin dated September  23, 2004.                                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.10+* |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. M.  Folger dated September 23, 2004.                                                                                                                                                                                                                                              |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.11+* |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for P. M. Folger dated  September 23, 2004.                                                                                                                                                                                                                                                             |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.12+* |   | Non-Qualified Stock Option  Agreement for the Courier Corporation 1993 Stock Incentive Plan for E. J.  Zimmerman dated September 23, 2004.                                                                                                                                                                                                                                           |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.13+* |   | Stock Grant Agreement for the  Courier Corporation 1993 Stock Incentive Plan for E. J. Zimmerman dated  September 23, 2004.                                                                                                                                                                                                                                                          |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.14+* |   | Incentive Stock Option Agreement  for the Courier Corporation 1993 Stock Incentive Plan for E. J. Zimmerman  dated September 23, 2004.                                                                                                                                                                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.15+* |   | Form of Non-Qualified Stock Option  Agreement for the Courier Corporation 2005 Stock Equity Plan for Non-employee  Directors.                                                                                                                                                                                                                                                        |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10.16+* |   | Form of Stock Unit Agreement for  the Courier Corporation 2005 Stock Equity Plan for Non-employee Directors.                                                                                                                                                                                                                                                                         |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10A-1+  |   | Courier Corporation Stock Grant  Plan (filed as Exhibit C to the Company’s Proxy Statement for the Annual  Meeting of Stockholders held on January 20, 1977, and incorporated herein by  reference).                                                                                                                                                                            |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10A-2+  |   | Amendment, effective January 19,  1989, to the Courier Corporation Stock Grant Plan (described in Item 4 of the  Company’s Proxy Statement for the Annual Meeting of Stockholders held January  19, 1989, and incorporated herein by reference).                                                                                                                                |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10B+    |   | 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).                                                      |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10C-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).                                                                                               |
|    |   |                                                                                                                                                                                                                                                                                                                                                                                 |
| 10C-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).                                                                                                    |

 

11

----

 
| 10C-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).                                                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10C-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).                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10D-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).                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10D-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).                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10D-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).                                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10E-1+ |   | The Courier Executive Compensation  Program, effective October 4, 1993 (filed as Exhibit 10E-2 to the Company’s  Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and  incorporated herein by reference).                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10E-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).                                                                                                 |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10F+   |   | Courier Corporation Senior  Executive Severance Program and Agreements, dated October 25, 1988 pursuant  to the program with Messrs. Conway III, Nichols, Story, and Folger (filed as  Exhibit 10P to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 24, 1988, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10G    |   | 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).                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10H+   |   | 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).                                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                      |
| 10I-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).                         |

 

12

----

 
| 10I-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).                                                                                                                                                                                                |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10I-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).                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10J-1  |   | Amended and Restated Revolving  Credit Agreement, dated as of March 31, 2003, between Courier Corporation,  Fleet National Bank, KeyBank National Association, Citizens Bank of  Massachusetts and Sovereign Bank, providing for a $60 million revolving  credit facility (filed as Exhibit 10 to the Company’s Quarterly Report on  Form 10-Q for the period ended June 28, 2003, and incorporated herein by  reference).                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10J-2  |   | Amendment, dated March 31, 2004, to  Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003,  between Courier Corporation, Fleet National Bank, KeyBank National  Association, Citizens Bank of Massachusetts and Sovereign Bank, providing for  a $60 million revolving credit facility (filed as Exhibit 10 to the Company’s  Quarterly Report on Form 10-Q for the period ended March 27, 2004, and  incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10K-1+ |   | Courier Corporation 1993 Stock  Incentive Plan, as amended and restated, effective May 6, 1996 (filed as  Exhibit 10O to the Company’s Annual Report on Form 10-K for the fiscal year  ended September 28, 1996, and incorporated herein by reference).                                                                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10K-2+ |   | Amendment, effective September 24,  1998, to the Courier Corporation 1993 Stock Incentive Plan (filed as Exhibit  10O-2 to the Company’s Annual Report on Form 10-K for the fiscal year ended  September 26, 1998, and incorporated herein by reference).                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10K-3+ |   | Amendment, effective January 21,  1999, to the Courier Corporation 1993 Stock Incentive Plan (described in Item  4 of the Company’s Proxy Statement for the Annual Meeting of Stockholders  held January 21, 1999, and incorporated herein by reference).                                                                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                 |
| 10K-4+ |   | Amendment, effective January 18,  2001, to the Courier Corporation 1993 Stock Incentive Plan (described in Item  3 of the Company’s Proxy Statement for the Annual Meeting of Stockholders  held January 18, 2001, and incorporated herein by reference).                                                                                                                                                                                                       |

 

13

----

 
| 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+   |   | 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).                                                                                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10N    |   | Master Lease Finance Agreement,  dated as of September 23, 1998 between Courier Corporation and General  Electric Capital Corporation (filed as Exhibit 10R to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 26, 1998, and  incorporated herein by reference).                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                     |
| 10O    |   | Stock Purchase Agreement by and among  Courier Corporation, Mrs. Blanche Cirker, individually, the Estate of Hayward  Francis Cirker, by Blanche Cirker, executrix, and each of the stockholders of  Dover Publications, Inc., Dover Book Store Inc. and Transfolio Express, Inc.  dated as of August 14, 2000 (filed as Exhibit 2.1 to the Company’s Current  Report on Form 8-K dated September 22, 2000, and incorporated herein by  reference). |

 

14

----

 
| 10P    |   | Master Lease Finance Agreement,  dated as of September 25, 2000 between Courier Corporation and Eastern Bank  (filed as Exhibit 10T to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 30, 2000, and incorporated herein by reference). |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                       |
| 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. |

 
| **(b)** | **Reports on Form 8-K** |   |
|---------|-------------------------|--------|

 
| Filed July 15, 2004, reporting under Item 12 a press release dated July  15, 2004 reporting financial results for the quarter ended June 26, 2004. |
|----------------------------------------------------------------------------------------------------------------------------------------------------|

 

15

----

** **

**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities Exchange Act of1934, the Company has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, on December 2, 2004.

 
|   | COURIER CORPORATION |                                               |
|--------|---------------------|----------------------------------------------------|
|   |                |                                               |
|   | By:                 | *s/James F. Conway III*                            |   |   |
|   |                | James F. Conway III                                |   |
|   |                | Chairman,  President and Chief Executive Officer   |
|   |                |                                               |   |
|   | By:                 | *s/Robert P. Story, Jr.*                           |   |   |
|   |                | Robert P. Story, Jr.                               |   |
|   |                | Senior  Vice President and Chief Financial Officer |
|   |                |                                               |   |
|   | By:                 | *s/Peter M. Folger*                                |   |   |
|   |                | Peter M. Folger                                    |   |
|   |                | Vice  President and Chief Accounting Officer       |
|        |                     |                                                    |  |  |  |  |  |

 

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 December 2, 2004.

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

 

16

----

 

**REPORT OFINDEPENDENT****REGISTERED PUBLIC ACCOUNTING FIRM**

 

We have audited the accompanying consolidated balancesheets of Courier Corporation and subsidiaries as of September 25, 2004and September 27, 2003, and the related consolidated statements of income,stockholders’ equity, and cash flows for each of the three years in the periodended September 25, 2004.  Ouraudits also included the financial statement schedule listed in the Indexat Item 15(a)2.  These financialstatements and financial statement schedule are the responsibility of theCorporation’s management.  Our responsibility is to express an opinion onthe financial statements and financial statement schedule based on ouraudits.

 

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 financial statementspresent fairly, in all material respects, the financial position of CourierCorporation and subsidiaries as of September 25, 2004 and September 27,2003, and the results of their operations and their cash flows for each of thethree years in the period ended September 25, 2004, 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.

 

 
| */s/ Deloitte & Touche LLP* |   |
|---------------------------------|--------|
|                            |
| Boston,  Massachusetts          |
| December 3,  2004          |

 

F-1

----

 

**COURIERCORPORATION**

**CONSOLIDATED STATEMENTS OF INCOME**

 
| ** **                                | ** ** | **For the Years Ended**     | ** **  |
|-------------------------------------------|------------|-----------------------------|-------------|
| ** **                                | ** ** | **September 25, 2004** | ** **  | **September 27, 2003** | ** ** | **September 28, 2002** | ** ** |
|                                      |       |                        |        |   |   |   |   |
| Net sales (Note A)                        |       | $                           | 211,179,000 |   | $ | 202,002,000 |   | $ | 201,024,000 |   |
| Cost of sales                             |       | 142,609,000                 |        | 134,630,000 |   | 138,451,000 |   |
|                                      |       |                        |        |   |   |   |   |
| Gross profit                              |       | 68,570,000                  |        | 67,372,000 |   | 62,573,000 |   |
|                                      |       |                        |        |   |   |   |   |
| Selling and administrative expenses       |       | 37,292,000                  |        | 37,794,000 |   | 37,791,000 |   |
| Interest (income) expense, net            |       | (23,000                     | )           | 52,000 |   | 480,000 |   |
| Other income (Note K)                     |       | 250,000                     |        | — |   | — |   |
|                                      |       |                        |        |   |   |   |   |
| Pretax income                             |       | 31,551,000                  |        | 29,526,000 |   | 24,302,000 |   |
|                                      |       |                        |        |   |   |   |   |
| Provision for income taxes (Note C)       |       | 11,011,000                  |        | 10,254,000 |   | 8,007,000 |   |
|                                      |       |                        |        |   |   |   |   |
| Income from continuing operations         |       | $                           | 20,540,000  |   | $ | 19,272,000 |   | $ | 16,295,000 |   |
|                                      |       |                        |        |   |   |   |   |
| Discontinued operations:                  |       |                        |        |   |   |   |   |
| Loss from operations, net of tax          |       | —                      |        | (65,000 | ) | (120,000 | ) |
| Gain on disposal, net of tax              |       | —                      |        | 913,000 |   | — |   |
|                                      |       |                        |        |   |   |   |   |
| Net income                                |       | $                           | 20,540,000  |   | $ | 20,120,000 |   | $ | 16,175,000 |   |
|                                      |       |                        |        |   |   |   |   |
| Income per basic share (Notes A and L):   |       |                        |        |   |   |   |   |
| Continuing operations                     |       | $                           | 2.58        |   | $ | 2.46 |   | $ | 2.11 |   |
| Discontinued operations (Note I):         |       |                        |        |   |   |   |   |
| Loss from operations                      |       | —                      |        | (0.01 | ) | (0.02 | ) |
| Gain on disposal                          |       | —                      |        | 0.12 |   | — |   |
| Net income per basic share                |       | $                           | 2.58        |   | $ | 2.56 |   | $ | 2.09 |   |
|                                      |       |                        |        |   |   |   |   |
| Income per diluted share (Notes A and L): |       |                        |        |   |   |   |   |
| Continuing operations                     |       | $                           | 2.50        |   | $ | 2.37 |   | $ | 2.04 |   |
| Discontinued operations (Note I):         |       |                        |        |   |   |   |   |
| Loss from operations                      |       | —                      |        | (0.01 | ) | (0.02 | ) |
| Gain on disposal                          |       | —                      |        | 0.11 |   | — |   |
| Net income per diluted share              |       | $                           | 2.50        |   | $ | 2.48 |   | $ | 2.02 |   |
|                                      |       |                        |        |   |   |   |   |
| Cash dividends declared per share         |       | $                           | 0.35        |   | $ | 0.30 |   | $ | 0.27 |   |

 

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

 

F-2

----

 

**COURIERCORPORATION**

**CONSOLIDATED BALANCE SHEETS**

 
| ** **                                                                                                            | ** ** | **September 25, 2004** | ** **  | **September 27, 2003** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| ASSETS                                                                                                                |       |                        |        |                        |       |
|                                                                                                                  |       |                        |        |                        |       |
| Current assets:                                                                                                       |       |                        |        |                        |       |
| Cash and cash equivalents (Note A)                                                                                    |       | $                           | 23,965,000  |                        | $          | 23,824,000 |   |
| Accounts receivable, less allowance for  uncollectible accounts of $1,630,000 in 2004 and $1,741,000 in 2003 (Note A) |       | 34,072,000                  |        | 29,174,000                  |       |
| Inventories (Note B)                                                                                                  |       | 25,108,000                  |        | 20,681,000                  |       |
| Deferred income taxes (Note C)                                                                                        |       | 2,852,000                   |        | 3,164,000                   |       |
| Other current assets                                                                                                  |       | 840,000                     |        | 1,214,000                   |       |
|                                                                                                                  |       |                        |        |                        |       |
| Total current assets                                                                                                  |       | 86,837,000                  |        | 78,057,000                  |       |
|                                                                                                                  |       |                        |        |                        |       |
| Property, plant and equipment (Note A):                                                                               |       |                        |        |                        |       |
| Land                                                                                                                  |       | 1,059,000                   |        | 1,059,000                   |       |
| Buildings and improvements                                                                                            |       | 25,781,000                  |        | 22,349,000                  |       |
| Machinery and equipment                                                                                               |       | 128,484,000                 |        | 114,728,000                 |       |
| Furniture and fixtures                                                                                                |       | 1,468,000                   |        | 1,468,000                   |       |
| Construction in progress                                                                                              |       | 1,073,000                   |        | 5,094,000                   |       |
|                                                                                                                  |       |                        |        |                        |       |
|                                                                                                                  |       | 157,865,000                 |        | 144,698,000                 |       |
|                                                                                                                  |       |                        |        |                        |       |
| Less-Accumulated depreciation and amortization                                                                        |       | (109,383,000                | )           | (101,356,000                | )          |
|                                                                                                                  |       |                        |        |                        |       |
| Property, plant and equipment, net                                                                                    |       | 48,482,000                  |        | 43,342,000                  |       |
|                                                                                                                  |       |                        |        |                        |       |
| Goodwill (Notes A, H and J)                                                                                           |       | 33,255,000                  |        | 24,847,000                  |       |
| Prepublication costs (Note A)                                                                                         |       | 5,127,000                   |        | 3,810,000                   |       |
| Other assets                                                                                                          |       | 1,498,000                   |        | 1,429,000                   |       |
|                                                                                                                  |       |                        |        |                        |       |
| Total assets                                                                                                          |       | $                           | 175,199,000 |                        | $          | 151,485,000 |   |

 

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

 

F-3

----

 

**COURIERCORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

 
| ** **                                                                                                        | ** ** | **September 25, 2004** | ** **  | **September 27, 2003** | ** ** |
|-------------------------------------------------------------------------------------------------------------------|------------|-----------------------------|-------------|-----------------------------|------------|
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                         |       |                        |        |                        |       |
|                                                                                                              |       |                        |        |                        |       |
| Current liabilities:                                                                                              |       |                        |        |                        |       |
| Current maturities of long-term debt (Note D)                                                                     |       | $                           | 83,000      |                        | $          | 81,000 |   |
| Accounts payable (Note A)                                                                                         |       | 10,059,000                  |        | 6,494,000                   |       |
| Accrued payroll                                                                                                   |       | 6,470,000                   |        | 8,031,000                   |       |
| Accrued taxes                                                                                                     |       | 5,557,000                   |        | 6,521,000                   |       |
| Other current liabilities                                                                                         |       | 7,194,000                   |        | 6,070,000                   |       |
|                                                                                                              |       |                        |        |                        |       |
| Total current liabilities                                                                                         |       | 29,363,000                  |        | 27,197,000                  |       |
|                                                                                                              |       |                        |        |                        |       |
| Long-term debt (Notes A and D)                                                                                    |       | 510,000                     |        | 593,000                     |       |
| Deferred income taxes (Note C)                                                                                    |       | 7,706,000                   |        | 5,597,000                   |       |
| Other liabilities                                                                                                 |       | 2,630,000                   |        | 2,678,000                   |       |
|                                                                                                              |       |                        |        |                        |       |
| Total liabilities                                                                                                 |       | 40,209,000                  |        | 36,065,000                  |       |
|                                                                                                              |       |                        |        |                        |       |
| Commitments and contingencies (Note E)                                                                            |       |                        |        |                        |       |
|                                                                                                              |       |                        |        |                        |       |
| Stockholders’ equity (Notes A and F):                                                                        |       |                        |        |                        |       |
|                                                                                                              |       |                        |        |                        |       |
| Preferred stock, $1 par value - authorized  1,000,000 shares; none issued                                         |       |                        |        |                        |       |
| Common stock, $1 par value - authorized  18,000,000 shares; issued 8,031,000 shares in 2004 and 8,088,000 in 2003 |       | 8,031,000                   |        | 8,088,000                   |       |
| Additional paid-in capital                                                                                        |       | 869,000                     |        | 650,000                     |       |
| Retained earnings                                                                                                 |       | 126,573,000                 |        | 108,827,000                 |       |
| Unearned compensation                                                                                             |       | (483,000                    | )           | (350,000                    | )          |
| Treasury stock, at cost: 157,000 shares in 2003                                                                   |       | —                      |        | (1,795,000                  | )          |
|                                                                                                              |       |                        |        |                        |       |
| Total stockholders’ equity                                                                                   |       | 134,990,000                 |        | 115,420,000                 |       |
|                                                                                                              |       |                        |        |                        |       |
| Total liabilities and stockholders’ equity                                                                   |       | $                           | 175,199,000 |                        | $          | 151,485,000 |   |

 

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

 

F-4

----

 

**COURIER CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

 
| ** **                                                                       | ** ** | **For the Years Ended**     | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------|------------|
| ** **                                                                       | ** ** | **September 25, 2004** | ** ** | **September 27, 2003** | ** ** | **September 28, 2002** | ** ** |
|                                                                             |       |                        |       |   |   |   |   |
| Operating Activities:                                                            |       |                        |       |   |   |   |   |
| Net income                                                                       |       | $                           | 20,540,000 |   | $ | 20,120,000 |   | $ | 16,175,000 |   |
| Adjustments to reconcile net income to cash provided  from operating activities: |       |                        |       |   |   |   |   |
| Depreciation and amortization                                                    |       | 10,929,000                  |       | 9,798,000 |   | 10,687,000 |   |
| Deferred income taxes (Note C)                                                   |       | 2,471,000                   |       | 938,000 |   | 1,531,000 |   |
| Gain on sale of assets (Notes I and K)                                           |       | (163,000                    | )          | (913,000 | ) | — |   |
| Changes in assets and liabilities:                                               |       |                        |       |   |   |   |   |
| Accounts receivable                                                              |       | (3,843,000                  | )          | 1,718,000 |   | 2,914,000 |   |
| Inventory                                                                        |       | (2,459,000                  | )          | 731,000 |   | 728,000 |   |
| Accounts payable                                                                 |       | 2,775,000                   |       | (214,000 | ) | (5,225,000 | ) |
| Accrued taxes                                                                    |       | (964,000                    | )          | (444,000 | ) | 873,000 |   |
| Other elements of working capital                                                |       | (245,000                    | )          | (492,000 | ) | 691,000 |   |
| Tax benefits of stock option activity                                            |       | 562,000                     |       | 470,000 |   | 229,000 |   |
| Other long-term, net                                                             |       | (1,271,000                  | )          | (575,000 | ) | 363,000 |   |
|                                                                             |       |                        |       |   |   |   |   |
| Cash provided from operating activities                                          |       | 28,332,000                  |       | 31,137,000 |   | 28,966,000 |   |
|                                                                             |       |                        |       |   |   |   |   |
| Investment Activities:                                                           |       |                        |       |   |   |   |   |
| Capital expenditures                                                             |       | (13,416,000                 | )          | (10,885,000 | ) | (4,918,000 | ) |
| Business acquisition (Note H)                                                    |       | (11,850,000                 | )          | — |   | — |   |
| Prepublication costs (Note A)                                                    |       | (2,818,000                  | )          | (2,232,000 | ) | (1,821,000 | ) |
| Proceeds from sale of assets (Notes I and K)                                     |       | 1,664,000                   |       | 1,500,000 |   | — |   |
|                                                                             |       |                        |       |   |   |   |   |
| Cash used for investment activities                                              |       | (26,420,000                 | )          | (11,617,000 | ) | (6,739,000 | ) |
|                                                                             |       |                        |       |   |   |   |   |
| Financing Activities:                                                            |       |                        |       |   |   |   |   |
| Long-term debt repayments                                                        |       | (81,000                     | )          | (78,000 | ) | (76,000 | ) |
| Repayments of revolving credit facility, net                                     |       | —                      |       | — |   | (15,750,000 | ) |
| Cash dividends                                                                   |       | (2,794,000                  | )          | (2,354,000 | ) | (2,058,000 | ) |
| Proceeds from stock plans                                                        |       | 1,104,000                   |       | 1,106,000 |   | 1,114,000 |   |
|                                                                             |       |                        |       |   |   |   |   |
| Cash used for financing activities                                               |       | (1,771,000                  | )          | (1,326,000 | ) | (16,770,000 | ) |
|                                                                             |       |                        |       |   |   |   |   |
| Increase in cash and cash equivalents                                            |       | 141,000                     |       | 18,194,000 |   | 5,457,000 |   |
|                                                                             |       |                        |       |   |   |   |   |
| Cash and cash equivalents at the beginning of the  period                        |       | 23,824,000                  |       | 5,630,000 |   | 173,000 |   |
|                                                                             |       |                        |       |   |   |   |   |
| Cash and cash equivalents at the end of the period                               |       | $                           | 23,965,000 |   | $ | 23,824,000 |   | $ | 5,630,000 |   |
|                                                                             |       |                        |       |   |   |   |   |
| Supplemental cash flow information:                                              |       |                        |       |   |   |   |   |
| Interest paid                                                                    |       | $                           | 249,000    |   | $ | 245,000 |   | $ | 436,000 |   |
| Income taxes paid (net of receipts)                                              |       | $                           | 8,935,000  |   | $ | 9,697,000 |   | $ | 5,511,000 |   |

 

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

 

F-5

----

 

**COURIER CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CHANGES IN STOCKHOLDERS’****EQUITY**

 
| ** **                                        | ** ** | **Total  Stockholders’  Equity** | ** **  | **Common  Stock** | ** ** | **Additional  Paid-In Capital** | ** ** | **Retained  Earnings** | ** ** | **Unearned  Compensation** | ** ** | **Treasury  Stock** | ** ** |
|---------------------------------------------------|------------|---------------------------------------|-------------|-------------------|------------|---------------------------------|------------|------------------------|------------|----------------------------|------------|---------------------|------------|
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Balance, September 29, 2001                  |       | $                                     | 80,325,000  |              | $          | 5,445,000                       |       | $                      | 1,454,000  |                       | $          | 76,944,000          |       | $ | (510,000 | ) | $ | (3,008,000 | ) |
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Net income                                        |       | 16,175,000                            |        | —            |       | —                          |       | 16,175,000             |       | —                     |       | —              |       |
| Cash dividends                                    |       | (2,058,000                            | )           | —            |       | —                          |       | (2,058,000             | )          | —                     |       | —              |       |
| Restricted stock grant/amortization activity, net |       | 133,000                               |        | —            |       | 94,000                          |       | —                 |       | 1,000                      |       | 38,000              |       |
| Other stock plan activity                         |       | 1,344,000                             |        | —            |       | 698,000                         |       | —                 |       | —                     |       | 646,000             |       |
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Balance, September 28, 2002                  |       | 95,919,000                            |        | 5,445,000         |       | 2,246,000                       |       | 91,061,000             |       | (509,000                   | )          | (2,324,000          | )          |
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Net income                                        |       | 20,120,000                            |        | —            |       | —                          |       | 20,120,000             |       | —                     |       | —              |       |
| Cash dividends                                    |       | (2,354,000                            | )           | —            |       | —                          |       | (2,354,000             | )          | —                     |       | —              |       |
| Stock dividend (Note A)                      |       | —                                |        | 2,643,000         |       | (2,643,000                      | )          | —                 |       | —                     |       | —              |       |
| Restricted stock grant/amortization activity, net |       | 159,000                               |        | —            |       | —                          |       | —                 |       | 159,000                    |       | —              |       |
| Other stock plan activity                         |       | 1,576,000                             |        | —            |       | 1,047,000                       |       | —                 |       | —                     |       | 529,000             |       |
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Balance, September 27, 2003                  |       | 115,420,000                           |        | 8,088,000         |       | 650,000                         |       | 108,827,000            |       | (350,000                   | )          | (1,795,000          | )          |
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Net income                                        |       | 20,540,000                            |        | —            |       | —                          |       | 20,540,000             |       | —                     |       | —              |       |
| Cash dividends                                    |       | (2,794,000                            | )           | —            |       | —                          |       | (2,794,000             | )          | —                     |       | —              |       |
| Restricted stock grant/amortization activity, net |       | 160,000                               |        | —            |       | 200,000                         |       | —                 |       | (133,000                   | )          | 93,000              |       |
| Other stock plan activity                         |       | 1,664,000                             |        | —            |       | 772,000                         |       | —                 |       | —                     |       | 892,000             |       |
| Retire treasury stock (Note A)               |       | —                                |        | (57,000           | )          | (753,000                        | )          | —                 |       | —                     |       | 810,000             |       |
|                                              |       |                                  |        |              |       |                            |       |                   |       |                       |       |                |       |
| Balance, September 25, 2004                  |       | $                                     | 134,990,000 |              | $          | 8,031,000                       |       | $                      | 869,000    |                       | $          | 126,573,000         |       | $ | (483,000 | ) | $ | — |   |

 

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

 

F-6

**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:full-service book manufacturing and specialty book publishing.  On January 6, 2004, Courier purchasedsubstantially all of the assets of Research & Education Association, Inc. (“REA”)which is included in the specialty publishing segment (see Note H).  On December 17, 2002, the Company soldthe assets of Courier Custom Publishing, Inc., which comprised all of theactivities of the customized education segment (see Note I).

 

**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 significant intercompanytransactions.  Such financial statementshave been prepared in conformity with accounting principles generally acceptedin the United States of America (“generally accepted accounting principles”),which require the use of certain estimates and assumptions.  Certain amounts for fiscal years 2003 and2002 have been reclassified in the accompanying financial statements in order toconform to the current year’s classification.

 

**Financial Instruments:** Financial instruments consist primarily of cash, accounts receivable,accounts payable and debt obligations. The Company classifies as cash and cash equivalents amounts on depositin banks and cash invested temporarily in various instruments with maturitiesof three months or less at time of purchase. At September 25, 2004 and September 27, 2003, the fair marketvalue of the Company’s financial instruments approximated their carryingvalues.

 

Interestincome from these instruments was $230,000 in 2004, $200,000 in 2003, and$12,000 in 2002 and is included in the caption “Interest (income) expense, net”in the accompanying Consolidated Statements of Income.

 

**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 in 2004 was $74,000.   No interest was capitalized in 2003 and2002.  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.

 

Leaseholdimprovements are amortized on a straight-line basis over the shorter of theiruseful life or the term of the lease. Expenditures for maintenance and repairs are charged against income asincurred; betterments that increase the value or materially extend the life ofthe related assets are capitalized.  Whenassets are sold or retired, the cost and accumulated depreciation are removedfrom the accounts and any gain or loss is included in income.

 

**Goodwill:**  TheCompany evaluates possible impairment annually or whenever events or circumstancesindicate that the carrying value of the assets may not be recoverable.  Goodwillhas been allocated $9.2 million and $24.0 million, net of accumulatedamortization of $2.1 million and $0.9 million, to the book manufacturing andspecialty publishing segments, respectively. The specialty publishing segment includes $8.4 million of goodwillrelated to the

 

F-7

----

 

acquisitionof REA in the second quarter of fiscal 2004 (see Note H).  There has been no other change in thecarrying amount of goodwill during the year or in the allocation of goodwill byreportable segment.

 

**Long-Lived Assets:**Management periodically reviews long-lived assets for impairment and doesnot believe that there is any material impairment of any asset of the Companyas measured in accordance with SFAS No. 144, “Accounting for the Impairment orDisposal of Long-Lived Assets.”  Theadoption of SFAS No. 144 in 2002 did not have a material effect on the Company’sconsolidated financial statements.

 

**Prepublication Costs:**Prepublication costs, associated with the specialty publishing segment,are amortized to cost of sales using the straight-line method over estimateduseful lives of three years for REA, which was acquired in fiscal 2004 (seeNote H), and four years for Dover Publications.

 

**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.

 

**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 of assets and liabilities at the date of thefinancial statements, as well as revenues and expenses during the reportingperiod.  Actual results may differ fromthese estimates.

 

**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 options (see Note L).

 

**Treasury Stock:**Pursuantto a 2004 change in state law, the Company’s treasury stock was reclassified tothe status of authorized but unissued shares.** **The Company had historically usedtreasury stock for stock options exercised and stock grants.

 

**Stock Split:**On November 6,2003, the Company announced a three-for-two stock split effected in the form ofa 50% stock dividend, except for treasury shares, which was distributed on December 5,2003.  Previously authorized but unissuedshares were used to effect this dividend. Weighted average shares outstanding and per share amounts presented inthe accompanying financial statements for periods prior to the stock split havebeen restated to give effect to the stock split.

 

F-8

----

 

**Stock-BasedCompensation:** Pursuant to SFAS No. 123, “Accounting forStock-Based Compensation,” as amended by SFAS No. 148, the Company applies therecognition and measurement principles of APB Opinion No. 25, “Accounting forStock Issued to Employees” and related interpretations.  Accordingly, because the number of shares isfixed and the exercise price of the stock options equals the market price ofthe underlying stock on the date of grant, no compensation expense has beenrecognized. Had compensation cost for stock options and for grants under theESPP been determined under the provisions of SFAS No. 123, the Company’s netincome would have been as follows: 

 
| ** **                                                                                          | ** ** | **2004**   | ** ** | **2003** | ** ** | **2002**   | ** ** |
|-----------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|------------|------------|
| Net income as reported                                                                              |       | $          | 20,540,000 |     | $          | 20,120,000 |       | $ | 16,175,000 |   |
| Deduct: Stock-based compensation expense determined  under SFAS No. 123, net of related tax effects |       | (1,306,000 | )          | (965,000 | )          | (637,000   | )          |
| Pro forma net income                                                                                |       | $          | 19,234,000 |     | $          | 19,155,000 |       | $ | 15,538,000 |   |
|                                                                                                |       |       |       |     |       |       |       |
| Net income per share as reported:                                                                   |       |       |       |     |       |       |       |
| Basic                                                                                               |       | $          | 2.58       |     | $          | 2.56       |       | $ | 2.09 |   |
| Diluted                                                                                             |       | 2.50       |       | 2.48     |       | 2.02       |       |
|                                                                                                |       |       |       |     |       |       |       |
| Pro forma net income per share:                                                                     |       |       |       |     |       |       |       |
| Basic                                                                                               |       | $          | 2.42       |     | $          | 2.44       |       | $ | 2.01 |   |
| Diluted                                                                                             |       | 2.34       |       | 2.36     |       | 1.94       |       |

 

Forpurposes of pro forma disclosures, the fair value of each option grant wasestimated on the date of grant using the Black-Scholes option-pricing model(see Note F).

 

## **B.  Inventories**

## ** **

Inventories arevalued at the lower of cost or market. Cost is determined using the last-in,first-out (LIFO) method for approximately 37% and 44% of the Company’sinventories at September 25, 2004 and September 27, 2003,respectively.  Other inventories,primarily in the specialty publishing segment, are determined on a first-in,first-out (FIFO) basis.  REA’s inventoryof $1.3 million at September 25, 2004 is included in finished goods.  Inventories consisted of the following at September 25,2004 and September 27, 2003: 

 
| ** **      | ** ** | **2004**   | ** ** | **2003**   | ** ** |
|-----------------|------------|------------|------------|------------|------------|
|            |       |       |       |       |       |
| Raw materials   |       | $          | 3,338,000  |       | $          | 1,704,000 |   |
| Work in process |       | 5,317,000  |       | 3,833,000  |       |
| Finished goods  |       | 16,453,000 |       | 15,144,000 |       |
| Total           |       | $          | 25,108,000 |       | $          | 20,681,000 |   |

 

On a FIFO basis, reported year-end inventories would have been higher by$5.5 million in both fiscal 2004 and 2003.

 

F-9

----

 

**C.  Income Taxes**

 

Theprovision for income taxes from continuing operations differs from thatcomputed using the statutory federal income tax rates for the followingreasons:

 
| ** **                               | ** ** | **2004** | ** ** | **2003** | ** ** | **2002**   | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|------------|------------|
|                                     |       |     |       |     |       |       |       |
| Federal taxes at statutory  rate         |       | $        | 11,043,000 |     | $          | 10,334,000 |       | $ | 8,457,000 |   |
| State taxes, net of federal  tax benefit |       | 837,000  |       | 701,000  |       | 366,000    |       |
| Tax benefit of export related  income    |       | (882,000 | )          | (823,000 | )          | (868,000   | )          |
| Other                                    |       | 13,000   |       | 42,000   |       | 52,000     |       |
| Total                                    |       | $        | 11,011,000 |     | $          | 10,254,000 |       | $ | 8,007,000 |   |

 

Theprovision for income taxes from continuing operations consisted of thefollowing:

 
| ** **         | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**   | ** ** |
|--------------------|------------|-----------|------------|-----------|------------|------------|------------|
| Currently payable: |       |      |       |      |       |       |       |
| Federal            |       | $         | 7,325,000  |      | $          | 8,238,000  |       | $ | 5,776,000 |   |
| State              |       | 1,215,000 |       | 1,078,000 |       | 700,000    |       |
|               |       | 8,540,000 |       | 9,316,000 |       | 6,476,000  |       |
| Deferred:          |       |      |       |      |       |       |       |
| Federal            |       | 2,398,000 |       | 870,000   |       | 1,507,000  |       |
| State              |       | 73,000    |       | 68,000    |       | 24,000     |       |
|               |       | 2,471,000 |       | 938,000   |       | 1,531,000  |       |
| Total              |       | $         | 11,011,000 |      | $          | 10,254,000 |       | $ | 8,007,000 |   |

 

Thefollowing is a summary of the significant components of the Company’s deferredtax assets and liabilities as of September 25, 2004 and September 27,2003:

 
| ** **                                 | ** ** | **2004**  | ** ** | **2003**  | ** ** |
|--------------------------------------------|------------|-----------|------------|-----------|------------|
| Deferred tax assets:                       |       |      |       |      |       |
| Vacation accrual not currently  deductible |       | $         | 719,000    |      | $          | 682,000 |   |
| Other accruals not currently  deductible   |       | 689,000   |       | 806,000   |       |
| Non-deductible reserves                    |       | 1,387,000 |       | 1,620,000 |       |
| Other                                      |       | 57,000    |       | 56,000    |       |
| Classified as current                      |       | 2,852,000 |       | 3,164,000 |       |
| Deferred compensation  arrangements        |       | 1,041,000 |       | 1,023,000 |       |
| Other                                      |       | 171,000   |       | 171,000   |       |
| Total deferred tax assets                  |       | $         | 4,064,000  |      | $          | 4,358,000 |   |
|                                       |       |      |       |      |       |
| Deferred tax liabilities:                  |       |      |       |      |       |
| Accelerated depreciation                   |       | 7,220,000 |       | 5,732,000 |       |
| Goodwill amortization                      |       | 1,698,000 |       | 1,059,000 |       |
| Total deferred tax liabilities             |       | $         | 8,918,000  |      | $          | 6,791,000 |   |

 

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

 

F-10

----

 

**D.  Long-Term Debt**

 

At September 25,2004 and September 27, 2003, long-term debt consisted of an obligationunder an industrial development bond arrangement totaling $593,000 and$674,000, respectively, including current maturities of $83,000 and $81,000,respectively.  This industrial bondarrangement bears interest at a 3% rate. Scheduled aggregate principal payments of this obligation are $83,000 in2005, $85,000 in 2006, $88,000 in 2007, $91,000 in 2008, $93,000 in fiscal 2009and $153,000 thereafter.  The industrialbond arrangement provides for a lien on the assets acquired with the proceeds

 

TheCompany has a $60 million long-term revolving credit facility in place underwhich the Company can borrow at a rate not to exceed LIBOR plus 1.5%. Therevolving credit facility matures in March 2007.  The revolving credit facility is used by theCompany for both its long-term and short-term financing needs.

 

Therevolving credit facility contains restrictive covenants including provisionsrelating to the maintenance of working capital, the level of capitalexpenditures, the incurring of additional indebtedness and a quarterly test ofEBITDA to debt service.  It also providesfor a commitment fee not to exceed 3/8% per annum on the unused portion.  These fees are included in the caption “Interest(income) expense, net” in the accompanying Consolidated Statements of Income.

 

**E.  Commitments and Contingencies**

 

TheCompany is committed under various operating leases to make annual rentalpayments for certain buildings and equipment. Amounts charged to operationsunder such leases approximated $3,902,000 in 2004, $4,103,000 in 2003****and $4,256,000 in 2002. As of September 25, 2004, minimum annual rental commitments underthe Company’s long-term operating leases are approximately $3,198,000 in 2005,$1,910,000 in 2006, $1,790,000 in 2007, $1,220,000 in 2008 and $2,921,000 inthe aggregate thereafter.  The Companyleases one of its facilities from a corporation owned in part by an executiveof one of the Company’s subsidiaries. The lease agreement requires annual payments of approximately $276,000through July 2007.  At September 25,2004 and September 27, 2003, the Company had letters of credit outstandingof $1,250,000 and $1,007,000, respectively.

 

Inthe ordinary course of business, the Company is subject to various legalproceedings and claims.  The Companybelieves that the ultimate outcome of these matters will not have a materialadverse effect on its consolidated financial statements.

 

F-11

----

 

## **F.  Stock Arrangements**

## ** **

**Stock Incentive Plans:** The Company’s stock incentive plans provide for the granting of stockoptions and stock grants up to a total of 1,226,250 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. During 2004, 7,192 shares of restricted stock, with a value of$293,000, were granted which vest in three years.  During 2002, 3,750 shares of restrictedstock, with a value of $95,000, were granted which vest over a five-yearperiod.  Amortization expense relating tothe restricted stock grants was $160,000, $159,000 and $133,000 for 2004, 2003and 2002, respectively.

 

**Directors’ Option Plan:** A 1989 plan, as amended and restated, allows members of the Company’sBoard of Directors to make an election to apply either 50% or 100% of theirannual retainer fee, including the committee chair retainer, toward the annualgrant of stock options to be offered at a price per share $5 below the fairmarket value of the Company’s common stock at the time the option isgranted.  The plan, as approved bystockholders, provides a total of 562,500 shares for the issuance of suchoptions.

 

Thefollowing is a summary of all option activity for these plans:

 
| ** **                              | ** ** | **Stock Option/Incentive Plans** | ** ** | **Directors’ Option Plan** | ** ** |
|-----------------------------------------|------------|----------------------------------|------------|---------------------------------|------------|
| ** **                              | ** ** | **Shares**                       | ** ** | **Average  Exercise  Price**    | ** ** | **Shares** | ** ** | **Average  Exercise  Price** | ** ** |
| Outstanding at September 29,  2001 |       | 449,995                          |       | $                               | 10.35      |   | 110,925 |   | $ | 8.23 |   |
| Issued                                  |       | 96,112                           |       | 25.17                           |       | 29,250 |   | 11.21 |   |
| Exercised                               |       | (97,818                          | )          | 7.41                            |       | (39,750 | ) | 7.25 |   |
| Cancelled                               |       | (7,876                           | )          | 11.07                           |       | — |   | — |   |
| Outstanding at September 28,  2002 |       | 440,413                          |       | $                               | 14.22      |   | 100,425 |   | $ | 9.49 |   |
| Issued                                  |       | 86,662                           |       | 35.21                           |       | 36,000 |   | 21.71 |   |
| Exercised                               |       | (70,408                          | )          | 8.02                            |       | (30,000 | ) | 10.23 |   |
| Cancelled                               |       | (1,749                           | )          | 13.67                           |       | — |   | — |   |
| Outstanding at September 27,  2003 |       | 454,918                          |       | $                               | 19.17      |   | 106,425 |   | $ | 13.42 |   |
| Issued                                  |       | 27,299                           |       | 40.95                           |       | 40,500 |   | 31.54 |   |
| Exercised                               |       | (62,376                          | )          | 10.38                           |       | (20,733 | ) | 8.74 |   |
| Cancelled                               |       | (3,000                           | )          | 29.35                           |       | — |   | — |   |
| Outstanding at September 25,  2004 |       | 416,841                          |       | $                               | 21.85      |   | 126,192 |   | $ | 20.00 |   |
|                                    |       |                             |       |                            |       |   |   |   |   |
| Exercisable at September 25,  2004 |       | 243,584                          |       | $                               | 16.55      |   | 126,192 |   | $ | 20.00 |   |
| Available for future grants             |       | 89,606                           |       |                            |       | 78,750 |   |   |   |

 

Thefollowing tables present information with regards to stock options outstandingat

 

F-12

----

 

September 25,2004:

 
| **Range of Exercise Prices**                            | ** **          | **Stock Incentive Plan** | ** **           |
|---------------------------------------------------------|---------------------|--------------------------|----------------------|
| ** **                                              | **$9.22 -  $12.11** | ** **               | **$12.72 -  $15.82** | ** ** | **$20.63 -  $27.89** | ** ** | **$34.91 -  $38.40** | ** ** | **$40.75 -  $44.35** | ** ** |
| Options outstanding                                     |                | 74,575                   |                 | 138,532 |   | 91,274 |   | 85,161 |   | 27,299 |   |
| Weighted average exercise  price of options outstanding |                | $                        | 10.08                |   | $ | 13.97 |   | $ | 25.24 |   | $ | 35.22 |   | $ | 40.95 |   |
| Weighted average remaining  life                        |                | 1.5 years                |                 | 3.1 years |   | 4.8 years |   | 5.8 years |   | 7.0 years |   |
| Options exercisable                                     |                | 74,575                   |                 | 109,170 |   | 31,451 |   | 28,388 |   | — |   |
| Weighted average exercise  price of options exercisable |                | $                        | 10.08                |   | $ | 13.78 |   | $ | 24.77 |   | $ | 35.04 |   | — |   |
|                                                         |                     |                          |                      |  |  |  |  |  |  |  |  |  |  |  |  |  |

 
| ** **                                              | ** ** | **Directors’ Option Plan** | ** ** |
|---------------------------------------------------------|------------|---------------------------------|------------|
| **Range of Exercise Prices**                            | ** ** | **$8.25 -  $10.85**             | ** ** | **$21.71 -  24.97** | ** ** | **$31.45 -  $33.98** | ** ** |
| Options outstanding                                     |       | 54,942                          |       | 30,750 |   | 40,500 |   |
| Weighted average exercise  price of options outstanding |       | $                               | 10.49      |   | $ | 21.79 |   | $ | 31.54 |   |
| Weighted average remaining  life                        |       | 1.4 years                       |       | 3.0 years |   | 4.0 years |   |
| Options exercisable                                     |       | 54,942                          |       | 30,750 |   | 40,500 |   |
| Weighted average exercise  price of options exercisable |       | $                               | 10.49      |   | $ | 21.79 |   | $ | 31.54 |   |

 

**Employee Stock Purchase Plan:** The Company’s 1999 Employee Stock Purchase Plan (“ESPP”), approved bystockholders in January 1999, covers an aggregate of 225,000 shares ofCompany common stock for issuance under the plan.  Eligible employees may purchase shares ofCompany common stock at not less than 85% of fair market value at the beginningor end of the grant period.  During 2004,17,456 shares were issued under the plan at an average price of $31.88 per share.  Since inception, 130,969****shareshave been issued.  At September 25,2004, an additional 94,031 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 group beneficially owning 15% or more of theCompany’s common stock.  Whenexercisable, under certain conditions, each right entitles the holder thereofto purchase Units of the Company’s preferred stock or shares of common stock ofthe acquirer, in each case having a market value at that time of twice theright’s exercise price.  The Board ofDirectors will be entitled to redeem the rights at one cent per right, undercertain circumstances.  The rights expirein 2009.

 

F-13

----

 

**Stock-Based Compensation:** For purposes of pro-forma disclosures presented in Note A, the fairvalue of each option grant was estimated on the date of the grant using the Black-Scholesoption-pricing model.

 

Thefollowing key assumptions were used to value options issued:

 
| ** **                        | ** ** | **2004**    | ** ** | **2003**    | ** ** | **2002**    | ** ** |
|-----------------------------------|------------|-------------|------------|-------------|------------|-------------|------------|
| Risk-free interest rate           |       | 3.8         | %          | 3.9         | %          | 3.4         | %          |
| Expected volatility               |       | 30          | %          | 32          | %          | 32          | %          |
| Expected dividend yields          |       | 0.9         | %          | 0.8         | %          | 1.1         | %          |
| Estimated life for grants  under: |       |        |       |        |       |        |       |
| Stock Incentive Plans             |       | 5 - 7 years |       | 5 - 7 years |       | 5 - 7 years |       |
| Directors’ Option Plan       |       | 5 years     |       | 5 years     |       | 5 years     |       |
| ESPP                              |       | 0.5 years   |       | 0.5 years   |       | 0.5 years   |       |

 

Thefollowing is a summary of the weighted average fair value per share of optionsgranted during each of the past three fiscal years, based on the Black-Scholesoption-pricing model.

 
| ** **                                         | ** ** | **Stock  Incentive Plan** | ** ** | **Directors’  Option Plan** | ** ** |
|----------------------------------------------------|------------|---------------------------|------------|----------------------------------|------------|
| ** **                                         | ** ** | **2004**                  | ** ** | **2003**                         | ** ** | **2002** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
| On grant date:                                     | ** ** | ** **                | ** ** | ** **                       | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Exercise price was equal to  stock price           |       | $                         | 14.71      |                             | $          | 13.37 |   | $ | 8.97 |   | — |   | — |   | — |   |
| Exercise price was in excess  of  stock price |       | —                    |       | $                                | 9.71       |   | $ | 6.69 |   | — |   | — |   | — |   |
| Exercise price was less than  stock price          |       | —                    |       | —                           |       | — |   | $ | 12.78 |   | $ | 8.87 |   | $ | 5.97 |   |
|                                                    |            |                           |            |                                  |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**G.  Retirement Plans**

 

TheCompany and its consolidated subsidiaries maintain various defined contributionretirement plans covering substantially all of its employees.  Dover, acquired in September 2000, alsoprovides retirement benefits through a defined benefit plan as described below.

 

Retirementcosts of multi-employer union plans consist of contributions determined inaccordance with the respective collective bargaining agreements.  Retirement benefits for non-union employeesare provided through the Courier Profit Sharing and Savings Plan, whichincludes an Employee Stock Ownership Plan (ESOP).  Retirement costs included in the accompanyingfinancial statements amounted to approximately $3,300,000 in 2004, $3,200,000in 2003 and $3,000,000 in 2002.

 

TheCourier Profit Sharing and Savings Plan (“PSSP”) is qualified under Section 401(k)of the Internal Revenue Code.  The planallows eligible employees to contribute up to 100% of their compensation,subject to IRS limitations, with the Company matching 25% of the first 6% ofpay contributed by the employee.  TheCompany also makes contributions to the plan annually based on profits eachyear for the benefit of all eligible non-union employees.

 

F-14

----

 

Sharesof Company common stock may be allocated to participants’ ESOP accountsannually based on their compensation as defined in the plan.  During 2004,****2003and 2002, no such shares were allocated to eligible participants.  At September 25, 2004, the ESOP held300,280****shares on behalf of the participants.

 

Doverhas a noncontributory, defined benefit pension plan covering substantially allof its employees. As of December 31, 2001, Dover employees became eligibleto participate in the Courier PSSP.  Assuch, plan benefits under the Dover defined benefit plan were frozen as of thatdate. No contributions have been made to the Dover plan for any of the pastthree years and none are expected to be made in 2005.

 

Thefollowing tables provide information regarding the Dover plan for the yearsended September 25, 2004 and September 27, 2003.

 

Changein projected benefit obligation:

 
| ** **                      | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Obligation at beginning of year |       | $        | 3,127,000  |     | $          | 3,175,000 |   |
| Service cost                    |       | 7,000    |       | 8,000    |       |
| Interest cost                   |       | 193,000  |       | 196,000  |       |
| Actuarial loss                  |       | 230,000  |       | 118,000  |       |
| Benefits paid                   |       | (218,000 | )          | (370,000 | )          |
| Obligation at end of year       |       | $        | 3,339,000  |     | $          | 3,127,000 |   |

 

Benefitpayments in each of the next five years are projected to be $222,000, $247,000,$254,000, $247,000 and $237,000. Aggregate payments for the 2009-2013 periodare estimated to be $1,291,000.

 

Changein plan assets:

 
| ** **                                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Fair value of plan assets at beginning of year |       | $        | 3,708,000  |     | $          | 3,898,000 |   |
| Actual return on plan assets                   |       | 143,000  |       | 180,000  |       |
| Benefits paid                                  |       | (218,000 | )          | (370,000 | )          |
| Fair value of plan assets at end of year       |       | $        | 3,633,000  |     | $          | 3,708,000 |   |

 

Planassets were invested entirely in Guaranteed Insurance Contracts in 2004 and2003.

 

Reconciliationof funded status:

 
| ** **                                 | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------------------|------------|----------|------------|----------|------------|
| Funded status at end of year               |       | $        | 294,000    |     | $          | 581,000 |   |
| Unrecognized net actuarial  loss and other |       | 344,000  |       | 5,000    |       |
| Prepaid pension cost                       |       | $        | 638,000    |     | $          | 586,000 |   |

 

F-15

----

 

Componentsof the net periodic benefit cost:

 
| ** **                     | ** ** | **2004** | ** ** | **2003** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Service cost                   |       | $        | 7,000      |     | $          | 8,000 |   |
| Interest cost                  |       | 193,000  |       | 196,000  |       |
| Expected return on plan assets |       | (251,000 | )          | (259,000 | )          |
| Net periodic benefit income    |       | $        | (51,000    | )        | $          | (55,000 | ) |

 

Actuarial assumptionsused to determine costs and benefit obligations:

 
| ** **                    | ** ** | **2004** | ** ** | **2003** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|
| Discount rate                 |       | 5.8      | %          | 6.3      | %          |
| Compensation increases        |       | 5.0      | %          | 5.0      | %          |
| Return on assets for the year |       | 7.0      | %          | 7.0      | %          |

 

The Company’s strategy is to achievea long-term rate of return sufficient to satisfy plan liabilities whileminimizing plan expenses and mitigating downside risks. Assets are currentlyallocated 100% to Guaranteed Insurance Contracts, however the Company reviewsthis weighting from time to time in order to achieve overall objectives inlight of current circumstances.

 

The expectedlong-term rate of return on assets of 7% was determined based on historicalreturns for investments consistent with Plan objectives, but weighted primarilytowards investments in debt securities. While actual returns in 2003 and 2004were below the assumed rate of return, the assumed rate gives consideration tohistorical longer-term rates.

 

Prepaidpension cost at September 25, 2004 and September 27, 2003 is includedin the accompanying consolidated balance sheet under the caption “Other assets.”

 

**H. Business Acquisition**

 

On January 6,2004, the Company purchased substantially all of the assets of Research &Education Association (“REA”), a publisher of test preparation and study guidebooks and software for high school, college, graduate students, andprofessionals, with total annual sales of approximately $6 million.  The acquisition was accounted for as apurchase, and accordingly, REA’s financial results were included in thespecialty publishing segment in the consolidated financial statements from thedate of acquisition.  The purchase pricewas approximately $12 million, with an allocation of approximately $8.4 millionto goodwill and $0.7 million to prepublication costs in the accompanyingfinancial statements.

 

**I.  Discontinued Operations**

 

OnDecember 17, 2002, the Company sold the assets of its wholly ownedsubsidiary, Courier Custom Publishing, Inc., which comprised all of theactivities of the customized education segment. In accordance with the provisions of SFAS No. 144, the disposition wasaccounted for as a discontinued operation in the accompanying financial statements.  The customized education

 

F-16

----

 

segmentprovided customized coursepacks and textbooks. Financial results of this discontinued operation for the periodspresented are:

 
| ** **                            | ** ** | **2004** | ** ** | **2003** | ** ** |
|---------------------------------------|------------|----------|------------|----------|------------|
| Net sales                             |       | $        | 142,000    |     | $          | 1,160,000 |   |
|                                  |       |     |       |     |       |
| Pretax loss                           |       | $        | (100,000   | )        | $          | (191,000 | ) |
| Income tax benefit                    |       | (35,000  | )          | (71,000  | )          |
| Loss after tax                        |       | $        | (65,000    | )        | $          | (120,000 | ) |
|                                  |       |     |       |     |       |
| Proceeds from sale                    |       | $        | 1,500,000  |     |       |   |
| Net assets sold and costs of disposal |       | 68,000   |       |     |       |
| Pretax gain                           |       | $        | 1,432,000  |     |       |   |
| Income tax provision                  |       | 519,000  |       |     |       |
| Gain on disposal, net of tax          |       | $        | 913,000    |     |       |   |

 

**J.  Business Segments**

 

TheCompany has two business segments: full-service book manufacturing andspecialty publishing. The book manufacturing segment offers a full range ofservices from production through storage and distribution for religious,educational and specialty trade book publishers.  The Company has aggregated its bookmanufacturing business into one segment because of strong similarities in theeconomic characteristics, the nature of products and services, productionprocesses, class of customer and distribution methods used. The specialtypublishing segment consists of Dover Publications, Inc. and beginning with thesecond quarter of fiscal 2004, REA (see Note H).

 

On December 17,2002, the Company sold the assets of Courier Custom Publishing, Inc., aprovider of customized college coursepacks and textbooks, which comprised allof the activities of the customized education segment in 2003 and 2002 (seeNote I).  Information related to thisdiscontinued operation is not included in the segment table below for 2003 and2002.

 

Theaccounting policies of the segments are the same as those described in NoteA.  In evaluating segment performance,management primarily focuses on income or loss before taxes and other income.The elimination of intersegment sales and related profit represents sales fromthe book manufacturing segment to the specialty publishing segment.  Other income, discussed in Note K, isreflected as “unallocated” in the following table.  Corporate expenses that are allocated to thesegments include various support functions such as information technologyservices, finance, human resources and engineering, and include depreciationand amortization expense related to corporate assets.  The corresponding corporate asset balancesare not allocated to the segments. Unallocated corporate assets consist primarily of cash and cashequivalents and fixed assets used by the corporate support functions.

 

F-17

----

 

Thefollowing table provides segment information for continuing operations asrequired under SFAS No. 131, “Disclosures about Segments of an Enterprise andRelated Information.”

 
| ** **                                     | ** ** | **Total  Company** | ** **  | **Book  Manu-  facturing** | ** ** | **Specialty****Publishing** | ** ** | **Unallo-  cated** | ** ** | **Intersegment****Elimination** | ** ** |
|------------------------------------------------|------------|--------------------|-------------|----------------------------|------------|-----------------------------|------------|--------------------|------------|---------------------------------|------------|
| Fiscal 2004                                    |       |               |        |                       |       |                        |       |               |       |                            |       |
| Net sales                                      |       | $                  | 211,179,000 |                       | $          | 177,225,000                 |       | $                  | 40,787,000 |                            | —     |   | $ | (6,833,000 | ) |
| Earnings before income taxes                   |       | 31,551,000         |        | 25,186,000                 |       | 6,475,000                   |       | 250,000            |       | (360,000                        | )          |
| Total assets                                   |       | 175,199,000        |        | 92,004,000                 |       | 55,727,000                  |       | $                  | 27,468,000 |                            | —     |   |
| Goodwill, net                                  |       | 33,255,000         |        | 9,240,000                  |       | 24,015,000                  |       | —             |       | —                          |       |
| Depreciation and amortization                  |       | 10,929,000         |        | 7,911,000                  |       | 2,568,000                   |       | 450,000            |       | —                          |       |
| Capital expenditures and prepublication costs  |       | 16,234,000         |        | 12,725,000                 |       | 2,917,000                   |       | 592,000            |       | —                          |       |
| Interest (income)/ expense                     |       | (23,000            | )           | (330,000                   | )          | 307,000                     |       | —             |       | —                          |       |
| Fiscal 2003                                    |       |               |        |                       |       |                        |       |               |       |                            |       |
| Net sales                                      |       | $                  | 202,002,000 |                       | $          | 171,858,000                 |       | $                  | 36,391,000 |                            | —     |   | $ | (6,247,000 | ) |
| Earnings before income taxes                   |       | 29,526,000         |        | 24,171,000                 |       | 5,855,000                   |       | —             |       | (500,000                        | )          |
| Total assets                                   |       | 151,485,000        |        | 76,766,000                 |       | 42,737,000                  |       | $                  | 31,982,000 |                            | —     |   |
| Goodwill, net                                  |       | 24,847,000         |        | 9,240,000                  |       | 15,607,000                  |       | —             |       | —                          |       |
| Depreciation and amortization                  |       | 9,798,000          |        | 7,863,000                  |       | 1,935,000                   |       | —             |       | —                          |       |
| Capital expenditures and  prepublication costs |       | 13,117,000         |        | 10,641,000                 |       | 2,372,000                   |       | 104,000            |       | —                          |       |
| Interest (income)/ expense                     |       | 52,000             |        | (281,000                   | )          | 333,000                     |       | —             |       | —                          |       |
|                                           |       |               |        |                       |       |                        |       |               |       |                            |       |
| Fiscal 2002                                    |       |               |        |                       |       |                        |       |               |       |                            |       |
| Net sales                                      |       | $                  | 201,024,000 |                       | $          | 170,382,000                 |       | $                  | 36,004,000 |                            | $          | — |   | $ | (5,362,000 | ) |
| Earnings before income taxes                   |       | 24,302,000         |        | 19,817,000                 |       | 4,890,000                   |       | —             |       | (405,000                        | )          |
| Total assets                                   |       | 131,809,000        |        | 75,642,000                 |       | 41,166,000                  |       | 15,001,000         |       | —                          |       |
| Goodwill, net                                  |       | 24,847,000         |        | 9,240,000                  |       | 15,607,000                  |       | —             |       | —                          |       |
| Depreciation and amortization                  |       | 10,687,000         |        | 8,750,000                  |       | 1,913,000                   |       | 24,000             |       | —                          |       |
| Capital expenditures and  prepublication costs |       | 6,739,000          |        | 4,408,000                  |       | 1,940,000                   |       | 391,000            |       | —                          |       |
| Interest (income)/  expense               |       | 480,000            |        | (253,000                   | )          | 733,000                     |       | —             |       | —                          |       |

 

Exportsales as a percentage of consolidated sales were approximately 21% in 2004, 22%in 2003 and 21% in 2002.  Approximately90% of export sales were in the book manufacturing segment in fiscal years2004, 2003, and 2002.  Sales to theCompany’s largest customer amounted to approximately 27%****ofconsolidated sales in 2004 and 28% in both 2003 and 2002. In addition, sales toanother customer amounted to 17% of consolidated sales in both 2004 and 2003and 15% in 2002.  Both of these customersare in the book manufacturing segment and no

 

F-18

----

 

othercustomer accounted for more than 10% of consolidated sales.  Customers are granted credit on an unsecuredbasis.  Receivables for the two largestcustomers, as a percentage of consolidated accounts receivable, were 28% at September 25,2004 and 30% at September 27, 2003.

 

**K.  Other Income**

 

OnMay 26, 2004, the Company completed the sale of approximately 200,000square feet of unoccupied and unutilized portions of its multi-buildingmanufacturing complex in Westford, Massachusetts for $1.7 million, resulting ina pretax gain of $250,000, or $.02 per diluted share.  The Company will continue its current levelsof book manufacturing at the site.

 

## **L.  Net Income per Share**

 

Followingis a reconciliation of the shares used in the calculation of basic and dilutednet income per share.  Potentiallydilutive shares, calculated using the treasury stock method, consist of sharesissued under the Company’s stock option plans. These shares have been adjusted to reflect the three-for-two stock spliteffected in the form of a dividend distributed on December 5, 2003 (seeNote A).

 
| ** **                               | ** ** | **2004**  | ** ** | **2003**  | ** ** | **2002**  | ** ** |
|------------------------------------------|------------|-----------|------------|-----------|------------|-----------|------------|
| Average shares outstanding for  basic    |       | 7,960,000 |       | 7,848,000 |       | 7,724,000 |       |
| Effect of potentially dilutive  shares   |       | 261,000   |       | 272,000   |       | 268,000   |       |
| Average shares outstanding for  dilutive |       | 8,221,000 |       | 8,120,000 |       | 7,992,000 |       |

 

**M.  Derivative Financial Instruments**

 

At the end offiscal 2003, the Company had two forward exchange contracts to purchaseapproximately 3,000,000 euros as a hedge against a foreign currency equipmentpurchase commitment, designated as a fair value hedge. The Company had recordeda $180,000 addition to its property, plant and machinery accounts with acorresponding $180,000 addition to long term liabilities, with no effect onearnings.  The equipment was deliveredand the forward exchange contracts settled in fiscal 2004. The Company does notuse financial instruments for trading or speculative purposes.

 

F-19

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COURIER CORPORATION

 

SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)

 
| **Fiscal 2004  (Dollars in thousands except per share amounts)** | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|------------------------------------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|
|                                                             |       |      |       |       |       |      |       |       |       |
| Operating Results:                                               |       |      |       |       |       |      |       |       |       |
| Net sales                                                        |       | $         | 46,819     |       | $          | 49,663    |       | $          | 55,489     |   | $ | 59,208 |   |
| Gross profit                                                     |       | 15,629    |       | 15,527     |       | 17,349    |       | 20,065     |       |
| Income from continuing operations                                |       | 3,912     |       | 3,851      |       | 5,194     |       | 7,583      |       |
| Income per diluted share from continuing operations              |       | 0.48      |       | 0.47       |       | 0.63      |       | 0.92       |       |
| Net income                                                       |       | 3,912     |       | 3,851      |       | 5,194     |       | 7,583      |       |
| Net income per diluted share                                     |       | 0.48      |       | 0.47       |       | 0.63      |       | 0.92       |       |
| Dividends declared per share                                     |       | 0.0875    |       | 0.0875     |       | 0.0875    |       | 0.0875     |       |
| Stock price:                                                     |       |      |       |       |       |      |       |       |       |
| Highest                                                          |       | 39.51     |       | 45.61      |       | 45.60     |       | 41.85      |       |
| Lowest                                                           |       | 37.15     |       | 38.47      |       | 38.19     |       | 39.19      |       |
|                                                                  |            |           |            |            |            |           |            |            |            |  |  |  |  |

 
| **Fiscal 2003  (Dollars in thousands except per share amounts)** | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|------------------------------------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|
|                                                             |       |      |       |       |       |      |       |       |       |
| Operating Results:                                               |       |      |       |       |       |      |       |       |       |
| Net sales                                                        |       | $         | 48,782     |       | $          | 48,605    |       | $          | 51,076     |   | $ | 53,539 |   |
| Gross profit                                                     |       | 15,388    |       | 15,586     |       | 16,962    |       | 19,436     |       |
| Income from continuing operations                                |       | 3,749     |       | 3,788      |       | 4,772     |       | 6,963      |       |
| Income per diluted share from continuing operations              |       | 0.46      |       | 0.47       |       | 0.59      |       | 0.85       |       |
| Net income                                                       |       | 4,512     |       | 3,821      |       | 4,772     |       | 7,015      |       |
| Net income per diluted share                                     |       | 0.56      |       | 0.47       |       | 0.59      |       | 0.86       |       |
| Dividends declared per share                                     |       | 0.075     |       | 0.075      |       | 0.075     |       | 0.075      |       |
| Stock price:                                                     |       |      |       |       |       |      |       |       |       |
| Highest                                                          |       | 31.05     |       | 33.14      |       | 34.88     |       | 37.33      |       |
| Lowest                                                           |       | 23.61     |       | 29.00      |       | 31.74     |       | 33.83      |       |
|                                                                  |            |           |            |            |            |           |            |            |            |  |  |  |  |

 

*Diluted share amounts are based on weighted averageshares outstanding.  Per share amountsand stock prices have been retroactively adjusted to reflect a three-for-twostock split distributed on December 5, 2003 (see Notes A and L).*

 

*Common shares of the Company are tradedover-the-counter on the Nasdaq National Market - symbol “CRRC.”*

 

*There were 1,037 stockholders of record as of September 25,2004.*

 

F-20

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COURIER CORPORATION

 

FIVE-YEAR FINANCIALSUMMARY

 
| **(Dollar amounts in millions  except per share data)** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** | **2001** | ** ** | **2000*** | ** ** |
|---------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
|                                                    |       |     |       |     |       |     |       |     |       |      |       |
| Net sales                                               |       | $        | 211.2      |     | $          | 202.0    |       | $        | 201.0      |      | $          | 210.8 |   | $ | 191.2 |   |
| Gross profit                                            |       | 68.6     |       | 67.4     |       | 62.6     |       | 60.1     |       | 48.5      |       |
| Income from continuing operations                       |       | 20.5     |       | 19.3     |       | 16.3     |       | 13.6     |       | 11.3      |       |
| Income per diluted share from continuing operations     |       | 2.50     |       | 2.37     |       | 2.04     |       | 1.75     |       | 1.49      |       |
| Dividends per share                                     |       | 0.35     |       | 0.30     |       | 0.27     |       | 0.24     |       | 0.21      |       |
| Working capital                                         |       | 57.5     |       | 50.9     |       | 34.0     |       | 28.2     |       | 33.3      |       |
| Current ratio                                           |       | 3.0      |       | 2.9      |       | 2.2      |       | 1.9      |       | 1.9       |       |
| Capital expenditures                                    |       | 13.4     |       | 10.9     |       | 4.9      |       | 12.8     |       | 16.3      |       |
| Depreciation and amortization                           |       | 10.9     |       | 9.8      |       | 10.7     |       | 11.8     |       | 8.1       |       |
| Total assets                                            |       | 175.2    |       | 151.5    |       | 131.8    |       | 133.6    |       | 141.8     |       |
| Long-term debt                                          |       | 0.5      |       | 0.6      |       | 0.7      |       | 16.5     |       | 31.3      |       |
| Long-term debt as a percentage of capitalization        |       | 0.4      | %          | 0.5      | %          | 0.7      | %          | 17.0     | %          | 31.6      | %          |
| Stockholders’ equity                               |       | 135.0    |       | 115.4    |       | 95.9     |       | 80.3     |       | 67.8      |       |
| Return on stockholders’ equity                     |       | 16.4     | %          | 18.2     | %          | 18.5     | %          | 18.4     | %          | 18.0      | %          |
| Stockholders’ equity per share                     |       | 16.81    |       | 14.55    |       | 12.26    |       | 10.48    |       | 9.01      |       |
| Shares outstanding (in 000’s)                      |       | 8,031    |       | 7,931    |       | 7,821    |       | 7,668    |       | 7,524     |       |
| Number of employees                                     |       | 1,465    |       | 1,420    |       | 1,455    |       | 1,504    |       | 1,535     |       |
|                                                         |            |          |            |          |            |          |            |          |            |           |            |  |  |  |  |  |

 

*Net sales, gross profit, income, income per dilutedshare and return on stockholders’ equity reflect continuing operations (seeNote I).*

 

*Income per diluted share from continuing operations isbased on weighted average shares outstanding; stockholders’ equity*

*per share is based on shares outstanding at year end.Shares outstanding and per share amounts have been retroactively*

*adjusted to reflect three-for-two stock splitsdistributed on December 5, 2003 and August 31, 2001 (see Notes A andL).*

 

----

**  Fiscal 2000included 53 weeks.*

 

F-21

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

 

***FORWARD-LOOKINGINFORMATION***

*The Annual Report to shareholders includes forward-lookingstatements.  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 predictions ofor 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, changes in raw material costs,pricing actions by competitors, consolidation among customers and competitors,success in the integration of acquired businesses, unanticipated changes inoperating expenses, changes in technology, difficulties in the start up of newequipment, changes in copyright laws, changes in tax regulations, and generalchanges in economic conditions, including currency fluctuations and changes ininterest rates.  Although the Companybelieves that the assumptions underlying the forward-looking statements arereasonable, any of the assumptions could be inaccurate, and therefore, therecan be no assurance that the forward-looking statements will prove to beaccurate.  The forward-looking statementsincluded herein are made as of the date hereof, and the Company undertakes noobligation to update publicly such statements to reflect subsequent events orcircumstances.*

 

## **OVERVIEW**

Courier Corporation,founded in 1824, is one of America’s leading book manufacturers and specialtypublishers.  Courier’s eight straightyears of earnings growth was achieved through a strong focus on growth markets,technological innovation and outstanding customer service.

 

The Company has twobusiness segments: full-service book manufacturing and specialtypublishing.  In 2003, the Company soldthe assets of Courier Custom Publishing, Inc., which comprised all of theactivities of the customized education segment (see “Discontinued Operation”below).

 

Book Manufacturing– streamlines the process of bringing books from the point of creation to thepoint of use.  Based on sales, Courier isthe fifth largest book manufacturer in the United States and largest in theNortheast, offering services from content management, prepress and productionthrough storage and distribution. Courier’s principal markets include religious, educational and specialtytrade books.

 

SpecialtyPublishing – consists of Dover Publications, Inc. (Dover),acquired by Courier on September 22, 2000, as well as Research &Education Association, Inc. (REA), which was acquired on January 6,2004.  Dover publishes over 8,500 titlesin more than 30 specialty categories ranging from literature and poetryclassics to paper dolls, and from musical scores to typographical fonts.  Dover sells its products through mostAmerican bookstore chains, independent booksellers, children’s stores, craftstores and gift shops, as well as a diverse range of distributors around theworld.  Dover also sells its booksdirectly to customers through its specialty catalogs and over the Internet atwww.doverpublications.com.  REA publishestest preparation and study-guide books and software for high school, college,graduate students, and professionals, which it sells through book retailers andwholesalers around the world and directly to consumers through catalogs andover the Internet at www.REA.com.

 

F-22

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**RESULTSOF OPERATIONS**

 
| **Continuing Operations**                   | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|---------------------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **(in thousands except per share amounts)** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales                                   |       | $          | 211,179    |       | $          | 202,002    |       | $ | 201,024 |   |
| Gross profit                                |       | 68,570     |       | 67,372     |       | 62,573     |       |
| Income from continuing operations           |       | 20,540     |       | 19,272     |       | 16,295     |       |
| Income per diluted share                    |       | 2.50       |       | 2.37       |       | 2.04       |       |
|                                             |            |            |            |            |            |            |            |  |  |  |

 

TheCompany’s income from continuing operations in 2004 was $20.5 million, or $2.50per diluted share, an increase of 7% over corresponding 2003 results of $19.3million, or $2.37 per diluted share. Sales from continuing operations of $211 million for 2004 were up 5%over sales of $202 million in 2003. Gross profit increased to $68.6 million in 2004 from $67.4 million inthe prior year.  As a percentage ofsales, gross profit decreased to 32.5% from 33.4% in 2003.  Selling and administrative expenses for 2004were $37.3 million, 1% lower than the previous year.  On May 26, 2004, the Company realized apretax gain of $250,000 or $.02 per diluted share, from the sale of theunutilized portions of its multi-building manufacturing complex in Westford,Massachusetts.

 

OnJanuary 6, 2004, the Company purchased substantially all of the assets ofREA, a publisher with total annual sales of approximately $6 million.  The acquisition was accounted for as apurchase, and accordingly, REA’s financial results were included in thespecialty publishing segment in the consolidated financial statements from thedate of acquisition.  The purchase pricewas approximately $12 million, with an allocation of $8.4 million to goodwillin the accompanying financial statements. REA contributed $.01 per diluted share to fiscal 2004 results.

 

In2003, income from continuing operations increased by 18% to $19.3 million, or$2.37 per diluted share, from $16.3 million, or $2.04 per diluted share, forthe prior year.  Sales in 2003 were $202million compared to $201 million in 2002. Gross profit in 2003 increased by$4.8 million, or 8%, and as a percentage of sales, increased to 33.4% from31.1% in 2002. Selling and administrative expenses were $37.8 million in both2003 and 2002.

 

Foreach of the three years discussed above, the amounts do not include the resultsof a discontinued operation, Courier Custom Publishing, a provider of customizedteaching materials which was sold on December 17, 2002 (see “DiscontinuedOperation” below).  Courier CustomPublishing comprised all of the activities of the customized education segmentin 2003 and 2002.

 

**Continuing Operations**

 
| **Sales by Segment (in thousands)** | ** ** | **2004** | ** ** | **2003** | ** ** | **2002** | ** ** |
|-------------------------------------|------------|----------|------------|----------|------------|----------|------------|
|                                |       |     |       |     |       |     |       |
| Book Manufacturing                  |       | $        | 177,225    |     | $          | 171,858  |       | $ | 170,382 |   |
| Specialty Publishing                |       | 40,787   |       | 36,391   |       | 36,004   |       |
| Intersegment sales                  |       | (6,833   | )          | (6,247   | )          | (5,362   | )          |
| Total                               |       | $        | 211,179    |     | $          | 202,002  |       | $ | 201,024 |   |

 

F-23

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| **Pretax Income by Segment** | ** ** | **2004**   | ** ** | **2003**   | ** ** | **2002**   | ** ** |
|------------------------------|------------|------------|------------|------------|------------|------------|------------|
| **(in thousands)**           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|                         |       |       |       |       |       |       |       |
| Book Manufacturing           |       | $          | 25,186     |       | $          | 24,171     |       | $ | 19,817 |   |
| Specialty Publishing         |       | 6,475      |       | 5,855      |       | 4,890      |       |
| Other income                 |       | 250        |       | —     |       | —     |       |
| Intersegment profit          |       | (360       | )          | (500       | )          | (405       | )          |
| Total                        |       | $          | 31,551     |       | $          | 29,526     |       | $ | 24,302 |   |

 

*Book Manufacturing Segment*

Salesfrom the Company’s book manufacturing segment in 2004 were $177.2 million, anincrease of 3% over 2003 sales. The Company focuses on three key publishingmarkets in this segment: education, religious and specialty trade.  Sales to educational publishers increasedapproximately 13% in 2004.  Sales toeducational publishers of elementary and high school textbooks were the primarysource of growth, with sales up approximately 30% over 2003.  Sales to the college market, which representsthe largest portion of the Company’s education sales, were up 4% over the prioryear.  Sales to the religious marketincreased 3%.  Sales to customers in thespecialty trade market were down 8% in 2004, in part due to a large drop in thesale of computer game books, particularly during the first half of the fiscalyear.  During 2004, the Company expandedits four-color book manufacturing capabilities with the addition of a major newfour-color press at its Kendallville, Indiana facility.  The press became operational in April 2004.  In 2003, sales were $171.9 million, up 1%over the prior year.  Sales toeducational publishers in 2003 were approximately 6% ahead of the prior yearwith particular strength in four-color textbooks in the college market.  Sales to publishers of elementary and highschool textbooks were down 3%, as that market was impacted by state and localfunding deficits.  Sales to the religiousmarket were down 2%, reflecting a shortfall in sales of religious trade bookswhile sales to customers in the specialty trade market were up 4% in 2003.

 

Grossprofit as a percent of sales in the Company’s book manufacturing segmentdecreased to 27.9% in 2004 from 29.5% last year.   Productivity gains were offset by acombination of selectively lowered prices and start-up costs related to the newfour-color press.  In 2003, gross profitincreased to 29.5% from 27.5% in 2002. The improvement reflected the benefits from tightly managing costs,gains in productivity due to new equipment and increased employee training, aswell as an improved sales mix.

 

In2004, selling and administrative expenses of $24.5 million were down by 8% from2003, and as a percentage of sales, decreased to 14% compared to 16% in theprior year.  The reductions were dueprimarily to a decrease in bad debt expense of approximately $600,000 as wellas reductions in incentive compensation of approximately $1.6 million.  Selling and administrative expenses in 2003amounted to $26.8 million, or 16% of sales, down 2% from the prior year,reflecting reduced administrative costs in this segment.

 

Intercompanyinterest income allocated to the book manufacturing segment was $330,000 infiscal 2004, compared to $281,000 in 2003 and $253,000 in 2002.

 

Pretaxincome for the Company’s book manufacturing segment in 2004 was $25.2 million,up 4% compared to 2003, and net income per diluted share was $2.01, an increaseof 3% over the prior year. Fiscal 2003 pretax income in this segment increased22% to $24.2 million, or, on an after-tax basis, $1.95 per diluted share,compared to $19.8 million, or $1.69 per diluted share, in 2002.

 

F-24

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*Specialty Publishing Segment*

TheCompany’s specialty publishing segment is comprised of Dover, as well as REAsince its acquisition on January 6, 2004. Sales in fiscal 2004 were $40.8 million, an increase of $4.4 million or12% over fiscal 2003 sales.  REAcontributed $3.9 million of sales.  Dover’ssales in 2004 were up 1% over the prior year to $36.9 million.  Direct-to-consumer sales increased by 5% in2004, while international sales rose 9% over the previous year.  Sales in 2004 to U.S. retailers, whichaccount for approximately 70% of Dover’s sales and include the major bookstorechains, were comparable to last year. Fiscal 2003 sales were $36.4 million, an increase of 1% over 2002.  Direct-to-consumer sales were up 13% in 2003and international sales increased 15% over the prior year.  In contrast, sales to domestic retailers weredown 2% for the 2003 fiscal year as a result of a 22% reduction in sales to thelarge bookstore chains.  While sales tothe bookstore chains dropped, sales to online booksellers and to non-bookstoreretailers, such as craft stores and gift shops, grew significantly.

 

Grossprofit as a percentage of sales in the specialty publishing segment was 47.9%in 2004 compared to 47.2% in 2003.  Dover’sgross profit as a percentage of sales continued to improve in 2004 to 49.4%from 47.2% in 2003 due to both efficiencies in warehousing and distributionoperations as well as modest price increases. REA’s gross profit percentage was 34.4%, which included approximately$600,000 of expense related to a required purchase accounting write up ofinventory to fair market value when REA was acquired.  The total inventory write up wasapproximately $1 million, which will be expensed as the acquired inventory issold.  In 2003, Dover’s gross profit as apercentage of sales increased to 47.2% compared to 45.0% in 2002.  The improvement in the gross profitpercentage reflects increased prices and a favorable mix of direct-to-consumersales, as well as cost savings from shifting more manufacturing of Dover booksto the Company’s manufacturing plants. Also, declining product costs related to the sale of inventory from theoriginal acquisition contributed approximately 1.0 percentage point to theincrease.

 

Sellingand administrative expenses in this segment were $12.8 million in 2004, anincrease of $1.8 million or 16% over 2003. The acquisition of REA and increases in sales and marketing activitiesat Dover accounted for the increase.  In2003, Dover’s selling and administrative expenses were $11.0 million, up 4%over 2002, reflecting higher sales and marketing expenses.

 

Intercompanyinterest expense is allocated to the specialty publishing segment based on theacquisition cost of Dover and REA, reduced by cash generated by each businesssince acquisition.  Such interest expensein 2004 was $307,000 compared to $333,000 in 2003 with the decrease primarilyattributable to cash generated by Dover. In 2003, intercompany interest expense decreased to $333,000 from$733,000 in 2002, reflecting a reduction in the Company’s average annualborrowing rate, as well as cash generated by Dover.

 

Pretaxincome in the specialty publishing segment in fiscal 2004 was $6.5 million, or,on an after-tax basis, $.50 per diluted share, up 11% from $5.9 million, or$.46 per diluted share in the prior year. REA contributed approximately $170,000 to pretax income, or $.01 perdiluted share, in 2004.  In 2003, pretaxincome in this segment increased 20% to $5.9 million, or $.46 per dilutedshare, compared to $4.9 million, or $.39 per diluted share in the previousyear, reflecting the improvement in gross profit.

 

*Total Consolidated Company*

Netinterest income in 2004 was $23,000 compared to net interest expense of $52,000in 2003 and $480,000 in 2002.  During2004 and 2003, there were no borrowings under the Company’s $60 million

 

F-25

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revolvingcredit facility; however, interest expense includes commitment fees and othercosts associated with maintaining this credit facility.  In fiscal 2002, the Company’s averageborrowings on its credit facility were $7.5 million at an average annualinterest rate of 2.5%.  Cash investmentsin 2004 averaged approximately $17.7 million earning an average annual interestrate of 1.3%, generating interest income of approximately $230,000.  For 2003, the Company’s average cashinvestments were approximately $17.5 million earning a 1.2% annual investmentrate, generating interest income of approximately $200,000. Capitalizedinterest, related to the new four-color press, was $74,000 in 2004.  No interest was capitalized in 2003 or 2002.

 

Otherincome in 2004 was comprised of a pretax gain of approximately $250,000resulting from the sale of an unused portion of the Company’s multi-buildingmanufacturing complex in Westford, Massachusetts.

 

TheCompany’s effective tax rate of 35% for 2004 was comparable to the prioryear.  The effective tax rate for 2003was 35% compared to 33% in 2002 reflecting a higher effective state tax rateand a reduced benefit from export related income.

 

For purposes of computingnet income per diluted share, weighted average shares outstanding increased byapproximately 101,000 shares in 2004 and 128,000 shares in 2003.  These increases were primarily due to optionsexercised and shares issued under the Company’s stock plans and the impact ofpotentially dilutive shares.  On November 6,2003, the Company announced a three-for-two stock split effected in the form ofa 50% stock dividend, which was distributed on December 5, 2003 tostockholders of record on November 17, 2003. Weighted average sharesoutstanding and net income per share amounts for periods prior to November 17,2003 have been restated to give effect to the stock split.

 

**Discontinued Operation**

 

OnDecember 17, 2002, the Company sold the assets of its wholly ownedsubsidiary, Courier Custom Publishing, Inc., which comprised all of theactivities of the customized education segment in 2003 and 2002.  The customized education segment providedcustomized coursepacks and textbooks. Fiscal 2003 results for this operation were a loss, net of tax, of$65,000 compared to a loss, net of tax, of $120,000 in 2002.  Proceeds fromthe sale of Courier Custom Publishing were $1.5 million resulting in anafter-tax gain of approximately $0.9 million, or $.11 per diluted share.Courier Custom Publishing was accounted for as a discontinued operation in theaccompanying financial statements.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Operatingactivities provided $28.3 million of cash. Income from continuing operations for the year was $20.5 million.  Depreciation was $8.7 million andamortization of prepublication costs was $2.2 million. Increases in deferredincome taxes provided $2.5 million of cash. Working capital used approximately $4.7 million of cash, due primarilyto an increase in accounts receivable and inventories.

 

Investmentactivities used $26.4 million of cash, including $11.9 million for theacquisition of REA.  Proceeds from thesale of the unutilized portions of the Company’s mill complex in Westford,Massachusetts were $1.7 million.  Capitalexpenditures were approximately $13.4 million, including approximately $10million for the new four-color press installation and related buildingexpansion at the Kendallville, Indiana facility.  For fiscal 2005, capital expenditures areexpected to increase to $18-$20 million. Approximately half of this amount will be payments on another four-colorpress, identical to

 

F-26

----

 

thepress installed this year, which will expand the Company’s capacity to producefour-color textbooks.  On October 29,2004, the Company entered into an agreement for approximately $10 million topurchase this new press, which is expected to be installed during the firstquarter of fiscal 2006 (not included in the table below).  Prepublication costs were approximately $2.8million, reflecting increased investments in new title offerings at Dover andREA.  These costs are expected toincrease modestly in 2005 as publishing activity continues to grow.

 

Financing activities usedapproximately $1.8 million of cash in 2004. During the year, there were no borrowings under the Company’s $60million revolving credit facility.  TheCompany uses this revolving credit facility for both its long-term and short-termfinancing needs.  Dividend payments were$2.8 million while proceeds from stock plans were $1.1 million, primarily fromthe exercise of stock options. The Company believes that its cash on hand andcash from operations and available credit facilities will be sufficient to meetits cash requirements through 2005.

 

The followingtable summarizes the Company’s contractual obligations and commitments at September 25,2004 to make future payments as well as its existing commercial commitments.

 
| ** **                  | ** ** | ** ** | ** ** | **(000’s  omitted)**   | ** ** |
|-----------------------------|------------|------------|------------|-----------------------------|------------|
| ** **                  | ** ** | ** ** | ** ** | **Payments  due by period** | ** ** |
| ** **                  | ** ** | **Total**  | ** ** | **Less than  1 Year**       | ** ** | **1 to 3  Years** | ** ** | **4 to 5  Years** | ** ** | **After 5  Years** | ** ** |
| Contractual Payments:       |       |       |       |                        |       |   |   |   |   |   |   |
| Long-Term Debt              |       | $          | 593        |                        | $          | 83 |   | $ | 173 |   | $ | 184 |   | $ | 153 |   |
| Operating Leases            |       | 11,039     |       | 3,198                       |       | 3,700 |   | 1,691 |   | 2,450 |   |
| Purchase Obligations        |       | 1,047      |       | 1,047                       |       | — |   | — |   | — |   |
| Other Long-Term Liabilities |       | 2,630      |       | —                      |       | 635 |   | 210 |   | 1,785 |   |
| Total                       |       | $          | 15,309     |                        | $          | 4,328 |   | $ | 4,508 |   | $ | 2,085 |   | $ | 4,388 |   |
|                             |            |            |            |                             |            |  |  |  |  |  |  |  |  |  |  |  |  |

 

**RISKS**

 

The Company derivedapproximately 44% of its 2004 revenues and 45% of its 2003 revenues from twomajor customers.  The loss of either ofthese customers or a significant reduction in order volumes from them wouldhave a material adverse effect on 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, prepublication costs and income taxes.  Management bases its estimates and judgmentson historical experience and various other factors believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying value of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses duringthe periods presented.  Actual resultsmay differ from these estimates.  Thesignificant accounting policies which management believes are most critical toaid in fully understanding and evaluating the Company’s reported financialresults include the following:

 

F-27

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AccountsReceivable  Managementperforms ongoing credit evaluations of the Company’s customers and adjustscredit limits based upon payment history and the customer’s current creditworthiness.  Collections and paymentsfrom customers are continuously monitored. A provision for estimated credit losses is determined based uponhistorical experience and any specific customer collection issues that havebeen identified.  If the financialcondition of the Company’s customers were to deteriorate, resulting in animpairment of their ability to make payments, additional allowances may berequired.

#  

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.

 

Goodwill  The Company evaluates possible impairmentannually or whenever events or circumstances indicate that the carrying valueof the assets may not be recoverable. The Company completed the annual impairment test at September 25,2004 resulting in no change to the nature or carrying amounts of its intangibleassets.  Changes in market conditions orpoor operating results could result in a decline in value thereby potentiallyrequiring an impairment charge in the future.

##### *** ***

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

 

Income Taxes  The 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-28

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COURIER CORPORATION

 

SCHEDULE II

 

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

 
| ** **                                | ** ** | **BALANCE AT  BEGINNING  OF PERIOD** | ** ** | **ADDITIONS  CHARGED TO  COSTS AND  EXPENSES** | ** ** | **DEDUCTIONS** | ** ** | **OTHER  CHANGES(1)** | ** ** | **BALANCE  AT END  OF PERIOD** | ** ** |
|-------------------------------------------|------------|--------------------------------------|------------|------------------------------------------------|------------|----------------|------------|-----------------------|------------|--------------------------------|------------|
|                                      |       |                                 |       |                                           |       |           |       |                  |       |                           |       |
| Fiscal year ended September 25, 2004 |       |                                 |       |                                           |       |           |       |                  |       |                           |       |
| Allowance for uncollectible accounts      |       | $                                    | 1,741,000  |                                           | $          | 75,000         |       | $                     | 236,000    |                           | $          | 50,000 |   | $ | 1,630,000 |   |
|                                      |       |                                 |       |                                           |       |           |       |                  |       |                           |       |
| Fiscal year ended September 27, 2003 |       |                                 |       |                                           |       |           |       |                  |       |                           |       |
| Allowance for uncollectible accounts      |       | $                                    | 2,292,000  |                                           | $          | 723,000        |       | $                     | 1,274,000  |                           |       |   | $ | 1,741,000 |   |
|                                      |       |                                 |       |                                           |       |           |       |                  |       |                           |       |
| Fiscal year ended September 28, 2002 |       |                                 |       |                                           |       |           |       |                  |       |                           |       |
| Allowance for uncollectible accounts      |       | $                                    | 1,964,000  |                                           | $          | 1,039,000      |       | $                     | 711,000    |                           |       |   | $ | 2,292,000 |   |
|                                           |            |                                      |            |                                                |            |                |            |                       |            |                                |            |  |  |  |  |  |

 

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(1)          Otherchanges reflects amount related to a business acquisition.

 

S-1

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