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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**Form 10-K**

 
| **(MARK ONE)**                                                                                                                                                                                                                            |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| ** **                                                                                                                                                                                                                                |
| **x**** ****ANNUAL REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                       |
|                                                                                                                                                                                                                                      |
| **For the  fiscal year ended September 26, 2009**                                                                                                                                                                                    |
|                                                                                                                                                                                                                                      |   |   |
| **OR**                                                                                                                                                                                                                                    |
|                                                                                                                                                                                                                                      |   |   |
| **o****  ****TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                             |
| ** **                                                                                                                                                                                                                                |
| **For the  transition period from                  to                  ** |

 

**Commissionfile number 0-7597**

 

**Courier Corporation**

** **

**AMassachusetts corporation**

 

I.R.S. EmployerIdentification No. **04-2502514**

 

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

**TelephoneNo. 978-251-6000**

 

Securitiesregistered pursuant to Section 12(b) of the Act:    **Preferred Stock Purchase Rights**

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

 

Indicate by check markwhether the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act.  Yes o  No x

 

Indicate by checkmark if the registrant is not required to file reports pursuant to Section 13or 15(d) of the Act.  Yes  o  No  x

 

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

 

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

 

Indicate by check mark ifdisclosure of delinquent filers pursuant to Item 405 of Regulation S-K is notcontained herein, and will not be contained, to the best of the registrant’sknowledge, in definitive proxy or information statements incorporated byreference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

 

Indicate by check markwhether the registrant is a large accelerated filer, an accelerated filer, anon-accelerated filer or a smaller reporting company.  (See the definitions of “large acceleratedfiler,” “accelerated filer” and “smaller reporting company” in Rule 12b-2of the Exchange Act.)

 

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

 

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

 

State the aggregatemarket value of the voting and non-voting common equity held by non-affiliatescomputed by reference to the price at which the common equity was last sold asof the last business day of the registrant’s most recently completed secondfiscal quarter (March 28, 2009).

Common Stock, $1par value - $114,562,178

 

Indicate the number ofshares outstanding of each of the registrant’s classes of common stock asof  November 20, 2009.

 

Common Stock, $1par value - 11,956,586

 

DOCUMENTSINCORPORATED BY REFERENCE

Portions of theregistrant’s proxy statement dated December 4, 2009 for the Annual Meetingof Stockholders to be held on January 20, 2010 are incorporated herein byreference to Part III of this Form 10-K.

 

 

 

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TABLE OF CONTENTS

 
| ** **    | **Form 10-K** | ** ** | ** **                                                                                                              | ** ** | ** ** |
|---------------|--------------------|------------|-------------------------------------------------------------------------------------------------------------------------|------------|------------|
| ** **    | **Item No.**       | ** ** | **Name of Item**                                                                                                        | ** ** | **Page**   |
|          |               |       |                                                                                                                    |       |       |
| Part I   |               |       |                                                                                                                    |       |       |
|          | Item 1.            |       | Business                                                                                                                |       | 1          |
|          | Item 1A.           |       | Risk Factors                                                                                                            |       | 6          |
|          | Item 1B.           |       | Unresolved Staff  Comments                                                                                              |       | 12         |
|          | Item  2.           |       | Properties                                                                                                              |       | 13         |
|          | Item 3.            |       | Legal Proceedings                                                                                                       |       | 14         |
|          | Item 4.            |       | Submission of  Matters to a Vote of Security Holders                                                                    |       | 14         |
|          |               |       |                                                                                                                    |       |       |
| Part II  |               |       |                                                                                                                    |       |       |
|          | Item 5.            |       | Market for the  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 14         |
|          | Item 6.            |       | Selected Financial  Data                                                                                                |       | 15         |
|          | Item 7.            |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                             |       | 15         |
|          | Item 7A.           |       | Quantitative and  Qualitative Disclosure About Market Risk                                                              |       | 15         |
|          | Item 8.            |       | Financial  Statements and Supplementary Data                                                                            |       | 16         |
|          | Item 9.            |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                                   |       | 16         |
|          | Item 9A.           |       | Controls and  Procedures                                                                                                |       | 16         |
|          | Item 9B.           |       | Other Information                                                                                                       |       | 19         |
|          |               |       |                                                                                                                    |       |       |
| Part III |               |       |                                                                                                                    |       |       |
|          | Item 10.           |       | Directors and  Executive Officers and Corporate Governance                                                              |       | 20         |
|          | Item 11.           |       | Executive  Compensation                                                                                                 |       | 21         |
|          | Item 12.           |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                        |       | 21         |
|          | Item 13.           |       | Certain  Relationships and Related Transactions and Director Independence                                               |       | 22         |
|          | Item 14.           |       | Principal  Accounting Fees and Services                                                                                 |       | 22         |
|          |               |       |                                                                                                                    |       |       |
| Part IV  |               |       |                                                                                                                    |       |       |
|          | Item 15.           |       | Exhibits and  Financial Statement Schedules                                                                             |       | 22         |
|          |               |       | Signatures                                                                                                              |       | 28         |

 

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**PART I**

 

**Item1.  Business.**

 

**INTRODUCTION**

 

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

 

The book manufacturing segment focuses on streamliningthe process of bringing books from the point of creation to the point ofuse.  Based on sales, Courier is thethird largest book manufacturer in the United States, offering services from prepressand production through storage and distribution. Courier’s principal bookmanufacturing markets are religious, educational and specialty trade books withproducts including Bibles, educational textbooks and consumer books. On October 17,2005, the Company acquired Moore-Langen Printing Company, Inc. (“MooreLangen”), an Indiana-based printer specializing in manufacturing book covers,which is included in this segment. Revenues from this segment accounted for approximately 85% of Courier’sconsolidated revenues in fiscal 2009.

 

The specialty publishing segment consists of DoverPublications, Inc. (“Dover”), Research & Education Association, Inc.(“REA”), which was acquired on January 6, 2004, and Federal MarketingCorporation, d/b/a Creative Homeowner (“Creative Homeowner”), which wasacquired on April 28, 2006.  Doverpublishes over 9,000 titles in more than 30 specialty categories ranging fromliterature to paper dolls, and from music scores to clip art. REA publishestest preparation and study guide books for high school, college and graduatestudents, and professionals.  CreativeHomeowner is a New Jersey-based publisher of books on home design, decorating,landscaping and gardening, and sells home plans. Revenues in this segment wereapproximately 19% of consolidated sales in fiscal 2009.

 

The combination of Dover’s, REA’s, and Creative Homeowner’spublishing, sales and distribution skills with Courier’s book manufacturing,digital content conversion, and e-commerce skills are providing a comprehensiveend-to-end publishing solution for Courier.

 
| **Sales by segment  (in thousands)** | ** ** | **2009** | ** ** | **%**  | ** ** | **2008** | ** ** | **%**   | ** ** | **2007** | ** ** | **%**  | ** ** |
|--------------------------------------|------------|----------|------------|--------|------------|----------|------------|---------|------------|----------|------------|--------|------------|
|                                 |       |     |       |   |       |     |       |    |       |     |       |   |       |
| Book  Manufacturing                  |       | $        | 212,228    |   | 85         | %        | $          | 229,792 |       | 82       | %          | $      | 231,474    |   | 78 | % |
| Specialty  Publishing                |       | 46,769   |       | 19     | %          | 61,767   |       | 22      | %          | 72,890   |       | 25     | %          |
| Intersegment  sales                  |       | (10,181  | )          | (4     | )%         | (11,235  | )          | (4      | )%         | (9,772   | )          | (3     | )%         |
| Total                                |       | $        | 248,816    |   | 100        | %        | $          | 280,324 |       | 100      | %          | $      | 294,592    |   | 100 | % |

 

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Additional segment information, including the amounts ofoperating income and total assets, for each of the last three fiscal years, iscontained in Note I in the Notes to Consolidated Financial Statements on pages F-21to F-22 included in this Annual Report on Form 10-K.

 

**BUSINESS SEGMENTS**

 

**BOOK MANUFACTURING SEGMENT**

 

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

 

In thesecond quarter of fiscal 2009, theCompany closed its Book-mart Press manufacturing facility in order to reduceredundant capacity and to lower costs. The Book-mart Press facility, located in North Bergen, New Jersey, wasdedicated to short-run, single-color production. The Company consolidated theBook-mart Press operations into its other manufacturing facilities.

 

Courier’sbook manufacturing operations consist of both electronic and conventional filmprocessing and platemaking combined with printing and binding of soft and hardcover books.  Each of Courier’s sixfacilities have certain specialties adapted to the needs of the market nichesCourier serves, such as short-run book manufacturing, printing on lightweightpaper, book cover production, and four-color book manufacturing.  These services are primarily sold topublishers of educational, religious and consumer books.  Since 2004, the Company has expanded itsfour-color book manufacturing capabilities with the addition of three newfour-color presses at its Kendallville, Indiana facility. The Company iscurrently investing in state-of-the-art digital printing through a relationshipwith HP and plans to offer its customers a digital print option in the latterhalf of 2010.

 

Duringfiscal 2009, the Company was awarded Chain-of-Custody certification by twoleading environmental organizations, the Sustainable Forestry Initiative (SFI)and the Programme for the Endorsement of Forestry Certification (PEFC). Thisnew dual certification complements Courier’s existing certification by theForest Stewardship Council (FSC) and marks the Company as “triple-certified”for its systematic adherence to environmentally responsible practices in theuse of paper and other forest products throughout its manufacturing locations.

 

Courier’sbook manufacturing sales force of 25****people isresponsible for all of the Company’s sales to over 500 book-manufacturingcustomers.  Courier’s salespeople operateout of sales offices located in New York, New York; Philadelphia, Pennsylvania;Terre Haute, Indiana; North Chelmsford and Westford, Massachusetts.

 

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Sales toThe Gideons International aggregated approximately 22%****ofconsolidated sales in 2009 and 2008, and 20% in 2007.  Sales to Pearson plc aggregated approximately22% of consolidated sales in 2009, 17% in 2008 and 16% in 2007. With theacquisition of Harcourt by Houghton Mifflin Company in December 2007,sales to the combined entity, Houghton Mifflin Harcourt Publishing Company,aggregated approximately 11% in 2008 but were less than 10% in 2009 as well asin years prior to 2008 for each of the separate entities. A significantreduction in order volumes or price levels from any of these customers couldhave a material adverse effect on the Company. No other customer accounted for more than 10% of consolidated sales.  The Company distributes products around theworld; export sales, as a percentage of consolidated sales, were approximately19% in 2009, 18% in 2008, and 16% in 2007. Approximately 90% of the export sales were in the book manufacturingsegment in each of these years.

 

Allphases of Courier’s business are highly competitive.  The printing industry, exclusive ofnewspapers, includes over 35,000 companies. While most of these companies are relatively small, several of theCompany’s competitors are considerably larger or are affiliated with companiesthat are considerably larger and have greater financial resources thanCourier.  In recent years, consolidationof both customers and competitors within the Company’s markets has increasedpricing pressures.  The major competitivefactors in Courier’s book manufacturing business in addition to price areproduct quality, speed of delivery, customer service, availability ofappropriate printing capacity and paper, related services and technologysupport.

 

**SPECIALTY PUBLISHING SEGMENT**

 

Dover,acquired by the Company in September 2000, is a publisher of books in over30 specialty categories, including fine and commercial arts, children’s books,crafts, music scores, graphic design, mathematics, physics and other areas ofscience, puzzles, games, social science, stationery items, and classics ofliterature for both juvenile and adult markets, including the Dover ThriftEditionsä.  In 2005,Dover began developing proprietary packaged products under its Dover Fun Kitsä line.  In 2008, Dover introduced a new crafts line,Dover DesignWorksä, and a new premium series of hardcover reproductions,Dover Calla Editionsä. Towards the end of 2009, Dover launched the first 15titles in a new series of *Sesame StreetActivity Books*.

 

Dover sells itsproducts through most American bookstore chains, independent booksellers,children’s stores, craft stores and gift shops, as well as a diverse range ofdistributors around the world.  Dover hasalso sold its books directly to consumers for over 50 years through itsspecialty catalogs and over the Internet at www.doverpublications.com.  Dover mails its proprietary catalogs tonearly 350,000 consumers and annually sends over 100 million emails to electingcustomers.  Dover also maintainswww.DoverDirect.com, which is a business-to-business site for its retailers anddistributors*.*

 

In the secondquarter of fiscal 2009, due to a decline in sales and profits at Doverresulting from the continued downturn in the economic environment and inconsumer spending, the Company recorded a non-cash, pre-tax impairment chargeof $15.6 million, which represented 100% of Dover’s goodwill.

 

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

 

CreativeHomeowner, acquired by the Company in April 2006, is a New Jersey-basedpublisher and distributor of books, home plans, and related products for thehome and garden retail book market.  TheCompany purchased 100% of the stock of Creative Homeowner in a $37 million cashtransaction.  The acquisition wasaccounted for as a purchase and accordingly, Creative Homeowner’s financialresults were included in the Company’s consolidated financial statements fromthe date of acquisition.  CreativeHomeowner’s 160 titles include books on home decoration, design andimprovement, gardening and landscaping, and home arts.  Its products are sold primarily through homeand garden centers, as well as bookstores and direct to consumers over theInternet at www.creativehomeowner.com. From its line of home plan books, Creative Homeowner offers over 10,000home plans from which consumers can order blueprints directly over the Internetat www.ultimatehomeplans.com.

 

In thethird quarter of fiscal 2008, Creative Homeowner experienced a precipitousdecline in sales and profits, due in large part to the continued downtown inthe housing market and reduction in store traffic at home improvement centersand other large retail chain stores.  Asa result, the Company recorded a non-cash, pre-tax impairment charge of $23.6million in fiscal 2008.  In addition toother remedial measures, the Company decided to cease Creative Homeowner’s bookdistribution operation that served a single customer, allowing it toconcentrate on its principal publishing operations.  This transition was completed in the secondquarter of fiscal 2009.

 

As partof Courier’s company-wide green initiative, Dover, REA and Creative Homeownerlaunched a new line of books in 2008 under a new mark owned by Courier, GreenEditionä.  In order tobe eligible to bear the mark, books must not only be manufactured from recycledpaper but also be manufactured in the United States.  As a result, books that carry this mark havea smaller environmental impact than most books. The mark is being licensed to other publishing customers who have alsoexpressed a desire to use it.

 

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, REA, or Creative Homeowner, or are part oforganizations that are much larger.  Inaddition, newer sources of competition have emerged with large retailerslaunching or expanding publishing operations and new web-based publishingbusinesses starting up, which compete in the specialty book publishing market,including publishing of electronic books. Dover distinguishes its products by offering an extremely wide varietyof high quality books at modest prices. REA offers high quality study guides, test preparation books andsoftware products in almost every academic area including many specializedareas such as teacher certification, adult education, and professionallicensing.  Creative 

 

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Homeowner provides books on homeimprovement and landscaping that include high-quality photographs,illustrations and written content.

 

**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, REAand Creative Homeowner purchase a significant portion of their books fromCourier’s book manufacturing operations. There were no significant changes inpaper prices in the last three years.

 

**ENVIRONMENTAL REGULATIONS**

 

The Company’s operationsare subject to federal, state and local environmental laws and regulationsrelating to, among other things: air emissions; waste generation, handling,management and disposal; wastewater treatment and discharge; and remediation ofsoil and groundwater contamination.  TheCompany periodically makes capital expenditures so that its operations comply,in all material respects, with applicable environmental laws andregulations.  No significant expendituresfor this purpose were made in 2009 or are anticipated in 2010.  In 2007, the Company adopted an “Environmental,Health and Safety Policy” which is available on the Company’s website atwww.courier.com. The Company does not believe that its compliance withapplicable environmental laws and regulations will have a material impact onthe Company’s financial condition or liquidity.

 

**EMPLOYEES**

 

TheCompany employed 1,603 persons at September 26, 2009 compared to 1,825 ayear ago.  The Company’s relations withits employees are satisfactory.

 

**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.

 

Courierdoes not hold any material patents, licenses, franchises or concessions uponwhich our operations are dependent, but does have trademarks, service marks,and Universal Resource Locators (URL’s) on the Internet in connection with eachof its business segments.  Substantiallyall of REA’s and Creative Homeowner’s publications and a majority of Dover’spublications are protected by copyright, either in its own name, in the name ofthe author of the work, or in the name of a predecessor publisher from whomrights were acquired.  Many of Dover’spublications include material that is in the public domain.

 

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TheCompany makes available free of charge (as soon as reasonably practicable afterthey are filed or furnished to the Securities and Exchange Commission) copiesof its Annual Report on Form 10-K, as well as all other reports requiredto be filed by Section 13(a) or 15(d) of the Securities ExchangeAct of 1934, via the Internet at www.courier.com or upon written request toPeter M. Folger, Senior Vice President and Chief Financial Officer, CourierCorporation, 15 Wellman Avenue, North Chelmsford, MA 01863.

 

**Item 1A.  Risk Factors.**

 

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

 

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

 

The book industry isextremely competitive.  In the bookmanufacturing segment, consolidation over the past few years of both customersand competitors within the markets the Company competes has caused downwardpricing pressures.  In addition, excesscapacity and competition from printing companies in lower cost countries mayincrease competitive pricing pressures. Furthermore, some of our competitors have greater sales, assets andfinancial resources than us, particularly those in foreign countries, who mayderive significant advantages from local governmental regulation, including taxholidays and other subsidies.  All or anyof these competitive pressures could affect prices or customers’ demand for ourproducts, impacting our profit margins and/or resulting in a loss of customersand market share.

 

**A reduction inorders or pricing from, or the loss of, any of our significant customers mayadversely impact our operating results.**

 

We derived approximately 44% of our fiscal 2009revenues from two major customers.  Infiscal 2008, we derived approximately 50% of our revenues from three majorcustomers.  We expect similarconcentrations in fiscal 2010.  We dobusiness with these customers on a purchase order basis and they are not boundto purchase at particular volume or pricing levels.  As a result, any of these customers coulddetermine to reduce their order volume with us or demand reduced pricing.  A significant reduction in order volumes orprice levels with, or the loss of, any of these customers could have a materialadverse effect on our results of operations and financial condition.

 

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** **

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

 

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

 

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

 

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

 

·                  Fluctuations in federal orstate government spending on education, including a reduction in tax revenuesdue to the current economic environment, could lead to a corresponding decreasein the demand for educational materials, which are produced in our bookmanufacturing segment and comprise a portion of our publishing products.

 

·                  Consumer demand for books canbe impacted by reductions in disposable income when costs such as electricityand gasoline reduce discretionary spending.

 

·                  Tightness in credit markets mayresult in customers delaying orders to reduce inventory levels and may impacttheir ability to pay their debts as they become due and may disrupt suppliesfrom vendors.

 

·                  Changes in the housing marketmay impact the sale of Creative Homeowner’s products.

 

·                  Reduced fundraising byreligious customers may decrease their order levels.

 

·                  A slowdown in book purchasesmay result in retailers returning an unusually large number of books topublishers who, in turn reduce their reorders.

 

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

 

Theprinting industry is in a period of rapid technological evolution.  Our future financial performance will depend,in part, upon the ability to anticipate and adapt to rapid industrial andtechnological changes occurring in the industry and upon the ability to offer,on a timely basis, services that meet evolving industry standards.  If we are unable to adapt to suchtechnological changes, we may lose customers and may not be able to maintainour competitive position.  We are unableto predict which of the many possible future product and service offerings willbe important to establish and maintain a competitive position or whatexpenditures will be required to develop and provide these 

 

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productsand services.  We cannot assure investorsthat one or more of these factors will not vary unpredictably, which could havea material adverse effect on us. In addition, we cannot assure investors, evenif these factors turn out as we anticipate, that we will be able to implementour strategy or that the strategy will be successful in this rapidly evolvingmarket.

 

**Our operating results are unpredictable and fluctuatesignificantly, which may adversely affect our stock price.**

 

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

 

·                  the timing and size of the orders for ourbooks;

 

·                  the availability of markets for sales ordistribution by our major customers;

 

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

 

·                  our customers’ willingness andsuccess in shifting orders from the peak textbook season to the off-peak seasonto even out our manufacturing load over the year;

 

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

 

·                  issues that might arise from theintegration of acquired businesses, including their inability to achieveexpected results; and

 

·                  tightness in credit markets affecting theavailability of capital for ourselves, our vendors, and/or our customers.

 

As a result of these andother factors, period-to-period comparisons of our operating results are notnecessarily meaningful or indicative of future performance. In addition, thefactors noted above may make it difficult for us to forecast and provide in atimely manner public guidance (including updates to prior guidance) related toour projected financial performance. Furthermore, it is possible that in futurequarters our operating results could fall below the expectations of securitiesanalysts or investors. If this occurs, the trading price of our common stockcould decline.

 

**Ourfinancial results could be negatively impacted by impairments of goodwill orother intangible assets.**

 

We perform an annualassessment for impairment of goodwill and other intangible assets at the end ofour fiscal year or whenever events or changes in circumstances occur that wouldmore likely than not reduce the fair value of a reporting unit below it’s carryingvalue.  A downward revision in the fairvalue of one of our acquired businesses could result in impairments of goodwilland non-cash charges.  Any impairmentcharge could have a significant negative effect on our reported results ofoperations.  For example, in the secondquarter of fiscal 2009, due to a decline in sales and profits at Doverresulting from the continued downturn in the economic environment 

 

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and in consumerspending, the Company recorded a non-cash, pre-tax impairment charge of $15.6million, which represented 100% of Dover’s goodwill.

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Certain of ourpublications are protected by copyright, primarily held in the Company’sname.  Such copyrights protect ourexclusive right to publish the work in the United States and in many othercountries for specified periods.  Ourability to continue to achieve anticipated results depends in part on ourability to defend our intellectual property against infringement.  Our operating results may be adverselyaffected by inadequate legal and technological protections for intellectualproperty and proprietary rights in some jurisdictions and markets.  In addition, some of our publications are of 

 

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works in the publicdomain, for which there is nearly no intellectual property protection.  Our operating results may be adverselyaffected by the increased availability of such works elsewhere, including onthe Internet, either for free or for a lower price.

 

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

 

Becausethe markets in which we operate are highly competitive, we must continue toimprove our operating efficiency in order to maintain or improve our profitability.  Although we have been able to expand ourcapacity, improve our productivity and reduce costs in the past, there is noassurance that we will be able to do so in the future.  In addition, reducing operating costs in thefuture may require significant initial costs to reduce headcount, close orconsolidate operations, or upgrade equipment and technology.

 

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

 

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

 

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

 

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

 

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

 

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

 

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manner.  The challenges involved in successfullyintegrating acquisitions include:

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Thesefactors could have a material adverse effect on our business, results ofoperations and financial condition or cash flows, particularly in the case of alarger acquisition or multiple acquisitions in a short period of time.  From time to time, we may enter intonegotiations for acquisitions that are not ultimately consummated.  Such negotiations could result in significantdiversion of management’s time from our business as well as significantout-of-pocket costs. Tightness in credit markets may also affect our ability toconsummate such acquisitions.

 

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

 

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

 

Oursuccess depends, in part, on our ability to continue to retain our executiveofficers and key management personnel. Our business strategy also depends on our 

 

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abilityto attract, develop, motivate and retain employees who have relevant experiencein the printing and publishing industries. There can be no assurance that we can continue to attract and retain thenecessary talented employees, including executive officers and other keymembers of management and, if we fail to do so, it could adversely affect ourbusiness.

 

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

 

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

 

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

 

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

 

**Item 1B.  UnresolvedStaff Comments.**

 

None.

 

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**Item 2.  Properties.**

 

**REAL PROPERTIES**

 

The following schedule lists the facilities owned or leasedby Courier at September 26, 2009. Courier considers its plants and otherfacilities to be well maintained and suitable for the purposes intended.

 
| **Principal Activity and Location (Year Constructed)** | ** ** | **Owned/  Leased** | ** ** | **Square  Feet** | ** ** |
|---------------------------------------------------------------------------------|------------|--------------------|------------|------------------|------------|
| **Corporate headquarters and  executive offices**                               |       |               |       |             |       |
| North  Chelmsford, MA (1973, 1996)                                              |       | Owned              |       | 69,000           | (1)        |
| **Book manufacturing and  warehousing**                                         |       |               |       |             |       |
| Westford  plant, Westford, MA                                                   |       |               |       |             |       |
| (1922,  1959, 1963, 1966, 1967, 1980, 1990)                                     |       | Owned              |       | 303,000          |       |
| Kendallville  plant, Kendallville, IN                                           |       |               |       |             |       |
| (1978,  2004, 2006, 2007)                                                       |       | Owned              |       | 273,000          |       |
| Kendallville  warehouse, IN (2009)                                              |       | Owned              |       | 150,000          | (2)        |
| National  plant, Philadelphia, PA (1974, 1997)                                  |       | Owned              |       | 229,000          |       |
| Stoughton  plant, Stoughton, MA (1980)                                          |       | Leased             |       | 169,000          |       |
| Moore  Langen plant, Terre Haute, IN (1969, 1987)                               |       | Owned              |       | 43,000           |       |
| **Dover offices and warehouses**                                                |       |               |       |             |       |
| Mineola,  New York (1948-1983)                                                  |       | Leased             |       | 106,000          |       |
| Westford,  MA (1922, 1963, 1966)                                                |       | Owned              |       | 90,000           |       |
| **REA offices and warehouse**                                                   |       |               |       |             |       |
| Piscataway,  New Jersey (1987)                                                  |       | Leased             |       | 39,000           |       |
| **Creative Homeowner offices and  warehouse**                                   |       |               |       |             |       |
| Upper Saddle River, New Jersey  (1987)                                          |       | Leased             |       | 42,000           |       |

 

----

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

 

(2)                              In thesecond quarter of fiscal 2009, the Company completed construction of a 150,000square foot warehouse to replace formerly leased warehouses.

 

**EQUIPMENT**

 

The Company’sproducts are manufactured on equipment that in most cases is owned by theCompany, although it leases certain computers, image setters and otherelectronic prepress equipment, which are subject to more rapidobsolescence.  Capital expendituresamounted to approximately $10.1 million in 2009, $12.9 million in 2008, and$26.4 million in 2007. Capital expenditures in 2009 included approximately $4 million for completion of a 150,000 squarefoot warehouse to replace existing leased warehouse space and to better supportthe significant expansion of the nearby manufacturing plant in Kendallville,Indiana, as well as approximately $2 million in deposits for digital printequipment.  Fiscal 2010 capitalexpenditures are expected to be between $12 and $14 million, half of whichrelates to a new digital print operation. Courier considers its equipment to bein good operating condition and adequate for its present needs.

 

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**ENCUMBRANCES AND RENTALOBLIGATIONS**

 

For a description of encumbrances oncertain properties and equipment, see Note D of Notes to Consolidated FinancialStatements on pages F-13 and F-14 of this Annual Report on Form 10-K.Information concerning leased properties and equipment is disclosed in Note Eof Notes to Consolidated Financial Statements, which appears on page F-14of this Annual Report on Form 10-K.

 

**Item 3.  Legal Proceedings.**

 

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

 

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

 

There were no matters submitted to avote of security holders during the quarter ended September 26, 2009.

 

**PART II**

 

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

 

**PEER PERFORMANCE TABLE**

 

The graph below comparesthe Company’s cumulative total stockholder return on its Common Stock with thecumulative total return on the Standard & Poor’s 500 stock index (the “S&P500 Index”) and a peer group of companies selected by the Corporation forpurposes of the comparison and described more fully below (the “Peer Group”).  This graph assumes the investment of $100 on October 1,2004 in each of Courier Common Stock, the S&P 500 Index, and the Peer GroupCommon Stock, and reinvestment of quarterly dividends at the monthly closingstock prices.  The returns of eachcompany have been weighted annually for their respective stock marketcapitalizations in computing the S&P 500 and Peer Group indices.

 

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**COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN**

**CourierCorporation, S&P 500 Index, Peer Group**

 

 

The Peer Group includesthe following seven companies:  BordersGroup, Inc., Bowne & Company, Inc., Consolidated Graphics,Ennis Business Forms, Inc., Scholastic Corporation, The Standard RegisterCompany, and John Wiley & Sons, Inc.

 

Other informationrequired by this Item is contained in the section captioned “Selected QuarterlyFinancial Data (Unaudited)” appearing on page F-39 of this Annual Reporton Form 10-K.

 

**Item 6.  Selected Financial Data.**

 

The information required by this Itemis contained in the section captioned “Five-Year Financial Summary” appearingon page F-24 of this Annual Report on Form 10-K.

 

**Item 7.  Management’sDiscussion and Analysis of Financial Condition and Results of Operations.**

 

The information required by this Itemis contained in the section captioned “Management’s Discussion and Analysis” onpages F-25 through F-38 of this Annual Report on Form 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 Note A of Notes to ConsolidatedFinancial Statements, which appear on pages F-7 through F-11 of thisAnnual Report on Form 10-K.  TheCompany engages neither in speculative nor derivative trading activities. TheCompany is exposed to market risk for changes in interest rates on investedfunds as well as borrowed funds.  TheCompany’s revolving bank credit facility bears interest at a floating rate,with further information contained in Note D on pages F-13 and F-14 ofthis Annual Report on Form 10-K. The Company believes it is remote that this could have a material impacton results of operations.

 

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** **

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

 

The information required by this Item is contained on pages F-1through F-23 of this 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)           Disclosure Controls and Procedures**

 

As of the end of the period covered by this Annual Report on Form 10-K,we carried out an evaluation under the supervision and with the participationof our management, including the Chief Executive Officer and the ChiefFinancial Officer, of the effectiveness of the design and operation of ourdisclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and15d-15(e). Disclosure controls are procedures that are designed to ensure thatinformation required to be disclosed in our reports filed under the SecuritiesExchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarizedand reported within the time periods specified by the Securities and ExchangeCommission. Disclosure controls are also designed to ensure that suchinformation is accumulated and communicated to our management, including our ChiefExecutive Officer and Chief Financial Officer, as appropriate to allow timelydecisions regarding required disclosure. Based upon that evaluation, our ChiefExecutive Officer and Chief Financial Officer concluded that our disclosurecontrols and procedures were effective as of the end of the period covered bythis report.

 

**(b)           Changes in Internal Controls overFinancial Reporting**

 

There were no changes in the Company’s internal control overfinancial reporting during the fourth quarter of fiscal year 2009 that havematerially affected, or that are reasonably likely to materially affect, theCompany’s internal control over financial reporting.

 

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

 

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

 

The Audit Committee of the Board of Directors (“AuditCommittee”), which 

 

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consistssolely of independent directors, oversees the Company’s process of reportingfinancial information and the audit of its consolidated financialstatements.  The Audit Committee staysinformed of the financial condition of the Company and regularly reviewsmanagement’s financial policies and procedures, the independence of theindependent auditors, the Company’s internal control and the objectivity of itsfinancial reporting. The independent registered public accounting firm has freeaccess to the Audit Committee and to meet with the Audit Committeeperiodically, both with and without management present.

 

The Company has filed with the Securities and ExchangeCommission the required certifications related to its consolidated financialstatements as of and for the year ended September 26, 2009.  These certifications are exhibits to thisAnnual Report on Form 10-K for the year ended September 26, 2009.

 

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

 

Management has responsibility for establishing andmaintaining adequate internal control over financial reporting.  Internal control over financial reporting isa process designed to provide reasonable assurance regarding the reliability offinancial reporting and the preparation of financial statements for externalreporting purposes in accordance with accounting principles generally acceptedin the United States.  Because of itsinherent limitations, internal control over financial reporting may not preventor detect misstatements.  Management hasassessed the effectiveness of the Company’s internal control over financialreporting as of September 26, 2009.

 

In making its assessment of the Company’s internal controlover financial reporting, the Company’s management has utilized the criteriaset forth by the Committee of Sponsoring Organizations (“COSO”) of the TreadwayCommission in *Internal Control-IntegratedFramework*.  Managementconcluded that based on its assessment, the Company’s internal control overfinancial reporting was effective as of September 26, 2009.   Deloitte & Touche LLP, anindependent registered public accounting firm that audited our financialstatements included in this Annual Report, has issued its attestation report onthe effectiveness of the Company’s internal control over financial reporting asof September 26, 2009, which appears below.

 

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REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

We have auditedthe internal control over financial reporting of Courier Corporation andsubsidiaries (the “Company”) as of September 26, 2009, based on criteriaestablished in *Internal Control — IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission. The Company’s management is responsible for maintainingeffective internal control over financial reporting and for its assessment ofthe effectiveness of internal control over financial reporting, included in theaccompanying Management’s Report on Internal Control over FinancialReporting.  Our responsibility is toexpress an opinion on the Company’s internal control over financial reportingbased on our audit.

 

We conductedour audit in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether effective internal control over financial reporting wasmaintained in all material respects.  Ouraudit included obtaining an understanding of internal control over financialreporting, assessing the risk that a material weakness exists, testing andevaluating the design and operating effectiveness of internal control based onthe assessed risk, and performing such other procedures as we considerednecessary in the circumstances.  Webelieve that our audit provides a reasonable basis for our opinion.

 

A company’sinternal control over financial reporting is a process designed by, or underthe supervision of, the company’s principal executive and principal financialofficers, or persons performing similar functions, and effected by the company’sboard of directors, management, and other personnel to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles.  Acompany’s internal control over financial reporting includes those policies andprocedures that (1) pertain to the maintenance of records that, inreasonable detail, accurately and fairly reflect the transactions anddispositions of the assets of the company; (2) provide reasonableassurance that transactions are recorded as necessary to permit preparation offinancial statements in accordance with generally accepted accountingprinciples, and that receipts and expenditures of the company are being madeonly in accordance with authorizations of management and directors of thecompany; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Because of theinherent limitations of internal control over financial reporting, includingthe possibility of collusion or improper management override of controls,material misstatements due to error or fraud may not be prevented or detectedon a timely basis.  Also, projections ofany evaluation of the effectiveness of the internal control over financialreporting to future periods are subject to the risk that the controls maybecome inadequate because of changes in conditions, or that the degree ofcompliance with the policies or procedures may deteriorate.

 

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In our opinion,the Company maintained, in all material respects, effective internal controlover financial reporting as of September 26, 2009, based on the criteriaestablished in *Internal Control — IntegratedFramework*issued by the Committee of Sponsoring Organizations of theTreadway Commission.

 

We have alsoaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the consolidated financial statements andfinancial statement schedule as of and for the year ended September 26,2009 of the Company and our report dated November 25, 2009 expressed anunqualified opinion on those financial statements and financial statementschedule.

 

*/s/Deloitte &Touche LLP*

 

Boston,Massachusetts

November 25,2009

 

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

 

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

 

**Item 9B.  Other Information**

 

None.

 

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**PART III**

 

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

 

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

 
| James F. Conway III       |   | 57     |   | Chairman, President and  Chief Executive Officer                 |
|---------------------------|--------|--------|--------|------------------------------------------------------------------|
|                      |   |   |   |                                                             |
| Robert P. Story, Jr. |   | 58     |   | Director, Executive  Vice President, and Chief Operating Officer |
|                      |   |   |   |                                                             |
| Peter M. Folger           |   | 56     |   | Senior Vice President  and Chief Financial Officer               |
|                      |   |   |   |                                                             |
| Rajeev Balakrishna        |   | 39     |   | Vice President, General  Counsel, Secretary and Clerk            |
|                      |   |   |   |                                                             |
| Eric J. Zimmerman         |   | 44     |   | Vice President,  Publishing                                      |

 

The terms of office of all of the above executive officerscontinue until the first meeting of the Board of Directors following the nextannual meeting of stockholders and the election or appointment and qualificationof their successors, unless any officer sooner dies, resigns, is removed orbecomes disqualified.

 

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

 

Mr. Story became Executive Vice President and ChiefOperating Officer in November 2006. He had previously been Senior Vice President and Chief Financial Officersince April 1989.  He joined Courierin November 1986 as Vice President and Treasurer.  He was elected a Director of the Company in February 1995.

 

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

 

Mr. Balakrishna became Vice President and GeneralCounsel in February 2007 and became Secretary and Clerk in January 2008.  Prior to that, since 1996, he was an attorneyat the law firms of Proskauer Rose LLP and Goodwin Procter LLP and in houseCounsel at John Hancock Financial Services, Inc.

 

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

 

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

 

All other information called for byItem 10 is contained in the definitive Proxy Statement, under the captions “Item1: Election of Directors,” “Corporate Governance” and “Section 16(a) BeneficialOwnership Reporting Compliance,” to be delivered to stockholders in connectionwith the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 20,2010.  Such information is incorporatedherein by reference.

 

**Item 11.  Executive Compensation.**

 

Information called for by Item 11 iscontained in the definitive Proxy Statement, under the caption “CompensationDiscussion and Analysis,” to be delivered to stockholders in connection withthe Annual Meeting of Stockholders scheduled to be held on Wednesday, January 20,2010.  Such information is incorporatedherein by reference.

 

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

 

The following table providesinformation as of September 26, 2009 regarding shares of common stock ofthe Company that may be issued under its existing compensation plans, includingthe Courier Corporation Amended and Restated 1993 Stock Incentive Plan (the “1993Plan”), the Courier Corporation 1999 Employee Stock Purchase Plan, the CourierCorporation 2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”),and the Courier Corporation 1989 Deferred Income Stock Option Plan for Non-EmployeeDirectors, which was replaced by the 2005 Plan.

 

**EquityCompensation Plan Information**

 
| **Plan category**                                           | ** ** | **Number of securities to  be issued upon  exercise of outstanding  options, warrants and  rights (1)** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights** | ** ** | **Number of securities  remaining available for  future issuance under  equity compensation plans  (excluding securities  reflected in column  (a))(2)(3)** | ** ** |
|-------------------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------|------------|------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                                 | ** ** | **(b)**                                                                            | ** ** | **(c)**                                                                                                                                                     | ** ** |
| Equity  compensation plans approved by security holders     |       | 650,573                                                                                                 |       | $                                                                                  | 25.93      |                                                                                                                                                        | 210,050    |   |
| Equity  compensation plans not approved by security holders |       | —                                                                                                  |       | —                                                                             |       | —                                                                                                                                                      |       |
|                                                        |       |                                                                                                    |       |                                                                               |       |                                                                                                                                                        |       |
| Total                                                       |       | 650,573                                                                                                 |       | $                                                                                  | 25.93      |                                                                                                                                                        | 210,050    |   |

 

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

 

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(2)            11,776shares of these 210,050 shares were reserved for future issuance under theCompany’s Employee Stock Purchase Plan.

(3)            Includes upto 193,773 securities that may be issued in the form of restricted stock.

 

All other information called for byItem 12 is contained in the definitive Proxy Statement, under the captions “SecurityOwnership of Certain Beneficial Owners and Management” and “CompensationDiscussion and Analysis,” to be delivered to stockholders in connection withthe Annual Meeting of Stockholders scheduled to be held on Wednesday, January 20,2010.  Such information is incorporatedherein by reference.

 

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

 

Information called for by Item 13 iscontained in the definitive Proxy Statement, under the captions “DirectorIndependence” and “Related Party Transactions,” to be delivered to stockholdersin connection with the Annual Meeting of Stockholders scheduled to be held onWednesday, January 20, 2010.  Suchinformation is incorporated herein by reference.

 

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

 

Information called for by Item 14 iscontained in the definitive Proxy Statement, under the caption “Item 2:Ratification and Approval of Selection of Independent Auditors,” to bedelivered to stockholders in connection with the Annual Meeting of Stockholdersscheduled to be held on Wednesday, January 20, 2010.  Such information is incorporated herein byreference.

 

**PART IV**

 

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

 

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

 
| ** ** | ** ** | ** **                                                                                                                                                  | ** ** | **Page(s)** |
|------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-------------|
| ** ** | **1.**     | ***Financial statements***                                                                                                                                  | ** ** |        |
|       |       |                                                                                                                                                        |       |        |
|       |       | ·  Report  of Independent Registered Public Accounting Firm                                                                                  |       | F-1         |
|       |       | ·  Consolidated  Statements of Operations for each of the three years in the period ended  September 26, 2009                           |       | F-2         |
|       |       | ·  Consolidated  Balance Sheets as of September 26, 2009 and September 27, 2008                                                    |       | F-3 to F-4  |
|       |       | ·  Consolidated  Statements of Cash Flows for each of the three years in the period ended  September 26, 2009                           |       | F-5         |
|       |       | ·  Consolidated  Statements of Changes in Stockholders’ Equity for each of the three years in  the period ended September 26, 2009 |       | F-6         |
|       |       | ·  Notes  to Consolidated Financial Statements                                                                                               |       | F-7 to F-23 |

 

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| ** ** | **2.**     | ***Financial  statement schedule***                           |   |   |
|------------|------------|---------------------------------------------------------------|--------|--------|
| ** ** | ** ** | *** ***                                                  |   |   |
|       |       | Schedule II -  Consolidated Valuation and Qualifying Accounts |   | S-1    |
|       |       |                                                          |   |   |
| ** ** | **3.**     | ***Exhibits***                                                |   |   |

 
| **Exhibit No.** | ** ** | **Description of Exhibit**                                                                                                                                                                                                                                                                                                                                                                     |
|----------------------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-1                 |       | Articles of  Organization of Courier Corporation, as of June 29, 1972 (filed as  Exhibit 3A-1 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 26, 1981, and incorporated herein by  reference).                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-2                 |       | Articles of Amendment  of Courier Corporation (changing stockholder vote required for merger or  consolidation), as of January 20, 1977 (filed as Exhibit 3A-2 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  September 26, 1981, and incorporated herein by reference).                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-3                 |       | Articles of Amendment  of Courier Corporation (providing for staggered election of directors), as of  January 20, 1977 (filed as Exhibit 3A-3 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 26, 1981,  and incorporated herein by reference).                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-4                 |       | Articles of Amendment  of Courier Corporation (authorizing class of Preferred Stock), as of  February 15, 1978 (filed as Exhibit 3A-4 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 26, 1981,  and incorporated herein by reference).                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-5                 |       | Articles of Amendment  of Courier Corporation (increasing number of shares of authorized Common  Stock), as of January 16, 1986 (described in item #2 of the Company’s  Proxy Statement for the Annual Meeting of Stockholders held on  January 16, 1986, and incorporated herein by reference).                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-6                 |       | Articles of Amendment  of Courier Corporation (providing for fair pricing procedures for stock to be  sold in certain business combinations), as of January 16, 1986 (filed as  Exhibit A to the Company’s Proxy Statement for the Annual Meeting of  Stockholders held on January 16, 1986, and incorporated herein by  reference).                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                                                                     |
| 3A-7                 |       | Articles of Amendment  of Courier Corporation (limiting personal liability of directors to the  Corporation or to any of its stockholders for monetary damages for breach of  fiduciary duty), as of January 28, 1988 (filed as Exhibit 3A-7 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  September 24, 1988, and incorporated herein by reference). |

 

23

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| 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).                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 3A-10  |   | Articles of Amendment  to the Articles of Organization of Courier Corporation for Amended and  Restated Resolutions of Directors (establishing Series B Junior  Participating Cumulative Preferred Stock), as of March 19, 2009, (filed  as Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated  March 19, 2009, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 3B-1   |   | By-Laws of Courier  Corporation, amended and restated as of March 24, 2005 (filed as  Exhibit 3 to the Company’s Current Report on Form 8-K, dated  March 24, 2005, and incorporated herein by reference).                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 3B-2   |   | Amendment No. 1 to  Amended and Restated Bylaws dated as of August 6, 2008 (filed as  Exhibit 3.1 to the Company’s Current Report on Form 8-K, dated  August 7, 2008, and incorporated herein by reference).                                                                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.1+* |   | Courier Corporation  Deferred Compensation Program as Amended and Restated as of January 1,  2009.                                                                                                                                                                                                                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10.2+* |   | First Amendment to  Terms and Conditions of Courier Corporation Deferred Compensation Program as  Amended and Restated as of January 1, 2009, effective January 1,  2010.                                                                                                                                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10A+   |   | Letter Agreement, dated  February 8, 1990, of Courier Corporation relating to supplemental  retirement benefit and consulting agreement with James F. Conway, Jr.  (filed as Exhibit 10B to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 29, 1990, and incorporated herein by  reference).                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10B-1+ |   | Courier Corporation  1989 Deferred Income Stock Option Plan for Non-employee Directors, effective  September 28, 1989 (filed as Exhibit A to the Company’s Proxy  Statement for the Annual Meeting of Stockholders held January 18, 1990,  and incorporated herein by reference).                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                             |
| 10B-2+ |   | Amendment, effective  November 4, 1993, to the 1989 Deferred Income Stock Option Plan for  Non-employee Directors (filed as Exhibit 10C-2 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 25, 1993,  and incorporated herein by reference).                                                                                            |

 

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| 10B-3+ |   | Amendment, effective  September 24, 1998, to the 1989 Deferred Income Stock Option Plan for  Non-employee Directors (filed as Exhibit 10C-3 to the Company’s Annual  Report on Form 10-K for the fiscal year ended September 26, 1998,  and incorporated herein by reference).                       |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10B-4+ |   | Amendment, effective  January 21, 1999, to the 1989 Deferred Income Stock Option Plan for  Non-employee Directors (described in Item 3 of the Company’s Proxy Statement  for the Annual Meeting of Stockholders held January 21, 1999, and  incorporated herein by reference).                                 |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10C-1+ |   | The Courier Executive  Compensation Program, as amended and restated on December 5, 2005 (filed  as Exhibit 10.2 to the Company’s Current Report on Form 8-K on  December 7, 2005, and incorporated herein by reference).                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10C-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).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10C-3+ |   | Amendment, effective  September 18, 2007, to the Courier Executive Compensation Program, as  amended and restated on December 5, 2005 (filed as Exhibit 10.1 to  the Company’s Annual Report on Form 10-K for the fiscal year ended  September 29, 2007, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10D+   |   | Courier Corporation  Senior Executive Severance Program, as amended and restated on  December 5, 2005 (filed as Exhibit 10.3 to the Company’s Current  Report on Form 8-K on December 7, 2005, and incorporated herein by  reference).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10E    |   | Rights Agreement  between Courier Corporation and Computershare Trust Company, N.A., as Rights  Agent, dated March 18, 2009 (filed as Exhibit 4.1 to the Company’s  Current Report on Form 8-K, dated March 18, 2009, and incorporated  herein by reference).                                        |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10F-1+ |   | 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).                                                                                          |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10F-2+ |   | Amendment, effective  March 1, 2005, to the Courier Corporation 1999 Employee Stock Purchase  Plan (filed as Exhibit 10.1 to the Company’s Annual Report on  Form 10-K for the fiscal year ended September 24, 2005, and  incorporated herein by reference).                                         |
|   |   |                                                                                                                                                                                                                                                                                                                          |
| 10G-1+ |   | Agreement, as of  March 3, 1993, of Courier Corporation relating to employment contract  and supplemental retirement benefit with George Q.                                                                                                                                                                              |

 

25

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|   |   | 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).                                                                                                                                                                                                     |
|--------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10G-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).                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10G-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).                                                                                              |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10H    |   | Second Amended and  Restated Revolving Credit Agreement, dated May 23, 2008, between Courier  Corporation, RBS Citizens, KeyBank, Wells Fargo Bank, and J P Morgan Chase  Bank providing for a $100 million revolving credit facility (filed as  Exhibit 10 to the Company’s Current Report on Form 8-K on  May 29, 2008, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10I-1+ |   | Courier Corporation  Amended and Restated 1993 Stock Incentive Plan (filed January 19, 2005  as Exhibit 10.5 to the Company’s Registration Statement  No. 333-122136 and incorporated herein by reference).                                                                                                                                                           |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10I-2+ |   | Amendment, effective  July 15, 2009, to the Courier Corporation Amended and Restated 1993  Stock Incentive Plan (filed as Exhibit 10.1 to the Company’s Quarterly  Report on Form 10-Q for the period ended June 27, 2009 and  incorporated herein by reference).                                                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10I-3+ |   | Form of Incentive  Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan  (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 25, 2004, and incorporated herein by  reference).                                                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10I-4+ |   | Form of  Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock  Incentive Plan (filed as Exhibit 10.2 to the Company’s Annual Report on  Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference).                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10I-5+ |   | Form of Stock  Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan (filed  as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the  fiscal year ended September 25, 2004, and incorporated herein by  reference).                                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                      |
| 10J-1+ |   | Courier Corporation  2005 Stock Equity Plan for Non-Employee Directors (filed January 19,  2005 as Exhibit 10.1 to the Company’s                                                                                                                                                                                                                                           |

 

26

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|   |   | Registration Statement  No. 333-122137 and incorporated herein by reference).                                                                                                                                                                                                                               |
|--------|--------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                             |
| 10J-2+ |   | Amendment, effective  July 15, 2009, to the Courier Corporation 2005 Stock Equity Plan for  Non-Employee Directors (filed as Exhibit 10.2 to the Company’s Quarterly  Report on Form 10-Q for the period ended June 27, 2009 and  incorporated herein by reference).                    |
|   |   |                                                                                                                                                                                                                                                                                                             |
| 10J-3+ |   | Form of  Non-Qualified Stock Option Agreement for the Courier Corporation 2005 Stock  Equity Plan for Non-employee Directors (filed as Exhibit 10.15 to the  Company’s Annual Report on Form 10-K for the fiscal year ended  September 25, 2004, and incorporated herein by reference). |
|   |   |                                                                                                                                                                                                                                                                                                             |
| 10J-4+ |   | Form of Stock Unit  Agreement for the Courier Corporation 2005 Stock Equity Plan for Non-employee  Directors (filed as Exhibit 10.16 to the Company’s Annual Report on  Form 10-K for the fiscal year ended September 25, 2004, and  incorporated herein by reference).                 |
|   |   |                                                                                                                                                                                                                                                                                                             |
| 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.

 

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**SIGNATURES**

 

Pursuantto the requirements of Section 13 or 15(d) of the Securities ExchangeAct of 1934, the Company has duly caused this report to be signed on its behalfby the undersigned, thereunto duly authorized, on November 25, 2009.

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

 

Pursuantto the requirements of the Securities Exchange Act of 1934, this report hasbeen signed below by the following persons on behalf of the registrant in thecapacities indicated, on November 25, 2009.

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

 

28

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board ofDirectors and Stockholders of Courier Corporation

NorthChelmsford, Massachusetts

 

We have auditedthe accompanying consolidated balance sheets of Courier Corporation andsubsidiaries (the “Company”) as of September 26, 2009 and September 27,2008, and the related consolidated statements of operations, changes instockholders’ equity, and cash flows for each of the three years in the periodended September 26, 2009.  Ouraudits also included the financial statement schedule listed in the Index atItem 15 (a)2.  These financial statementsand financial statement schedule are the responsibility of the Company’smanagement. Our responsibility is to express an opinion on the financialstatements and financial statement schedules based on our audits.

 

We conductedour audits in accordance with the standards of the Public Company AccountingOversight Board (United States).  Thosestandards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of materialmisstatement.  An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures inthe financial statements.  An audit alsoincludes assessing the accounting principles used and significant estimatesmade by management, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion,such consolidated financial statements present fairly, in all materialrespects, the financial position of Courier Corporation and subsidiaries as of September 26,2009 and September 27, 2008, and the results of their operations and theircash flows for each of the three years in the period ended September 26,2009, in conformity with accounting principles generally accepted in the UnitedStates of America.  Also, in our opinion,such financial statement schedule, when considered in relation to the basicconsolidated financial statements taken as a whole, present fairly, in allmaterial respects, the information set forth therein.

 

We have alsoaudited, in accordance with the standards of the Public Company AccountingOversight Board (United States), the Company’s internal control over financialreporting as of September 26, 2009, based on the criteria established in *Internal Control—Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commissionand our report dated November 25, 2009 expressed  an unqualified opinion on the Company’sinternal control over financial reporting.

 

*/s/Deloitte & Touche LLP*

 

Boston,Massachusetts

November 25,2009

 

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**COURIERCORPORATION**

**CONSOLIDATED STATEMENTS OF OPERATIONS**

(Dollars inthousands except per share amounts)

 
| ** **                                    | ** ** | **For the Years Ended** | ** ** |
|-----------------------------------------------|------------|-------------------------|------------|
| ** **                                    | ** ** | **September 26,**  | ** ** | **September 27,** | ** ** | **September 29,** | ** ** |
| ** **                                    | ** ** | **2009**                | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                          |       |                    |       |   |   |   |   |
| Net  sales (Note A)                           |       | $                       | 248,816    |   | $ | 280,324 |   | $ | 294,592 |   |
| Cost  of sales (Note H)                       |       | 191,085                 |       | 202,445 |   | 198,229 |   |
|                                          |       |                    |       |   |   |   |   |
| Gross  profit                                 |       | 57,731                  |       | 77,879 |   | 96,363 |   |
|                                          |       |                    |       |   |   |   |   |
| Selling  and administrative expenses (Note H) |       | 46,385                  |       | 53,034 |   | 53,926 |   |
| Impairment  charges (Note A)                  |       | 15,607                  |       | 23,643 |   | — |   |
|                                          |       |                    |       |   |   |   |   |
| Operating  income (loss)                      |       | (4,261                  | )          | 1,202 |   | 42,437 |   |
|                                          |       |                    |       |   |   |   |   |
| Interest  expense, net (Notes A and D)        |       | 676                     |       | 1,133 |   | 1,571 |   |
|                                          |       |                    |       |   |   |   |   |
| Pretax  income (loss)                         |       | (4,937                  | )          | 69 |   | 40,866 |   |
|                                          |       |                    |       |   |   |   |   |
| Income  tax (benefit) provision (Note C)      |       | (1,796                  | )          | 439 |   | 15,121 |   |
|                                          |       |                    |       |   |   |   |   |
| Net  income (loss)                            |       | $                       | (3,141     | ) | $ | (370 | ) | $ | 25,745 |   |
|                                          |       |                    |       |   |   |   |   |
| Net  income (loss) per share (Notes A and J): |       |                    |       |   |   |   |   |
|                                          |       |                    |       |   |   |   |   |
| Basic                                         |       | $                       | (0.27      | ) | $ | (0.03 | ) | $ | 2.06 |   |
|                                          |       |                    |       |   |   |   |   |
| Diluted                                       |       | $                       | (0.27      | ) | $ | (0.03 | ) | $ | 2.03 |   |
|                                          |       |                    |       |   |   |   |   |
| Cash  dividends declared per share            |       | $                       | 0.84       |   | $ | 0.80 |   | $ | 0.72 |   |

 

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

 

F-2

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Tableof Contents

 

**COURIERCORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(Dollars inthousands)

 
| ** **                                                                                                     | ** ** | **September 26,** | ** ** | **September 27,** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                     | ** ** | **2009**               | ** ** | **2008**               | ** ** |
| ASSETS                                                                                                         |       |                   |       |                   |       |
|                                                                                                           |       |                   |       |                   |       |
| Current  assets:                                                                                               |       |                   |       |                   |       |
| Cash  and cash equivalents (Note A)                                                                            |       | $                      | 492        |                   | $          | 178 |   |
| Investments  (Note A)                                                                                          |       | 1,017                  |       | 820                    |       |
| Accounts  receivable, less allowance for uncollectible accounts of $1,600 in 2009 and  $1,611 in 2008 (Note A) |       | 34,176                 |       | 45,626                 |       |
| Inventories  (Note B)                                                                                          |       | 38,026                 |       | 37,166                 |       |
| Deferred  income taxes (Note C)                                                                                |       | 4,462                  |       | 4,680                  |       |
| Other  current assets                                                                                          |       | 1,404                  |       | 1,528                  |       |
|                                                                                                           |       |                   |       |                   |       |
| Total  current assets                                                                                          |       | 79,577                 |       | 89,998                 |       |
|                                                                                                           |       |                   |       |                   |       |
| Property,  plant and equipment (Note A):                                                                       |       |                   |       |                   |       |
| Land                                                                                                           |       | 1,934                  |       | 1,934                  |       |
| Buildings  and improvements                                                                                    |       | 41,137                 |       | 35,541                 |       |
| Machinery  and equipment                                                                                       |       | 201,910                |       | 205,537                |       |
| Furniture  and fixtures                                                                                        |       | 2,090                  |       | 2,341                  |       |
| Construction  in progress                                                                                      |       | 3,466                  |       | 3,945                  |       |
|                                                                                                           |       |                   |       |                   |       |
|                                                                                                           |       | 250,537                |       | 249,298                |       |
|                                                                                                           |       |                   |       |                   |       |
| Less  - Accumulated depreciation and amortization                                                              |       | (160,783               | )          | (153,606               | )          |
|                                                                                                           |       |                   |       |                   |       |
| Property,  plant and equipment, net                                                                            |       | 89,754                 |       | 95,692                 |       |
|                                                                                                           |       |                   |       |                   |       |
| Goodwill  (Notes A and I)                                                                                      |       | 24,980                 |       | 39,912                 |       |
| Other  intangibles, net (Note A)                                                                               |       | 3,720                  |       | 3,920                  |       |
| Prepublication  costs, net (Note A)                                                                            |       | 9,194                  |       | 9,595                  |       |
| Other  assets (Note G)                                                                                         |       | 1,212                  |       | 1,381                  |       |
|                                                                                                           |       |                   |       |                   |       |
| Total  assets                                                                                                  |       | $                      | 208,437    |                   | $          | 240,498 |   |

 

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

 

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----

Tableof Contents

 

**COURIERCORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

(Dollars inthousands)

 
| ** **                                                                                                           | ** ** | **September 26,** | ** ** | **September 27,** | ** ** |
|----------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                           | ** ** | **2009**               | ** ** | **2008**               | ** ** |
| LIABILITIES  AND STOCKHOLDERS’ EQUITY                                                                           |       |                   |       |                   |       |
|                                                                                                                 |       |                   |       |                   |       |
| Current  liabilities:                                                                                                |       |                   |       |                   |       |
| Current  maturities of long-term debt (Note D)                                                                       |       | $                      | 96         |                   | $          | 93 |   |
| Accounts  payable (Note A)                                                                                           |       | 10,974                 |       | 16,966                 |       |
| Accrued  payroll                                                                                                     |       | 5,950                  |       | 6,587                  |       |
| Accrued  taxes (Note C)                                                                                              |       | 3,032                  |       | 3,560                  |       |
| Other  current liabilities (Note G)                                                                                  |       | 7,098                  |       | 5,970                  |       |
| Total  current liabilities                                                                                           |       | 27,150                 |       | 33,176                 |       |
|                                                                                                                 |       |                   |       |                   |       |
| Long-term  debt (Notes A and D)                                                                                      |       | 13,514                 |       | 23,646                 |       |
| Deferred  income taxes (Note C)                                                                                      |       | 177                    |       | 4,687                  |       |
| Other  liabilities (Notes C and G)                                                                                   |       | 3,006                  |       | 2,765                  |       |
|                                                                                                                 |       |                   |       |                   |       |
| Total  liabilities                                                                                                   |       | 43,847                 |       | 64,274                 |       |
|                                                                                                                 |       |                   |       |                   |       |
| Commitments  and contingencies (Note E)                                                                              |       |                   |       |                   |       |
|                                                                                                                 |       |                   |       |                   |       |
| Stockholders’  equity (Notes A, F and G):                                                                       |       |                   |       |                   |       |
| Preferred  stock, $1 par value - authorized 1,000,000 shares; none issued                                            |       | —                 |       | —                 |       |
| Common  stock, $1 par value - authorized 18,000,000 shares; issued 11,956,000 shares in  2009 and 11,878,000 in 2008 |       | 11,956                 |       | 11,878                 |       |
| Additional  paid-in capital                                                                                          |       | 16,479                 |       | 14,788                 |       |
| Retained  earnings                                                                                                   |       | 136,782                |       | 149,920                |       |
| Accumulated  other comprehensive loss                                                                                |       | (627                   | )          | (362                   | )          |
|                                                                                                                 |       |                   |       |                   |       |
| Total  stockholders’ equity                                                                                     |       | 164,590                |       | 176,224                |       |
|                                                                                                                 |       |                   |       |                   |       |
| Total  liabilities and stockholders’ equity                                                                     |       | $                      | 208,437    |                   | $          | 240,498 |   |

 

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

 

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**COURIERCORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Dollarsin thousands)**

 
| ** **                                                                              | ** ** | **For the Years Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|-------------------------|------------|
| ** **                                                                              | ** ** | **September 26,**  | ** ** | **September 27,** | ** ** | **September 29,** | ** ** |
| ** **                                                                              | ** ** | **2009**                | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                                    |       |                    |       |   |   |   |   |
| Operating  Activities:                                                                  |       |                    |       |   |   |   |   |
| Net  income (loss)                                                                      |       | $                       | (3,141     | ) | $ | (370 | ) | $ | 25,745 |   |
| Adjustments  to reconcile net income (loss) to cash provided from operating activities: |       |                    |       |   |   |   |   |
| Depreciation  and amortization                                                          |       | 21,401                  |       | 21,373 |   | 18,856 |   |
| Impairment  charges (Note A)                                                            |       | 15,607                  |       | 23,643 |   | — |   |
| Stock-based  compensation (Notes A and F)                                               |       | 1,424                   |       | 1,313 |   | 1,460 |   |
| Deferred  income taxes (Note C)                                                         |       | (4,966                  | )          | (5,970 | ) | 1,098 |   |
| Changes  in assets and liabilities:                                                     |       |                    |       |   |   |   |   |
| Accounts  receivable                                                                    |       | 11,450                  |       | 2,047 |   | (1,671 | ) |
| Inventory                                                                               |       | (860                    | )          | 1,017 |   | (8,618 | ) |
| Accounts  payable                                                                       |       | (5,992                  | )          | (3,145 | ) | 4,333 |   |
| Accrued  taxes                                                                          |       | (528                    | )          | 1,431 |   | (1,233 | ) |
| Other  elements of working capital                                                      |       | 615                     |       | (1,482 | ) | (2,966 | ) |
| Other  long-term, net                                                                   |       | (174                    | )          | (1,118 | ) | 451 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Cash  provided from operating activities                                                |       | 34,836                  |       | 38,739 |   | 37,455 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Investment  Activities:                                                                 |       |                    |       |   |   |   |   |
| Capital  expenditures                                                                   |       | (10,084                 | )          | (12,865 | ) | (26,378 | ) |
| Prepublication  costs (Note A)                                                          |       | (4,782                  | )          | (5,000 | ) | (5,417 | ) |
| Short-term  investments                                                                 |       | (197                    | )          | (820 | ) | — |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Cash  used for investment activities                                                    |       | (15,063                 | )          | (18,685 | ) | (31,795 | ) |
|                                                                                    |       |                    |       |   |   |   |   |
| Financing  Activities:                                                                  |       |                    |       |   |   |   |   |
| Long-term  debt (repayments) borrowings                                                 |       | (10,129                 | )          | 6,273 |   | 156 |   |
| Cash  dividends                                                                         |       | (9,997                  | )          | (9,881 | ) | (9,007 | ) |
| Proceeds  from stock plans                                                              |       | 667                     |       | 1,749 |   | 2,608 |   |
| Share  repurchases (Note K)                                                             |       | —                  |       | (19,592 | ) | — |   |
| Excess  tax benefits from stock-based compensation                                      |       | —                  |       | 26 |   | 649 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Cash  used for financing activities                                                     |       | (19,459                 | )          | (21,425 | ) | (5,594 | ) |
|                                                                                    |       |                    |       |   |   |   |   |
| Increase  (decrease) in cash and cash equivalents                                       |       | 314                     |       | (1,371 | ) | 66 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Cash  and cash equivalents at the beginning of the period                               |       | 178                     |       | 1,549 |   | 1,483 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Cash  and cash equivalents at the end of the period                                     |       | $                       | 492        |   | $ | 178 |   | $ | 1,549 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Supplemental  cash flow information:                                                    |       |                    |       |   |   |   |   |
| Interest  paid                                                                          |       | $                       | 641        |   | $ | 1,246 |   | $ | 1,604 |   |
| Income  taxes paid (net of refunds)                                                     |       | $                       | 3,799      |   | $ | 4,926 |   | $ | 14,447 |   |
|                                                                                    |       |                    |       |   |   |   |   |
| Supplemental  disclosure of noncash investing and financing activities:                 |       |                    |       |   |   |   |   |
| Property  and equipment costs included in accounts payable and accrued expenses         |       | $                       | 390        |   | $ | 3,246 |   | $ | 5,301 |   |

 

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

 

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**COURIERCORPORATION**

**CONSOLIDATED STATEMENTS OF CHANGES INSTOCKHOLDERS’ EQUITY**

**(Dollarsin thousands)**

 
| ** **                                                    | ** ** | ** **             | ** ** | ** ** | ** ** | ** **               | ** ** | ** **   | ** ** | **Accumulated**   | ** ** |
|---------------------------------------------------------------|------------|------------------------|------------|------------|------------|--------------------------|------------|--------------|------------|-------------------|------------|
| ** **                                                    | ** ** | **Total**              | ** ** | ** ** | ** ** | ** **               | ** ** | ** **   | ** ** | **Other**         | ** ** |
| ** **                                                    | ** ** | **Stockholders’** | ** ** | **Common** | ** ** | **Additional**           | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** |
| ** **                                                    | ** ** | **Equity**             | ** ** | **Stock**  | ** ** | **Paid-In Capital** | ** ** | **Earnings** | ** ** | **Loss**          | ** ** |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Balance,  September 30, 2006                             |       | $                      | 182,326    |       | $          | 12,445                   |       | $            | 8,592      |              | $          | 161,289 |   | $ | — |   |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Net  income                                                   |       | 25,745                 |       | —     |       | —                   |       | 25,745       |       | —            |       |
| Cash  dividends                                               |       | (9,007                 | )          | —     |       | —                   |       | (9,007       | )          | —            |       |
| Accounting  transition adjustment (Note G)                    |       | (505                   | )          | —     |       | —                   |       | —       |       | (505              | )          |
| Stock-based  compensation (Note F)                            |       | 1,460                  |       | 5          |       | 1,455                    |       | —       |       | —            |       |
| Other  stock plan activity                                    |       | 3,092                  |       | 162        |       | 2,930                    |       | —       |       | —            |       |
| Cumulative  effect of change in accounting principle (Note C) |       | (108                   | )          | —     |       | —                   |       | (108         | )          | —            |       |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Balance,  September 29, 2007                             |       | 203,003                |       | 12,612     |       | 12,977                   |       | 177,919      |       | (505              | )          |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Net  loss                                                     |       | (370                   | )          | —     |       | —                   |       | (370         | )          | —            |       |
| Cash  dividends                                               |       | (9,881                 | )          | —     |       | —                   |       | (9,881       | )          | —            |       |
| Change  in pension obligation, net of tax (Note G)            |       | 143                    |       | —     |       | —                   |       | —       |       | 143               |       |
| Stock-based  compensation (Note F)                            |       | 1,313                  |       | 6          |       | 1,307                    |       | —       |       | —            |       |
| Share  repurchases (Note K)                                   |       | (19,592                | )          | (856       | )          | (988                     | )          | (17,748      | )          | —            |       |
| Other  stock plan activity                                    |       | 1,608                  |       | 116        |       | 1,492                    |       | —       |       | —            |       |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Balance,  September 27, 2008                             |       | 176,224                |       | 11,878     |       | 14,788                   |       | 149,920      |       | (362              | )          |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Net  loss                                                     |       | (3,141                 | )          | —     |       | —                   |       | (3,141       | )          | —            |       |
| Cash  dividends                                               |       | (9,997                 | )          | —     |       | —                   |       | (9,997       | )          | —            |       |
| Change  in pension obligation, net of tax (Note G)            |       | (265                   | )          | —     |       | —                   |       | —       |       | (265              | )          |
| Stock-based  compensation (Note F)                            |       | 1,424                  |       | 11         |       | 1,413                    |       | —       |       | —            |       |
| Other  stock plan activity                                    |       | 345                    |       | 67         |       | 278                      |       | —       |       | —            |       |
|                                                          |       |                   |       |       |       |                     |       |         |       |              |       |
| Balance,  September 26, 2009                             |       | $                      | 164,590    |       | $          | 11,956                   |       | $            | 16,479     |              | $          | 136,782 |   | $ | (627 | ) |

 

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

 

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**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**A.  Summary of SignificantAccounting Policies**

 

**Business:**  CourierCorporation and its subsidiaries (“Courier” or the “Company”) print, publishand sell books.  Courier has two businesssegments: book manufacturing and specialty book publishing.

 

**Principles of Consolidation and Presentation:** The consolidatedfinancial statements, prepared on a fiscal year basis, include the accounts ofCourier Corporation and its subsidiaries after elimination of all intercompanytransactions.  Such financial statementshave been prepared in conformity with accounting principles generally acceptedin the United States of America (“generally accepted accounting principles”).

 

**Financial Instruments:** Financial instruments consistprimarily of cash, investments in mutual funds, accounts receivable, accountspayable and debt obligations.  At September 26,2009 and September 27, 2008, the fair value of the Company’s financialinstruments approximated their carrying values. The fair value of the Company’s revolving credit facility approximatesits carrying value due to the variable interest rate and the Company’s currentrate standing (see Note D).  The Companyclassifies as cash and cash equivalents amounts on deposit in banks andinstruments with maturities of three months or less at time of purchase.

 

Investmentsconsist of mutual fund investments for which underlying funds primarily investin equity securities.  Such short-term instruments are held fortrading purposes.  Theseinvestments are classified as trading securities and are recorded at fair valueutilizing quoted prices in active markets at year end.  Earningsfrom investments were $21,000 in 2009 and $144,000 in 2007; a loss of $19,000was incurred on these instruments in 2008. Such amounts are included in the caption “Interest expense, net” in theaccompanying consolidated statements of operations.

 

**Property, Plant and Equipment:** Property, plant and equipmentare recorded at cost, including interest on funds borrowed to finance theacquisition or construction of major capital additions.  Interest capitalized was $123,000 in 2008 and$169,000 in 2007; no such interest was capitalized in 2009.  The Company provides for depreciation ofproperty, plant and equipment on a straight-line basis over periods rangingfrom 10 to 40 years on buildings and improvements and from 3 to 11 years onequipment and furnishings.

 

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

 

**Goodwill and Other Intangibles:**The Company evaluates possible impairment annually atthe end of its fiscal year or whenever events or circumstances indicate thatthe carrying

 

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value of theassets may not be recoverable. These tests are performed at the reporting unitlevel, which is the operating segment or one level below the operating segment.In the second quarter of fiscal 2009, the Company performed an interim test ofgoodwill for Dover Publications, Inc. (“Dover”), one of the companies inits specialty publishing segment. These additional tests were performed due toa decline in sales and profits at Dover resulting from the continued downturnin the economic environment and in consumer spending.

 

The goodwillimpairment test is a two-step test.  Inthe first step, the Company compares the fair value of the reporting unit toits carrying value.  If the fair value ofthe reporting unit exceeds the carrying value of its net assets, then goodwillis not impaired and the Company is not required to perform furthertesting.  If the carrying value of thenet assets of the reporting unit exceeds its fair value, then the Company mustperform the second step in order to determine the implied fair value of thereporting unit’s goodwill and compare it to the carrying value of itsgoodwill.  The Company used a valuationmethodology to estimate the fair value of Dover based on a discounted cash flowand a market value approach.  Keyassumptions and estimates included revenue and operating income forecasts andthe assessed growth rate after the forecast period.

 

After performingthe step-one test, the Company determined that the fair value of Dover at theend of the second quarter was below its carrying value and as such the secondstep was required.  The second step ofthe impairment test included estimating the fair value of the tangible andidentified intangible assets and liabilities of the impaired reporting unit.  The implied goodwill is the residual of thetotal fair value of the reporting unit less the accumulated fair value ofidentified tangible and intangible assets and liabilities.  Based on the results of these valuations, theCompany recorded a pre-tax impairment charge of $15.6 million, representing100% of Dover’s goodwill, at the end of the second quarter.

 

In the thirdquarter of the prior year, impairment testing was performed on the goodwill andother intangible assets of Federal Marketing Corporation, d/b/a CreativeHomeowner (“Creative Homeowner”), resulting in pre-tax impairment charges of$15.3 million to goodwill, $0.8 million to trade name, and $7.5 million tocustomer lists. The total of these pre-tax impairment charges in fiscal 2008for Creative Homeowner’s goodwill and other intangible assets was $23.6million.

 

“Other intangibles”includes customer lists related to Creative Homeowner and Moore-Langen PrintingCompany, Inc. (“Moore Langen”), which are being amortized over 15-year and10-year periods, respectively.  Amortization related to customer lists for Moore Langen and CreativeHomeowner was $200,000 for fiscal 2009 compared with $629,000 and $787,000 infiscal years 2008 and 2007, respectively. Annual amortization expense for the next five years will beapproximately $200,000 prospectively.

 

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The followingtable reflects the components of “Goodwill” at September 26, 2009:

 
| ** **                          | ** ** | **(000’s omitted)** | ** ** |
|-------------------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Book  Manufacturing**  | ** ** | **Specialty  Publishing** | ** ** | **Total** | ** ** |
| Balance  at September 27, 2008 |       | $                        | 14,771     |   | $ | 25,141 |   | $ | 39,912 |   |
| Acquisition  adjustment             |       | —                   |       | 675 |   | 675 |   |
| Impairment  charge                  |       | —                   |       | (15,607 | ) | (15,607 | ) |
| Balance  at September 26, 2009 |       | $                        | 14,771     |   | $ | 10,209 |   | $ | 24,980 |   |

 

In 2009, an adjustmentwas made regarding the purchase accounting for the 2006 acquisition of CreativeHomeowner relating to the calculation of deferred tax assets on certainreserves. The $675,000 adjustment above resulted in an increase in goodwill,with an offsetting reduction in deferred tax assets.

 

The following tablereflects the components of “Other Intangibles” at September 26, 2009:

 
| ** **                          | ** ** | **(000’s omitted)** | ** ** |
|-------------------------------------|------------|--------------------------|------------|
| ** **                          | ** ** | **Book Manufacturing**   | ** ** | **Specialty Publishing** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Trade  Name**          | ** ** | **Customer  Lists** | ** ** | **Trade  Name** | ** ** | **Customer  Lists** | ** ** | **Total** | ** ** |
| Balance  at September 27, 2008 |       | $                        | 931        |   | $ | 170 |   | $ | 550 |   | $ | 2,269 |   | $ | 3,920 |   |
| Amortization  expense               |       | —                   |       | (20 | ) | — |   | (180 | ) | (200 | ) |
|                                |       |                     |       |   |   |   |   |   |   |   |   |
| Balance  at September 26, 2009 |       | $                        | 931        |   | $ | 150 |   | $ |  550 |   | $ |  2,089 |   | $ |  3,720 |   |

 

The above amounts forother intangibles at September 26, 2009 are net of accumulatedamortization of  $0.1 million and $1.9million for the book manufacturing and specialty publishing segments,respectively.

 

**Prepublication Costs:**Prepublication costs, associatedwith creating new titles in the specialty publishing segment, are amortized tocost of sales using the straight-line method over estimated useful lives ofthree to five years. In fiscal 2009, such amortization includes $0.2 million toaccelerate the amortization of underperforming titles.

 

**Long-Lived Assets:**Management periodically reviewslong-lived assets for impairment. As discussed above in the caption “Goodwill and Other Intangibles,” in2009 the Company recorded an impairment of the goodwill of Dover. In addition,the Company closed one of it’s book manufacturing locations during fiscal 2009and adjusted the useful lives and accelerated the depreciation of assets thatwill not be utilized at other locations (see Note H).

 

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

 

**Revenue Recognition:**Revenue is recognized uponshipment of goods to customers or upon the transfer of ownership for thosecustomers for whom the Company provides manufacturing and distributionservices.  Revenue for distributionservices is recognized as services are provided.  Shipping and handling fees billed tocustomers are classified as revenue.  Inthe specialty publishing segment, revenue is recognized net of an allowance forsales returns.  The process which theCompany uses to determine its net sales, including the related reserveallowance for returns, is based upon applying an estimated return rate tocurrent year sales.  This estimatedreturn rate is based on actual historical return experience.

 

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

 

**Subsequent Events:**TheCompany considers events or transactions that occur after the balance sheet datebut before the financial statements are issued to provide additional evidencerelative to certain estimates or to identify matters that require additionaldisclosure.  Such events were evaluatedthrough November 24, 2009, the day before the financial statementissuance.

 

**Net Income per Share:** Basic net income per share isbased on the weighted average number of common shares outstanding eachperiod.  Diluted net income per sharealso includes potentially dilutive items such as stock options (Note J).  Shares used to calculate basic and diluted amounts per share for fiscalyears 2009 and 2008 are the same due to the Company incurring a loss in thoseperiods.

 

**NewAccounting Pronouncements: **In December 2007,the Financial Accounting Standards Board (“FASB”) issued authoritative literature onbusiness combinations, which expands the definition of a business combinationand changes the manner in which the Company accounts for business combinationsbeginning in fiscal 2010. Significant changes include the capitalization ofIPR&D as an indefinite-lived asset, the recognition of certain acquiredcontingent assets and liabilities at fair value, the expensing ofacquisition-related restructuring actions and transaction costs, and therecognition of contingent purchase price consideration at fair value on theacquisition date. In addition, post-acquisition changes in deferred tax assetvaluation allowances and acquired income tax uncertainties will be recognizedas income tax expense or benefit. The accounting treatment for taxes will beapplicable to acquisitions that close both prior and subsequent to the adoptionof this guidance. The Company will adopt this guidance at the beginning of theCompany’s fiscal year 2010 and does not believe the adoption will have a materialeffect on its consolidated financial position, results of operations, or cashflow.

 

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InApril 2008, the FASB issued authoritative guidance for determining theuseful life of intangible assets. The guidance amends the factors that shouldbe considered in determining the useful life of a recognized intangible asset.The Company will adopt this guidance in the first quarter of 2010 and does notbelieve that the adoption will have a material effect on its consolidatedfinancial statements.

 

InDecember 2008, the FASB issued enhanced disclosure requirements fordefined benefit pension and other postretirement benefit plan assets. Theadditional disclosures are intended to provide users of financial statementswith an enhanced understanding of (a) how investment allocation decisionsare made, (b) the major categories of plan assets, (c) the inputs andvaluation techniques used to measure the fair value of plan assets, (d) theeffect of fair value measurements using significant unobservable inputs onchanges in plan assets for the period and (e) significant concentrationsof risk within plan assets. The Company is required to comply with thesedisclosure requirements beginning in fiscal 2010.

 

**B. Inventories**

 

Inventories are valued atthe lower of cost or market. Cost is determined using the last-in, first-out(LIFO) method for approximately 53% and 44% of the Company’s inventories at September 26,2009 and September 27, 2008, respectively. Other inventories, primarily in the specialty publishing segment, aredetermined on a first-in, first-out (FIFO) basis.

 

Inventories consisted ofthe following at September 26, 2009 and September 27, 2008:

 
| ** **      | ** ** | **(000’s  omitted)** | ** **   |
|-----------------|------------|---------------------------|--------------|
| ** **      | ** ** | **2009**                  | ** **   | **2008** | ** ** |
|            |       |                      |         |   |   |
| Raw materials   |       | $                         |  4,384  |   | $ |  5,263 |   |
| Work in process |       | 8,286                     |         | 8,091 |   |
| Finished goods  |       | 25,356                    |         | 23,812 |   |
| Total           |       | $                         |  38,026 |   | $ |  37,166 |   |

 

Ona FIFO basis, reported year-end inventories would have been higher by $5.5million in fiscal 2009 and $5.9 million in fiscal 2008.

 

**C.  Income Taxes**

 

At the beginningof fiscal 2008, the Company adopted the recognition, measurement and disclosureguidance for the accounting for uncertain tax positions, which contains a two-step approach.  The first step is to evaluate the taxposition for recognition by determining if the weight of available evidenceindicates that it is more likely than not that the position will be sustainedon audit, including resolution of related appeals or litigation processes, ifany.  The second step is to measure thetax benefit, quantified as the largest amount that is cumulatively more than50% likely to be realized upon ultimate settlement.  The Company recognizes interest and penaltiesrelated to unrecognized tax benefits in income tax expense.  The cumulative effect of adopting thisguidance at the beginning of fiscal 2008 was $108,000 and was recorded as areduction in retained 

 

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earnings with a corresponding liability. During fiscal years 2009 and2008, certain federal and state statutes of limitations expired. As such, theunrecognized tax benefits and accrued interest were reduced by approximately$43,000 in each of the fiscal years 2009 and 2008.  The impact of the remaining liabilitybalance, if recognized, would favorably affect the Company’s effective incometax rate in future periods. The Company does not anticipate any significantchanges in the amount of unrecognized tax benefits over the next twelve months.

 

The Company files federal and state income tax returns in variousjurisdictions of the United States. With few exceptions, the Company is nolonger subject to income tax examinations for years prior to fiscal 2006.  Substantially all U.S. federal tax yearsprior to fiscal 2006 have been audited by the Internal Revenue Service and closed.

 

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

 
| ** **                               | ** ** | **(000’s  omitted)** | ** **   |
|------------------------------------------|------------|---------------------------|--------------|
| ** **                               | ** ** | **2009**                  | ** **   | **2008** | ** ** | **2007** | ** ** |
|                                     |       |                      |         |   |   |   |   |
| Federal taxes at statutory  rate         |       | $                         |  (1,679 | ) | $ |  24 |   | $ |  14,303 |   |
| State taxes, net of federal  tax benefit |       | 56                        |         | 800 |   | 1,312 |   |
| Federal manufacturer’s  deduction   |       | (136                      | )            | (374 | ) | (349 | ) |
| Tax benefit of export related  income    |       | —                    |         | — |   | (165 | ) |
| Other                                    |       | (37                       | )            | (11 | ) | 20 |   |
| Total                                    |       | $                         |  (1,796 | ) | $ |  439 |   | $ |  15,121 |   |

 

The tax benefitsin fiscal 2009 and 2008 related to the impairment charge for Dover and CreativeHomeowner, respectively, were recognized at 35% (see Note A).  No state tax benefit was recognized on theimpairment charges as the Company provided a valuation allowance on the relateddeferred state tax assets.

 

The provision for income taxes consisted of the following:

 
| ** ** | ** ** | **(000’s  omitted)** | ** **   |
|------------|------------|---------------------------|--------------|
| ** ** | ** ** | **2009**                  | ** **   | **2008** | ** ** | **2007** | ** ** |
| Current:   |       |                      |         |   |   |   |   |
| Federal    |       | $                         |  2,205  |   | $ |  5,121 |   | $ |  12,410 |   |
| State      |       | 965                       |         | 1,288 |   | 1,613 |   |
|       |       | 3,170                     |         | 6,409 |   | 14,023 |   |
| Deferred:  |       |                      |         |   |   |   |   |
| Federal    |       | (4,181                    | )            | (6,109 | ) | 652 |   |
| State      |       | (785                      | )            | 139 |   | 446 |   |
|       |       | (4,966                    | )            | (5,970 | ) | 1,098 |   |
| Total      |       | $                         |  (1,796 | ) | $ |  439 |   | $ |  15,121 |   |

 

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Thefollowing is a summary of the significant components of the Company’s deferredtax assets and liabilities as of September 26, 2009 and September 27,2008:

 
| ** **                                                | ** ** | **(000’s  omitted)** | ** **  |
|-----------------------------------------------------------|------------|---------------------------|-------------|
| ** **                                                | ** ** | **2009**                  | ** **  | **2008** | ** ** |
| Current deferred tax assets:                              |       |                      |        |   |   |
| Vacation accrual not currently  deductible                |       | $                         |  700   |   | $ |  809 |   |
| Other accruals not currently  deductible                  |       | 781                       |        | 634 |   |
| Non-deductible reserves                                   |       | 2,756                     |        | 3,012 |   |
| Other                                                     |       | 225                       |        | 225 |   |
| Total current deferred tax  assets                        |       | 4,462                     |        | 4,680 |   |
|                                                      |       |                      |        |   |   |
| Non-current deferred tax  assets (liabilities):           |       |                      |        |   |   |
| Deferred compensation arrangements                        |       | 2,175                     |        | 2,213 |   |
| Tax benefits of stock option  activity                    |       | (86                       | )           | (55 | ) |
| Goodwill and other intangibles                            |       | 7,708                     |        | 3,460 |   |
| Accelerated depreciation                                  |       | (9,447                    | )           | (9,495 | ) |
| State NOL carryforwards                                   |       | 1,943                     |        | 819 |   |
| Pension obligation (Note G)                               |       | 384                       |        | 222 |   |
| Other                                                     |       | 308                       |        | 351 |   |
| Total non-current deferred tax  assets (liabilities)      |       | 2,985                     |        | (2,485 | ) |
| Valuation allowances                                      |       | (3,162                    | )           | (2,202 | ) |
| Total non-current deferred tax  assets (liabilities), net |       | (177                      | )           | (4,687 | ) |
|                                                      |       |                      |        |   |   |
| Total deferred tax assets  (liabilities)                  |       | $                         |  4,285 |   | $ |  (7 | ) |

 

The Company fully provided valuation allowances for state net operatingloss carryforwards.  The Company has alsoprovided valuation allowances of approximately $1.2 million for deferred statetax assets related to Dover’s and Creative Homeowner’s impairment charges, asmanagement believes that their realization is not likely.  The Company increased it’s valuationallowance $960,000 in 2009, $2.0 million in 2008 and had a decrease in thevaluation allowance of $488,000 in 2007.

 

Non-currentdeferred tax assets have been netted against non-current deferred taxliabilities for balance sheet classification purposes. In 2009, an adjustment was made regarding the purchase accounting forthe 2006 acquisition of Creative Homeowner relating to the calculation ofdeferred tax assets on certain reserves. The $675,000 adjustment resulted in anincrease in goodwill, with an offsetting reduction in deferred tax assets.

 

**D.  Long-Term Debt**

 

The Company has a $100 million long-term revolving credit facility inplace under which the Company can borrow at a rate not to exceed LIBOR plus1.5%.  The Company’s interest rate at September 26,2009 was 0.8%.  The Company also has anindustrial bond arrangement, which bears interest at 3% and provides for a lienon the assets acquired with the proceeds.

 

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At September 26, 2009 and September 27, 2008, the Company had$13.5 million and $23.5 million, respectively, in borrowings under itslong-term revolving credit facility, which matures in March 2013.  Long-term debt at September 26, 2009 andSeptember 27, 2008 also included its obligation under an industrialdevelopment bond arrangement totaling $154,000 and $247,000, respectively,including current maturities of $96,000 and $93,000, respectively.  At September 26, 2009, scheduledaggregate principal payments of these obligations were $96,000 in 2010, $58,000in 2011 and $13,456,000 in 2013.

 

The revolving credit facility contains restrictive covenants includingprovisions relating to the maintenance of working capital, the incurrence ofadditional indebtedness and a quarterly test of EBITDA to debt service. TheCompany was in compliance with all such covenants at September 26,2009.  The facility also provides for acommitment fee not to exceed 3/8% per annum on the unused portion.  These fees are included in the caption “Interestexpense, net” in the accompanying Consolidated Statements of Operations.  The revolving credit facility is available tothe Company for both its long-term and short-term financing needs.

 

**E.  Commitments and Contingencies**

 

The Company is committed under various operating leases to make annualrental payments for certain buildings and equipment. Amounts charged tooperations under such leases approximated $2,568,000 in 2009, $3,343,000 in2008, and $3,436,000 in 2007.  As of September 26,2009, minimum annual rental commitments under the Company’s long-term operatingleases were approximately $1,663,000 in 2010, $1,469,000 in 2011, $1,265,000 in2012, $1,254,000 in 2013, $1,190,000 in 2014 and $905,000 in the aggregatethereafter.  At September 26, 2009and September 27, 2008, the Company had letters of credit outstanding of$2,230,000 and $1,650,000, respectively.

 

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

 

**F.  Stock Arrangements**

 

The Company recordsstock-based compensation expense for the cost of stock options, stock grants,and shares issued under the Company’s Employee Stock Purchase Plan. The fairvalue of each option awarded is calculated on the date of grant using theBlack-Scholes option-pricing model. Stock-based compensation recognized in selling and administrativeexpenses in the accompanying financial statements, and the related tax benefit,were as follows:

 
| ** **                            | ** ** | **(000’s  omitted)** | ** **  |
|---------------------------------------|------------|---------------------------|-------------|
| ** **                            | ** ** | **2009**                  | ** **  | **2008** | ** ** | **2007** | ** ** |
|                                  |       |                      |        |   |   |   |   |
| Stock-based compensation  expense     |       | $                         |  1,424 |   | $ |  1,313 |   | $ |  1,460 |   |
| Related tax benefit                   |       | (464                      | )           | (405 | ) | (454 | ) |
| Stock-based compensation, net  of tax |       | $                         |  960   |   | $ |  908 |   | $ |  1,006 |   |

 

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Unrecognizedstock-based compensation cost at September 26, 2009 was $2.0 million to berecognized over a weighted-average period of 2.3****years.

 

**Stock Incentive Plan:** The Company’s Amended andRestated 1993 Stock Incentive Plan provides for the granting of stock optionsand stock grants up to a total of 2,064,375 shares.  Under the plan provisions, both non-qualifiedand incentive stock options to purchase shares of the Company’s common stockmay be granted to key employees.  Theoption price per share may not be less than the fair market value of stock atthe time the option is granted and incentive stock options must expire notlater than ten years from the date of grant. The Company annually issues a combination of stock options and stockgrants to its key employees.  Stockoptions and stock grants generally vest over three years.

 

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

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted  Average** | ** **  | **Aggregate****Intrinsic**  | ** ** |
|-------------------------------|------------|------------|------------|-----------------------|-------------|-----------------------------|------------|
| ** **                    | ** ** | **Shares** | ** ** | **Exercise****Price** | ** **  | **Remaining****Term (yrs)** | ** ** | **Value****(in 000’s)** | ** ** |
| Outstanding at Sept. 30, 2006 |       | 401,891    |       | $                     |  21.69 |                        |       |   |   |   |
| Issued                        |       | 66,154     |       | 36.70                 |        |                        |       |   |   |
| Exercised                     |       | (80,377    | )          | 15.47                 |        |                        |       |   |   |
| Cancelled                     |       | (157       | )          | 35.51                 |        |                        |       |   |   |
| Outstanding at Sept. 29, 2007 |       | 387,511    |       | $                     |  25.53 |                        |       |   |   |   |
| Issued                        |       | 106,465    |       | 21.17                 |        |                        |       |   |   |
| Exercised                     |       | (46,674    | )          | 11.07                 |        |                        |       |   |   |
| Cancelled                     |       | (6,048     | )          | 36.57                 |        |                        |       |   |   |
| Expired                       |       | (11,788    | )          | 25.86                 |        |                        |       |   |   |
| Outstanding at Sept. 27, 2008 |       | 429,466    |       | $                     |  25.86 |                        |       |   |   |   |
| Issued                        |       | 114,682    |       | 15.51                 |        |                        |       |   |   |
| Exercised                     |       | (73,111    | )          | 16.91                 |        |                        |       | $ | 20 |   |
| Cancelled                     |       | (334       | )          | 37.29                 |        |                        |       |   |   |
| Expired                       |       | (6,817     | )          | 23.34                 |        |                        |       |   |   |
| Outstanding at Sept. 26, 2009 |       | 463,886    |       | $                     |  24.74 |                        | 3.2        |   | $ |  — |   |
|                          |       |       |       |                  |        |                        |       |   |   |
| Exercisable at Sept. 26, 2009 |       | 257,386    |       | $                     |  28.87 |                        | 2.2        |   | $ |  — |   |
| Available for future grants   |       | 193,773    |       |                  |        |                        |       |   |   |

 

There were 51,159 non-vested stock grants outstanding at the beginning offiscal 2009 with a weighted-average fair value of $30.99 per share.  During 2009, 26,198 stock grants were awardedwith a weighted-average fair value of $15.51 per share.  There were 10,863 stock grants that vested in2009 with a weighted-average fair value of $36.84 per share.  Also, 333 non-vested stock grants, with aweighted-average fair value of $43.55, were forfeited during 2009. At September 26,2009, there were 66,161 non-vested stock grants outstanding with aweighted-average fair value of $23.83.

 

**Directors’ Option Plan:** In January 2005,stockholders approved the Courier Corporation 2005 Stock Equity Plan forNon-Employee Directors (the “2005 Plan”). 

 

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Under the plan provisions, non-qualified stock options to purchase sharesof the Company’s common stock may be granted to non-employee directors up to atotal of 225,000 shares.  The optionprice per share is the fair market value of stock at the time the option isgranted.  The options are immediatelyexercisable and have a term of five years. The 2005 Plan replaced the previousnon-employee directors’ plan which had been adopted in 1989 (the “1989 Plan”).  The 1989 Plan allowed directors to make anelection to apply their annual retainer fee toward the granting of stockoptions at a price per share that was $5 below the fair market value at thetime of the option award.  No furtheroptions will be granted under the 1989 Plan.

 

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

 
| ** **                    | ** ** | ** ** | ** ** | **Weighted  Average** | ** **  | **Aggregate****Intrinsic**  | ** ** |
|-------------------------------|------------|------------|------------|-----------------------|-------------|-----------------------------|------------|
| ** **                    | ** ** | **Shares** | ** ** | **Exercise****Price** | ** **  | **Remaining****Term (yrs)** | ** ** | **Value****(in 000’s)** | ** ** |
| Outstanding at Sept. 30, 2006 |       | 185,127    |       | $                     |  25.78 |                        |       |   |   |   |
| Issued                        |       | 38,064     |       | 39.18                 |        |                        |       |   |   |
| Exercised                     |       | (56,094    | )          | 18.25                 |        |                        |       |   |   |
| Outstanding at Sept. 29, 2007 |       | 167,097    |       | $                     |  31.36 |                        |       |   |   |   |
| Issued                        |       | 42,000     |       | 26.86                 |        |                        |       |   |   |
| Exercised                     |       | (30,750    | )          | 21.26                 |        |                        |       |   |   |
| Cancelled                     |       | (14,727    | )          | 36.69                 |        |                        |       |   |   |
| Outstanding at Sept. 27, 2008 |       | 163,620    |       | $                     |  31.63 |                        |       |   |   |   |
| Issued                        |       | 45,567     |       | 15.17                 |        |                        |       |   |   |
| Expired                       |       | (22,500    | )          | 20.97                 |        |                        |       |   |   |
| Outstanding at Sept. 26, 2009 |       | 186,687    |       | $                     |  28.89 |                        | 2.5        |   | $ |  — |   |
|                          |       |       |       |                  |        |                        |       |   |   |
| Exercisable at Sept. 26, 2009 |       | 186,687    |       | $                     |  28.89 |                        | 2.5        |   | $ |  — |   |
| Available for future grants   |       | 4,501      |       |                  |        |                        |       |   |   |

 

Directors may also elect to receive their annual retainer and committeechair fees as shares of stock in lieu of cash. Such shares issued in 2009, 2008 and 2007 were 10,542 shares, 5,399shares, and 4,338 shares at a fair market value of $15.16, $26.86 and $39.18,respectively.

 

**Employee Stock Purchase Plan:** The Company’s 1999 EmployeeStock Purchase Plan (“ESPP”), as amended, covers an aggregate of 337,500 sharesof Company common stock for issuance under the plan.  Eligible employees may purchase shares ofCompany common stock at not less than 85% of fair market value at the end ofthe grant period.  During 2009, 2008, and2007, 40,560 shares, 28,774 shares, and 20,066 shares, respectively, wereissued under the plan at an average price of $12.49 per share, $20.44 pershare, and $31.46 per share, respectively. Since inception, 325,724****shares havebeen issued.  At September 26, 2009,an additional 11,776 shares were reserved for future issuances.

 

**Stockholders’ Rights Plan:** On March 18, 2009, theBoard of Directors renewed its ten-year stockholders’ rights plan.  Under the plan, the Company’s stockholders ofrecord at 

 

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March 19, 2009 received a right to purchase a unit (“Unit”)comprised of one one-thousandth of a share of preferred stock for each share ofcommon stock held on that date at a price of $100, subject to adjustment.  Until such rights become exercisable, onesuch right will also attach to subsequently issued shares of common stock.  The rights become exercisable if a person orgroup acquires 15% or more of the Company’s common stock or after commencementof a tender or exchange offer which would result in a person or groupbeneficially owning 15% or more of the Company’s common stock.  When exercisable, under certain conditions,each right entitles the holder thereof to purchase Units or shares of commonstock of the acquirer, in each case having a market value at that time of twicethe right’s exercise price.  The Board ofDirectors will be entitled to redeem the rights at one cent per right, undercertain circumstances.  The rights expirein 2019.

 

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

 

Thefollowing key assumptions were used to value options issued:

 
| ** **                        | ** ** | **2009**       | ** ** | **2008**       | ** ** | **2007**       | ** ** |
|-----------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|
| Risk-free interest rate           |       | 2.0%–2.5% |       | 3.0%–3.1% |       | 4.2%–4.7% |       |
| Expected volatility               |       | 38%–46%   |       | 27%–31%   |       | 25%–27%   |       |
| Expected dividend yield           |       | 5.4%–5.7% |       | 2.6%–3.8% |       | 1.8%–2.0% |       |
| Estimated life for grants  under: |       |           |       |           |       |           |       |
| Stock Incentive Plans             |       | 5 years        |       | 5 years        |       | 5 years        |       |
| Directors’ Option Plans      |       | 5 years        |       | 5 years        |       | 5 years        |       |
| ESPP                              |       | 0.5 years      |       | 0.5 years      |       | 0.5 years      |       |

 

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

 
| ** **                           | ** ** | **Stock  Incentive Plan** | ** ** | **Directors’  Option Plans** | ** ** |
|--------------------------------------|------------|---------------------------|------------|-----------------------------------|------------|
| **On grant  date:**                  | ** ** | **2009**                  | ** ** | **2008**                          | ** ** | **2007** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
| Exercise price equal to stock  price |       | $                         | 4.13       |                              | $          | 4.52 |   | $ | 9.00 |   | $ | 3.25 |   | $ | 5.77 |   | $ | 10.40 |   |
|                                      |            |                           |            |                                   |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

**G.  Retirement Plans**

 

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

 

Retirement costs ofmulti-employer union plans consist of contributions determined in accordancewith the respective collective bargaining agreements.  Retirement benefits for non-union employeesare provided through the Courier Profit Sharing and Savings Plan (“PSSP”), which includes an Employee StockOwnership Plan (“ESOP”).  Retirementcosts included in the accompanying financial statements amounted toapproximately $3,346,000 in 2009, $3,468,000 in 2008, and $3,940,000 in 2007. AtSeptember 26, 2009 

 

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and September 27,2008, the Company had $1.4 million and $1.5 million, respectively, accrued forthe PSSP, which is included in theaccompanying consolidated balance sheet under the caption “Other currentliabilities.”

 

The PSSP is qualified under Section 401(k) of the InternalRevenue Code.  The plan allows eligibleemployees to contribute up to 100% of their compensation, subject to IRSlimitations, with the Company matching 100% of the first 2% of pay plus 25% ofthe next 4% of pay contributed by the employee. The Company also makescontributions to the plan annually based on profits each year for the benefitof all eligible non-union employees.

 

Shares of Company common stock may be allocated to participants’ ESOPaccounts annually based on their compensation as defined in the plan.  During the last three years, no such shareswere allocated to eligible participants. At September 26, 2009, the ESOP held 349,961 shares on behalf ofthe participants.

 

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

 

In September 2006,the FASB issued authoritative literature regarding accounting for definedbenefit pension and other postretirement plans, which requires that employersrecognize the funded status of defined benefit pension and other postretirementbenefit plans as a net asset or liability on the balance sheet and recognize asa component of other comprehensive income, net of tax, the gains or losses andprior service costs or credits that arise during the period but are notrecognized as a component of net periodic benefit cost. Additional financialstatement disclosures are also required. The Company adopted these recognitionand disclosure provisions at the end of fiscal 2007, and accordingly,recognized an after-tax reduction of $0.5 million in accumulated othercomprehensive income, a component of shareholders’ equity. In addition,companies are required to measure plan assets and benefit obligations as oftheir fiscal year end. The Company previously used this date as the measurementdate so there was no impact on the consolidated financials as it relates tothis portion of the adopted guidance.

 

The following tablesprovide information regarding the Dover plan:

 
| **Other changes in plan assets  and obligations**          | ** ** | **(000’s omitted)** | ** ** |
|------------------------------------------------------------|------------|--------------------------|------------|
| **recognized  in other comprehensive income (loss):**      | ** ** | **2009**                 | ** ** | **2008** | ** ** |
| Accumulated  other comprehensive loss at beginning of year |       | $                        | (362       | ) | $ | (505 | ) |
| Net  (loss) gain incurred in year, net of tax              |       | (282                     | )          | 120 |   |
| Amortization  of actuarial net losses, net of tax          |       | 17                       |       | 23 |   |
| Accumulated  other comprehensive loss at end of year       |       | $                        | (627       | ) | $ | (362 | ) |

 

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| ** **                                                                                                     | ** ** | **(000’s omitted)** | ** ** | ** ** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|------------|------------|
| **Change in projected benefit obligation:**                                                | ** ** | **2009**                 | ** ** | **2008**   | ** ** | ** ** | ** ** |
| Benefit  obligation at beginning of year                                                                       |       | $                        | 2,564      |       | $          | 3,070 |   |   |   |
| Administrative  cost                                                                                           |       | 7                        |       | 7          |       |   |   |
| Interest  cost                                                                                                 |       | 167                      |       | 169        |       |   |   |
| Actuarial  loss (gain)                                                                                         |       | 398                      |       | (274       | )          |   |   |
| Benefits  paid                                                                                                 |       | (354                     | )          | (408       | )          |   |   |
| Benefit  obligation at end of year                                                                             |       | $                        | 2,782      |       | $          | 2,564 |   |   |   |
|                                                                                                           |       |                     |       |       |       |   |   |
| **Change in plan assets:**                                                                      | ** ** | **2009**                 | ** ** | **2008**   | ** ** | ** ** | ** ** |
| Fair  value of plan assets at beginning of year                                                                |       | $                        | 2,675      |       | $          | 2,944 |   |   |   |
| Actual  return on plan assets                                                                                  |       | 119                      |       | 112        |       |   |   |
| Employer  contributions                                                                                        |       | —                   |       | 27         |       |   |   |
| Benefits  paid                                                                                                 |       | (354                     | )          | (408       | )          |   |   |
| Fair  value of plan assets at end of year                                                                      |       | $                        | 2,440      |       | $          | 2,675 |   |   |   |
|                                                                                                           |       |                     |       |       |       |   |   |
| Funded  status at end of year                                                                                  |       | $                        | (342       | )          | $          | 111 |   |   |   |
|                                                                                                           |       |                     |       |       |       |   |   |
| **Components of net periodic benefit cost:**                                          | ** ** | **2009**                 | ** ** | **2008**   | ** ** | **2007** | ** ** |
| Administrative  cost                                                                                           |       | $                        | 7          |       | $          | 7 |   | $ | 7 |   |
| Interest  cost                                                                                                 |       | 167                      |       | 169        |       | 184 |   |
| Expected  return on plan assets                                                                                |       | (174                     | )          | (192       | )          | (207 | ) |
| Amortization  of unrecognized net loss                                                                         |       | 27                       |       | 37         |       | 49 |   |
| Net  periodic benefit cost                                                                                     |       | $                        | 27         |       | $          | 21 |   | $ | 33 |   |
|                                                                                                           |       |                     |       |       |       |   |   |
| **Actuarial assumptions used to  determine costs and benefit obligations:** | ** ** | **2009**                 | ** ** | **2008**   | ** ** | **2007** | ** ** |
| Discount  rate                                                                                                 |       | 7.0                      | %          | 6.0        | %          | 5.8 | % |
| Compensation  increases                                                                                        |       | None                     |       | None       |       | None |   |
| Expected  return on plan assets                                                                                |       | 7.0                      | %          | 7.0        | %          | 7.0 | % |

 

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

 

Accrued pension cost of$342,000 at September 26, 2009 was included in the accompanyingconsolidated balance sheet under the caption “Other liabilities” while prepaidpension cost of $111,000 at September 27, 2008 was included in “Otherassets”.

 

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**H. Restructuring Costs**

 

Restructuring costs of$4.8 million in fiscal 2009 included costs associated with winding downCreative Homeowner’s distribution services and closing and consolidating theBook-mart Press manufacturing facility during the second quarter of fiscal2009, as well as employee severance expenses related to additional cost savingactions taken in both of the Company’s segments.

 

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

 
| ** **                                                 | ** ** | **(000’s omitted)**         | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                                       |       |                             |       |   |   |   |   |
| Employee severance and benefit  costs                      |       | $                                | 1,726      |   | $ | 484 |   | $ | 2,210 |   |
| Accelerated depreciation of  property, plant and equipment |       | 617                              |       | — |   | 617 |   |
| Inventory reserves                                         |       | 820                              |       | — |   | 820 |   |
| Lease termination and other  facility closure costs        |       | 1,135                            |       | — |   | 1,135 |   |
| Total restructuring costs                                  |       | $                                | 4,298      |   | $ | 484 |   | $ | 4,782 |   |
|                                                       |       |                             |       |   |   |   |   |
| Included in cost of sales                                  |       | $                                | 3,807      |   | $ | 107 |   | $ | 3,914 |   |
| Included in selling and  administrative expenses           |       | 491                              |       | 377 |   | 868 |   |
| Total restructuring costs                                  |       | $                                | 4,298      |   | $ | 484 |   | $ | 4,782 |   |

 

Employeeseverance costs in the specialty publishing segment included centralizing backoffice and order fulfillment operations in addition to ceasing CreativeHomeowner’s distribution services. Within the book manufacturing segment, the Company closed its Book-martPress manufacturing facility during the second quarter in order to reduceredundant capacity and to lower costs and consolidated its operations into theCompany’s other manufacturing facilities. Also during the second quarter, a voluntary severance program wasoffered throughout the Company, which was followed by additional workforcereductions throughout the Company to better align our costs and revenues. Overall,total headcount was reduced by approximately 12% during fiscal 2009.  Annual savings from these initiatives areprojected to be approximately $5 million in the book manufacturing segment andapproximately $3 million in the specialty publishing segment.

 

Inconnection with the closing and consolidation of the Book-mart Press facility,the Company adjusted the useful lives and accelerated the depreciation ofassets that will not be utilized at other locations. The Company anticipatesthat payments associated with Book-mart Press, including rental paymentsrelated to the lease obligation, will be substantially completed by July 2010.

 

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Amounts accrued forrestructuring costs at September 26, 2009, which are included in “Othercurrent liabilities” in the accompanying consolidated balance sheet, consist ofemployee severance and benefit costs of approximately $0.5 million and leasetermination and other facility closure costs of approximately $0.5 million.

 

**I.  Business Segments**

 

The Company has two business segments: book manufacturing and specialtypublishing. The book manufacturing segment offers a full range of services fromproduction through storage and distribution for religious, educational andspecialty trade book publishers.  Thespecialty publishing segment consists of Dover, REA, and Creative Homeowner.

 

The accounting policies of the segments are the same as those describedin Note A.  Segment performance is evaluated based on severalfactors, of which the primary financial measure is operating income.  Operating income is defined as gross profit(sales less cost of sales) less selling and administrative expenses, andincludes severance and other restructuring costs (see Note H) but excludesstock-based compensation.  As such,segment performance is evaluated exclusive of interest, income taxes,stock-based compensation, intersegment profit elimination, and impairmentcharges.  The elimination of intersegmentsales and related profit represents sales from the book manufacturing segmentto the specialty publishing segment.

 

During the firstquarter of fiscal 2009, the Company changed to this current measure ofreporting segment performance. Previously, reported segment results included aninterest allocation.  The Company’s prioryear segment information has been adjusted to conform to the current year’spresentation.

 

Stock-based compensation, as well as the elimination of intersegmentsales and related profit, are reflected as “unallocated” in the followingtable.  Impairment charges in fiscal 2009 and 2008 (discussedmore fully in Note A) are also included in “unallocated” in the followingtable.  Corporate expenses that are allocated to the segments include varioussupport functions such as information technology services, finance, legal,human resources and engineering, and include depreciation and amortizationexpense related to corporate assets.  Thecorresponding corporate asset balances are not allocated to the segments.  Unallocated corporate assets consistprimarily of cash and cash equivalents and fixed assets used by the corporatesupport functions.

 

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Dollar amounts inthe following table are presented in thousands.

 
| ** **                                    | ** ** | **Total  Company** | ** ** | **Book  Manufacturing** | ** ** | **Specialty****Publishing** | ** ** | **Unallocated** | ** ** |
|-----------------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------------------|------------|-----------------|------------|
| Fiscal 2009                                   |       |               |       |                    |       |                        |       |            |       |
| Net sales                                     |       | $                  | 248,816    |                    | $          | 212,228                     |       | $               | 46,769     |   | $ | (10,181 | ) |
| Operating income (loss)                       |       | (4,261             | )          | 14,667                  |       | (2,189                      | )          | (16,739         | )          |
| Total assets                                  |       | 208,437            |       | 145,730                 |       | 51,151                      |       | 11,556          |       |
| Goodwill, net                                 |       | 24,980             |       | 14,771                  |       | 10,209                      |       | —          |       |
| Depreciation and amortization                 |       | 21,401             |       | 14,592                  |       | 5,994                       |       | 815             |       |
| Capital expenditures and prepublication costs |       | 14,866             |       | 7,255                   |       | 4,946                       |       | 2,665           |       |
| Interest expense, net                         |       | 676                |       | —                  |       | —                      |       | 676             |       |
|                                          |       |               |       |                    |       |                        |       |            |       |
| Fiscal 2008                                   |       |               |       |                    |       |                        |       |            |       |
| Net sales                                     |       | $                  | 280,324    |                    | $          | 229,792                     |       | $               | 61,767     |   | $ | (11,235 | ) |
| Operating income (loss)                       |       | 1,202              |       | 26,173                  |       | (106                        | )          | (24,865         | )          |
| Total assets                                  |       | 240,498            |       | 157,891                 |       | 73,244                      |       | 9,363           |       |
| Goodwill, net                                 |       | 39,912             |       | 14,771                  |       | 25,141                      |       | —          |       |
| Depreciation and amortization                 |       | 21,373             |       | 13,666                  |       | 6,945                       |       | 762             |       |
| Capital expenditures and prepublication costs |       | 17,865             |       | 12,139                  |       | 5,308                       |       | 418             |       |
| Interest expense, net                         |       | 1,133              |       | —                  |       | —                      |       | 1,133           |       |
|                                          |       |               |       |                    |       |                        |       |            |       |
| Fiscal 2007                                   |       |               |       |                    |       |                        |       |            |       |
| Net sales                                     |       | $                  | 294,592    |                    | $          | 231,474                     |       | $               | 72,890     |   | $ | (9,772 | ) |
| Operating income (loss)                       |       | 42,437             |       | 36,136                  |       | 7,436                       |       | (1,135          | )          |
| Total assets                                  |       | 269,835            |       | 157,703                 |       | 103,284                     |       | 8,848           |       |
| Goodwill, net                                 |       | 55,199             |       | 14,771                  |       | 40,428                      |       | —          |       |
| Depreciation and amortization                 |       | 18,856             |       | 12,084                  |       | 6,096                       |       | 676             |       |
| Capital expenditures and prepublication costs |       | 31,795             |       | 25,088                  |       | 5,863                       |       | 844             |       |
| Interest expense, net                         |       | 1,571              |       | —                  |       | —                      |       | 1,571           |       |

 

Export sales as a percentage of consolidated sales were approximately 19%in 2009, 18% in 2008 and 16% in 2007. Approximately 90% of export sales were in the book manufacturing segmentin fiscal years 2009, 2008, and 2007. Sales to the Company’s largest customer amounted to approximately 22%****of consolidated sales in 2009 and 2008, and 20% in 2007. Inaddition, sales to another customer amounted to 22% of consolidated sales in2009, 17% in 2008, and 16% in 2007. Sales to a third customer amounted to approximately 11% of consolidatedsales in 2008, but were less than 10% in 2009 and 2007.  These three customers are in the bookmanufacturing segment and no other customer accounted for more than 10% ofconsolidated sales.  Customers aregranted credit on an unsecured basis. Receivables for the customers that account for more than 10% ofconsolidated sales, as a percentage of consolidated accounts receivable, were24% and 41% at September 26, 2009 and September 27, 2008,respectively.

 

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**J.  NetIncome per Share**

 

Following is areconciliation of the outstanding shares used in the calculation of basic anddiluted net income (loss) per share. Potentially dilutive shares, calculated using the treasury stock method,consist of shares issued under the Company’s stock option plans.  In fiscalyears 2009 and 2008, approximately 16,000 and 72,000 potentially dilutiveshares, respectively, were excluded due to the Company incurring a loss inthose periods.

 
| ** **                             | ** ** | **(000’s  omitted)** | ** ** |
|----------------------------------------|------------|---------------------------|------------|
| ** **                             | ** ** | **2009**                  | ** ** | **2008** | ** ** | **2007** | ** ** |
| Weighted average shares for  basic     |       | 11,850                    |       | 12,294 |   | 12,470 |   |
| Effect of potentially dilutive  shares |       | —                    |       | — |   | 219 |   |
| Weighted average shares for  dilutive  |       | 11,850                    |       | 12,294 |   | 12,689 |   |

 

**K. ShareRepurchase Plan**

 

On November 8,2007, the Company announced the approval by its Board of Directors for therepurchase of up to $10 million of the Company’s outstanding common stock fromtime to time at management’s discretion either through the open market orprivately negotiated transactions (the “Share Repurchase Plan”). During fiscal 2008, the Board ofDirectors of the Company expanded the Company’s Share Repurchase Plan up to atotal amount authorized under the plan of $20 million. Since the inception of theShare Repurchase Plan through September 27, 2008, the Company repurchased approximately 856,000 shares of common stock forapproximately $19.6 million. No shares were repurchased in fiscal 2009.

 

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COURIERCORPORATION

 

FIVE-YEARFINANCIAL SUMMARY

 
| **(Dollar amounts in millions**                   | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
|---------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|------------|
| **except per share data)**                        | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007**   | ** ** | **2006***  | ** ** | **2005**   | ** ** |
|                                              |       |       |       |       |       |       |       |       |       |       |       |
| **Operating Data**                                |       |       |       |       |       |       |       |       |       |       |       |
| Net  sales                                        |       | $          | 248.8      |       | $          | 280.3      |       | $          | 294.6      |       | $          | 269.1 |   | $ | 227.0 |   |
| Gross  profit                                     |       | 57.7       |       | 77.9       |       | 96.4       |       | 88.5       |       | 75.2       |       |
| Net  income (loss)                                |       | (3.1       | )          | (0.4       | )          | 25.7       |       | 28.4       |       | 20.9       |       |
| Net  income (loss) per diluted share              |       | (0.27      | )          | (0.03      | )          | 2.03       |       | 2.25       |       | 1.67       |       |
| Dividends  declared per share                     |       | 0.84       |       | 0.80       |       | 0.72       |       | 0.48       |       | 0.33       |       |
|                                              |       |       |       |       |       |       |       |       |       |       |       |
| **Balance Sheet and Cash Flow Data**              |       |       |       |       |       |       |       |       |       |       |       |
| Total  assets                                     |       | 208.4      |       | 240.5      |       | 269.8      |       | 247.2      |       | 197.0      |       |
| Long-term  debt                                   |       | 13.5       |       | 23.6       |       | 17.4       |       | 17.2       |       | 0.4        |       |
| Stockholders’  equity                        |       | 164.6      |       | 176.2      |       | 203.0      |       | 182.3      |       | 156.5      |       |
| Working  capital                                  |       | 52.4       |       | 56.8       |       | 56.0       |       | 46.2       |       | 66.9       |       |
| Current  ratio                                    |       | 2.9        |       | 2.7        |       | 2.5        |       | 2.3        |       | 3.2        |       |
| Capital  expenditures and prepublication costs    |       | 14.9       |       | 17.9       |       | 31.8       |       | 33.7       |       | 22.6       |       |
| Depreciation  and amortization                    |       | 21.4       |       | 21.4       |       | 18.9       |       | 14.8       |       | 11.7       |       |
|                                              |       |       |       |       |       |       |       |       |       |       |       |
| **Additional Items**                              |       |       |       |       |       |       |       |       |       |       |       |
| Long-term  debt as a percentage of capitalization |       | 7.6        | %          | 11.8       | %          | 7.9        | %          | 8.6        | %          | 0.3        | %          |
| Stockholders’  equity per share              |       | 13.77      |       | 14.84      |       | 16.10      |       | 14.65      |       | 12.71      |       |
| Shares  outstanding (in 000’s)               |       | 11,956     |       | 11,878     |       | 12,612     |       | 12,445     |       | 12,313     |       |
| Number  of employees                              |       | 1,603      |       | 1,825      |       | 1,830      |       | 1,724      |       | 1,479      |       |
|                                                   |            |            |            |            |            |            |            |            |            |            |            |  |  |  |  |  |

 

*Fiscal 2009 and 2008 results include non-cash impairmentcharges of $15.6 and $23.6 million, respectively, (Note A). On an after-taxbasis, the impairment charges were $10.2 million, or $.86 per diluted share, infiscal 2009 and $15.4 million, or $1.25 per diluted share, in fiscal 2008.Fiscal 2006 results include $3.8 million, or $.30 per diluted share,for thereversal of an income tax reserve.*

 

*Net income per diluted share is based on weighted averageshares outstanding; stockholders’ equity per share is based on sharesoutstanding at year end.*

 

----

** Fiscal 2006 was a 53-week period.*

 

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

 

#### ***FORWARD-LOOKINGINFORMATION***

 

*Statements contained herein include forward-looking statements. **Statements that describe future expectations, plansor strategies are considered “forward-looking statements” as that term isdefined under the Private Securities Litigation Reform Act of 1995 and releasesissued by the Securities and Exchange Commission.  The words “believe,” “expect,” “anticipate,” “intend,”“estimate” and other expressions which are predictions of or indicate futureevents and trends and which do not relate to historical matters identifyforward-looking statements.  Suchstatements are subject to risks and uncertainties that could cause actualresults to differ materially from those currently anticipated. **Factors that could affect actualresults include, among others, changes in customers’ demand for the Company’sproducts, including seasonal changes in customer orders and shifting orders tolower cost regions, changes in market growth rates, changes in raw materialcosts and availability, pricing actions by competitors and other competitivepressures in the markets in which the Company competes, consolidation among customersand competitors, success in the execution of acquisitions and the performanceand integration of acquired businesses including carrying value of intangibleassets, restructuring and impairment charges required under generally acceptedaccounting principles, changes in operating expenses including medical andenergy costs, changes in technology including migration from paper-based booksto digital, difficulties in the start up of new equipment or informationtechnology systems, changes in copyright laws, changes in consumer productsafety regulations, changes in environmental regulations, changes in taxregulations, changes in the Company’s effective income tax rate and generalchanges in economic conditions, including currency fluctuations, changes ininterest rates, changes in consumer confidence, changes in the housing market,and tightness in the credit markets. **Although the Company believesthat the assumptions underlying the forward-looking statements are reasonable,any of the assumptions could be inaccurate, and therefore, there can be noassurance that the forward-looking statements will prove to be accurate.  The forward-looking statements includedherein are made as of the date hereof, and the Company undertakes no obligationto update publicly such statements to reflect subsequent events orcircumstances.*

##  

## **OVERVIEW**

 

CourierCorporation, founded in 1824, is one of America’s leading book manufacturersand specialty publishers.  The Companyhas two business segments: book manufacturing and specialty publishing.  The book manufacturing segment streamlinesthe process of bringing books from the point of creation to the point ofuse.  Based on sales, Courier is thethird largest book manufacturer in the United States, offering services fromprepress and production through storage and distribution.  The specialty publishing segment consists ofDover Publications, Inc. (“Dover”), Research & EducationAssociation, Inc. (“REA”), and Federal Marketing Corporation, d/b/aCreative Homeowner (“Creative Homeowner”). Dover publishes over 9,000 titles in more than 30 specialty categoriesranging from literature to paper dolls, and from music scores to clip art.  REA publishes

 

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testpreparation and study-guide books and software for high school, college andgraduate students, and professionals. Creative Homeowner publishes books on home design, decorating, landscapingand gardening, and sells home plans.

 

**OUTLOOK**

 

This year was a difficultone for the book industry and the economy generally.  The worldwide economic recession negativelyimpacted many of the markets served by the Company.  The Company’s financial results for fiscal2009 reflect the effects of the recession, both in terms of reduced sales ineach segment and a non-cash impairment charge at Dover.  Management has acted proactively to takesignificant measures to curtail costs and align costs with revenues.  During fiscal 2009, the Company closed aone-color book manufacturing facility, consolidating sales into its otherfacilities, and ceased a significant book-distribution operation, as part ofreducing headcount by 12%.  The Company’sfinancial condition and cash flow remain strong despite the economic downturn,and as a result of these tough measures, the Company is well positioned to dealwith the challenges and opportunities of fiscal 2010.

 

Although some areas ofthe economy are beginning to show signs of the recession ending, Managementdoes not believe that the economy will be rebounding soon.  Both the specialty publishing and bookmanufacturing segments experienced lower operating margins in 2009 as a resultof lower volume and pricing pressures and Management believes that conditionsin 2010 will not show appreciable improvement. In publishing, the housing market remains troubled and consumers arecautious about discretionary spending. In book manufacturing, school spending on textbooks remains down due tobudget cuts, the religious fundraising environment is challenging, andpublishers are managing inventories closely to maintain working capital.  In this environment, competitors often lowerprices in an attempt to maintain cash flow by trading price concessions forvolume gains.

 

Although Management doesnot see these trends changing in the near future, due to our cost cuttingmeasures and strong cash flow, Management believes that it will be able to meetthese challenges without sacrificing its long term objectives of profitablegrowth and shareholder return.  TheCompany is continuing to invest in technology to maintain our competitiveposition in the industry, as evidenced by the Company’s investment in digitalprint that is anticipated to become operational in the latter half of2010.  The Company is well positionedcompared to its peers due to its low level of debt and significantliquidity.  Therefore, the Company isconfident it will be able to weather the macroeconomic challenges and takeadvantage of opportunities, whether in the form of capital investment ortargeted acquisitions, to further its long-term objectives.

 

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**RESULTS OF OPERATIONS**

 

FINANCIAL HIGHLIGHTS

(dollars inthousands except per share amounts)

 
| ** **                           | ** ** | ** ** | ** **    | ** ** | ** ** | ** **    | ** ** | **Percent  Change** | ** **    |
|--------------------------------------|------------|------------|---------------|------------|------------|---------------|------------|---------------------|---------------|
| ** **                           | ** ** | ** ** | ** **    | ** ** | ** ** | ** **    | ** ** | **2009  vs.**       | ** **    | **2008  vs.** | ** ** |
| ** **                           | ** ** | **2009**   | ** **    | **2008**   | ** ** | **2007**      | ** ** | **2008**            | ** **    | **2007** | ** ** |
| Net  sales                           |       | $          |  248,816 |       | $          |  280,324 |       | $                   |  294,592 |   | -11.2 | % | -4.8 | % |
| Gross  profit                        |       | 57,731     |          | 77,879     |       | 96,363        |       | -25.9               | %             | -19.2 | % |
| As  a percentage of sales            |       | 23.2       | %             | 27.8       | %          | 32.7          | %          |                |          |   |   |
| Selling  and administrative expenses |       | 46,385     |          | 53,034     |       | 53,926        |       | -12.5               | %             | -1.7 | % |
| Impairment  charges                  |       | 15,607     |          | 23,643     |       | —        |       |                |          |   |   |
| Operating  income (loss)             |       | (4,261     | )             | 1,202      |       | 42,437        |       |                |          |   |   |
| Interest  expense, net               |       | 676        |          | 1,133      |       | 1,571         |       |                |          |   |   |
| Pretax  income (loss)                |       | (4,937     | )             | 69         |       | 40,866        |       |                |          |   |   |
| Income  tax (benefit) provision      |       | (1,796     | )             | 439        |       | 15,121        |       |                |          |   |   |
| Net  income (loss)                   |       | $          |  (3,141  | )          | $          |  (370    | )          | $                   |  25,745  |   |   |   |   |   |
| Net  income (loss) per diluted share |       | $          |  (0.27   | )          | $          |  (0.03   | )          | $                   |  2.03    |   |   |   |   |   |

 

Revenuesfor fiscal 2009 were $249 million, down 11% from $280 million in fiscal 2008,with the weak economy affecting both of the Company’s segments.  Book manufacturing segment revenues in fiscal2009 decreased 8% to $212 million compared to fiscal 2008 with modest growth infour-color books offset by reduced demand for one- and two-color books. In thespecialty publishing segment, revenues were $47 million, down 24% from fiscal2008, reflecting reduced consumer spending as well as the winding down ofCreative Homeowner’s book distribution services early in the second quarter offiscal 2009.

 

TheCompany’s net loss in fiscal 2009 was $3.1 million, or $.27 per dilutedshare.  These results includedrestructuring costs related to cost saving initiatives in both of the Company’ssegments of $4.8 million.  In addition,the Company recorded a pre-tax impairment charge of $15.6 million at the end ofthe second quarter related to Dover’s goodwill. For the year, theserestructuring and impairment charges totaled $20.4 million, or $1.13 perdiluted share.

 

Infiscal 2008, revenues were down 5% to $280 million compared to fiscal 2007,reflecting the impact of industry consolidation and the sluggish nationaleconomy. Book manufacturing revenues of $230 million were down 1% from theprior year while revenues in the specialty publishing segment declined 15% to$62 million compared to fiscal 2007.  TheCompany incurred a non-cash, pre-tax impairment charge of $23.6 million ($15.4million after tax or $1.25 per diluted share) related to poor financialperformance at Creative Homeowner as discussed below.  As a result, the Company incurred a net lossfor fiscal 2008 of $370,000 or $.03 per diluted share.

 

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***Restructuring Costs***

Restructuring costs of$4.8 million in fiscal 2009 included costs associated with winding downCreative Homeowner’s distribution services and closing and consolidating theBook-mart Press manufacturing facility during the second quarter of fiscal2009, as well as employee severance expenses related to additional cost savingactions taken in both of the Company’s segments.

 

The following tabledetails restructuring costs by segment and by classification in theaccompanying consolidated statements of operations.

 
| ** **                                                 | ** ** | **(000’s  omitted)**        | ** ** |
|------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                 | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                                       |       |                             |       |   |   |   |   |
| Employee severance and benefit  costs                      |       | $                                | 1,726      |   | $ | 484 |   | $ | 2,210 |   |
| Accelerated depreciation of  property, plant and equipment |       | 617                              |       | — |   | 617 |   |
| Inventory reserves                                         |       | 820                              |       | — |   | 820 |   |
| Lease termination and other  facility closure costs        |       | 1,135                            |       | — |   | 1,135 |   |
| Total restructuring costs                                  |       | $                                | 4,298      |   | $ | 484 |   | $ | 4,782 |   |
|                                                       |       |                             |       |   |   |   |   |
| Included in cost of sales                                  |       | $                                | 3,807      |   | $ | 107 |   | $ | 3,914 |   |
| Included in selling and  administrative expenses           |       | 491                              |       | 377 |   | 868 |   |
| Total restructuring costs                                  |       | $                                | 4,298      |   | $ | 484 |   | $ | 4,782 |   |

 

Employeeseverance costs in the specialty publishing segment included centralizing backoffice and order fulfillment operations in addition to ceasing CreativeHomeowner’s distribution services. Within the book manufacturing segment, the Company closed its Book-martPress manufacturing facility during the second quarter in order to reduceredundant capacity and to lower costs and consolidated its operations into theCompany’s other manufacturing facilities. Also during the second quarter, a voluntary severance program wasoffered throughout the Company, which was followed by additional workforcereductions throughout the Company to better align our costs and revenues.Overall, total headcount was reduced by approximately 12% during fiscal 2009.  Annual savings from these initiatives areprojected to be approximately $5 million in the book manufacturing segment andapproximately $3 million in the specialty publishing segment.

 

Inconnection with the closing and consolidation of the Book-mart Press facility,the Company adjusted the useful lives and accelerated the depreciation ofassets that will not be utilized at other locations.  The Company anticipates that paymentsassociated with Book-mart Press, including rental payments related to the leaseobligation, will be substantially completed by July 2010.

 

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Amounts accrued forrestructuring costs at September 26, 2009, which are included in “Othercurrent liabilities” in the accompanying consolidated balance sheet, consist ofemployee severance and benefit costs of approximately $0.5 million and leasetermination and other facility closure costs of approximately $0.5 million.

 

***Impairment Charges***

The Companyevaluates possible impairment of goodwill and other intangibles at thereporting unit level, which is an operating segment or one level below anoperating segment, on an annual basis or whenever events or circumstancesindicate that the carrying value of the assets may not be recoverable. Duringthe second quarter of fiscal 2009, Dover experienced a decline in sales andprofits resulting from the continued downturn in the economic environment andin consumer spending.  As a result, theCompany performed an assessment of Dover’s goodwill and concluded that thecarrying value of Dover’s goodwill exceeded its estimated fair value.  The Company recorded a pre-tax impairmentcharge of $15.6 million, representing 100% of Dover’s goodwill, at the end ofthe second quarter. On an after-tax basis, the impairment charge was $10.2million, or $.86 per diluted share.

 

In the thirdquarter of fiscal 2008, Creative Homeowner experienced a precipitous decline insales and profits due in large part to the continued downturn in the housingmarket and reduction in store traffic at home improvement centers and otherlarge retail chain stores.  As a result,the Company performed an assessment of goodwill and other intangible assets andconcluded that the carrying value of Creative Homeowner’s goodwill and otherintangible assets exceeded their fair value. The pre-tax impairment chargerelated to the goodwill, trade name, and customer list intangible assets ofCreative Homeowner totaled $23.6 million. On an after-tax basis, the impairment charge was $15.4 million, or $1.25per diluted share, in fiscal 2008.

 

***Book Manufacturing Segment***

 

SEGMENT HIGHLIGHTS

(dollars in thousands)

 
| ** **                           | ** ** | ** ** | ** **   | ** ** | ** ** | ** **   | ** ** | **Percent  Change** | ** **    |
|--------------------------------------|------------|------------|--------------|------------|------------|--------------|------------|---------------------|---------------|
| ** **                           | ** ** | ** ** | ** **   | ** ** | ** ** | ** **   | ** ** | **2009  vs.**       | ** **    | **2008  vs.** | ** ** |
| ** **                           | ** ** | **2009**   | ** **   | **2008**   | ** ** | **2007**     | ** ** | **2008**            | ** **    | **2007** | ** ** |
|                                 |       |       |         |       |       |         |       |                |          |   |   |
| Net  sales                           |       | $          | 212,228      |       | $          | 229,792      |       | $                   |  231,474 |   | -7.6 | % | -0.7 | % |
| Gross  profit                        |       | 40,532     |         | 55,042     |       | 65,356       |       | -26.4               | %             | -15.8 | % |
| As  a percentage of sales            |       | 19.1       | %            | 24.0       | %          | 28.2         | %          |                |          |   |   |
| Selling  and administrative expenses |       | 25,865     |         | 28,869     |       | 29,220       |       | -10.4               | %             | -1.2 | % |
| Operating  income                    |       | $          |  14,667 |       | $          |  26,173 |       | $                   |  36,136  |   | -44.0 | % | -27.6 | % |

 

*Revenues*

Within thissegment, the Company focuses on three key publishing markets: education,religious and specialty trade. Sales to theeducation market were down 9% to $87.6 

 

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million in fiscal 2009 compared to 2008. Higher-education sales were up for the year, particularly growth in salesof four-color college textbooks, while sales of elementary and high schooltextbooks were down, largely due to continued pressure on state and localschool budgets. Sales to the specialty trade market were up 1% to $56.2 millioncompared to last year from growth in sales of four-color specialty trade booksand sales to new customers.  Sales to thereligious market were down 9% to $59.6 million for the year compared to fiscal2008, reflecting a difficult fundraising environment for religious organizations.

 

For fiscal 2008,sales to the education market were $96.5 million, down 5% from fiscal 2007,reflecting unexpectedly slow sales earlier in the year following theconsolidation of two large educational publishers as well as cautious orderingthroughout the industry. Sales to the religious market increased 4% to $65.7million, including a 7% increase with the Company’s largest customer. During2008, the Company completed its multi-year technology upgrade and expansionprogram at its Philadelphia plant with the installation of a new press andbinding equipment, providing both additional capacity to meet the volume needsof the Company’s largest religious customer and significant gains inefficiency.  These investments were animportant part of a multi-year program designed to lower costs and support thiscustomer’s need for expanded scripture distribution around the world.  In the specialty trade market, fiscal 2008sales were $55.8 million, up 3% from the prior year, reflecting the acquisitionof new customers as well as additional four-color business from CreativeHomeowner following the expiration of its external manufacturing contract,which was in place when this business was acquired in 2006.

 

*Cost of Sales /Gross Profit*

A continuing decline in demand for one- and two-color books resulted inreduced capacity utilization at some of the Company’s manufacturingplants.  In response, faced with the weakeconomy and the need to reduce redundant capacity and lower costs, the Companyclosed its Book-mart Press manufacturing facility in the second quarter offiscal 2009 and reduced one-color capacity in other manufacturingfacilities.  Cost of sales in thissegment decreased 2% to $171.7 million in fiscal 2009 compared to the prioryear, but increased as a percentage of sales, reflecting the impact of $3.8million of restructuring costs and lower capacity utilization.  Gross profit in the book manufacturingsegment decreased to $40.5 million, or 19.1% of sales, compared to $55.0million, or 24.0% of sales, last year. In addition to the impact of both lower sales and restructuring costs,the decline in gross profit in fiscal 2009 also reflects continuedindustry-wide competitive pricing pressures and reduced revenues from recyclingprograms.

 

In fiscal 2008, cost of sales in the book manufacturing segment increased5% to $174.8 million compared to the prior year, including increaseddepreciation expense of $1.0 million related to the capital investments inrecent years to expand capacity, as well as increased benefit costs. Grossprofit decreased 16% to $55.0 million compared to fiscal 2007 and decreased asa percentage of sales to 24.0% from 28.2%, reflecting competitive pricingpressures and lower capacity utilization combined with the increases indepreciation expense and benefit costs.

 

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*Selling and Administrative Expenses*

Selling and administrative expenses in the book manufacturing segmentdecreased 10% to $25.9 million, and, as a percentage of sales, decreased to12.2% from 12.6% compared to fiscal 2008. These decreases resulted from reductions in staffing and other costsaving initiatives implemented in the past year along with reduced variablecompensation, and were achieved despite restructuring costs of approximately$0.5 million in fiscal 2009.

 

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

 

*Operating Income*

Operatingincome in the Company’s book manufacturing segment in fiscal 2009 was $14.7million, a decrease of 44% from fiscal 2008. This decrease reflects lower sales and capacity utilization, andincludes restructuring costs of $4.3 million in fiscal 2009.

 

Infiscal 2008, operating income in this segment was $26.2 million, down 28% fromfiscal 2007, due primarily to lower capacity utilization combined with higherdepreciation expense and pricing pressures, which resulted in a drop in grossprofit.

 

***Specialty Publishing Segment***

 

SEGMENT HIGHLIGHTS

(dollars inthousands)

 
| ** **                           | ** ** | ** ** | ** **   | ** ** | ** ** | ** **   | ** ** | **Percent  Change** | ** **   |
|--------------------------------------|------------|------------|--------------|------------|------------|--------------|------------|---------------------|--------------|
| ** **                           | ** ** | ** ** | ** **   | ** ** | ** ** | ** **   | ** ** | **2009  vs.**       | ** **   | **2008  vs.** | ** ** |
| ** **                           | ** ** | **2009**   | ** **   | **2008**   | ** ** | **2007**     | ** ** | **2008**            | ** **   | **2007** | ** ** |
|                                 |       |       |         |       |       |         |       |                |         |   |   |
| Net  sales                           |       | $          |  46,769 |       | $          |  61,767 |       | $                   |  72,890 |   | -24.3 | % | -15.3 | % |
| Gross  profit                        |       | 16,907     |         | 22,746     |       | 30,682       |       | -25.7               | %            | -25.9 | % |
| As  a percentage of sales            |       | 36.2       | %            | 36.8       | %          | 42.1         | %          |                |         |   |   |
| Selling  and administrative expenses |       | 19,096     |         | 22,852     |       | 23,246       |       | -16.4               | %            | -1.7 | % |
| Operating  income (loss)             |       | $          |  (2,189 | )          | $          |  (106   | )          | $                   |  7,436  |   |   |   |   |   |

 

*Revenues*

TheCompany’s specialty publishing segment is comprised of Dover, REA, and CreativeHomeowner.  Sales in fiscal 2009 were$46.8 million, down 24% from the prior year. Sales at Creative Homeowner decreased 49% in fiscal 2009 to $10.5million compared to last year, reflecting the impact of ceasing its distributionservice as well as the persistent weakness in the nation’s housing sector,which has reduced store traffic and sales in the home center market, itslargest channel.  In November 2008,the Company announced that Creative Homeowner would cease its book distributionservice for a single customer, 

 

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whichwas accomplished at the beginning of January, allowing Creative Homeowner tofocus on its core publishing business. Revenues for Dover decreased 11% to$29.9 million compared to fiscal 2008, while REA’s revenues were down 16%.  Both Dover and REA were impacted by the dropin consumer spending as well as reductions in inventory by the major bookretailers.

 

Salesin the specialty publishing segment in fiscal 2008 were $61.8 million, down 15%from fiscal 2007.  The sales shortfallwas largely due to Creative Homeowner where sales decreased 27% to $20.5 million.The continued slowdown in the housing market reduced store traffic and sales inthe home center market, which is Creative Homeowner’s largest channel. Inaddition, Creative Homeowner experienced unusually high returns in all retailchannels in the latter half of the year and, as a result, increased its returnsreserve by approximately $1 million over historical levels.  The weakness in the housing market and itsimpact on the overall economy reduced consumer spending and sales for bothDover and REA. Sales at Dover in fiscal 2008 were $33.7 million, a 9% decreasecompared to the prior year. Sales were down across most of Dover’s saleschannels as retailers ordered cautiously and managed inventoriescarefully.  Sales at REA decreased 2%versus fiscal 2007 to $7.6 million for the year.

 

*Cost ofSales/Gross Profit*

Cost of sales in the specialty publishing segment decreased 23% to $29.9million in fiscal 2009 reflecting lower sales volume compared to prior yearperiods.  The reduction in cost of salesfor this segment was offset in part by restructuring costs related to employeeseverance of $107,000.  Gross profit as a percentage of sales forthe segment was 36.2% compared to 36.8% in fiscal 2008 as the impact of lowersales volume was offset by cost savings initiatives, including cessation ofCreative Homeowner’s distribution activities.

 

Infiscal 2008, cost of sales in the specialty publishing segment decreased 8% to$39.0 million compared to fiscal 2007, reflecting lower sales volume combinedwith additional charges at Creative Homeowner. Creative Homeowner incurred costs of approximately $1.4 million infiscal 2008 to increase inventory reserves and to write down its investment intitles that did not perform up to expectations. Gross profit for this segmentdecreased 26% to $22.7 million in fiscal 2008 compared to the prior year and,as a percentage of sales, decreased to 36.8% from 42.1% in fiscal 2007.  Creative Homeowner reduced the overall grossprofit percentage in the segment because of its lower-margin distributionoperation and the previously discussed increased inventory reserve and othercharges. Gross profit as a percentage of sales for Dover and REA combined was47% in fiscal 2008, comparable to the prior year, as the benefit ofproductivity gains and cost reductions were offset by the impact of lowersales.

 

*Selling and Administrative Expenses*

Sellingand administrative expenses in the specialty publishing segment decreased 16%to $19.1 million in fiscal 2009 compared to the prior year.  The decline in such expenses reflects reducedcosts related to Creative Homeowner’s former distribution services as well ascost savings initiatives throughout the segment.  These savings were offset in part byseverance costs of $377,000 for restructuring charges earlier in the yearrelated to centralizing back office andorder fulfillment operations in the segment in order to reduce costs andimprove efficiency.

 

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In fiscal 2008, selling andadministrative expenses for this segment were down 2% to $22.9 million comparedto fiscal 2007, reflecting the impact of cost reduction programs in the latterhalf of fiscal 2008, particularly reductions in personnel at CreativeHomeowner.

 

*Operating Income(Loss)*

The operating loss for the specialty publishing segment for fiscal 2009was $2.2 million, compared to $106,000 last year, with modest profitability atDover and REA offset by a loss at Creative Homeowner of $3.0 million. Theoperating loss in this segment reflects the sales shortfall resulting fromreduced spending by both retailers and consumers, as well as restructuring chargesof $0.5 million incurred earlier in the year. Results for fiscal 2009 in this segment also reflect losses incurredprior to winding down Creative Homeowner’s distribution services in January 2009.

 

For fiscal 2008, the operating loss in the specialtypublishing segment was $106,000, including a loss at Creative Homeowner of $4.9million.  In response, the Companytook a variety of measures to streamline Creative Homeowner’s operations andreduce market risks, including headcount reductions, inventory writedowns, atightening of editorial focus, and began the cessation of the book distributionoperation. Fiscal 2008 included approximately $1.4 million incharges to increase inventoryreserves and write down the investment in underperforming titles.

 

***Total Consolidated Company***

 

Interest expense, net of interest income,decreased to $0.7 million in fiscal 2009 from $1.1 million in fiscal 2008primarily due to lower interest rates. In fiscal 2008, interest expense, net of interest income, decreased $0.4million to $1.1 million compared to fiscal 2007, also due to lower interestrates. The following table summarizes the average borrowings and average annualinterest rate under the Company’s revolving credit facility for the past threefiscal years.

 
| ** **                              | ** ** | **(Dollars in millions)** | ** ** |
|-----------------------------------------|------------|---------------------------|------------|
| ** **                              | ** ** | **2009**                  | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                    |       |                      |       |   |   |   |   |
| Average  revolving credit facility debt |       | $                         | 24.2       |   | $ | 24.8 |   | $ | 23.3 |   |
| Average  annual interest rate           |       | 1.5                       | %          | 4.0 | % | 5.9 | % |
|                                         |            |                           |            |  |  |  |  |  |  |  |

 

Interest expense also includes commitmentfees and other costs associated with maintaining this credit facility.  Interest capitalized in fiscal 2008 was$123,000, related primarily to the new press at the Philadelphia facility.  Interest capitalized in fiscal 2007 was $169,000,primarily related to the expansion of the Kendallville, Indiana facility.  No interest was capitalized in fiscal 2009.

 

The tax benefitsin fiscal 2009 and 2008 related to the impairment charges incurred in each yearwere recognized at approximately 35% as the Company provided valuationallowances on the related deferred state tax assets.  Excluding the impact of the impairmentcharges, the effective tax rate for fiscal 2009 was 33.9% compared to 36.8% infiscal 2008. The reduction reflects a decrease in the federal statutory ratedue to the lower earnings level, as well as a reduction in state taxesassociated, in part, with the 

 

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impact of recenttax legislation on deferred tax assets. These factors are not expected to recur and, as such, the effective taxrate in fiscal 2010 for the Company is expected to be approximately 38% to38.5%.  For fiscal 2008, the effectivetax rate was 36.8%, excluding the impact of the impairment charge, which wascomparable to the 37.0% tax rate in fiscal 2007.

 

On November 8,2007, the Company announced the approval by its Board of Directors for therepurchase of up to $10 million of the Company’s outstanding common stock fromtime to time at management’s discretion either through the open market orprivately negotiated transactions. Duringfiscal 2008, the Board of Directors of the Company expanded the Company’sShare Repurchase Plan up to a total amount authorized under the plan of $20million. Since the inception of the share repurchase program through September 27,2008, the Company repurchased approximately856,000 shares of common stock for approximately $19.6 million. No shares wererepurchased in fiscal 2009.

 

For purposes of computingnet income or loss per diluted share, weighted average shares outstanding forfiscal years 2009 and 2008 decreased by approximately 444,000 and 395,000shares, respectively, compared to their prior years, primarily due to therepurchase of approximately 856,000 shares during fiscal 2008.

 

**LIQUIDITYAND CAPITAL RESOURCES**

 

Operating activities in fiscal 2009provided $34.8 million of cash compared to $38.7 million in fiscal 2008.  A net loss of $3.1 million included thenon-cash, after-tax impairment charge of $10.2 million.  In addition, stock-based compensation was$1.4 million, depreciation was $15.9 million, amortization of prepublicationcosts was $5.3 million, and amortization of other intangible assets was $0.2million. Depreciation expense in fiscal 2009 includes approximately $0.6million for the acceleration of depreciation of property, plant and equipmentassociated with closing the Book-mart Press facility in the secondquarter.  Working capital provided $4.7million in cash in fiscal 2009, primarily due to an $11.5 million reduction inaccounts receivable offset by a $6.0 million decrease in accounts payable.

 

Investment activities in fiscal 2009 used $15.1 million of cash. Capitalexpenditures were $10.1 million, compared with $12.9 million in fiscal 2008.  Capital expenditures in 2009 included approximately $4 million for completion of a 150,000 squarefoot warehouse to replace leased warehouse space and to better support thesignificant expansion of the nearby manufacturing plant in Kendallville, Indiana,as well as approximately $2 million in deposits for digital printequipment.  Capital expendituresalso included investments to increase productivity, lower costs and improveemployee safety.  Fiscal 2010 capitalexpenditures are expected to be approximately $12 to $14 million, withapproximately half of the spending relating to a new digital print operation. Prepublication costs in the specialty publishingsegment in 2009 were $4.8 million compared to $5.0 million in the prior year.These costs are expected to be approximately $5 million in 2010.

 

Financing activities in fiscal 2009 used $19.5 million of cash.  Cash dividends used $10.0 

 

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million while $10.1 million was used to reduce long-term debt.  At September 26, 2009 and September 27,2008, the Company had $13.5 million and $23.5 million, respectively, inborrowings under its $100 million long-term revolving credit facility, whichbears interest at a floating rate not to exceed LIBOR plus 1.5%.  The interest rate under this facility was0.8% at September 26, 2009.  Therevolving credit facility, which matures in 2013, contains restrictivecovenants including provisions relating to the maintenance of working capital,the incurrence of additional indebtedness and a quarterly test of EBITDA todebt service.  The Company was incompliance with all such covenants at September 26, 2009.  The facility also provides for a commitmentfee not to exceed 3/8% per annum on the unused portion.  The Company believes that its cash on hand,cash from operations and the available credit facility will be sufficient tomeet its cash requirements through fiscal 2010.

 

The followingtable summarizes the Company’s contractual obligations and commitments at September 26,2009 to make future payments as well as its existing commercialcommitments.  The amounts in the table donot include interest expense.  Purchaseobligations represent commitments for capital expenditures.

 
| ** **                     | ** ** | ** ** | ** **   | **(000’s omitted)**   | ** ** |
|--------------------------------|------------|------------|--------------|----------------------------|------------|
| ** **                     | ** ** | ** ** | ** **   | **Payments due by period** | ** ** |
| ** **                     | ** ** | ** ** | ** **   | **Less than**              | ** ** | **1 to 3** | ** ** | **3 to 5** | ** ** | **More  than** | ** ** |
| **Contractual Payments:** | ** ** | **Total**  | ** **   | **1 Year**            | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Long-Term Debt                 |       | $          |  13,610 |                       | $          |  96 |   | $ |  58 |   | $ |  13,456 |   | $ |  — |   |
| Operating Leases               |       | 7,746      |         | 1,663                      |       | 2,734 |   | 2,444 |   | 905 |   |
| Purchase Obligations           |       | 648        |         | 648                        |       | — |   | — |   | — |   |
| Other Long-Term Liabilities    |       | 3,006      |         | —                     |       | 1,136 |   | 311 |   | 1,559 |   |
| Total                          |       | $          |  25,010 |                       | $          |  2,407 |   | $ |  3,928 |   | $ |  16,211 |   | $ |  2,464 |   |

 

Long-term debt includes$13.5 million under the Company’s long-term revolving credit facility, whichhas a maturity date of March 2013.

 

**NEW ACCOUNTING PRONOUNCEMENTS**

 

InDecember 2007, the Financial Accounting Standards Board (“FASB”) issued authoritative literature onbusiness combinations, which expands the definition of a business combinationand changes the manner in which the Company accounts for business combinationsbeginning in fiscal 2010. Significant changes include the capitalization ofIPR&D as an indefinite-lived asset, the recognition of certain acquiredcontingent assets and liabilities at fair value, the expensing ofacquisition-related restructuring actions and transaction costs, and therecognition of contingent purchase price consideration at fair value on theacquisition date. In addition, post-acquisition changes in deferred tax assetvaluation allowances and acquired income tax uncertainties will be recognizedas income tax expense or benefit. The accounting treatment for taxes will beapplicable to acquisitions that close both prior and subsequent to the adoptionof this guidance. The Company will adopt this guidance at the beginning of theCompany’s 

 

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fiscalyear 2010 and does not believe the adoption will have a material effect on itsconsolidated financial position, results of operations, or cash flow.

InApril 2008, the FASB issued authoritative guidance for determining theuseful life of intangible assets. The guidance amends the factors that shouldbe considered in determining the useful life of a recognized intangible asset.The Company will adopt this guidance in the first quarter of 2010 and does notbelieve that the adoption will have a material effect on its consolidatedfinancial statements.

 

InDecember 2008, the FASB issued enhanced disclosure requirements fordefined benefit pension and other postretirement benefit plan assets. Theadditional disclosures are intended to provide users of financial statementswith an enhanced understanding of (a) how investment allocation decisionsare made, (b) the major categories of plan assets, (c) the inputs andvaluation techniques used to measure the fair value of plan assets, (d) theeffect of fair value measurements using significant unobservable inputs onchanges in plan assets for the period and (e) significant concentrationsof risk within plan assets. The Company is required to comply with thesedisclosure requirements beginning in fiscal 2010.

 

**RISKS**

 

Our businesses operate inmarkets that are highly competitive, and the Company faces competition on thebasis of price, product quality, speed of delivery, customer service,availability of appropriate printing capacity and paper, related services andtechnology support.  Some of ourcompetitors have greater sales, assets and financial resources than our Companyand others, particularly those in foreign countries, may derive significantadvantages from local governmental regulation, including tax holidays and othersubsidies. These competitive pressures could affect prices or customers’ demandfor our products, impacting both revenue and profit margins and/or resulting ina loss of customers and market share. The Company derived approximately 44% ofits fiscal 2009 revenues from two major customers and approximately 50% of itsfiscal 2008 revenues from three major customers.  A significant reduction in order volumes orprice levels from any of these customers could have a material adverse effecton the Company.

 

**CRITICAL ACCOUNTING POLICIES AND ESTIMATES**

 

TheCompany’s consolidated financial statements have been prepared in accordancewith accounting principles generally accepted in the United States ofAmerica.  The preparation of thesefinancial statements requires management to make estimates and assumptions thataffect the amounts reported in these financial statements and accompanyingnotes.  On an ongoing basis, managementevaluates its estimates and judgments, including those related tocollectibility of accounts receivable, recovery of inventories, impairment ofgoodwill and other intangibles, prepublication costs and income taxes.  Management bases its estimates and judgmentson historical experience and various other factors believed to be reasonableunder the circumstances, the results of which form the basis for makingjudgments about the carrying value of assets and liabilities at the date of thefinancial statements and the reported amounts of revenues and expenses during theperiods presented.  Actual results maydiffer from these estimates.  Thesignificant accounting policies which management believes are most critical toaid in 

 

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fullyunderstanding and evaluating the Company’s reported financial results includethe following:

 

Accounts Receivable. Management performs ongoing credit evaluations of the Company’scustomers and adjusts credit limits based upon payment history and the customer’scurrent credit worthiness.  Collectionsand payments from customers are continuously monitored.  A provision for estimated credit losses isdetermined based upon historical experience and any specific customercollection risks that have been identified. If the financial condition of the Company’s customers were todeteriorate, resulting in an impairment of their ability to make payments,additional allowances may be required.

 

Inventories.  Management records reductions in the cost basisof inventory for excess and obsolete inventory based primarily upon historicaland forecasted product demand.  If actualmarket conditions are less favorable than those projected by management,additional inventory charges may be required.

 

Goodwill and OtherIntangibles.  Other intangibles include customer lists,which are amortized on a straight-line basis over periods ranging from ten tofifteen years. The Company evaluates possible impairment of goodwill and otherintangibles at the reporting unit level, or one level below an operatingsegment, on an annual basis or whenever events or circumstances indicate thatthe carrying value of the assets may not be recoverable.  The Company completed the annual impairmenttest at September 26, 2009, which resulted in no change to the nature orcarrying amounts of its intangible assets in its book manufacturingsegment.  Due to a decline in sales andprofits at Dover, resulting from the continued downturn in the economicenvironment and in consumer spending, the Company performed an interim test ofDover’s goodwill in the second quarter of fiscal 2009. As a result of theimpairment test, the Company concluded that the carrying value of Dover’sgoodwill exceeded its estimated fair value and recorded a pre-tax impairmentcharge of $15.6 million, representing 100% of Dover’s goodwill.  In the third quarter of fiscal 2008, theCompany performed an interim impairment test for Creative Homeowner due to aprecipitous decline in sales and profits at Creative Homeowner in thequarter.  As a result of the impairmenttests, the Company concluded that the carrying value of Creative Homeowner’sgoodwill and other intangible assets exceeded their estimated fair value. Thetotal pre-tax impairment charge recorded in fiscal 2008 related to thegoodwill, trade name, and customer list intangible assets of Creative Homeownerwas $23.6 million.  Changes in marketconditions or poor operating results could result in a decline in value of the Company’sgoodwill and other intangible assets thereby potentially requiring anadditional impairment charge in the future.

 

Prepublication Costs. The Company capitalizes prepublication costs, which include the costs ofacquiring rights to publish a work and costs associated with bringing amanuscript to publication such as artwork and editorial efforts. Prepublicationcosts are amortized on a straight-line basis over periods ranging from three tofive years.  Management regularlyevaluates the sales and profitability of the products based upon historical andforecasted demand.  Based upon thisevaluation, adjustments may be required to amortization expense.  In fiscal 2009, such an adjustment was madefor $0.2 million to accelerate the amortization of underperforming titles.

 

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

 

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COURIERCORPORATION

 

SELECTED QUARTERLYFINANCIAL DATA (UNAUDITED)

(Dollars in thousands except per share amounts)

 
| **Fiscal 2009**                      | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|--------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|
|                                 |       |      |       |       |       |      |       |       |       |
| Operating  Results:                  |       |      |       |       |       |      |       |       |       |
| Net  sales                           |       | $         | 59,647     |       | $          | 59,360    |       | $          | 61,390     |   | $ | 68,419 |   |
| Gross  profit                        |       | 14,428    |       | 10,623     |       | 14,077    |       | 18,603     |       |
| Impairment  charge                   |       | —    |       | (15,607    | )          | —    |       | —     |       |
| Net  income (loss)                   |       | 703       |       | (11,173    | )          | 1,612     |       | 5,717      |       |
| Net  income (loss) per diluted share |       | 0.06      |       | (0.94      | )          | 0.14      |       | 0.48       |       |
| Dividends  declared per share        |       | 0.21      |       | 0.21       |       | 0.21      |       | 0.21       |       |
| Stock  price per share:              |       |      |       |       |       |      |       |       |       |
| Highest                              |       | 20.37     |       | 17.90      |       | 17.40     |       | 17.43      |       |
| Lowest                               |       | 13.16     |       | 9.45       |       | 13.58     |       | 14.50      |       |
|                                      |            |           |            |            |            |           |            |            |            |  |  |  |  |

 
| **Fiscal 2008**                      | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|--------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|
|                                 |       |      |       |       |       |      |       |       |       |
| Operating  Results:                  |       |      |       |       |       |      |       |       |       |
| Net  sales                           |       | $         | 62,863     |       | $          | 67,787    |       | $          | 73,378     |   | $ | 76,296 |   |
| Gross  profit                        |       | 16,741    |       | 19,369     |       | 19,014    |       | 22,755     |       |
| Impairment  charge                   |       | —    |       | —     |       | (23,850   | )          | 207        |       |
| Net  income (loss)                   |       | 1,416     |       | 3,383      |       | (12,372   | )          | 7,203      |       |
| Net  income (loss) per diluted share |       | 0.11      |       | 0.27       |       | (1.01     | )          | 0.60       |       |
| Dividends  declared per share        |       | 0.20      |       | 0.20       |       | 0.20      |       | 0.20       |       |
| Stock  price per share:              |       |      |       |       |       |      |       |       |       |
| Highest                              |       | 37.84     |       | 33.01      |       | 26.19     |       | 22.54      |       |
| Lowest                               |       | 31.37     |       | 23.94      |       | 20.28     |       | 15.84      |       |
|                                      |            |           |            |            |            |           |            |            |            |  |  |  |  |

 

*Diluted share amounts are based on weighted average sharesoutstanding.*

 

*Common shares of the Company are traded over-the-counter onthe Nasdaq Global Select Market - symbol “CRRC.”*

 

*There were 1,015 stockholders of record as of September 26,2009.*

 

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COURIERCORPORATION

 

SCHEDULE II

 

CONSOLIDATEDVALUATION AND QUALIFYING ACCOUNTS

 
| ** **                                 | ** ** | ** **     | ** ** | **ADDITIONS**  | ** ** | ** **     | ** ** | ** **  | ** ** | ** **    | ** ** |
|--------------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|-------------|------------|---------------|------------|
| ** **                                 | ** ** | **BALANCE AT** | ** ** | **CHARGED TO** | ** ** | ** **     | ** ** | ** **  | ** ** | **BALANCE**   | ** ** |
| ** **                                 | ** ** | **BEGINNING**  | ** ** | **COSTS AND**  | ** ** | ** **     | ** ** | **OTHER**   | ** ** | **AT END**    | ** ** |
| ** **                                 | ** ** | **OF PERIOD**  | ** ** | **EXPENSES**   | ** ** | **DEDUCTIONS** | ** ** | **CHANGES** | ** ** | **OF PERIOD** | ** ** |
|                                       |       |           |       |           |       |           |       |        |       |          |       |
| Allowance  for uncollectible accounts:     |       |           |       |           |       |           |       |        |       |          |       |
| Fiscal  year ended September 26, 2009 |       | $              | 1,611,000  |           | $          | 328,000        |       | $           | 339,000    |          |       |   | $ | 1,600,000 |   |
| Fiscal  year ended September 27, 2008 |       | $              | 1,531,000  |           | $          | 385,000        |       | $           | 305,000    |          |       |   | $ | 1,611,000 |   |
| Fiscal  year ended September 29, 2007 |       | $              | 1,593,000  |           | $          | 163,000        |       | $           | 225,000    |          |       |   | $ | 1,531,000 |   |
|                                       |       |           |       |           |       |           |       |        |       |          |       |
| Returns  allowance:                        |       |           |       |           |       |           |       |        |       |          |       |
| Fiscal  year ended September 26, 2009 |       | $              | 2,605,000  |           | $          | 4,379,000      |       | $           | 5,039,000  |          |       |   | $ | 1,945,000 |   |
| Fiscal  year ended September 27, 2008 |       | $              | 1,684,000  |           | $          | 6,596,000      |       | $           | 5,675,000  |          |       |   | $ | 2,605,000 |   |
| Fiscal  year ended September 29, 2007 |       | $              | 1,630,000  |           | $          | 4,694,000      |       | $           | 4,640,000  |          |       |   | $ | 1,684,000 |   |

 

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