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**UNITEDSTATES SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-K**

 

**(MARKONE)**

 

**x****      ANNUAL REPORT PURSUANT TOSECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the fiscal year ended September 25, 2010**

 

**OR**

 

**o****         TRANSITION REPORTPURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934**

 

**For the transition period from                to               **

 

**Commission file number 0-7597**

 

**Courier Corporation**

 

| **A Massachusetts corporation** | ** ** | I.R.S. Employer Identification No. **04-2502514** |
|---------------------------------|------------|---------------------------------------------------|

 

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

Telephone No.**978-251-6000**

 

Securities registered pursuant to Section 12(b) of the Act: **Common Stock, $1 par value; Preferred Stock Purchase Rights**

 

| State the aggregate market value of the voting and non-voting common  equity held by non-affiliates computed by reference to the price at which the  common equity was last sold as of the last business day of the registrant’s  most recently completed second fiscal quarter (March 27, 2010).

Common Stock, $1 par value - $140,625,345 |   | Indicate the number of shares outstanding of each of the registrant’s  classes of common stock as of November 22, 2010.

Common Stock, $1 par value –12,057,103 |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------|

 

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

 

Indicateby check mark whether the registrant is a well-known seasoned issuer, asdefined in Rule 405 of the Securities Act. Yes o   No x

 

Indicateby check mark if the registrant is not required to file reports pursuant toSection 13 or 15(d) of the Act. Yes o   No x

 

Indicateby check mark whether the registrant (1) has filed all reports required to befiled by Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x   No o

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T during thepreceding 12 months (or for such shorter period that the registrant wasrequired to submit and post such files). Yes o   No o

 

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

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, a non-accelerated filer or a smaller reporting company.  (See the definitions of “large acceleratedfiler”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 ofthe 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) |   |                        |

 

Indicateby check mark whether the registrant is a shell company (as defined in Rule12b-2 of the Exchange Act).  Yes o   No x

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s proxy statement dated December 3, 2010 forthe Annual Meeting of Stockholders to be held on January 18, 2011 areincorporated herein by reference 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                                                                                                              |       | 12         |
| Item 3.            |       | Legal Proceedings                                                                                                       |       | 13         |
| Item 4.            |       | Submission of  Matters to a Vote of Security Holders                                                                    |       | 13         |
|               |       |                                                                                                                    |       |       |
| Part II            |       |                                                                                                                    |       |       |
| Item 5.            |       | Market for the  Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases  of Equity Securities |       | 13         |
| 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                                                                            |       | 15         |
| Item 9.            |       | Changes in and  Disagreements with Accountants on Accounting and Financial Disclosure                                   |       | 15         |
| Item 9A.           |       | Controls and  Procedures                                                                                                |       | 15         |
| Item 9B.           |       | Other Information                                                                                                       |       | 18         |
|               |       |                                                                                                                    |       |       |
| Part III           |       |                                                                                                                    |       |       |
| Item 10.           |       | Directors and  Executive Officers and Corporate Governance                                                              |       | 19         |
| Item 11.           |       | Executive Compensation                                                                                                  |       | 20         |
| Item 12.           |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                        |       | 20         |
| Item 13.           |       | Certain  Relationships and Related Transactions and Director Independence                                               |       | 21         |
| Item 14.           |       | Principal  Accounting Fees and Services                                                                                 |       | 21         |
|               |       |                                                                                                                    |       |       |
| Part IV            |       |                                                                                                                    |       |       |
| Item 15.           |       | Exhibits and  Financial Statement Schedules                                                                             |       | 22         |
|               |       | Signatures                                                                                                              |       | 27         |

 

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**PART I**

 

**Item 1.  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.

 

Thebook manufacturing segment focuses on streamlining the process of bringingbooks from the point of creation to the point of use.  Based on sales, Courier is the third largestbook manufacturer in the United States, offering services from prepress andproduction through storage and distribution, as well as state-of-the-artdigital print capabilities. Courier’s principal book manufacturing markets arereligious, educational and specialty trade books with products includingBibles, educational textbooks and consumer books. On October 17, 2005, theCompany acquired Moore-Langen Printing Company, Inc. (“Moore Langen”), anIndiana-based printer specializing in manufacturing book covers, which isincluded in this segment.  On January 15,2010, the Company acquired the assets ofHighcrest Media LLC (“Highcrest Media”), a Massachusetts-based providerof solutions that streamline the production of customized textbooks for use incolleges, universities and businesses. Highcrest Media is also included in the book manufacturing segment.Revenues from this segment accounted for approximately 87% of Courier’sconsolidated revenues in fiscal 2010.

 

The specialty publishing segment consists of DoverPublications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”),which was acquired on January 6, 2004, and Federal Marketing Corporation, d/b/aCreative Homeowner (“Creative Homeowner”), which was acquired on April 28,2006.  Dover publishes over 9,000 titlesin more than 30 specialty categories including children’s books, literature,art, music, crafts, mathematics, science, religion and architecture.  REA publishes test preparation and studyguide books for high school, college and graduate students, and professionals.  Creative Homeowner is a New Jersey-basedpublisher of books on home design, decorating, landscaping and gardening, andsells home plans. Revenues in this segment were approximately 18% ofconsolidated sales in fiscal 2010.

 

The combination of Dover’s, REA’s, and CreativeHomeowner’s publishing, sales and distribution skills with Courier’s bookmanufacturing, digital content conversion, and e-commerce skills are providinga comprehensive end-to-end publishing solution for Courier.

 
| **Sales by segment (in thousands)** | ** ** | **2010** | ** ** | **%**  | ** ** | **2009** | ** ** | **%**   | ** ** | **2008** | ** ** | **%**  | ** ** |
|---------------------------------------------------------|------------|----------|------------|--------|------------|----------|------------|---------|------------|----------|------------|--------|------------|
|                                                    |       |     |       |   |       |     |       |    |       |     |       |   |       |
| Book Manufacturing                                      |       | $        | 222,777    |   | 87         | %        | $          | 212,228 |       | 85       | %          | $      | 229,792    |   | 82 | % |
| Specialty Publishing                                    |       | 46,030   |       | 18     | %          | 46,769   |       | 19      | %          | 61,767   |       | 22     | %          |
| Intersegment sales                                      |       | (11,667  | )          | (5     | )%         | (10,181  | )          | (4      | )%         | (11,235  | )          | (4     | )%         |
| Total                                                   |       | $        | 257,140    |   | 100        | %        | $          | 248,816 |       | 100      | %          | $      | 280,324    |   | 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 J in the Notes to Consolidated Financial Statements on pagesF-21 to F-23 included in this Annual Report on Form 10-K.

 

**BUSINESS SEGMENTS**

 

**BOOK MANUFACTURING SEGMENT**

 

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

 

Theacquisition of Highcrest Media complements the Company’s investment duringfiscal 2010 in digital printing technology. The $3 million cash acquisition,which has additional future “earn out” potential payments of up to $1.2million, was accounted for as a purchase,and accordingly, Highcrest Media’s financial results are included in the bookmanufacturing segment in the consolidated financial statements from the date ofacquisition.

 

In the second quarter of fiscal 2009, the Company closed its Book-mart Pressmanufacturing facility in order to reduce redundant capacity and to lowercosts.  The Book-mart Press facility,located in North Bergen, New Jersey, was dedicated to short-run, single-colorproduction. The Company consolidated the Book-mart Press operations into itsother manufacturing facilities.

 

Courier’s book manufacturing operations utilize bothoffset and digital print technologies, combined with various bindingcapabilities, to produce both soft and hard cover books.  Each of Courier’s six facilities have certainspecialties adapted to the needs of the market niches Courier serves, such as short-runbook manufacturing, printing on lightweight paper, book cover production,four-color book manufacturing, and beginning in 2010, digital printing.  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 manroland presses at its Kendallville, Indiana facility and in April2010, the Company ordered a fourth manroland press expected to be in service inDecember 2010.  During 2010, the Companyinstalled a state-of-the-art digital printing operation at its NorthChelmsford, Massachusetts facility through a relationship with HP and installeda second digital press in October 2010. These digital print capabilities, combined with Highcrest Media,comprise the Company’s newest market offering, Courier Digital Solutions (“CDS”).

 

During fiscal 2009, the Company was awardedChain-of-Custody certification by two leading environmental organizations, theSustainable Forestry Initiative (SFI) and the Programme for the Endorsement ofForestry Certification (PEFC). This new dual certification complements Courier’sexisting certification by the Forest Stewardship Council (FSC) and marks theCompany as “triple-certified” for its systematic adherence to environmentallyresponsible practices in the use of paper and other forest products throughoutits manufacturing locations.

 

Courier’s book manufacturing sales force of 18****people is responsible for all of the Company’s sales toover 500 book-manufacturing customers. Courier’s salespeople operate out of sales offices located in New York,New York; Philadelphia, Pennsylvania; Terre Haute, Indiana; North Chelmsfordand Westford,

 

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Massachusetts.

 

Sales to Pearson plc aggregated approximately 25% ofconsolidated sales in 2010, 22% in 2009 and 17% in 2008. Sales to The GideonsInternational aggregated approximately 22%****ofconsolidated sales in each of fiscal years 2010, 2009 and 2008.  With the acquisition of Harcourt by HoughtonMifflin Company in December 2007, sales to the combined entity, HoughtonMifflin Harcourt Publishing Company, aggregated approximately 11% in 2008 butwere less than 10% in both 2010 and 2009. A significant reduction in ordervolumes or price levels from any of these customers could have a materialadverse effect on the Company.  No othercustomer 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 both 2010 and 2009, and 18% in 2008. Approximately 90% of the export sales were in the book manufacturingsegment in each of these years.

 

All phases of Courier’s business are highlycompetitive.  The printing industry,exclusive of newspapers, includes over 33,000 companies.  While most of these companies are relativelysmall, several of the Company’s competitors are considerably larger or areaffiliated with companies that are considerably larger and have greaterfinancial resources than Courier.  Inrecent years, consolidation of both customers and competitors within the Company’smarkets has increased pricing pressures. The major competitive factors in Courier’s book manufacturing businessin addition to price are product quality, speed of delivery, customer service,availability of appropriate printing capacity and paper, related services andtechnology support.

 

**SPECIALTY PUBLISHING SEGMENT**

 

Dover, acquired by the Company in September 2000, is apublisher of books in over 50 specialty categories, including fine andcommercial arts, children’s books, crafts, music scores, graphic design,mathematics, physics and other areas of science, puzzles, games, socialscience, stationery items, and classics of literature for both juvenile andadult markets, including the Dover Thrift Editionsä.  In 2005, Dover began developingproprietary packaged products under its Dover Fun Kitsä line.  In 2008, Dover introduced anew crafts line, Dover DesignWorksä, and a new premium series of hardcover reproductions, Dover CallaEditionsä.Towards the end of 2009, Dover launched the first 15 titles in a new series of *Sesame Street Activity Books*.

 

Doversells its products through most American bookstore chains, independentbooksellers, children’s stores, craft stores and gift shops, as well as adiverse range of distributors around the world. Dover has also sold its books directly to consumers for over 50 yearsthrough its specialty catalogs and over the Internet atwww.doverpublications.com.  Dover mailsits proprietary catalogs to nearly 450,000 consumers and annually sends over150 million emails to electing customers. Dover also maintains www.DoverDirect.com, which is abusiness-to-business site for its retailers and distributors*.*

 

Inthe second quarter of fiscal 2009, due to a decline in sales and profits atDover resulting 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.

 

REA, acquired by the Company in January 2004, publishesmore than 900 test preparation and study guide titles.  Product lines include Problem Solvers®,Essentials®, Super Reviews® and Test Preparation books.  REA sells its products around the world throughmajor bookseller chains, college bookstores, and teachers’ supply stores, aswell as directly to teachers and other consumers through catalogs and over theInternet at www.REA.com.

 

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Creative Homeowner, acquired by the Company in April2006, is a publisher of books, home plans, and related products for the homeand 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 130 titles include books on home decoration, design andimprovement, as well as gardening and landscaping.  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 the third quarter of fiscal 2008, Creative Homeownerexperienced a precipitous decline in sales and profits, due in large part tothe downturn in the housing market and reduction in store traffic at homeimprovement centers and other large retail chain stores.  As a result, the Company recorded a non-cash,pre-tax impairment charge of $23.6 million in fiscal 2008.  In addition to other remedial measures, theCompany decided to cease Creative Homeowner’s book distribution operation thatserved a single customer, allowing it to concentrate on its principalpublishing operations.  This transitionwas completed in the second quarter of fiscal 2009.  During the third quarter of fiscal 2010, theCompany continued to integrate functions across this segment and consolidatedCreative Homeowner’s warehousing with the other publishing businesses in orderto reduce costs.  Despite these costcutting measures, the prolonged weakness in the housing market led to a furtherdecline in sales and operating results in the fourth quarter.  As a result, the Company impaired theremaining goodwill and other intangible assets of Creative Homeowner, as wellas $0.5 million of prepublication costs, resulting in a non-cash, pre-taximpairment charge of $4.7 million.

 

As part of Courier’s company-wide green initiative,Dover, REA and Creative Homeowner launched in 2008 a new trade mark, GreenEditionä,owned by Courier.  In order to beeligible to bear the mark, books must not only be manufactured from recycledpaper but also be manufactured in the United States with its stringentenvironmental standards.  Books thatcarry this mark have a smaller environmental impact than most books.  The mark is currently being licensed on aroyalty-free basis to other publishing customers who have also expressed adesire to use it.  Over 900 Green Editionä titles were produced during fiscal 2010.

 

The U.S. publishing market is comprised of approximately75,000 publishers.  Many of thesepublishers are very small, but a few are much larger than Dover, REA, orCreative Homeowner, or are part of organizations that are much larger.  In addition, newer sources of competitionhave emerged with large retailers launching or expanding publishing operationsand new web-based publishing businesses starting up, including publishing ofelectronic books.  Dover distinguishesits products by offering an extremely wide variety of high quality books atmodest prices.  REA offers high qualitystudy guides, test preparation books and software products in almost everyacademic area including many specialized areas such as teacher certification,adult education, and professional licensing. Creative Homeowner provides books on home improvement and landscapingthat include high-quality photographs, illustrations and written content.

 

**MATERIALS AND SUPPLIES**

 

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

 

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**ENVIRONMENTAL REGULATIONS**

 

The Company’s operations are subject to federal, stateand local environmental laws and regulations relating to, among other things:air emissions; waste generation, handling, management and disposal; wastewatertreatment and discharge; and remediation of soil and groundwatercontamination.  The Company periodicallymakes capital expenditures so that its operations comply, in all materialrespects, with applicable environmental laws and regulations.  No significant expenditures for this purposewere made in 2010 or are anticipated in 2011. In 2007, the Company adopted an “Environmental, Health and Safety Policy”which is available on the Company’s website at www.courier.com. The Companydoes not believe that its compliance with applicable environmental laws andregulations will have a material impact on the Company’s financial condition orliquidity.

 

**EMPLOYEES**

 

The Company employed 1,662 persons at September 25, 2010compared to 1,603 a year ago.  TheCompany’s relations with its employees are satisfactory.

 

**OTHER**

 

Courier’s overall business is not significantly seasonalin nature, although demand is normally highest in the Company’s fourthquarter.  Educational publishers in thebook manufacturing segment and Dover’s business all contribute to this higherfourth quarter demand. There is no portion of Courier’s business subject tocancellation of government contracts or renegotiation of profits.

 

Courier does not hold any material patents, licenses,franchises or concessions upon which our operations are dependent, but doeshave trademarks, service marks, and Universal Resource Locators (URL’s) on theInternet in connection with each of its business segments.  Through its acquisition of Highcrest Media,the Company owns certain customization software it licenses to customers in thepublishing and financial services industries. Substantially all of REA’s and Creative Homeowner’s publications and amajority of Dover’s publications are protected by copyright, either in its ownname, in the name of the author of the work, or in the name of a predecessorpublisher from whom rights were acquired. Many of Dover’s publications include books that are in the publicdomain.

 

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

 

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**Item 1A.  Risk Factors.**

 

The Company’s consolidated results of operations,financial condition and cash flows can be adversely affected by variousrisks.  Our business is influenced bymany factors that are difficult to predict, involve uncertainties that maymaterially affect actual results and are often beyond our control.  These risks include, but are not limited to,the principal factors listed below and the other matters set forth in thisAnnual Report on Form 10-K.  You shouldcarefully consider all of these factors. For other factors that may cause actual results to differ materiallyfrom those indicated in any forward-looking statement contained in this report,see *Forward-Looking Information* in *Management’s Discussion and Analysis of Financial Condition and Resultsof Operations*.

 

**Industry competition and consolidation may increase pricing pressuresand adversely impact our margins or result in a loss of customers.**

 

The book industry is extremely competitive.  In the book manufacturing segment,consolidation over the past few years of both customers and competitors withinthe markets the Company competes has caused downward pricing pressures.  In addition, excess capacity and competitionfrom printing companies in lower cost countries may increase competitivepricing pressures.  Furthermore, some ofour competitors have greater sales, assets and financial resources than us,particularly those in foreign countries, who may derive significant advantagesfrom local governmental regulation, including tax holidays and other subsidies.  All or any of these competitive pressurescould affect prices or customers’ demand for our products, impacting our profitmargins and/or resulting in a loss of customers and market share.

 

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

 

Wederived approximately 47% and 44% of our fiscal 2010 and 2009 revenues,respectively, from two major customers. We expect similar concentrations in fiscal 2011.  We do business with these customers on apurchase order basis and they are not bound to purchase at particular volume orpricing levels.  As a result, either ofthese customers could determine to reduce their order volume with us or demandreduced pricing.  A significant reductionin order volumes or price levels with, or the loss of, either of thesecustomers could have a material adverse effect on our results of operations andfinancial condition.

 

**The substitution of electronic delivery for printed materials mayadversely affect our business.**

 

Electronic delivery of documents and data, including theonline distribution and hosting of media content, offers alternatives totraditional delivery of printed documents. Widespread consumer acceptance of electronic delivery of books is uncertain,as is the extent to which consumers are willing to replace print materials withonline hosted media content.  To theextent that our customers’ acceptance of these electronic alternatives shouldcontinue to grow, demand for our printed products may be adversely affected.

 

**Declines in general economic conditions may adversely impactour business.**

 

Economic conditions have the potential to impact ourfinancial results significantly.  Withinthe book manufacturing and specialty publishing segments,  we may be adversely affected by the currentworldwide economic downturn, including as a result of changes in government,business and consumer spending.

 

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Examples of how our financial results may be impactedinclude:

 

·                  Fluctuationsin federal or state government spending on education, including a reduction intax revenues due to the current economic environment, could lead to acorresponding decrease in the demand for educational materials, which areproduced in our book manufacturing segment and comprise a portion of ourpublishing products.

 

·                  Consumerdemand for books can be impacted by reductions in disposable income when costssuch as electricity and gasoline reduce discretionary spending.

 

·                  Tightnessin credit markets may result in customers delaying orders to reduce inventorylevels and may impact their ability to pay their debts as they become due andmay disrupt supplies from vendors.

 

·                  Changesin the housing market may impact the sale of Creative Homeowner’s products.

 

·                  Reducedfundraising by religious customers may decrease their order levels.

 

·                  Aslowdown in book purchases may result in retailers returning an unusually largenumber of books to publishers who, in turn reduce their reorders.

 

**A failure to keep pace with rapid industrial and technological changemay have an adverse impact on our business.**

 

The printing industry is in a period of rapid technologicalevolution.  Our future financialperformance will depend, in part, upon the ability to anticipate and adapt torapid industrial and technological changes occurring in the industry and uponthe ability to offer, on a timely basis, services that meet evolving industrystandards.  If we are unable to adapt tosuch technological changes, we may lose customers and may not be able tomaintain our competitive position.  Inaddition, we may encounter difficulties in the implementation and start-up ofnew equipment and technology.

 

We are unable to predict which of the many possiblefuture product and service offerings will be important to establish andmaintain a competitive position or what expenditures will be required todevelop and provide these products and services.  We cannot assure investors that one or moreof these factors will not vary unpredictably, which could have a materialadverse effect on us. In addition, we cannot assure investors, even if thesefactors turn out as we anticipate, that we will be able to implement ourstrategy or that the strategy will be successful in this rapidly evolvingmarket.

 

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

 

Ourquarterly and annual operating results have fluctuated in the past and arelikely to fluctuate in the future due to a variety of factors, some of whichare outside of our control. Factors that may affect our future operatingresults include:

 

·                  the timing andsize of the orders for our books;

 

·                  theavailability of markets for sales or distribution by our major customers;

 

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

 

·                  ourcustomers’ willingness and success in shifting orders from the peak textbookseason to the off-peak season to even out our manufacturing load over the year;

 

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

 

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

 

·                  tightness incredit markets affecting the availability of capital for ourselves, ourvendors, and/or our customers.

 

Asa result of these and other factors, period-to-period comparisons of ouroperating results are not necessarily meaningful or indicative of futureperformance. In addition, the factors noted above may make it difficult for usto forecast and provide in a timely manner public guidance (including updatesto prior guidance) related to our projected financial performance. Furthermore,it is possible that in future quarters our operating results could fall belowthe expectations of securities analysts or investors. If this occurs, thetrading price of our common stock could decline.

 

**Our financialresults could be negatively impacted by impairments of goodwill, otherintangible assets, or other long-lived assets.**

 

We perform an annual assessment for impairment ofgoodwill and other intangible assets, as well as other long-lived assets, atthe end of our fiscal year or whenever events or changes in circumstances occurthat would more likely than not reduce the fair value of a reporting unit belowits carrying value.  A downward revisionin the fair value of one of our acquired businesses could result in non-cashimpairment charges.  Any impairmentcharge could have a significant negative effect on our reported results ofoperations.  For example, in the fourthquarter of fiscal 2010, due to the reduction in revenue and operating resultsat Creative Homeowner, the Company impaired their remaining goodwill and otherintangible assets, as well as $0.5 million of prepublication costs, resultingin a non-cash impairment charge of $4.7 million. Also, in the second quarter offiscal 2009, due to a decline in sales and profits at Dover resulting from thecontinued downturn in the economic environment and in consumer spending, anon-cash impairment charge of $15.6 million was recorded, which represented100% of Dover’s goodwill.

 

**Fluctuations in the cost and availability of paper and other rawmaterials may cause disruption and impact margins.**

 

Purchases of paper and other raw materials represent alarge portion of our costs.  In our bookmanufacturing segment, paper is normally supplied by our customers at theirexpense or price increases are passed through to our customers.  In our specialty publishing segment, costincreases have generally been passed on to customers through higher prices orwe have substituted a less expensive grade of paper.  However, if we are unable to continue to passon these increases or substitute a less expensive grade of paper, our marginsand profits could be adversely affected.

 

Availability of paper is important to both our bookmanufacturing and specialty publishing segments.  Although we generally have not experienceddifficulty in obtaining adequate supplies of paper, unexpected changes in thepaper 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.

 

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Fluctuations in the costs and availability of other rawmaterials could adversely affect operating costs or customer demand and therebynegatively impact our operating results, financial condition or cash flows.

 

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

 

**Energy costs and availability may negatively impact our financialresults.**

 

Energy costs are incurred directly to run productionequipment and facilities and indirectly through expenses such as freight andraw materials such as ink.  In acompetitive market environment, increases to these direct and indirect energyrelated costs might not be able to be passed through to customers through priceincreases or mitigated through other means. In such instances, increased energy costs could adversely impactoperating costs or customer demand.  Inaddition, interruption in the availability of energy could disrupt operations,adversely impacting operating results.

 

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

 

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

 

**A failure to maintain or improve our operating efficiencies couldadversely impact our profitability.**

 

Because the markets in which we operate are highlycompetitive, we must continue to improve our operating efficiency in order tomaintain or improve our profitability. Although we have been able to expand our capacity, improve ourproductivity and reduce costs in the past, there is no assurance that we willbe able to do so in the future.  Inaddition, reducing operating costs in the future may require significantinitial costs to reduce headcount, close or consolidate operations, or upgradeequipment and technology.

 

**Changes in postal rates and postal regulations may adversely impact ourbusiness.**

 

Postal costs are a significant component of our directmarketing cost structure and postal rate changes can influence the number ofcatalogs that we may mail.  In addition,increased postal rates can impact the cost of delivering our products tocustomers.  The occurrence of either ofthese events could adversely affect consumer demand and our results ofoperations.

 

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**Our facilities are subject to stringent environmental laws andregulations, which may subject us to liability or increase our costs.**

 

We use various materials in our operations that containsubstances considered hazardous or toxic under environmental laws.  In addition, our operations are subject tofederal, state, and local environmental laws relating to, among other things,air emissions, waste generation, handling, management and disposal, waste watertreatment and discharge 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.

 

**A failure to successfully integrate acquired businesses may have amaterial adverse effect on our business or operations.**

 

Over the past several years, we have completed fouracquisitions, including Moore Langen and Creative Homeowner in fiscal year2006, REA in fiscal 2004 and Highcrest Media in fiscal 2010, and may continueto make acquisitions in the future.  Webelieve that these acquisitions provide strategic growth opportunities for us.  Achieving the anticipated benefits of theseacquisitions will depend in part upon our ability to integrate these businessesin an efficient and effective manner. The challenges involved in successfully integrating acquisitionsinclude:

 

·                  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 into negotiationsfor acquisitions that are not ultimately

 

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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.

 

Theconsideration that we pay in connection with an acquisition could affect ourfinancial results.  If we were to proceedwith one or more significant acquisitions in which the consideration includedcash, we could be required to use a substantial portion of our available cashand credit facilities to consummate such acquisitions.  To the extent we issue shares of stock orother rights to purchase stock, including options or other rights, our existingstockholders may experience dilution in their share ownership in our companyand their earnings per share may decrease. In addition, acquisitions may result in the incurrence of debt, largeone-time write-offs and restructuring charges. They may also result in goodwill and other intangible assets that aresubject to impairment tests, which could result in future impairmentcharges.  Any of these factors maymaterially and adversely affect our business and operations.

 

**A failure to hire and train key executives and other qualifiedemployees could adversely affect our business.**

 

Our success depends, in part, on our ability to continueto retain our executive officers and key management personnel.  Our business strategy also depends on ourability to attract, develop, motivate and retain employees who have relevantexperience in the printing and publishing industries.  There can be no assurance that we cancontinue to attract and retain the necessary talented employees, including executiveofficers and other key members of management and, if we fail to do so, it couldadversely affect our business.

 

**A lack of skilled employees to manufacture our products mayadversely affect our business.**

 

Ifwe experience problems hiring and retaining skilled employees, our business maybe negatively affected.  The timelymanufacture and delivery of our products requires an adequate supply of skilledemployees, and the operating costs of our manufacturing facilities can beadversely affected by high turnover in skilled positions.  Accordingly, our ability to increase sales,productivity and net earnings could be impacted by our ability to employ theskilled employees necessary to meet our requirements.  Although our book manufacturing locations aregeographically dispersed, individual locations may encounter strong competitionwith other manufacturers for skilled employees. There can be no assurance that we will be able to maintain an adequateskilled labor force necessary 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 are subject to various laws and regulations that may requiresignificant expenditures.**

 

Weare subject to federal, state and local laws and regulations affecting ourbusiness, including those promulgated under the Consumer Product Safety Act,the rules and regulations of the Consumer Products Safety Commission aswell as laws and regulations relating to personal information.  We may be required to make significantexpenditures to comply with such governmental laws and regulations and anyamendments thereto. Complying with existing or future laws or regulations maymaterially limit our business and increase our costs.  Failure to comply with such laws may exposeus to potential liability and have a material adverse effect on our results ofoperations.

 

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**Item 1B. Unresolved Staff Comments.**

 

None.

 

**Item 2.  Properties.**

 

**REAL PROPERTIES**

 

The following schedule lists the facilities owned orleased by Courier at September 25, 2010. Courier considers its plants andother facilities to be well maintained and suitable for the purposes intended.

 
| ** **                                                                      | ** ** | **Owned/** | ** ** | **Square** | ** ** |
|---------------------------------------------------------------------------------|------------|------------|------------|------------|------------|
| **Principal Activity and Location (Year Constructed)** | ** ** | **Leased** | ** ** | **Feet**   | ** ** |
| **Corporate  headquarters and book manufacturing**                              |       |       |       |       |       |
| 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,  Kendallville, IN (2009)                           |       | Owned      |       | 150,000    |       |
| 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     |       |

 

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(1)                                  Houses corporate headquarters and Courier Digital Solutions, as well assales and marketing offices supporting both the book manufacturing andspecialty publishing segments.

 

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**EQUIPMENT**

 

TheCompany’s products are manufactured on equipment that in most cases is owned bythe Company, although it leases certain computers, image setters and otherelectronic prepress equipment, which are subject to more rapidobsolescence.  Capital expendituresamounted to approximately $28.4 million in 2010, $10.1 million in 2009, and$12.9 million in 2008. In April 2010, the Company ordered a fourthmanroland press to expand four-color capacity in its Kendallville, Indianafacility. Spending in fiscal 2010 on this $17 million project was approximately$13 million.  Capital expendituresrelating to the new digital print operation were approximately $12 million infiscal 2010, including progress payments on the second HP press.  Both presses are scheduled to be installedearly in fiscal 2011.  Taking intoaccount remaining spending on these two presses, capital expenditures forfiscal 2011 are expected to be between $16 and $18 million.  Courier considers its equipment to be in goodoperating condition and adequate for its present needs.

 

**ENCUMBRANCES AND RENTALOBLIGATIONS**

 

For a description of encumbrances on certain propertiesand equipment, see Note D of Notes to Consolidated Financial Statements on pages F-13and F-14 of this Annual Report on Form 10-K. Information concerning leasedproperties and equipment is disclosed in Note E of Notes to ConsolidatedFinancial Statements, which appears on page F-14 of this Annual Report on Form 10-K.

 

**Item 3.  Legal Proceedings.**

 

In the ordinary course of business, the Company issubject 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 a vote of securityholders during the quarter ended September 25, 2010.

 

**PART II**

 

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

 

**PEER PERFORMANCE TABLE**

 

Thegraph below compares the Company’s cumulative total stockholder return on itsCommon Stock with the cumulative total return on the Standard & Poor’s500 stock index (the “S&P 500 Index”) and a peer group of companiesselected by the Corporation for purposes of the comparison and described morefully below (the “Peer Group”).  Thisgraph assumes the investment of $100 on October 1, 2005 in each of CourierCommon Stock, the S&P 500 Index, and the Peer

 

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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.

 

**COMPARISON OF 5 YEAR CUMULATIVETOTAL RETURN**

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

 

 

ThePeer Group includes the following seven companies:  Borders Group, Inc., Bowne &Company, Inc., Consolidated Graphics, Ennis Business Forms, Inc.,Scholastic Corporation, The Standard Register Company, and John Wiley &Sons, Inc.

 

Other information required by this Item is contained in the section captioned “SelectedQuarterly Financial Data (Unaudited)” appearing on page F-42 of thisAnnual Report on Form 10-K.

 

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**Item 6.  Selected Financial Data.**

 

The information required by this Item is contained inthe section captioned “Five-Year Financial Summary” appearing on page F-27of this Annual Report on Form 10-K.

 

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

 

The information required by this Item is contained inthe section captioned “Management’s Discussion and Analysis” on pages F-28through F-41 of this Annual Report on Form 10-K.

 

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

 

TheCompany does not hold any derivative financial instruments, derivativecommodity instruments or other financial instruments except as noted in Note Aof Notes to Consolidated Financial Statements, which appear on pages F-8through F-11 of this Annual Report on Form 10-K.  The Company engages neither in speculative norderivative trading activities. The Company is exposed to market risk forchanges in interest rates on invested funds as well as borrowed funds.  The Company’s revolving bank credit facilitybears interest at a floating rate, with further information contained in Note Don pages F-13 and F-14 of this Annual Report on Form 10-K.  The Company believes it is remote that thiscould have a material impact on results of operations.

 

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

 

The information required by this Item is contained on pages F-1through F-26 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 periodcovered by this Annual Report on Form 10-K, we carried out an evaluationunder the supervision and with the participation of our management, includingthe Chief Executive Officer and the Chief Financial Officer,****of the effectiveness of thedesign and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and15d-15(e). Disclosure controls are procedures that are designed to ensure thatinformation required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the “Exchange Act”)is recorded, processed, summarized and reported within the time periodsspecified by the Securities andExchange Commission. Disclosure controls are also designed to ensure that suchinformation is accumulated and

 

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communicated to ourmanagement, including our Chief Executive Officer and Chief Financial Officer,as appropriate to allow timely decisions regarding required disclosure. Basedupon that evaluation, our Chief Executive Officer and Chief Financial Officerconcluded that our disclosure controls and procedures were effective as of theend of the period covered by this report.

 

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

 

There were no changes in the Company’s internal controlover financial reporting during the fourth quarter of fiscal year 2010 thathave materially affected, or that are reasonably likely to materially affect,the Company’s internal control over financial reporting.

 

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

 

Management of the Company is responsible for thepreparation, integrity and objectivity of the Company’s consolidated financialstatements and 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 consists solely of independent directors, oversees theCompany’s process of reporting financial information and the audit of itsconsolidated financial statements.  The AuditCommittee stays informed of the financial condition of the Company andregularly reviews management’s financial policies and procedures, theindependence of the independent auditors, the Company’s internal control andthe objectivity of its financial reporting. The independent registered publicaccounting firm has free access to the Audit Committee and to meet with theAudit Committee periodically, 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 25, 2010.  These certifications are exhibits to thisAnnual Report on Form 10-K for the year ended September 25, 2010.

 

**(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 25, 2010.

 

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In making its assessment of the Company’s internalcontrol over financial reporting, the Company’s management has utilized thecriteria set forth by the Committee of Sponsoring Organizations (“COSO”) of theTreadway Commission in *InternalControl-Integrated Framework*. Management concluded that based on its assessment, the Company’sinternal control over financial reporting was effective as of September 25,2010.   Deloitte & Touche LLP,an independent 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 25, 2010, which appears below.

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

Tothe Board of Directors and Stockholders of Courier Corporation

NorthChelmsford, Massachusetts

 

We have audited the internal control over financialreporting of Courier Corporation and subsidiaries (the “Company”) as of September 25,2010, based on criteria established in *InternalControl — Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission. The Company’s management isresponsible for maintaining effective internal control over financial reportingand for its assessment of the effectiveness of internal control over financialreporting, included in the accompanying Management’s Report on Internal Controlover Financial Reporting.  Ourresponsibility is to express an opinion on the Company’s internal control overfinancial reporting based on our audit.

 

We conducted our audit in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects.  Our audit includedobtaining an understanding of internal control over financial reporting,assessing the risk that a material weakness exists, testing and evaluating thedesign and operating effectiveness of internal control based on the assessedrisk, and performing such other procedures as we considered necessary in thecircumstances.  We believe that our auditprovides a reasonable basis for our opinion.

 

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

 

Because of the inherent limitations of internalcontrol over financial reporting, including the possibility of collusion orimproper management override of controls, material misstatements due to erroror fraud may not be prevented or detected on a timely basis.  Also, projections of any evaluation of theeffectiveness of the

 

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internal control over financial reporting to futureperiods are subject to the risk that the controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

In our opinion, the Company maintained, in allmaterial respects, effective internal control over financial reporting as of September 25,2010, based on the criteria established in *InternalControl — Integrated Framework*issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theconsolidated financial statements and financial statement schedule as of andfor the year ended September 25, 2010 of the Company and our report dated November 24,2010 expressed an unqualified opinion on those financial statements andfinancial statement schedule.

 

*/s/Deloitte & Touche LLP*

 

Boston, Massachusetts

November 24, 2010

 

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

 

The Company’s management,including our Chief Executive Officer and Chief Financial Officer, believesthat our disclosure controls and procedures and internal control over financialreporting are effective at the reasonable assurance level. However, the Company’smanagement does not expect that our disclosure controls and procedures or ourinternal control over financial reporting will prevent all errors and allfraud. A control system, no matter how well conceived and operated, can provideonly reasonable, not absolute, assurance that the objectives of the controlsystem are met. In addition, the design of a control system must take intoconsideration resource constraints, and the benefits of controls must beconsidered relative to their costs. Because of the inherent limitations in allcontrol systems, no evaluation of controls can provide absolute assurance thatall control issues and instances of fraud, if any, within the Company have beendetected in a timely manner. These inherent limitations include the fact thatcontrols can be circumvented by individual acts, by collusion of two or morepeople or by management override of the controls. The design of any system ofcontrols also is based in part upon certain assumptions about the likelihood offuture events, and there can be no assurance that any design will succeed inachieving its stated goals under all potential future conditions.  Finally, over time, controls may becomeinadequate because of changes in conditions, or the degree of compliance withpolicies or procedures may deteriorate. Because of the inherent limitations ina cost-effective control system, misstatements due to error or fraud may occurand not be detected.

 

**Item 9B.  OtherInformation**

 

None.

 

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**PART III**

 

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

 

Courier’s executive officers, together with their agesand all positions and offices with the Company presently held by each personnamed, are as follows:

 
| James F. Conway III  | 58     | Chairman, President and Chief Executive Officer                  |
|----------------------|--------|------------------------------------------------------------------|
|                 |   |                                                             |
| Robert P. Story, Jr. | 59     | Director, Executive Vice President, and Chief  Operating Officer |
|                 |   |                                                             |
| Peter M. Folger      | 57     | Senior Vice President and Chief Financial Officer                |
|                 |   |                                                             |
| Rajeev Balakrishna   | 40     | Vice President, General Counsel, Secretary and Clerk             |
|                 |   |                                                             |
| Eric J. Zimmerman    | 45     | Vice President, Publishing                                       |

 

The terms of office of all of the above executiveofficers continue until the first meeting of the Board of Directors followingthe next annual meeting of stockholders and the election or appointment andqualification of their successors, unless any officer sooner dies, resigns, isremoved or becomes disqualified.

 

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

 

Mr. Story became Executive Vice President and ChiefOperating Officer in November 2006.  Hehad previously been Senior Vice President and Chief Financial Officer sinceApril 1989.  He joined Courier inNovember 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.  Hehad previously been Controller since 1982 and Vice President since November1992.

 

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 as GeneralManager of its former Copyright Management Services operation and became VicePresident of e-Commerce for Courier in September 2000.

 

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The Company has adopted a code of ethics entitled “CourierCorporation Business Conduct Guidelines,” which is applicable to all of theCompany’s directors, officers, and employees. These Business Conduct Guidelines are available on the Company’sInternet website, located at www.courier.com.

 

All other information called for by Item 10 is containedin the definitive Proxy Statement, under the captions “Item 1: Election of Directors,” “CorporateGovernance” and “Section 16(a) Beneficial Ownership Reporting Compliance,” tobe delivered to stockholders in connection with the Annual Meeting ofStockholders scheduled to be held on Tuesday, January 18, 2011.  Such information is incorporated herein byreference.

 

**Item 11.  Executive Compensation.**

 

Information called for by Item 11 is contained in thedefinitive Proxy Statement, under the caption “Compensation Discussion andAnalysis,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Tuesday, January 18, 2011.  Such information is incorporated herein byreference.

 

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

 

The following table provides information as of September25, 2010 regarding shares of common stock of the Company that may be issuedunder its existing compensation plans, including the Courier CorporationAmended and Restated 1993 Stock Incentive Plan (the “1993 Plan”), the CourierCorporation 1999 Employee Stock Purchase Plan, the Courier Corporation 2010Stock Equity Plan for Non-Employee Directors (the “2010 Plan”), and the CourierCorporation 2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”),which was replaced by the 2010 Plan.

 

**Equity Compensation PlanInformation**

 
| **Plan category**                                      | ** ** | **Number of securities to be issued  upon exercise of outstanding  options, warrants and rights (1)** | ** ** | **Weighted-average exercise price  of outstanding options, warrants  and rights** | ** ** | **Number of securities remaining  available for future issuance under  equity compensation plans (excluding  securities reflected in column (a))(2)(3)** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| ** **                                                  | ** ** | **(a)**                                                                                                                                                           | ** ** | **(b)**                                                                                                         | ** ** | **(c)**                                                                                                                                                                                                                        | ** ** |
| Equity compensation plans approved by security holders      |       | 725,303                                                                                                                                                           |       | $                                                                                                               | 22.64      |                                                                                                                                                                                                                           | 601,749    |   |
| Equity compensation plans not approved by security  holders |       | —                                                                                                                                                            |       | —                                                                                                          |       | —                                                                                                                                                                                                                         |       |
|                                                        |       |                                                                                                                                                              |       |                                                                                                            |       |                                                                                                                                                                                                                           |       |
| Total                                                       |       | 725,303                                                                                                                                                           |       | $                                                                                                               | 22.64      |                                                                                                                                                                                                                           | 601,749    |   |

 

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

(2)          272,503shares of these 601,749 shares were reserved for future issuance under theCompany’s Employee Stock Purchase Plan.

(3)          Includesup to 329,246 securities that may be issued in the form of restricted stock.

 

All other information called for by Item 12 is containedin the definitive Proxy Statement, under the captions “Security Ownership ofCertain Beneficial Owners and Management” and “Compensation Discussion andAnalysis,” to be delivered to stockholders in connection with the AnnualMeeting of Stockholders scheduled to be held on Tuesday, January 18, 2011.  Such information is incorporated herein byreference.

 

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

 

Information called for by Item 13 is contained in thedefinitive Proxy Statement, under the captions “Director Independence” and “RelatedParty Transactions,” to be delivered to stockholders in connection with theAnnual Meeting of Stockholders scheduled to be held on Tuesday, January 18,2011.  Such information is incorporatedherein by reference.

 

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

 

Information called for by Item 14 is contained in thedefinitive Proxy Statement, under the caption “Item 2: Ratification andApproval of Selection of Independent Auditors,” to be delivered to stockholdersin connection with the Annual Meeting of Stockholders scheduled to be held onTuesday, January 18, 2011.  Suchinformation is incorporated herein by reference.

 

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**PART IV**

 

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

 

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

 

**1.****                                     *****Financial statements***

 
| ** ** | ** **                                                                                                                           | ** ** | **Page(s)**  |
|------------|--------------------------------------------------------------------------------------------------------------------------------------|------------|--------------|
|       |                                                                                                                                 |       |         |
| ·     | Report of  Independent Registered Public Accounting Firm                                                                             |       | F-1          |
| ·     | Consolidated  Statements of Operations for each of the three years in the period ended  September 25, 2010                      |       | F-2          |
| ·     | Consolidated Balance  Sheets as of September 25, 2010 and September 26, 2009                                                         |       | F-3 to F-4   |
| ·     | Consolidated  Statements of Cash Flows for each of the three years in the period ended  September 25, 2010                      |       | F-5 to F-6   |
| ·     | Consolidated Statements  of Changes in Stockholders’ Equity for each of the three years in the period  ended September 25, 2010 |       | F-7          |
| ·     | Notes to  Consolidated Financial Statements                                                                                          |       | F-8  to F-26 |

 

**2.             *Financial statementschedule***

 
|   | 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). |

 

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

 

23

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| 10.1+* |   | Amendment No. 2, effective September 17, 2010, to the  Courier Executive Compensation Program, as amended and restated on December  5, 2005.                                                                                                                                                                                    |
|--------|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 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+ |   | 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).                                                                                                  |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10B-2+ |   | Amendment No. 1, 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).                      |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10C-1+ |   | 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).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10C-2+ |   | Amendment, effective March 14, 2007, to the Courier  Corporation Senior Executive Severance Program, as amended and restated on  December 5, 2005 (filed as Exhibit 10.1 to the Company’s Quarterly Report on  Form 10-Q for the period ended March 31, 2007, and incorporated herein by  reference).                      |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10D    |   | 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).                                                               |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10E-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).                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10E-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).                                                                |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10E-3+ |   | Amendment No. 1, effective September 23, 2009, to the Courier  Corporation 1999 Employee Stock Purchase Plan (filed as Exhibit A to the  Company’s Definitive Proxy Statement, as filed on December 4, 2009, and  incorporated herein by reference).                                                                       |
|   |   |                                                                                                                                                                                                                                                                                                                            |
| 10F-1+ |   | Agreement, as of March 3, 1993, of Courier Corporation  relating to employment contract and supplemental retirement benefit with  George Q. Nichols (filed as Exhibit 10J to the Company’s Annual Report on  Form 10-K for the fiscal year ended September 25, 1993, and incorporated                                      |

 

24

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|   |   | herein by reference).                                                                                                                                                                                                                                                                                                                                                      |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10F-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).                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10F-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).                                                                                                    |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10G    |   | 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). |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10H-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).                                                                                                                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10H-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).                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10H-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).                                                                                                             |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10H-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).                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10H-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).                                                                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10I-1+ |   | Courier Corporation 2005 Stock Equity Plan for Non-Employee Directors  (filed January 19, 2005 as Exhibit 10.1 to the Company’s Registration  Statement No. 333-122137 and incorporated herein by reference).                                                                                                                                                         |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10I-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).                                                                                                   |
|   |   |                                                                                                                                                                                                                                                                                                                                                                       |
| 10I-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                                                                                            |

 

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|   |   | reference).                                                                                                                                                                                                                                                                                                                            |
|--------|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10I-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).                                                            |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10J+   |   | Courier Corporation 2010 Stock Equity Plan for  Non-Employee Directors, effective September 23, 2009 (filed as Exhibit B to  the Company’s Definitive Proxy Statement, as filed on December 4, 2009, and  incorporated herein by reference).                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10K-1+ |   | Courier Corporation Deferred Compensation Program as  Amended and Restated as of January 1, 2009 (filed as Exhibit 10.1 to the  Company’s Annual Report on Form 10-K for the fiscal year ended September 26,  2009, and incorporated herein by reference).                                                                        |
|   |   |                                                                                                                                                                                                                                                                                                                                   |
| 10K-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 (filed as Exhibit 10.2 to the  Company’s Annual Report on Form 10-K for the fiscal year ended September 26,  2009, 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 Companycompensation plan or arrangement.

 

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**SIGNATURES**

 

Pursuant to the requirements of Section 13 or 15(d) ofthe Securities Exchange Act of 1934, the Company has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized, onNovember 24, 2010.

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

 

Pursuant to the requirements of the Securities ExchangeAct of 1934, this report has been signed below by the following persons onbehalf of the registrant in the capacities indicated, on November 24, 2010.

 

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

 

27

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTINGFIRM

 

To the Board of Directors and Stockholders ofCourier Corporation

North Chelmsford, Massachusetts

 

We have audited the accompanying consolidatedbalance sheets of Courier Corporation and subsidiaries (the “Company”) as of September 25,2010 and September 26, 2009, and the related consolidated statements ofoperations, changes in stockholders’ equity, and cash flows for each of thethree years in the period ended September 25, 2010.  Our audits also included the financialstatement schedule listed in the Index at Item 15 (a)2.  These financial statements and financialstatement schedule are the responsibility of the Company’s management. Ourresponsibility is to express an opinion on the financial statements andfinancial statement schedule based on our audits.

 

We conducted our audits in accordance with thestandards of the Public Company Accounting Oversight Board (UnitedStates).  Those standards require that weplan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement.  An audit includes examining, on a test basis,evidence supporting the amounts and disclosures in the financialstatements.  An audit also includesassessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statementpresentation.  We believe that our auditsprovide a reasonable basis for our opinion.

 

In our opinion, such consolidated financialstatements present fairly, in all material respects, the financial position ofCourier Corporation and subsidiaries as of September 25, 2010 and September 26,2009, and the results of their operations and their cash flows for each of thethree years in the period ended September 25, 2010, in conformity withaccounting principles generally accepted in the United States of America.  Also, in our opinion, such financialstatement schedule, when considered in relation to the basic consolidatedfinancial statements taken as a whole, present fairly, in all materialrespects, the information set forth therein.

 

We have also audited, in accordance with thestandards of the Public Company Accounting Oversight Board (United States), theCompany’s internal control over financial reporting as of September 25,2010, based on the criteria established in *InternalControl—Integrated Framework* issued by the Committee of Sponsoring Organizationsof the Treadway Commission and our report dated November 24, 2010expressed an unqualified opinion on the Company’s internal control overfinancial reporting.

 

*/s/ Deloitte & Touche LLP*

 

Boston, Massachusetts

November 24, 2010

 

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**COURIER CORPORATION**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

(Dollars in thousands except per share amounts)

 
| ** **                                   | ** ** | **For the Years Ended** | ** ** |
|----------------------------------------------|------------|----------------------------------------|------------|
| ** **                                   | ** ** | **September 25,**                 | ** ** | **September 26,** | ** ** | **September 27,** | ** ** |
| ** **                                   | ** ** | **2010**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                   | ** ** | ** **                             | ** ** | ** ** | ** ** | ** ** | ** ** |
| Net sales (Note A)                           |       | $                                      | 257,140    |   | $ | 248,816 |   | $ | 280,324 |   |
| Cost of sales (Note H)                       |       | 193,129                                |       | 191,085 |   | 202,445 |   |
|                                         |       |                                   |       |   |   |   |   |
| Gross profit                                 |       | 64,011                                 |       | 57,731 |   | 77,879 |   |
|                                         |       |                                   |       |   |   |   |   |
| Selling and administrative expenses (Note H) |       | 47,017                                 |       | 46,385 |   | 53,034 |   |
| Impairment charges (Note G)                  |       | 4,734                                  |       | 15,607 |   | 23,643 |   |
|                                         |       |                                   |       |   |   |   |   |
| Operating income (loss)                      |       | 12,260                                 |       | (4,261 | ) | 1,202 |   |
|                                         |       |                                   |       |   |   |   |   |
| Interest expense, net (Notes A and D)        |       | 611                                    |       | 676 |   | 1,133 |   |
|                                         |       |                                   |       |   |   |   |   |
| Pretax income (loss)                         |       | 11,649                                 |       | (4,937 | ) | 69 |   |
|                                         |       |                                   |       |   |   |   |   |
| Income tax provision (benefit) (Note B)      |       | 4,535                                  |       | (1,796 | ) | 439 |   |
|                                         |       |                                   |       |   |   |   |   |
| Net income (loss)                            |       | $                                      | 7,114      |   | $ | (3,141 | ) | $ | (370 | ) |
|                                         |       |                                   |       |   |   |   |   |
| Net income (loss) per share (Notes A and I): |       |                                   |       |   |   |   |   |
|                                         |       |                                   |       |   |   |   |   |
| Basic                                        |       | $                                      | 0.60       |   | $ | (0.27 | ) | $ | (0.03 | ) |
|                                         |       |                                   |       |   |   |   |   |
| Diluted                                      |       | $                                      | 0.60       |   | $ | (0.27 | ) | $ | (0.03 | ) |
|                                         |       |                                   |       |   |   |   |   |
| Cash dividends declared per share            |       | $                                      | 0.84       |   | $ | 0.84 |   | $ | 0.80 |   |

 

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

 

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----

Table of Contents

 

**COURIER CORPORATION**

**CONSOLIDATEDBALANCE SHEETS**

(Dollars in thousands)

 
| ** **                                                                                                  | ** ** | **September 25,** | ** ** | **September 26,** | ** ** |
|-------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                  | ** ** | **2010**               | ** ** | **2009**               | ** ** |
| ASSETS                                                                                                      |       |                   |       |                   |       |
|                                                                                                        |       |                   |       |                   |       |
| Current assets:                                                                                             |       |                   |       |                   |       |
| Cash and cash equivalents (Note A)                                                                          |       | $                      | 107        |                   | $          | 492 |   |
| Investments (Note A)                                                                                        |       | 1,090                  |       | 1,017                  |       |
| Accounts receivable, less allowance for  uncollectible accounts of $968 in 2010 and $1,600 in 2009 (Note A) |       | 35,123                 |       | 34,176                 |       |
| Inventories (Note C)                                                                                        |       | 39,933                 |       | 38,026                 |       |
| Deferred income taxes (Note B)                                                                              |       | 4,109                  |       | 4,462                  |       |
| Other current assets                                                                                        |       | 2,388                  |       | 1,404                  |       |
|                                                                                                        |       |                   |       |                   |       |
| Total current assets                                                                                        |       | 82,750                 |       | 79,577                 |       |
|                                                                                                        |       |                   |       |                   |       |
| Property, plant and equipment (Note A):                                                                     |       |                   |       |                   |       |
| Land                                                                                                        |       | 1,934                  |       | 1,934                  |       |
| Buildings and improvements                                                                                  |       | 41,884                 |       | 41,137                 |       |
| Machinery and equipment                                                                                     |       | 205,158                |       | 201,910                |       |
| Furniture and fixtures                                                                                      |       | 1,720                  |       | 2,090                  |       |
| Construction in progress                                                                                    |       | 18,841                 |       | 3,466                  |       |
|                                                                                                        |       | 269,537                |       | 250,537                |       |
| Less — Accumulated depreciation and amortization                                                       |       | (166,528               | )          | (160,783               | )          |
|                                                                                                        |       |                   |       |                   |       |
| Property, plant and equipment, net                                                                          |       | 103,009                |       | 89,754                 |       |
|                                                                                                        |       |                   |       |                   |       |
| Goodwill (Notes G, J and K)                                                                                 |       | 24,697                 |       | 24,980                 |       |
| Other intangibles, net (Notes G, J and K)                                                                   |       | 2,712                  |       | 3,720                  |       |
| Prepublication costs, net (Note A)                                                                          |       | 7,734                  |       | 9,194                  |       |
| Other assets                                                                                                |       | 1,292                  |       | 1,212                  |       |
|                                                                                                        |       |                   |       |                   |       |
| Total assets                                                                                                |       | $                      | 222,194    |                   | $          | 208,437 |   |

 

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

 

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Table ofContents

 

**COURIER CORPORATION**

**CONSOLIDATED BALANCE SHEETS**

(Dollars in thousands)

 
| ** **                                                                                                          | ** ** | **September 25,** | ** ** | **September 26,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|
| ** **                                                                                                          | ** ** | **2010**               | ** ** | **2009**               | ** ** |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                           | ** ** | ** **             | ** ** | ** **             | ** ** |
| ** **                                                                                                          | ** ** | ** **             | ** ** | ** **             | ** ** |
| Current liabilities:                                                                                                |       |                   |       |                   |       |
| Current maturities of long-term debt (Note D)                                                                       |       | $                      | 1,794      |                   | $          | 96 |   |
| Accounts payable (Note A)                                                                                           |       | 14,399                 |       | 10,974                 |       |
| Accrued payroll                                                                                                     |       | 8,792                  |       | 5,950                  |       |
| Accrued taxes (Note B)                                                                                              |       | 617                    |       | 3,032                  |       |
| Other current liabilities (Note L)                                                                                  |       | 6,566                  |       | 7,098                  |       |
| Total current liabilities                                                                                           |       | 32,168                 |       | 27,150                 |       |
|                                                                                                                |       |                   |       |                   |       |
| Long-term debt (Notes A and D)                                                                                      |       | 21,904                 |       | 13,514                 |       |
| Deferred income taxes (Note B)                                                                                      |       | 1,385                  |       | 177                    |       |
| Other liabilities (Notes B and L)                                                                                   |       | 3,788                  |       | 3,006                  |       |
|                                                                                                                |       |                   |       |                   |       |
| Total liabilities                                                                                                   |       | 59,245                 |       | 43,847                 |       |
|                                                                                                                |       |                   |       |                   |       |
| Commitments and contingencies (Note E)                                                                              |       |                   |       |                   |       |
|                                                                                                                |       |                   |       |                   |       |
| Stockholders’ equity (Notes A, F and L):                                                                       |       |                   |       |                   |       |
| Preferred stock, $1 par value - authorized  1,000,000 shares; none issued                                           |       | —                 |       | —                 |       |
| Common stock, $1 par value - authorized 18,000,000  shares; issued 12,057,000 shares in 2010 and 11,956,000 in 2009 |       | 12,057                 |       | 11,956                 |       |
| Additional paid-in capital                                                                                          |       | 17,762                 |       | 16,479                 |       |
| Retained earnings                                                                                                   |       | 133,828                |       | 136,782                |       |
| Accumulated other comprehensive loss                                                                                |       | (698                   | )          | (627                   | )          |
|                                                                                                                |       |                   |       |                   |       |
| Total stockholders’ equity                                                                                     |       | 162,949                |       | 164,590                |       |
|                                                                                                                |       |                   |       |                   |       |
| Total liabilities and stockholders’ equity                                                                     |       | $                      | 222,194    |                   | $          | 208,437 |   |

 

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

 

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**COURIER CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

(Dollars in thousands)

 
| ** **                                                                              | ** ** | **For the Years Ended** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                                              | ** ** | **September 25,**                 | ** ** | **September 26,** | ** ** | **September 27,** | ** ** |
| ** **                                                                              | ** ** | **2010**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Operating Activities:                                                                   |       |                                   |       |   |   |   |   |
| Net income (loss)                                                                       |       | $                                      | 7,114      |   | $ | (3,141 | ) | $ | (370 | ) |
| Adjustments to reconcile net income (loss) to cash  provided from operating activities: |       |                                   |       |   |   |   |   |
| Depreciation and amortization                                                           |       | 20,681                                 |       | 21,401 |   | 21,373 |   |
| Impairment charges (Note G)                                                             |       | 4,734                                  |       | 15,607 |   | 23,643 |   |
| Stock-based compensation (Note F)                                                       |       | 1,287                                  |       | 1,424 |   | 1,313 |   |
| Deferred income taxes (Note B)                                                          |       | 1,561                                  |       | (4,966 | ) | (5,970 | ) |
| Gain on disposition of assets                                                           |       | (183                                   | )          | — |   | — |   |
| Changes in assets and liabilities:                                                      |       |                                   |       |   |   |   |   |
| Accounts receivable                                                                     |       | (568                                   | )          | 11,450 |   | 2,047 |   |
| Inventory                                                                               |       | (1,866                                 | )          | (860 | ) | 1,017 |   |
| Accounts payable                                                                        |       | 3,136                                  |       | (5,992 | ) | (3,145 | ) |
| Accrued taxes                                                                           |       | (2,415                                 | )          | (528 | ) | 1,431 |   |
| Other elements of working capital                                                       |       | 986                                    |       | 615 |   | (1,482 | ) |
| Other long-term, net                                                                    |       | (274                                   | )          | (174 | ) | (1,118 | ) |
|                                                                                    |       |                                   |       |   |   |   |   |
| Cash provided from operating activities                                                 |       | 34,193                                 |       | 34,836 |   | 38,739 |   |
|                                                                                    |       |                                   |       |   |   |   |   |
| Investment Activities:                                                                  |       |                                   |       |   |   |   |   |
| Capital expenditures                                                                    |       | (28,426                                | )          | (10,084 | ) | (12,865 | ) |
| Acquisition of business (Note K)                                                        |       | (3,000                                 | )          | — |   | — |   |
| Prepublication costs (Note A)                                                           |       | (4,162                                 | )          | (4,782 | ) | (5,000 | ) |
| Proceeds from disposition of assets                                                     |       | 590                                    |       | — |   | — |   |
| Short-term investments                                                                  |       | (73                                    | )          | (197 | ) | (820 | ) |
|                                                                                    |       |                                   |       |   |   |   |   |
| Cash used for investment activities                                                     |       | (35,071                                | )          | (15,063 | ) | (18,685 | ) |
|                                                                                         |            |                                        |            |  |  |  |  |  |  |  |

 

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**COURIER CORPORATION**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS (continued)**

(Dollars in thousands)

 
| ** **                                                               | ** ** | **For the Years Ended** | ** ** |
|--------------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                               | ** ** | **September 25,**                 | ** ** | **September 26,** | ** ** | **September 27,** | ** ** |
| ** **                                                               | ** ** | **2010**                               | ** ** | **2009** | ** ** | **2008** | ** ** |
| Financing Activities:                                                    |       |                                   |       |   |   |   |   |
| Long-term debt (repayments) borrowings                                   |       | 10,088                                 |       | (10,129 | ) | 6,273 |   |
| Cash dividends                                                           |       | (10,068                                | )          | (9,997 | ) | (9,881 | ) |
| Proceeds from stock plans                                                |       | 473                                    |       | 667 |   | 1,749 |   |
| Share repurchases (Note M)                                               |       | —                                 |       | — |   | (19,592 | ) |
| Excess tax benefits from stock-based compensation                        |       | —                                 |       | — |   | 26 |   |
|                                                                     |       |                                   |       |   |   |   |   |
| Cash provided from (used for) financing activities                       |       | 493                                    |       | (19,459 | ) | (21,425 | ) |
|                                                                     |       |                                   |       |   |   |   |   |
| Increase (decrease) in cash and cash equivalents                         |       | (385                                   | )          | 314 |   | (1,371 | ) |
|                                                                     |       |                                   |       |   |   |   |   |
| Cash and cash equivalents at the beginning of the  period                |       | 492                                    |       | 178 |   | 1,549 |   |
|                                                                     |       |                                   |       |   |   |   |   |
| Cash and cash equivalents at the end of the period                       |       | $                                      | 107        |   | $ | 492 |   | $ | 178 |   |
|                                                                     |       |                                   |       |   |   |   |   |
| Supplemental cash flow information:                                      |       |                                   |       |   |   |   |   |
| Interest paid                                                            |       | $                                      | 469        |   | $ | 641 |   | $ | 1,246 |   |
| Income taxes paid (net of refunds)                                       |       | $                                      | 6,972      |   | $ | 3,799 |   | $ | 4,926 |   |
|                                                                     |       |                                   |       |   |   |   |   |
| Supplemental disclosure of non-cash investing and  financing activities: |       |                                   |       |   |   |   |   |
| Property and equipment costs included in accounts  payable               |       | $                                      | —     |   | $ | 390 |   | $ | 3,246 |   |

* *

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

 

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**COURIERCORPORATION**

**CONSOLIDATEDSTATEMENTS OF**

**CHANGES IN STOCKHOLDERS’ EQUITY**

(Dollars in thousands)

 
| ** **                                        | ** ** | ** **             | ** ** | ** ** | ** ** | ** **          | ** ** | ** **   | ** ** | **Accumulated**   | ** ** |
|---------------------------------------------------|------------|------------------------|------------|------------|------------|---------------------|------------|--------------|------------|-------------------|------------|
| ** **                                        | ** ** | **Total**              | ** ** | ** ** | ** ** | ** **          | ** ** | ** **   | ** ** | **Other**         | ** ** |
| ** **                                        | ** ** | **Stockholders’** | ** ** | **Common** | ** ** | **Additional**      | ** ** | **Retained** | ** ** | **Comprehensive** | ** ** |
| ** **                                        | ** ** | **Equity**             | ** ** | **Stock**  | ** ** | **Paid-In Capital** | ** ** | **Earnings** | ** ** | **Loss**          | ** ** |
|                                              |       |                   |       |       |       |                |       |         |       |              |       |
| 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 L) |       | 143                    |       | —     |       | —              |       | —       |       | 143               |       |
| Stock-based compensation (Note F)                 |       | 1,313                  |       | 6          |       | 1,307               |       | —       |       | —            |       |
| Share repurchases (Note M)                        |       | (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 L) |       | (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              | )          |
|                                              |       |                   |       |       |       |                |       |         |       |              |       |
| Net income                                        |       | 7,114                  |       | —     |       | —              |       | 7,114        |       | —            |       |
| Cash dividends                                    |       | (10,068                | )          | —     |       | —              |       | (10,068      | )          | —            |       |
| Change in pension obligation, net of tax (Note L) |       | (71                    | )          | —     |       | —              |       | —       |       | (71               | )          |
| Stock-based compensation (Note F)                 |       | 1,287                  |       | 12         |       | 1,275               |       | —       |       | —            |       |
| Other stock plan activity                         |       | 97                     |       | 89         |       | 8                   |       | —       |       | —            |       |
|                                              |       |                   |       |       |       |                |       |         |       |              |       |
| Balance, September 25, 2010                  |       | $                      | 162,949    |       | $          | 12,057              |       | $            | 17,762     |              | $          | 133,828 |   | $ | (698 | ) |

 

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

 

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**NOTES TO CONSOLIDATED FINANCIALSTATEMENTS**

 

**A. Summary of Significant Accounting Policies**

 

**Business**:  Courier Corporation and its subsidiaries (“Courier”or the “Company”) print, publish and sell books.  Courier has two business segments: bookmanufacturing and specialty book publishing. In January 2010, the Company acquired Highcrest Media LLC (“HighcrestMedia”), a Massachusetts-based providerof solutions that streamline the production of customized textbooks and othermaterials for use in colleges, universities and businesses (see Note K).  Highcrest Media is included in the bookmanufacturing segment.

 

**Principles of Consolidation andPresentation:** The consolidated financialstatements, prepared on a fiscal year basis, include the accounts of CourierCorporation 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”).

 

**Fair Value Measurements:**Certain assets and liabilities are required to be recorded at fairvalue on a recurring basis, while other assets and liabilities are recorded atfair value on a nonrecurring basis, generally as a result of impairment charges(see Note G). Fair value is determined based on the exchange price that wouldbe received for an asset or paid to transfer a liability (an exit price) in theprincipal or most advantageous market for the asset or liability in an orderlytransaction between market participants. Assets measured at fair value on anonrecurring basis include long-lived assets and goodwill and other intangibleassets. The three-tier value hierarchy, which prioritizes the inputs used inthe valuation methodologies, is:

 

**Level 1***—*Valuationsbased on quoted prices for identical assets and liabilities in active markets.

 

**Level 2***—*Valuationsbased on observable inputs other than quoted prices included in Level 1, suchas quoted prices for similar assets and liabilities in active markets, quotedprices for identical or similar assets and liabilities in markets that are notactive, or other inputs that are observable or can be corroborated byobservable market data.

 

**Level 3***—*Valuationsbased on unobservable inputs reflecting the Company’s own assumptions,consistent with reasonably available assumptions made by other marketparticipants.

 

**Financial Instruments:** Financial instruments consist primarily of cash, investments in mutualfunds (Level 1), accounts receivable, accounts payable, debt obligations, andcontingent consideration (Level 3 — see Note K).  At September 25, 2010 and September 26,2009, the fair value of the Company’s financial instruments approximated theircarrying values.  The Company classifiesas cash and cash equivalents amounts on deposit in banks and instruments withmaturities of three months or less at time of purchase. The fair value of theCompany’s revolving credit facility approximates its carrying value due to thevariable interest rate and the Company’s current rate standing (see Note D).

 

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 $72,000 in 2010 and $21,000 in 2009; a loss of $19,000was incurred on these instruments in 

 

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2008.  Suchamounts are included in the caption “Interest expense, net” in the accompanyingconsolidated statements of operations.

 

**Property, Plant and Equipment:** Property, plant and equipment are recorded at cost, including intereston funds borrowed to finance the acquisition or construction of major capitaladditions.  Interest capitalized was$55,000 in 2010 and $123,000 in 2008; no such interest was capitalized in2009.  The Company provides fordepreciation of property, plant and equipment on a straight-line basis overperiods ranging from 10 to 40 years on buildings and improvements and from 3 to11 years on equipment and furnishings.

 

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

 

**Goodwill and Other Intangibles:** The Companyevaluates possible impairment annually at the end of its fiscal year orwhenever events or changes in circumstances indicate that the carrying value ofthe assets may not be recoverable. These tests are performed at the reportingunit level, which is the operating segment or one level below the operatingsegment. The goodwill impairment test is a two-step test.  In the first step, the Company compares thefair value of the reporting unit to its carrying value.  If the fair value of the reporting unitexceeds the carrying value of its net assets, then goodwill is not impaired andthe Company is not required to perform further testing.  If the carrying value of the net assets ofthe reporting unit exceeds its fair value, then a second step is performed inorder to determine the implied fair value of the reporting unit’s goodwill andcompare it to the carrying value of its goodwill (see Note G).

 

**Prepublication Costs:** Prepublication costs, associated with creating new titles in thespecialty publishing segment, are amortized to cost of sales using thestraight-line method over estimated useful lives of three to five years. Infiscal year 2010, a $475,000 impairment charge was recorded for CreativeHomeowner’s underperforming titles (see Note G).

 

**Long-Lived Assets:** Management periodically reviews long-lived assets for impairment. Otherthan the assets of Federal Marketing Corporation, d/b/a CreativeHomeowner (“Creative Homeowner”) discussedabove in the caption “Prepublication Costs” and in Note G, “Goodwill and Other Intangibles,” theCompany did not record an impairment of any long-term asset during fiscal 2010.

 

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

 

**Revenue Recognition:** Revenue is recognized upon shipment of goods to customers or upon thetransfer of ownership for those customers for whom the Company providesmanufacturing and distribution services. Revenue for distribution services is recognized as services 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 

 

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based upon applying an estimated return rate to currentyear sales.  This estimated return rateis based on actual historical return experience.

** **

**Comprehensive Income (Loss):**Comprehensive income (loss) includes net income as well as changes inpension plan assets and obligations (see Note L). Total comprehensive income (loss)was $7,043,000 in fiscal 2010, ($3,406,000) in 2009, and ($227,000) in 2008.

 

**Use of Estimates:** The process of preparing financial statements in conformity withgenerally accepted accounting principles requires management to make estimatesof assets and liabilities and disclosure of contingent assets and liabilitiesand assumptions that affect the reported amounts at the date of the financialstatements.  Actual results may differfrom these estimates.

 

**Subsequent Events:** The Company considers events ortransactions that occur after the balance sheet date but before the financialstatements are issued to provide additional evidence relative to certainestimates or to identify matters that require additional disclosure.

 

**Net Income per Share:** Basic net income per share is based on the weighted average number ofcommon shares outstanding each period. Diluted net income per share also includes potentially dilutive itemssuch as stock options (Note I).  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.

 

**New Accounting Pronouncements:**At the beginning of fiscal 2010, the Company adopted the provisions ofthe Financial Accounting Standards Board (“FASB”) authoritative literature onbusiness combinations, which expands the definition of a business combinationand changes the manner in which the Company accounts for business combinations.Significant changes include the capitalization of IPR&D as an indefinite-livedasset, the recognition of certain acquired contingent assets and liabilities atfair value, the expensing of acquisition-related restructuring actions andtransaction costs, and the recognition of contingent purchase priceconsideration at fair value on the acquisition date. In addition,post-acquisition changes in deferred tax asset valuation allowances andacquired income tax uncertainties will be recognized as income tax expense orbenefit. The accounting treatment for taxes will be applicable to acquisitionsthat close both prior and subsequent to the adoption of this guidance. TheCompany has applied this standard to the acquisition of Highcrest Media,described in Note K. As a result of adopting this guidance, the Companyexpensed approximately $200,000 of transaction and relocation costs related tothe acquisition and recorded contingent consideration of $1.2 million in theinitial purchase price at its estimated fair value of $850,000.

 

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.Adoption of this guidance in the first quarter of 2010 did not have a materialeffect on the Company’s consolidated financial 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. As required, the Company complied with thesedisclosure requirements beginning in fiscal 2010.

 

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**B. Income Taxes**

 

The income tax provision (benefit) differs from thatcomputed using the statutory federal income tax rates for the followingreasons:

 
| ** **                               | ** ** | **(000’s omitted)** | ** ** |
|------------------------------------------|------------|-------------------------------|------------|
| ** **                               | ** ** | **2010**                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|                                     |       |                          |       |   |   |   |   |
| Federal taxes at statutory  rate         |       | $                             | 3,960      |   | $ | (1,679 | ) | $ | 24 |   |
| State taxes, net of federal  tax benefit |       | 750                           |       | 56 |   | 800 |   |
| Federal manufacturer’s  deduction   |       | (164                          | )          | (136 | ) | (374 | ) |
| Other                                    |       | (11                           | )          | (37 | ) | (11 | ) |
| Total                                    |       | $                             | 4,535      |   | $ | (1,796 | ) | $ | 439 |   |

 

Taxbenefits in fiscal years 2010, 2009 and 2008 related to impairment charges forCreative Homeowner and Dover intangible assets were recognized at approximately35% (see Note G).  No state tax benefitwas recognized on the impairment charges as the Company provided a valuationallowance on the related deferred state tax assets.

 

The provision for income taxes consisted of thefollowing:

 
| ** ** | ** ** | **(000’s omitted)** | ** ** |
|------------|------------|-------------------------------|------------|
| ** ** | ** ** | **2010**                      | ** ** | **2009** | ** ** | **2008** | ** ** |
| Current:   | Federal    |                          | $          | 2,057 |   | $ | 2,205 |   | $ | 5,121 |   |
|       | State      |                          | 917        |   | 965 |   | 1,288 |   |
|       |       | 2,974                         |       | 3,170 |   | 6,409 |   |
|       |       |                          |       |   |   |   |   |
| Deferred:  | Federal    |                          | 1,257      |   | (4,181 | ) | (6,109 | ) |
|       | State      |                          | 304        |   | (785 | ) | 139 |   |
|       |       | 1,561                         |       | (4,966 | ) | (5,970 | ) |
| Total      |       | $                             | 4,535      |   | $ | (1,796 | ) | $ | 439 |   |

 

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The following is a summary of the significant componentsof deferred tax assets and liabilities as of September 25, 2010 and September 26,2009:

 
| ** **                                                | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                | ** ** | **2010**                      | ** ** | **2009** | ** ** |
| Current deferred tax assets:                              |       |                          |       |   |   |
| Vacation accrual not  currently deductible                |       | $                             | 810        |   | $ | 700 |   |
| Other accruals not currently  deductible                  |       | 745                           |       | 781 |   |
| Non-deductible reserves                                   |       | 2,438                         |       | 2,756 |   |
| Other                                                     |       | 224                           |       | 225 |   |
| Total current deferred tax  assets                        |       | 4,217                         |       | 4,462 |   |
| Valuation allowances                                      |       | (108                          | )          | — |   |
| Total current deferred tax  assets, net                   |       | 4,109                         |       | 4,462 |   |
|                                                      |       |                          |       |   |   |
| Non-current deferred tax  assets (liabilities):           |       |                          |       |   |   |
| Deferred compensation  arrangements                       |       | 2,016                         |       | 2,175 |   |
| Goodwill and other  intangibles                           |       | 7,993                         |       | 7,708 |   |
| Accelerated depreciation                                  |       | (10,882                       | )          | (9,447 | ) |
| State NOL carryforwards                                   |       | 3,580                         |       | 1,943 |   |
| Pension obligation (Note L)                               |       | 306                           |       | 384 |   |
| Other                                                     |       | 338                           |       | 222 |   |
| Total non-current deferred  tax assets                    |       | 3,351                         |       | 2,985 |   |
| Valuation allowances                                      |       | (4,736                        | )          | (3,162 | ) |
| Total non-current deferred  tax assets (liabilities), net |       | (1,385                        | )          | (177 | ) |
|                                                      |       |                          |       |   |   |
| Total deferred tax assets                                 |       | $                             | 2,724      |   | $ | 4,285 |   |

 

The Company fully provided valuation allowances for netoperating loss carryforwards in states where the Company does not expect torealize the benefit.  Also, valuationallowances of approximately $1.3 million were provided for deferred state taxassets related to Creative Homeowner’s impairment charge, as managementbelieves that its realization is not likely (see Note G).  The Company increased its valuation allowanceby $1.7 million in 2010, $960,000 in 2009 and $2.0 million in 2008.

 

During fiscal years 2010 and 2009, certain federal andstate statutes of limitations expired. As such, the unrecognized tax benefitsand accrued interest were reduced by approximately $22,000 in 2010 and byapproximately $43,000 in both fiscal years 2009 and 2008.  There is no such liability balance remainingat the end of fiscal 2010 and the Company does not anticipate any significantchanges in the amount of unrecognized tax benefits over the next twelve months.  The Company recognizes interest and penaltiesrelated to unrecognized tax benefits in income tax expense.

 

 

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The Company files federal and state income tax returnsin various jurisdictions of the United States. With few exceptions, the Companyis no longer subject to income tax examinations for years prior to fiscal2007.  Substantially all U.S. federal taxyears prior to fiscal 2006 have been audited by the Internal Revenue Serviceand closed.

 

**C.  Inventories**

 

Inventoriesare valued at the lower of cost or market. Cost is determined using thelast-in, first-out (LIFO) method for approximately 54% and 53% of the Company’sinventories at September 25, 2010 and September 26, 2009,respectively.  Other inventories,primarily in the specialty publishing segment, are determined on a first-in,first-out (FIFO) basis.

 

Inventoriesconsisted of the following at September 25, 2010 and September 26,2009:

 
| ** **      | ** ** | **(000’s omitted)** | ** ** |
|-----------------|------------|-------------------------------|------------|
| ** **      | ** ** | **2010**                      | ** ** | **2009** | ** ** |
|            |       |                          |       |   |   |
| Raw materials   |       | $                             | 5,557      |   | $ | 4,384 |   |
| Work in process |       | 9,371                         |       | 8,286 |   |
| Finished goods  |       | 25,005                        |       | 25,356 |   |
| Total           |       | $                             | 39,933     |   | $ | 38,026 |   |

 

On a FIFO basis, reported year-end inventories wouldhave been higher by $5.5 million in both fiscal 2010 and fiscal 2009.

 

**D.  Long-Term Debt**

 

The Company has a $100 million long-term revolvingcredit facility in place under which the Company can borrow at a rate not toexceed LIBOR plus 1.5%.  The Company’sinterest rate at September 25, 2010 was 0.8%.  At September 25, 2010 and September 26,2009, the Company had $17.1 million and $13.5 million, respectively, inborrowings under its long-term revolving credit facility, which matures in March 2013.

 

On March 26, 2010, the Company entered into afour-year term loan providing up to $8 million to finance new digital printoperation assets and provides a lien on the assets acquired with theproceeds.  At September 25, 2010,$6.6 million of debt was outstanding under this arrangement, with $2.7 millionat a fixed annual interest rate of 3.9% and $3.9 million at a fixed annualinterest rate of 3.6%.  Currentmaturities for this loan were $1.7 million at September 25, 2010.

 

The Company also has an industrial bond arrangement,which bears interest at 3% and provides for a lien on the assets acquired withthe proceeds.  At September 25, 2010and September 26, 2009, $56,000 and $154,000, respectively, wasoutstanding under this arrangement, including current maturities of $56,000 and$96,000, respectively.

 

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At September 25, 2010, scheduled aggregate principalpayments under these obligations were $1,794,000 in 2011, $1,804,000 in 2012,$18,954,000 in 2013 and $1,146,000 in 2014.

 

The revolving credit facility and four-year term loancontain restrictive covenants including provisions relating to the maintenanceof working capital, the incurrence of additional indebtedness and a quarterlytest of EBITDA to debt service. The revolving credit facility also provides fora commitment 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 leasesto make annual rental payments for certain buildings and equipment. Amountscharged to operations under such leases approximated $1,827,000 in 2010,$2,568,000 in 2009, and $3,343,000 in 2008. As of September 25, 2010, minimum annual rental commitments under theCompany’s long-term operating leases were approximately $1,566,000 in 2011,$1,321,000 in 2012, $1,272,000 in 2013, $1,192,000 in 2014, $905,000 in 2015and $3,713,000 in the aggregate thereafter. At September 25, 2010 and September 26, 2009, the Company had letters ofcredit outstanding of $2,180,000 and $2,230,000, respectively.  The Company was committed to purchase $3.2million of equipment at September 25, 2010.

 

In the ordinary course of business, the Company issubject to various legal proceedings and claims.  The Company believes that the ultimate outcomeof these matters will not have a material adverse effect on its consolidatedfinancial statements.

 

**F.  Stock Arrangements**

 

TheCompany records stock-based compensation expense for the cost of stock optionsand stock grants as well as shares issued under the Company’s 1999 EmployeeStock Purchase Plan, as amended (the “ESPP”). The fair value of each optionawarded is calculated on the date of grant using the Black-Scholesoption-pricing model.  Stock-basedcompensation recognized in selling and administrative expenses in theaccompanying financial statements, and the related tax benefit, were asfollows:

 
| ** **                            | ** ** | **(000’s omitted)** | ** **  |
|---------------------------------------|------------|-------------------------------|-------------|
| ** **                            | ** ** | **2010**                      | ** **  | **2009** | ** ** | **2008** | ** ** |
|                                  |       |                          |        |   |   |   |   |
| Stock-based compensation  expense     |       | $                             |  1,287 |   | $ |  1,424 |   | $ |  1,313 |   |
| Related tax benefit                   |       | (457                          | )           | (464 | ) | (405 | ) |
| Stock-based compensation,  net of tax |       | $                             |  830   |   | $ |  960 |   | $ |  908 |   |

 

Unrecognizedstock-based compensation cost at September 25, 2010 was $2.4 million to berecognized over a weighted-average period of 2.3 years.

 

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**Stock Incentive Plan:** The Company’s Amended and Restated 1993 Stock Incentive Plan providesfor the granting of stock options and stock grants up to a total of 2,064,375shares.  Under the plan provisions, bothnon-qualified and incentive stock options to purchase shares of the Company’scommon stock may be granted to key employees. The option price per share may not be less than the fair market value ofstock at the time the option is granted and incentive stock options must expirenot later than ten years from the date of grant.  The Company annually issues a combination ofstock options and stock grants to its key employees.  Stock options and stock grants generally vestover three years.

 

The following is a summary of all option activity forthis plan:

 
| ** **                         | ** ** | ** ** | ** ** | **Weighted Average** | ** ** | **Aggregate**         | ** ** |
|------------------------------------|------------|------------|------------|---------------------------|------------|-----------------------|------------|
| ** **                         | ** ** | ** ** | ** ** | **Exercise**              | ** ** | **Remaining**         | ** ** | **Intrinsic Value** | ** ** |
| ** **                         | ** ** | **Shares** | ** ** | **Price**                 | ** ** | **Term (Years)** | ** ** | **(in 000’s)** | ** ** |
| Outstanding at September 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 September 27,  2008 |       | 429,466    |       | $                         | 25.86      |                  |       |   |   |   |
| Issued                             |       | 114,682    |       | 15.51                     |       |                  |       |   |   |
| Exercised                          |       | (73,111    | )          | 16.91                     |       |                  |       |   |   |
| Cancelled                          |       | (334       | )          | 37.29                     |       |                  |       |   |   |
| Expired                            |       | (6,817     | )          | 23.34                     |       |                  |       |   |   |
| Outstanding at September 26,  2009 |       | 463,886    |       | $                         | 24.74      |                  |       |   |   |   |
| Issued                             |       | 152,085    |       | 14.35                     |       |                  |       |   |   |
| Cancelled                          |       | (5,413     | )          | 19.34                     |       |                  |       |   |   |
| Expired                            |       | (92,121    | )          | 23.67                     |       |                  |       |   |   |
| Outstanding at September 25,  2010 |       | 518,437    |       | 21.94                     |       | 3.4                   |       | $ | 49 |   |
|                               |       |       |       |                      |       |                  |       |   |   |
| Exercisable at September 25,  2010 |       | 257,389    |       | $                         | 28.38      |                  | 2.3        |   | — |   |
| Available for future grants        |       | 108,010    |       |                      |       |                  |       |   |   |
|                                    |            |            |            |                           |            |                       |            |  |  |  |  |

 

There were 66,161 non-vested stock grants outstanding atthe beginning of fiscal 2010 with a weighted-average fair value of $23.83 pershare.  During 2010, 38,287 stock grantswere awarded with a weighted-average fair value of $14.35 per share.  There were 18,803 stock grants that vested in2010 with a weighted-average fair value of $35.78 per share.  Also, 2,371 non-vested stock grants, with aweighted-average fair value of $23.86, were forfeited during 2010. At September25, 2010, there were 83,274 non-vested stock grants outstanding with aweighted-average fair value of $16.78.

 

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**Directors’ Stock Equity Plans:** In January 2010, stockholders approved the Courier Corporation 2010Stock Equity Plan for Non-Employee Directors (the “2010 Plan”). Under the planprovisions, stock grants as well as non-qualified stock options to purchaseshares of the Company’s common stock may be granted to non-employee directorsup to a total of 300,000 shares.  The2010 Plan replaces the previous non-employee directors’ plan, which had beenadopted in 2005 (the “2005 Plan”).  Nofurther options will be granted under the 2005 Plan.  Under the 2010 Plan, the option price pershare is the fair market value of stock at the time the option is granted andoptions have a term of five years.  Stockoptions and stock grants generally vest over three years.

 

The following is a summary of all option activity forthese plans:

 
| ** **                         | ** ** | ** ** | ** ** | **Weighted Average** | ** **  | **Aggregate**         | ** ** |
|------------------------------------|------------|------------|------------|---------------------------|-------------|-----------------------|------------|
| ** **                         | ** ** | ** ** | ** ** | **Exercise**              | ** **  | **Remaining**         | ** ** | **Intrinsic Value** | ** ** |
| ** **                         | ** ** | **Shares** | ** ** | **Price**                 | ** **  | **Term (Years)** | ** ** | **(in 000’s)** | ** ** |
| Outstanding at September 29,  2007 |       | 167,097    |       | $                         |  31.36 |                  |       |   |   |   |
| Issued                             |       | 42,000     |       | 26.86                     |        |                  |       |   |   |
| Exercised                          |       | (30,750    | )          | 21.26                     |        |                  |       |   |   |
| Cancelled                          |       | (14,727    | )          | 36.69                     |        |                  |       |   |   |
| Outstanding at September 27,  2008 |       | 163,620    |       | $                         |  31.63 |                  |       |   |   |   |
| Issued                             |       | 45,567     |       | 15.17                     |        |                  |       |   |   |
| Expired                            |       | (22,500    | )          | 20.97                     |        |                  |       |   |   |
| Outstanding at September 26,  2009 |       | 186,687    |       | $                         |  28.89 |                  |       |   |   |   |
| Issued                             |       | 53,179     |       | 13.71                     |        |                  |       |   |   |
| Expired                            |       | (33,000    | )          | 32.65                     |        |                  |       |   |   |
| Outstanding at September 25,  2010 |       | 206,866    |       | 24.39                     |        | 2.6                   |       | $ | 51 |   |
|                               |       |       |       |                      |        |                  |       |   |   |
| Exercisable at September 25,  2010 |       | 153,687    |       | $                         |  28.08 |                  | 2.0        |   | — |   |
| Available for future grants        |       | 221,236    |       |                      |        |                  |       |   |   |
|                                    |            |            |            |                           |             |                       |            |  |  |  |  |

 

Under the 2010 Plan, 13,181 stock grants were awardedwith a weighted-average fair value of $13.71 per share, which were outstandingat September 25, 2010.

 

Directors may also elect to receive their annualretainer and committee chair fees as shares of stock in lieu of cash.  Such shares issued in 2010, 2009 and 2008were 12,404 shares, 10,542 shares, and 5,399 shares at a fair market value of$13.71, $15.17 and $26.86, respectively.

 

**Employee Stock Purchase Plan:** The ESPP allows eligible employees to purchase shares of Company commonstock at not less than 85% of fair market value at the end of the grantperiod.  On January 20, 2010, stockholdersapproved an amendment to the ESPP increasing the shares authorized under theplan by 300,000 to an aggregate of 637,500 shares of Company common stockavailable for issuance under the plan. During 2010, 2009, and 2008, 39,273 shares, 40,560 shares, and 28,774shares, respectively, were issued under the plan at an average price of $12.05per 

 

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share, $12.49 per share, and $20.44 per share,respectively.  Since inception, 364,997shares have been issued.  At September25, 2010, an additional 272,503 shares were reserved for future issuances.

 

**Stockholders’ Rights Plan:** On March 18, 2009, the Board of Directors renewed its ten-yearstockholders’ rights plan.  Under theplan, the Company’s stockholders of record at March 19, 2009 received a rightto purchase a unit (“Unit”) comprised of one one-thousandth of a share ofpreferred stock for each share of common stock held on that date at a price of$100, subject to adjustment.  Until suchrights become exercisable, one such right will also attach to subsequentlyissued shares of common stock.  Therights become exercisable if a person or group acquires 15% or more of theCompany’s common stock or after commencement of a tender or exchange offerwhich would result in a person or group beneficially owning 15% or more of theCompany’s common stock.  Whenexercisable, under certain conditions, each right entitles the holder thereofto purchase Units or shares of common stock of the acquirer, in each casehaving a market value at that time of twice the right’s exercise price.  The Board of Directors will be entitled toredeem the rights at one cent per right, under certain circumstances.  The rights expire in 2019.

 

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

 

The following key assumptions were used to value optionsissued:

 
| ** **                          | ** ** | **2010**       | ** ** | **2009**       | ** ** | **2008**       | ** ** |
|-------------------------------------|------------|----------------|------------|----------------|------------|----------------|------------|
| Risk-free interest rate             |       | 1.4%–2.8% |       | 2.0%–2.5% |       | 3.0%–3.1% |       |
| Expected volatility                 |       | 46%–49%   |       | 38%–46%   |       | 27%–31%   |       |
| Expected dividend yield             |       | 5.8%–6.1% |       | 5.4%–5.7% |       | 2.6%–3.8% |       |
| Estimated life for grants under:    |       |           |       |           |       |           |       |
| Stock Incentive Plan                |       | 5 years        |       | 5 years        |       | 5 years        |       |
| Directors’ Stock Equity  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 fairvalue per share of options granted during each of the past three fiscal years,based on the Black-Scholes option-pricing model.

 
| ** **                           | ** ** | **Stock Incentive Plan** | ** ** | **Directors’ Stock Equity Plans** | ** ** |
|--------------------------------------|------------|------------------------------------|------------|-------------------------------------------------------|------------|
| **On grant date:**         | ** ** | **2010**                           | ** ** | **2009**                                              | ** ** | **2008** | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
| Exercise price equal to  stock price |       | $                                  | 3.73       |                                                  | $          | 4.13 |   | $ | 4.52 |   | $ | 3.46 |   | $ | 3.25 |   | $ | 5.77 |   |
|                                      |            |                                    |            |                                                       |            |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

 

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**G.  Goodwill and OtherIntangibles**

 

TheCompany evaluates possible impairment annually at the end of its fiscal year orwhenever events or changes in circumstances indicate that the carrying value ofthe assets may not be recoverable. These tests are performed at the reportingunit level, which is the operating segment or one level below the operatingsegment. The goodwill impairment test is a two-step test.  After performing the step-one test, theCompany determined that the fair value of Creative Homeowner at the end offiscal 2010 was below its carrying value and as such the second step wasrequired.  In arriving at thisconclusion, the Company used a valuation methodology based on a discounted cashflow and a capitalization of cash flow approach (Level 3 in thehierarchy).  Key assumptions andestimates included revenue and operating income forecasts and the assessedgrowth rate after the forecast period. The second step of the impairment testfor Creative Homeowner 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 $1.8 million for CreativeHomeowner’s goodwill in the fourth quarter of fiscal 2010.

 

Tradenames with indefinite lives are also not subject to amortization and arereviewed at least annually for potential impairment at the end of the fiscalyear or whenever events or changes in circumstances indicate that the carryingvalue of the assets may not be recoverable. As a result of the impairment analysis performed for Creative Homeowner,the Company determined that the carrying value of Creative Homeowner’s trade nameexceeded its estimated fair value (Level 3 in the hierarchy).  Accordingly, the Company recorded a pre-taximpairment charge of $550,000 for Creative Homeowner’s trade name.

 

“Otherintangibles” also includes customer lists. As a result of the impairment analysis performed for Creative Homeowner,the Company determined that the carrying value of Creative Homeowner’s customerlist exceeded its estimated fair value (Level 3 in the hierarchy). Accordingly,the Company recorded a pre-tax impairment charge of $1.9 million for CreativeHomeowner’s customer list.

 

Forfiscal 2010, the pre-tax impairment charge recorded for Creative Homeowner’sgoodwill, trade name, and customer list intangible assets was $4.3 million. Inthe third quarter of fiscal 2008, impairment testing was also performed on thegoodwill and other intangible assets of Creative Homeowner, resulting inpre-tax impairment charges of $15.3 million to goodwill, $0.8 million to tradename, and $7.5 million to customer lists. The total of these pre-tax impairmentcharges in fiscal 2008 for Creative Homeowner’s goodwill and other intangibleassets was $23.6 million.  In the secondquarter of fiscal 2009, the Company recorded a $15.6 million pre-tax impairmentcharge related to Dover Publications, Inc. (“Dover”), representing 100% ofDover’s goodwill.

 

Duringthe second quarter of fiscal 2010, the Company acquired Highcrest Media (seeNote K). The acquisition of Highcrest Media was recorded by allocating the fairvalue of consideration of the acquisition to the identified assets acquired,including intangible assets and liabilities assumed, based on their estimatedfair value at the acquisition date.  Theexcess of the fair value of consideration of the acquisition over the netamounts assigned to the fair value of the assets acquired and liabilitiesassumed was recorded as goodwill of $1.5 million.  In addition, the Company recorded intangiblesrelated to customer lists and technology totaling $1.9 million.

 

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The following table reflects the components of “Goodwill”at September 25, 2010, September 26, 2009 and September 27, 2008:

 
| ** **                              | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Book  Manufacturing**       | ** ** | **Specialty  Publishing** | ** ** | **Total** | ** ** |
| Goodwill                                |       | $                             | 14,771     |   | $ | 40,428 |   | $ | 55,199 |   |
| Accumulated impairment charges          |       | —                        |       | (15,287 | ) | (15,287 | ) |
| Balance at September 27, 2008           |       | 14,771                        |       | 25,141 |   | 39,912 |   |
| Acquisition adjustment                  |       | —                        |       | 675 |   | 675 |   |
| Impairment charge (Level 3)             |       | —                        |       | (15,607 | ) | (15,607 | ) |
| Balance at September 26, 2009           |       | 14,771                        |       | 10,209 |   | 24,980 |   |
| Acquisition of Highcrest Media (Note K) |       | 1,517                         |       | — |   | 1,517 |   |
| Impairment charge (Level 3)             |       | —                        |       | (1,800 | ) | (1,800 | ) |
| Balance at September 25, 2010           |       | $                             | 16,288     |   | $ | 8,409 |   | $ | 24,697 |   |

 

In2009, an adjustment was made regarding the purchase accounting for the 2006acquisition of Creative Homeowner relating to the calculation of deferred taxassets on certain reserves.  The $675,000adjustment above resulted in an increase in goodwill, with an offsettingreduction in deferred tax assets.

 

Thefollowing table reflects the components of “Other intangibles” at September 25,2010, September 26, 2009 and September 27, 2008:

 
| ** **                              | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------|------------|-------------------------------|------------|
| ** **                              | ** ** | **Book Manufacturing**   | ** ** | **Specialty Publishing** | ** ** | ** ** | ** ** |
| ** **                              | ** ** | **Trade  Name**               | ** ** | **Customer  Lists** | ** ** | **Technology  & Other** | ** ** | **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 |   |
| Acquisition of Highcrest Media (Note K) |       | —                        |       | 700 |   | 1,230 |   | — |   | — |   | 1,930 |   |
| Amortization expense                    |       | —                        |       | (124 | ) | (175 | ) | — |   | (180 | ) | (479 | ) |
| Impairment charge (Level 3)             |       | —                        |       | — |   | — |   | (550 | ) | (1,909 | ) | (2,459 | ) |
| Balance at September 25, 2010           |       | $                             | 931        |   | $ | 726 |   | $ | 1,055 |   | $ | — |   | $ | — |   | $ | 2,712 |   |

 

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“Otherintangibles” at September 25, 2010 included customer lists related to Moore-LangenPrinting Company, Inc. (“Moore Langen”), which are being amortized over a10-year period, as well as customer lists, technology and other intangiblesrelated to the acquisition of Highcrest Media, which are being amortized over a5-year period. Amortization expense was $479,000 in fiscal 2010, includingapproximately $200,000 related to Creative Homeowner’s customer lists, comparedwith amortization expense of $200,000 and $629,000 in fiscal years 2009 and2008, respectively. Annual amortization expense over the next four years willbe approximately $400,000; decreasing to $135,000 in the fifth year. AtSeptember 25, 2010, “other intangibles” were net of accumulated amortization of$0.4 million for the book manufacturing segment.

 

**H. Restructuring Costs**

 

Restructuringcosts of $4.8 million in fiscal 2009 included costs associated with windingdown Creative Homeowner’s distribution services and closing and consolidatingthe Book-mart Press manufacturing facility during the second quarter of fiscal 2009,as well as employee severance expenses related to additional cost savingactions taken in both of the Company’s segments.

 

Thefollowing table details fiscal 2009 restructuring costs by segment andclassification in the accompanying consolidated statements of operations.

 
| ** **                                       | ** ** | **(000’s omitted)** | ** ** |
|--------------------------------------------------|------------|-------------------------------|------------|
| ** **                                       | ** ** | **Book  Manufacturing**       | ** ** | **Specialty  Publishing** | ** ** | **Total  Company** | ** ** |
|                                             |       |                          |       |   |   |   |   |
| 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 |   |

 

The following table depicts the accrual balances forthese restructuring costs that remained as of September 26, 2009 and September25, 2010, which related to closing and consolidating the Book-mart Pressmanufacturing facility.

 
| ** **                                           | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                           | ** ** | **Accrual at**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Accrual at** | ** ** |
| ** **                                           | ** ** | **September 26,**        | ** ** | **Charges** | ** ** | **Cash** | ** ** | **September 25,** | ** ** |
| ** **                                           | ** ** | **2009**                      | ** ** | **(Reversals)** | ** ** | **Paid** | ** ** | **2010** | ** ** |
| Employee severance and benefit costs                 |       | $                             | 495        |   | $ | (171 | ) | $ | (306 | ) | $ | 18 |   |
| Lease termination, facility closure and other  costs |       | 546                           |       | (82 | ) | (464 | ) | — |   |
| Total                                                |       | $                             | 1,041      |   | $ | (253 | ) | $ | (770 | ) | $ | 18 |   |

 

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**I.  Net Income per Share**

 

Followingis a reconciliation of the outstanding shares used in the calculation of basicand diluted 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)** | ** ** |
|----------------------------------------|------------|-------------------------------|------------|
| ** **                             | ** ** | **2010**                      | ** ** | **2009** | ** ** | **2008** | ** ** |
| Weighted average shares for  basic     |       | 11,916                        |       | 11,850 |   | 12,294 |   |
| Effect of potentially  dilutive shares |       | 19                            |       | — |   | — |   |
| Weighted average shares for  dilutive  |       | 11,935                        |       | 11,850 |   | 12,294 |   |

 

**J. Business Segments**

 

TheCompany has two business segments: book manufacturing and specialty publishing.The book manufacturing segment offers a full range of services from productionthrough storage and distribution for religious, educational and specialty tradebook publishers. In January 2010, the Company acquired Highcrest Media,which has been included in the book manufacturing segment (see Note K).  The specialty publishing segment consists ofDover, Creative Homeowner and Research & Education Association, Inc.(“REA”).

 

Segmentperformance is evaluated based on several factors, of which the primaryfinancial measure is operating income. Operating income is defined as gross profit (sales less cost of sales)less selling and administrative expenses, and includes severance and otherrestructuring costs but excludes stock-based compensation.  As such, segment performance is evaluatedexclusive of interest, income taxes, stock-based compensation, intersegmentprofit, and impairment charges.  Theelimination of intersegment sales and related profit represents sales from thebook manufacturing segment to the specialty publishing segment.

 

Stock-based compensation, as well as the elimination ofintersegment sales and related profit, are reflected as “unallocated” in thefollowing table.  Impairmentcharges (discussed more fully in Note G) are also included in “unallocated” inthe following table.  Corporate expenses that are allocated to thesegments include various support functions such as information technologyservices, finance, legal, human resources and engineering, and includedepreciation and amortization expense related to corporate assets.  The corresponding corporate asset balancesare not allocated to the segments. Unallocated corporate assets consist primarily of cash and cashequivalents and fixed assets used by the corporate support functions.

 

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Dollaramounts in the following table are presented in thousands.

 
| ** **                                     | ** ** | **Total  Company** | ** ** | **Book  Manufacturing** | ** ** | **Specialty****Publishing** | ** ** | **Unallocated** | ** ** |
|------------------------------------------------|------------|--------------------|------------|-------------------------|------------|-----------------------------|------------|-----------------|------------|
| **Fiscal  2010**                               |       |               |       |                    |       |                        |       |            |       |
| Net  sales                                     |       | $                  | 257,140    |                    | $          | 222,777                     |       | $               | 46,030     |   | $ | (11,667 | ) |
| Operating  income (loss)                       |       | 12,260             |       | 19,070                  |       | (714                        | )          | (6,096          | )          |
| Total  assets                                  |       | 222,194            |       | 167,878                 |       | 44,437                      |       | 9,879           |       |
| Goodwill,  net                                 |       | 24,697             |       | 16,288                  |       | 8,409                       |       | —          |       |
| Depreciation  and amortization                 |       | 20,681             |       | 14,172                  |       | 5,743                       |       | 766             |       |
| Capital  expenditures and prepublication costs |       | 32,588             |       | 27,360                  |       | 4,331                       |       | 897             |       |
| Interest  expense, net                         |       | 611                |       | —                  |       | —                      |       | 611             |       |
|                                           |       |               |       |                    |       |                        |       |            |       |
| **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           |       |

 

Export sales as a percentage of consolidated sales wereapproximately 19% in both 2010 and 2009 and 18% in 2008.  Approximately 90% of export sales were in thebook manufacturing segment in fiscal years 2010, 2009, and 2008.  Sales to the Company’s largest customeramounted to approximately 25% of consolidated sales in 2010, 22% in 2009 and17% in 2008. In addition, sales to another customer amounted to approximately22% of consolidated sales in each of fiscal years 2010, 2009, and 2008.  Sales to a third customer amounted toapproximately 11% of consolidated 

 

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sales in 2008, but were less than 10% in both 2010 and2009.  These three customers are in thebook manufacturing 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, were32% and 24% at September 25, 2010 and September 26, 2009, respectively.

 

**K.  Business Acquisition**

 

OnJanuary 15, 2010, the Company acquiredthe assets of Highcrest Media, a Massachusetts-based provider ofsolutions that streamline the production of customized textbooks and othermaterials for use in colleges, universities and businesses.  The acquisition also complements the Company’sinvestment during fiscal 2010 in digital printing technology. The $3 millioncash acquisition, which has additional future “earn out” potential payments ofup to $1.2 million, was accounted for as apurchase, and accordingly, Highcrest Media’s financial results are included inthe book manufacturing segment in the consolidated financial statements fromthe date of acquisition.

 

Theacquisition of Highcrest Media was recorded by allocating the fair value ofconsideration of the acquisition to the identified assets acquired, includingintangible assets and liabilities assumed, based on their estimated fair valueat the acquisition date.  The excess of thefair value of consideration of the acquisition over the net amounts assigned tothe fair value of the assets acquired and liabilities assumed was recorded asgoodwill. Goodwill and other intangibles are tax deductible. The Company alsoassumed operating leases for some of Highcrest Media’s equipment.

 

Thepurchase price allocation was as follows:

 
| ** **                                                   | ** ** | **(000’s Omitted)** | ** ** |
|--------------------------------------------------------------|------------|-------------------------------|------------|
|                                                         |       |                          |       |
| Accounts receivable                                          |       | $                             | 379        |   |
| Inventories                                                  |       | 41                            |       |
| Machinery, equipment and  other long-term assets             |       | 272                           |       |
| Amortizable intangibles                                      |       | 1,930                         |       |
| Goodwill                                                     |       | 1,517                         |       |
| Accounts payable and accrued  liabilities                    |       | (289                          | )          |
| Fair value of contingent  “earn out” consideration |       | (850                          | )          |
| Net cash paid                                                |       | $                             | 3,000      |   |

 

The future earn out potential payments were valued atacquisition at $850,000 using a probability weighted discounted cash flow model(Level 3 in the hierarchy) and may be paid out over three years based onachieving certain revenue targets. A fair value assessment of the contingentearn out consideration payable was performed at year end resulting inrecognition of $70,000 of expense in fiscal 2010 and a liability of $920,000 atSeptember 25, 2010.

 

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**L.  Retirement Plans**

 

The Company and its consolidated subsidiaries maintainvarious defined contribution retirement plans covering substantially all of itsemployees.  Dover, acquired in September 2000,also provides retirement benefits through a defined benefit plan as describedbelow.

 

Retirementcosts of multi-employer union plans consist of contributions determined inaccordance with the respective collective bargaining agreements.  Retirement benefits for non-union employeesare provided through the Courier Profit Sharing and Savings Plan (“PSSP”), which includes an Employee StockOwnership Plan (“ESOP”).  Retirementcosts included in the accompanying financial statements amounted toapproximately $3,224,000 in 2010, $3,346,000 in 2009, and $3,468,000 in 2008.At September 25, 2010 and September 26, 2009, the Company had $1.3million and $1.4 million, respectively, accrued for the PSSP, which is includedin the accompanying consolidatedbalance sheet under the caption “Other current liabilities.”

 

The PSSP is qualified under Section 401(k) ofthe Internal Revenue Code.  The planallows eligible employees to contribute up to 100% of their compensation,subject to IRS limitations, with the Company matching 100% of the first 2% ofpay plus 25% of the next 4% of pay contributed by the employee. The Company alsomakes contributions to the plan annually based on profits each year for thebenefit of all eligible non-union employees.

 

Shares of Company common stock may be allocated toparticipants’ ESOP accounts annually based on their compensation as defined in theplan.  During the last three years, nosuch shares were allocated to eligible participants.  At September 25, 2010, the ESOP held354,900 shares on behalf of the participants.

 

Dover has a noncontributory, defined benefit pensionplan covering 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 (the “Dover plan”) were frozen as of that date.

 

InSeptember 2006, the FASB issued authoritative literature regardingaccounting for defined benefit pension and other postretirement plans, whichrequires that employers recognize the funded status of defined benefit pensionand other postretirement benefit plans as a net asset or liability on thebalance sheet and recognize as a component of other comprehensive income, netof tax, the gains or losses and prior service costs or credits that ariseduring the period but are not recognized as a component of net periodic benefitcost. Additional financial statement disclosures are also required. The Companyadopted these recognition and disclosure provisions at the end of fiscal 2007,and accordingly, recognized an after-tax reduction of $0.5 million inaccumulated other comprehensive income, a component of shareholders’ equity. Inaddition, companies are required to measure plan assets and benefit obligationsas of their fiscal year end. The Company previously used this date as themeasurement date so there was no impact on the consolidated financials as itrelates to this portion of the adopted guidance.

 

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The following tables provide information regarding theDover plan:

 
| **Other changes in plan assets and obligations** | ** ** | **(000’s omitted)** | ** ** |
|--------------------------------------------------------------------------------|------------|-------------------------------|------------|
| **recognized in other comprehensive income (loss):**  | ** ** | **2010**                      | ** ** | **2009** | ** ** |
| Accumulated other comprehensive loss at beginning  of year                     |       | $                             | (627       | ) | $ | (362 | ) |
| Net (loss) gain incurred in year, net of tax                                   |       | (123                          | )          | (282 | ) |
| Amortization of actuarial net losses, net of tax                               |       | 52                            |       | 17 |   |
| Accumulated other comprehensive loss at end of  year                           |       | $                             | (698       | ) | $ | (627 | ) |

 
| ** **                                                      | ** ** | **(000’s omitted)** | ** ** |
|-----------------------------------------------------------------|------------|-------------------------------|------------|
| **Change in projected benefit obligation:** | ** ** | **2010**                      | ** ** | **2009** | ** ** |
| Benefit obligation at beginning of year                         |       | $                             | 2,782      |   | $ | 2,564 |   |
| Administrative cost                                             |       | 7                             |       | 7 |   |
| Interest cost                                                   |       | 144                           |       | 167 |   |
| Actuarial loss                                                  |       | 344                           |       | 398 |   |
| Benefits paid                                                   |       | (350                          | )          | (354 | ) |
| Benefit obligation at end of year                               |       | $                             | 2,927      |   | $ | 2,782 |   |

 
| **Change in plan assets:**      | ** ** | **2010** | ** ** | **2009** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| Fair value of plan assets at beginning of year |       | $        | 2,440      |     | $          | 2,675 |   |
| Actual return on plan assets                   |       | 303      |       | 119      |       |
| Benefits paid                                  |       | (350     | )          | (354     | )          |
| Fair value of plan assets at end of year       |       | $        | 2,393      |     | $          | 2,440 |   |
|                                           |       |     |       |     |       |
| Funded status at end of year                   |       | $        | (534       | )        | $          | (342 | ) |

 
| **Components of net periodic benefit cost:** | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Administrative cost                                                   |       | $        | 7          |     | $          | 7        |       | $ | 7 |   |
| Interest cost                                                         |       | 144      |       | 167      |       | 169      |       |
| Expected return on plan assets                                        |       | (157     | )          | (174     | )          | (192     | )          |
| Amortization of unrecognized net loss                                 |       | 84       |       | 27       |       | 37       |       |
| Net periodic benefit cost                                             |       | $        | 78         |     | $          | 27       |       | $ | 21 |   |

 

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| **Actuarial assumptions used to  determine costs and benefit obligations:** | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Discount rate                                                                                                  |       | 4.5      | %          | 7.0      | %          | 6.0      | %          |
| Compensation increases                                                                                         |       | None     |       | None     |       | None     |       |
| Expected return on plan assets                                                                                 |       | 6.0      | %          | 7.0      | %          | 7.0      | %          |

 

The discount rate and expected return on plan assetsused to determine costs and benefit obligations were based upon actuary recommendations.Accrued pension cost of $534,000 at September 25, 2010 and $342,000 at September 26,2009 was included in the accompanying consolidated balance sheet under thecaption “Other liabilities.”

 

TheCompany’s strategy is to achieve a long-term rate of return sufficient tosatisfy plan liabilities while minimizing plan expenses and mitigating downsiderisks. Assets are currently allocated 100% to Guaranteed Insurance Contracts,however the Company reviews this weighting from time to time in order toachieve overall objectives in light of current circumstances.  The fair value of the insurance contracts wasbased on negotiated value and the underlying investments, and considers thecredit worthiness of the issuer of such contracts (Level 3 in the hierarchy).Insurance contracts held by the Dover plan are issued by a well-known, highlyrated insurance company. The underlying investments are government,asset-backed and fixed income securities.

 

**M. Share Repurchase Plan**

 

OnNovember 8, 2007, the Company announced the approval by its Board ofDirectors for the repurchase of up to $10 million of the Company’s outstandingcommon stock from time to time at management’s discretion either through theopen market or privately 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 ofthe Share Repurchase Plan through September 27, 2008, the Companyrepurchased approximately 856,000 shares ofcommon stock for approximately $19.6 million. No shares were repurchased infiscal 2010 or 2009.

 

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**COURIER CORPORATION**

**FIVE-YEAR FINANCIAL SUMMARY**

(Dollars in millions except per share data)

 
| ** **                                       | ** ** | **2010** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** | **2006*** | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|----------|------------|-----------|------------|
|                                             |       |     |       |     |       |     |       |     |       |      |       |
| **Operating Data**                               |       |     |       |     |       |     |       |     |       |      |       |
| Net sales                                        |       | $        | 257.1      |     | $          | 248.8    |       | $        | 280.3      |      | $          | 294.6 |   | $ | 269.1 |   |
| Gross profit                                     |       | 64.0     |       | 57.7     |       | 77.9     |       | 96.4     |       | 88.5      |       |
| Net income (loss)                                |       | 7.1      |       | (3.1     | )          | (0.4     | )          | 25.7     |       | 28.4      |       |
| Net income (loss) per diluted share              |       | 0.60     |       | (0.27    | )          | (0.03    | )          | 2.03     |       | 2.25      |       |
| Dividends declared per share                     |       | 0.84     |       | 0.84     |       | 0.80     |       | 0.72     |       | 0.48      |       |
|                                             |       |     |       |     |       |     |       |     |       |      |       |
| **Balance Sheet and Cash Flow Data**             |       |     |       |     |       |     |       |     |       |      |       |
| Total assets                                     |       | 222.2    |       | 208.4    |       | 240.5    |       | 269.8    |       | 247.2     |       |
| Long-term debt                                   |       | 21.9     |       | 13.5     |       | 23.6     |       | 17.4     |       | 17.2      |       |
| Stockholders’ equity                        |       | 162.9    |       | 164.6    |       | 176.2    |       | 203.0    |       | 182.3     |       |
| Working capital                                  |       | 50.6     |       | 52.4     |       | 56.8     |       | 56.0     |       | 46.2      |       |
| Current ratio                                    |       | 2.6      |       | 2.9      |       | 2.7      |       | 2.5      |       | 2.3       |       |
| Capital expenditures and prepublication costs    |       | 32.6     |       | 14.9     |       | 17.9     |       | 31.8     |       | 33.7      |       |
| Depreciation and amortization                    |       | 20.7     |       | 21.4     |       | 21.4     |       | 18.9     |       | 14.8      |       |
|                                             |       |     |       |     |       |     |       |     |       |      |       |
| **Additional items**                             |       |     |       |     |       |     |       |     |       |      |       |
| Long-term debt as a percentage of capitalization |       | 11.8     | %          | 7.6      | %          | 11.8     | %          | 7.9      | %          | 8.6       | %          |
| Stockholders’ equity per share              |       | 13.51    |       | 13.77    |       | 14.84    |       | 16.10    |       | 14.65     |       |
| Shares outstanding (in 000’s)               |       | 12,057   |       | 11,956   |       | 11,878   |       | 12,612   |       | 12,445    |       |
| Number of employees                              |       | 1,662    |       | 1,603    |       | 1,825    |       | 1,830    |       | 1,724     |       |
|                                                  |            |          |            |          |            |          |            |          |            |           |            |  |  |  |  |  |

 

*Fiscal 2010, 2009 and 2008 results include non-cashimpairment charges of $4.7, $15.6 and $23.6 million, respectively (Note G). Onan after-tax basis, the impairment charges were $3.0 million, or $.25 perdiluted share, in fiscal 2010, $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 the reversal of an income tax reserve.*

 

*Net income (loss) per diluted share is based on weightedaverage shares outstanding; stockholders’ equity per share is based on sharesoutstanding at year end.*

 

----

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

 

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**MANAGEMENT’SDISCUSSION AND ANALYSIS**

 

***FORWARD-LOOKING INFORMATION***

 

*Statements contained herein include forward-looking statements.**Statementsthat describe future expectations, plans or strategies are considered “forward-lookingstatements” as that term is defined under the Private Securities LitigationReform Act of 1995 and releases issued by the Securities and ExchangeCommission.  The words “believe,” “expect,”“anticipate,” “intend,” “estimate” and other expressions which are predictionsof or indicate future events and trends and which do not relate to historicalmatters identify forward-looking statements. Such statements are subject to risks and uncertainties that could causeactual results to differ materially from those currently anticipated.  Some of the factors that could affect actualresults are discussed in Item 1A of this Form 10-K and include, amongothers, changes in customers’ demand for the Company’s products, includingseasonal changes in customer orders and shifting orders to lower cost regions,changes in market growth rates, changes in raw material costs and availability,pricing actions by competitors and other competitive pressures in the marketsin which the Company competes, consolidation among customers and competitors,changes in the Company’s labor relations, success in the execution ofacquisitions and the performance and integration of acquired businessesincluding carrying value of intangible assets, restructuring and impairmentcharges required under generally accepted accounting principles, changes inoperating expenses including medical and energy costs, changes in technologyincluding migration from paper-based books to digital, difficulties in thestart up of new equipment or information technology systems, changes incopyright laws, changes in consumer product safety regulations, changes inenvironmental regulations, changes in tax regulations, changes in the Company’seffective income tax rate and general changes in economic conditions, includingcurrency fluctuations, changes in interest rates, changes in consumerconfidence, changes in the housing market, and tightness in the creditmarkets.  Although the 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**

 

Courier Corporation, founded in 1824, is one of America’sleading book manufacturers and specialty publishers.  The Company has two business segments: bookmanufacturing and specialty publishing. The book manufacturing segment streamlines the process of bringing booksfrom the point of creation to the point of use. Based on sales, Courier is the third largest book manufacturer in theUnited States, offering services from prepress and production through storageand distribution, as well as state-of-the-art digital print capabilities.  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 categoriesincluding children’s books, literature, art, music, crafts, mathematics,science, religion and architecture.  REApublishes test preparation and study-guide books and software for high school,college and graduate students, and professionals.  Creative Homeowner publishes books on homedesign, decorating, landscaping and gardening, and sells home plans.

 

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**OUTLOOK**

 

Thispast year remained challenging for the book industry as the economy slowlycontinued to emerge from recession.  TheCompany benefited from its balanced portfolio of markets and complementarybusinesses as well as the significant cost cutting measures taken in fiscal2009 across the business, resulting in a return to profitability.  Higher sales were achieved in all three ofthe major markets of the book manufacturing segment and in two of the threepublishing companies in the specialty publishing segment.  Nonetheless, the persistent weakness in thenation’s housing market continued to negatively impact sales and operatingresults at Creative Homeowner, which led to a non-cash impairment charge infiscal 2010, following a similar charge in fiscal 2008.

 

Inthe specialty publishing segment, Management believes that the retailenvironment will continue to be sluggish, especially for home improvementbooks.  The Company has tightened theeditorial focus, streamlined processes and eliminated redundant functionsacross the segment.  Management believesthat all three publishing companies are well positioned to take advantage ofany improvement in the economy and in the case of Creative Homeowner, thehousing market.  In addition, ourpublishing companies will benefit from the Company’s investment in digitalprinting, enabling them to reduce inventory, publish more niche products anddraw from an extensive backlist.

 

Inthe book manufacturing segment, the competitive environment remained intense,resulting in some margin erosion.  But,in response to capacity constraints experienced during fiscal 2010, the Companycontinued to invest in its business to maintain and build its competitiveposition in the industry as a leader in four-color book manufacturing.  The Company ordered a fourth high-speed,manroland offset press scheduled for installation in December 2010 in itsfour-color plant in Kendallville, Indiana. The Company also introduced digital book manufacturing capabilitiesunder the trade name Courier Digital Solutions (“CDS”) in its North Chelmsford,Massachusetts location.  A new HP inkjetpress and book finishing system were installed in June 2010 and wereramped up to a three-shift operation during the fourth quarter.  In October, the Company completed theinstallation of a second four-color digital press and book finishing systemutilizing HP inkjet technology.  Inaddition, following the acquisition of Highcrest Media in January 2010,the Company folded the assets of Highcrest Media into CDS to further capitalizeon the high-growth market for customized college textbooks as well as a rangeof other short-run printing opportunities. These investments and acquired capabilities are expected to beincreasingly valuable to customers as well as to the Company’s specialty publishingsegment.

 

The Company is wellpositioned compared to its peers due to its relatively low level of debt andsignificant liquidity. In addition, the Company enjoys strong relationshipswith its major customers in the religious, education and specialty trademarkets, some of which cross many decades. Coupled with its industry leading customer service and technology, theCompany believes that it will be able to leverage these relationships intovolume growth.  In that regard, in October 2010,the Company was able to extend its relationship with a leading globalmissionary organization through a multi-year agreement providing incentives foradditional growth.  Through its targetedcapital expenditures, acquisition of Highcrest Media and cost cutting measures,the Company is confident it will be able to weather the challenges ahead andtake advantage of opportunities to further its long-term objectives.

 

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**RESULTSOF OPERATIONS**

 

FINANCIALHIGHLIGHTS

(Dollars inthousands except per share amounts)

 
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent Change** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2010 vs.**       | ** ** | **2009 vs.** | ** ** |
| ** **                           | ** ** | **2010**   | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2009**                | ** ** | **2008** | ** ** |
|                                 |       |       |       |       |       |       |       |                    |       |   |   |
| Net sales                            |       | $          | 257,140    |       | $          | 248,816    |       | $                       | 280,324    |   | 3.3 | % | -11.2 | % |
| Gross profit                         |       | 64,011     |       | 57,731     |       | 77,879     |       | 10.9                    | %          | -25.9 | % |
| As a percentage of sales             |       | 24.9       | %          | 23.2       | %          | 27.8       | %          |                    |       |   |   |
| Selling and  administrative expenses |       | 47,017     |       | 46,385     |       | 53,034     |       | 1.4                     | %          | -12.5 | % |
| Impairment charges                   |       | 4,734      |       | 15,607     |       | 23,643     |       |                    |       |   |   |
| Operating income (loss)              |       | 12,260     |       | (4,261     | )          | 1,202      |       |                    |       |   |   |
| Interest expense, net                |       | 611        |       | 676        |       | 1,133      |       |                    |       |   |   |
| Pretax income (loss)                 |       | 11,649     |       | (4,937     | )          | 69         |       |                    |       |   |   |
| Income tax provision  (benefit)      |       | 4,535      |       | (1,796     | )          | 439        |       |                    |       |   |   |
| Net income (loss)                    |       | $          | 7,114      |       | $          | (3,141     | )          | $                       | (370       | ) |   |   |   |   |
|                                 |       |       |       |       |       |       |       |                    |       |   |   |
| Net income (loss) per  diluted share |       | $          | 0.60       |       | $          | (0.27      | )          | $                       | (0.03      | ) |   |   |   |   |

 

Revenues for fiscal 2010 were $257 million, an increaseof 3% over fiscal 2009.  In the bookmanufacturing segment, revenues grew 5% to $223 million compared to the prioryear, with sales growth in all three of its principal markets largely due toincreased demand for four-color books. Revenues in the specialty publishing segment were $46 million, down 2%from fiscal 2009, with sales growth at REA and Dover offset by a decline insales at Creative Homeowner.  The windingdown of Creative Homeowner’s book distribution services in January 2009also contributed $1.2 million to its sales decline compared to fiscal2010.  Net income for fiscal 2010 was$7.1 million, which included a pre-tax impairment charge related to CreativeHomeowner of $4.7 million, or $.25 per diluted share.

 

In fiscal 2009, revenues were $249 million, down 11%from fiscal 2008, with both of the Company’s segments affected by the weak economy.  Book manufacturing segment revenues decreased8% to $212 million compared to fiscal 2008 with modest growth in four-colorbooks offset by reduced demand for one- and two-color books. In the specialtypublishing segment, revenues were $47 million, down 24% from fiscal 2008, whichreflected reduced consumer spending as well as the winding down of CreativeHomeowner’s book distribution services early in the second quarter of fiscal2009. The Company’s net loss in fiscal 2009 was $3.1 million, or $.27 perdiluted share.  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. Total restructuring andimpairment charges for fiscal 2009 were $20.4 million, or $1.13 per dilutedshare.

 

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***Business Acquisition***

OnJanuary 15, 2010, the Company acquiredthe assets of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-based providerof solutions that streamline the production of customized textbooks for use incolleges, universities and businesses. The acquisition also complements the Company’s investment during fiscal2010 in digital printing technology. The $3 million cash acquisition, which hasadditional future “earn out” potential payments of up to $1.2 million, was accounted for as a purchase, andaccordingly, Highcrest Media’s financial results are included in the bookmanufacturing segment in the consolidated financial statements from the date ofacquisition. Also, during 2010, the Company installed a state-of-the-artdigital printing operation at its North Chelmsford, Massachusetts facilitythrough a relationship with HP and installed a second digital press in October 2010.  These digital print capabilities, combinedwith Highcrest Media, comprise the Company’s newest market offering, CourierDigital Solutions (“CDS”).

 

***Restructuring Costs***

Restructuringcosts of $4.8 million in fiscal 2009 included costs associated with windingdown Creative Homeowner’s distribution services and closing and consolidatingthe Book-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.

 

Thefollowing table details fiscal 2009 restructuring costs by segment and byclassification in the accompanying consolidated statements of operations.

 
| ** **                                       | ** ** | **(000’s omitted)**    | ** ** |
|--------------------------------------------------|------------|----------------------------------|------------|
| ** **                                       | ** ** | **Book  Manufacturing  Segment** | ** ** | **Specialty  Publishing  Segment** | ** ** | **Total  Company** | ** ** |
|                                             |       |                             |       |   |   |   |   |
| 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 |   |

 

The following table depicts the accrual balances forthese restructuring costs that remained as of September 26, 2009 and September 25,2010, which are included in “Other current liabilities” in the accompanyingconsolidated balance sheet and relatedto closing and consolidating the Book-mart Press manufacturing facility.

 

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| ** **                                           | ** ** | **(000’s Omitted)** | ** ** |
|------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                           | ** ** | **Accrual at**           | ** ** | ** ** | ** ** | ** ** | ** ** | **Accrual at** | ** ** |
| ** **                                           | ** ** | **September 26,**        | ** ** | **Charges** | ** ** | **Cash** | ** ** | **September 25,** | ** ** |
| ** **                                           | ** ** | **2009**                      | ** ** | **(Reversals)** | ** ** | **Paid** | ** ** | **2010** | ** ** |
| Employee severance and benefit costs                 |       | $                             | 495        |   | $ | (171 | ) | $ | (306 | ) | $ | 18 |   |
| Lease termination, facility closure and other  costs |       | 546                           |       | (82 | ) | (464 | ) | — |   |
| Total                                                |       | $                             | 1,041      |   | $ | (253 | ) | $ | (770 | ) | $ | 18 |   |

 

***Impairment Charges***

TheCompany evaluates 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 changes incircumstances indicate that the carrying value of the assets may not berecoverable.  As a result of the declinein sales and operating results at Creative Homeowner in the fourth quarter offiscal 2010, the Company concluded that the carrying value of its goodwill andother intangible assets exceeded their estimated fair market value. As such,the Company recorded a $4.7 million non-cash, pre-tax impairment charge forCreative Homeowner’s goodwill, trade name, and customer list intangible assetsand including approximately $0.5 million related to prepublication costs. On anafter-tax basis, the total impairment charge was $3.0 million, or $.25 perdiluted share.

 

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 non-cash, pre-taximpairment charge of $15.6 million, representing 100% of Dover’s goodwill, atthe end of the second quarter. On an after-tax basis, the impairment charge was$10.2 million, or $.86 per diluted share.

 

Inthe third quarter of fiscal 2008, Creative Homeowner experienced a precipitousdecline in sales and profits due in large part to the 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.

 

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***Book Manufacturing Segment***

 

SEGMENT HIGHLIGHTS

(Dollars inthousands)

 
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent Change** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2010 vs.**       | ** ** | **2009 vs.** | ** ** |
| ** **                           | ** ** | **2010**   | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2009**                | ** ** | **2008** | ** ** |
|                                 |       |       |       |       |       |       |       |                    |       |   |   |
| Net sales                            |       | $          | 222,777    |       | $          | 212,228    |       | $                       | 229,792    |   | 5.0 | % | -7.6 | % |
| Gross profit                         |       | 46,757     |       | 40,532     |       | 55,042     |       | 15.4                    | %          | -26.4 | % |
| As a percentage of sales             |       | 21.0       | %          | 19.1       | %          | 24.0       | %          |                    |       |   |   |
| Selling and  administrative expenses |       | 27,687     |       | 25,865     |       | 28,869     |       | 7.0                     | %          | -10.4 | % |
| Operating income                     |       | $          | 19,070     |       | $          | 14,667     |       | $                       | 26,173     |   | 30.0 | % | -44.0 | % |

 

*Revenues*

Within this segment, the Company focuses on three keypublishing markets: education, religious and specialty trade. Sales to theeducation market were up 6% to $92.4 million compared with fiscal 2009,primarily due to sales of four-color textbooks to colleges and universities aswell as sales through CDS, which combines the new digital inkjet printingoperation with Highcrest Media. Sales to the specialty trade market were up 6%to $59.5 million compared with last year, with growth in new accounts and salesof four-color books.  Sales to the religiousmarket increased 6% to $63.4 million bouncing back from a down year in fiscal2009.

 

For fiscal 2009, sales to the education market were down9% to $87.6 million 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 the prior year from growth in sales of four-color specialty tradebooks and sales to new customers.  Salesto the religious market were down 9% to $59.6 million for the year compared tofiscal 2008, reflecting a difficult fundraising environment for religiousorganizations.

 

*Cost of Sales /Gross Profit*

Cost of sales in the book manufacturing segmentincreased 3% to $176.0 million compared with fiscal 2009, which included $3.8million of restructuring costs, reflecting the increase in sales volume.  During the third quarter of fiscal 2010, theCompany completed the integration of Highcrest Media and at the beginning ofthe fourth quarter, completed the installation and ramp up of the first newdigital inkjet press. Related integration and start-up costs were approximately$0.7 million in the second half of fiscal 2010. Gross profit increased 15% to $46.8 million compared with the prior yearand, as a percentage of sales, improved to 21.0% from 19.1%.  The improvement in gross profit reflects thegrowth in sales, improved capacity utilization, the benefit of last year’s costreduction measures, and increased revenue from recycling programs, as well aslast year’s restructuring costs.  Theseimprovements were offset in part by continued industry-wide pricing pressuresand the impact of start-up costs for the digital print operation andintegration of Highcrest Media.

 

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In fiscal 2009, a continuing decline in demand for one-and two-color books resulted in reduced capacity utilization at some of theCompany’s manufacturing plants.  Inresponse, faced with the weak economy and the need to reduce redundant capacityand lower costs, the Company closed its Book-mart Press manufacturing facilityin the second quarter of fiscal 2009 and reduced one-color capacity in othermanufacturing facilities.  Cost of salesin this segment 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, in fiscal 2008. In addition to the impact of both lower sales and restructuring costs,the decline in gross profit in fiscal 2009 also reflected industry-widecompetitive pricing pressures and reduced revenues from recycling programs.

 

*Selling and Administrative Expenses*

Selling and administrative expenses in the bookmanufacturing segment increased 7% to $27.7 million compared with fiscal 2009,which included approximately $0.5 million of severance-related restructuringcosts.  Cost savings from staffreductions were offset by an increase in variable compensation based onincreased sales and earnings levels in fiscal 2010.

 

In fiscal 2009, selling and administrative expenses inthis segment decreased 10% to $25.9 million, and, as a percentage of sales,decreased to 12.2% from 12.6% compared to fiscal 2008.  These decreases resulted from reducedvariable compensation and reductions in staffing and other cost savinginitiatives implemented in 2009 and were achieved despite restructuring costsof approximately $0.5 million in fiscal 2009.

 

*Operating Income*

Operating income in the Company’s book manufacturingsegment in fiscal 2010 grew by 30% to $19.1 million compared with fiscal 2009,which included $4.3 million of restructuring costs. In fiscal 2010, operatingincome improved due to the growth in sales and the benefit of last year’s costreduction measures, which were offset by increased pricing pressures.

 

In fiscal 2009, operating income in this segment was$14.7 million, a decrease of 44% from fiscal 2008.  This decrease was due to lower sales andcapacity utilization, as well as $4.3 million of restructuring costs in fiscal2009.

 

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***Specialty Publishing Segment***

 

SEGMENT HIGHLIGHTS

(Dollars inthousands)

 
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **Percent Change** | ** ** |
|--------------------------------------|------------|------------|------------|------------|------------|------------|------------|-------------------------|------------|
| ** **                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | **2010 vs.**       | ** ** | **2009 vs.** | ** ** |
| ** **                           | ** ** | **2010**   | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2009**                | ** ** | **2008** | ** ** |
|                                 |       |       |       |       |       |       |       |                    |       |   |   |
| Net sales                            |       | $          | 46,030     |       | $          | 46,769     |       | $                       | 61,767     |   | -1.6 | % | -24.3 | % |
| Gross profit                         |       | 17,332     |       | 16,907     |       | 22,746     |       | 2.5                     | %          | -25.7 | % |
| As a percentage of sales             |       | 37.7       | %          | 36.2       | %          | 36.8       | %          |                    |       |   |   |
| Selling and  administrative expenses |       | 18,046     |       | 19,096     |       | 22,852     |       | -5.5                    | %          | -16.4 | % |
| Operating loss                       |       | $          | (714       | )          | $          | (2,189     | )          | $                       | (106       | ) |   |   |   |   |
|                                 |       |       |       |       |       |       |       |                    |       |   |   |

 

*Revenues*

The Company’s specialty publishing segment iscomprised of Dover, REA, and Creative Homeowner.  Revenues for fiscal 2010 were $46.0 million,down 1.6% from fiscal 2009.  Sales atCreative Homeowner were down 27% to $7.7 million compared with last year,reflecting the persistent weakness in the nation’s housing sector.Approximately $1.2 million of the sales decline was attributable to the windingdown of Creative Homeowner’s book distribution services at the end of last year’sfirst quarter.  Dover’s sales increased4% to $31.0 million compared with fiscal 2009, with growth indirect-to-consumer, online and international sales, which were offset in partby lower bookstore sales. Sales at REA grew 16% to $7.4 million in fiscal 2010compared with 2009, resulting from a strong list of new titles released earlyin the year.

 

Sales in fiscal 2009 were $46.8 million, down 24%from the prior year.  Sales at CreativeHomeowner decreased 49% in fiscal 2009 to $10.5 million compared to last year,reflecting the impact of ceasing its distribution service as well as thepersistent weakness in the nation’s housing sector.  In November 2008, the Company announcedthat Creative Homeowner would cease its book distribution service, which wasaccomplished at the beginning of January 2009, allowing Creative Homeownerto focus 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 sales in fiscal 2009 wereimpacted by the weak economy and drop in consumer spending as well asreductions in inventory by the major book retailers.

 

*Cost of Sales/Gross Profit*

Cost of sales in the specialty publishing segmentdecreased 4% to $28.7 million compared to fiscal 2009, primarily due to thecost reductions initiated in fiscal 2009. Cost of sales last year included $107,000 of severance-relatedrestructuring costs.  During fiscal 2010,the Company continued to integrate functions across this segment andconsolidated Creative Homeowner’s warehousing with the other publishingoperations in order to reduce costs. Gross profit as a percentage of sales increased to 37.7% from36.2% in the prior year, primarily as a result of cost reduction measuresundertaken.

 

In fiscal 2009, cost of sales in this segmentdecreased 23% to $29.9 million reflecting lower sales volume compared to theprior year as well as

 

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restructuring costs in 2009 related to employeeseverance of $107,000.  Gross profit asa percentage of sales for the segment was 36.2% compared to 36.8% in fiscal2008 as the impact of lower sales volume was offset by cost savingsinitiatives, including cessation of Creative Homeowner’s distributionactivities in January 2009.

 

*Selling and AdministrativeExpenses*

Selling and administrative expenses in thespecialty publishing segment decreased 5% to $18.0 million compared to fiscal2009, primarily due to the cost reductions initiated in fiscal 2009.

 

In fiscal 2009, selling and administrativeexpenses in this segment decreased 16% to $19.1 million in fiscal 2009 comparedto the prior year.  The decline reflectsreduced costs related to Creative Homeowner’s former distribution services aswell as cost savings initiatives throughout the segment.  These savings were offset in part byseverance costs of $377,000 related to centralizingback office and order fulfillment operations in the segment in order to reducecosts and improve efficiency.

 

*Operating Loss*

The operating loss for the specialty publishingsegment was $0.7 million, compared with a loss of $2.2 million in fiscal 2009,which included approximately $500,000 of severance and other restructuringcosts. This improvement reflects the benefit of the cost reductions,particularly at Creative Homeowner, combined with sales growth at REA andDover.  Operating income at Dover andREA, which had increased by approximately $1.1 million, was more than offset byCreative Homeowner’s operating loss of $2.6 million.

 

For fiscal 2009, the operating loss for thissegment was $2.2 million, compared to $106,000 in the prior year, with modestprofitability at Dover and REA offset by a loss at Creative Homeowner of $3.0million. Restructuring charges included in the segment’s operating loss were$0.5 million in 2009, primarily related to Creative Homeowner.  The operating loss in fiscal 2009 also reflectsthe drop in sales.

 

***Total Consolidated Company***

 

Interest expense, net of interest income,decreased to $611,000 in fiscal 2010 from $676,000 in fiscal 2009 due to lowerinterest rates and lower average borrowings. In fiscal 2009, interest expense, net of interest income, decreased to$676,000 in fiscal 2009 from $1.1 million in fiscal 2008 primarily due to lowerinterest rates.  The Company entered intoa four-year term loan in March 2010 providing up to $8 million to financenew digital print operation assets.  Thefollowing table summarizes the Company’s average borrowings and average annualinterest rate under these arrangements for the past three fiscal years.

 
| ** **                   | ** ** | **(Dollars in millions)** | ** ** |
|------------------------------|------------|-------------------------------------|------------|
| ** **                   | ** ** | **2010**                            | ** ** | **2009** | ** ** | **2008** | ** ** |
|                         |       |                                |       |   |   |   |   |
| Average debt                 |       | $                                   | 16.5       |   | $ | 24.2 |   | $ | 24.8 |   |
| Average annual interest rate |       | 0.9                                 | %          | 1.5 | % | 4.0 | % |
|                              |            |                                     |            |  |  |  |  |  |  |  |

 

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Interest expense also includes commitment feesand other costs associated with maintaining this credit facility.  Interest capitalized in fiscal 2010 was$55,000, primarily related to the digital print operation.  Interest capitalized in fiscal 2008 was$123,000, related primarily to a new press at the Philadelphia facility.  No interest was capitalized in fiscal 2009.

 

The tax benefits in fiscal years 2010, 2009 and 2008 related to theimpairment charges incurred in each year were recognized at approximately 35%as the Company provided valuation allowances on the related deferred state taxassets.  Excluding the impact of theimpairment charges, the effective tax rate for fiscal 2010 was 37.8% comparedto 33.9% in fiscal 2009, primarily due to a higher effective state taxrate.  Excluding the impact of theimpairment charges, the effective tax rate for fiscal 2009 was 33.9% comparedto 36.8% in fiscal 2008. The reduction in 2009 included a decrease in thefederal statutory rate due to the lower earnings level, as well as a reductionin state taxes associated, in part, with the impact of changes in state taxlegislation on deferred tax assets.

 

On November 8, 2007, the Company announced the approval by itsBoard of Directors for the repurchase of up to $10 million of the Company’soutstanding common stock from time to time at management’s discretion eitherthrough the open market or privately negotiated transactions. 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 ofthe share repurchase program through September 27, 2008, the Companyrepurchased approximately 856,000 shares ofcommon stock for approximately $19.6 million. No shares were repurchased infiscal years 2009 or 2010.

 

Forpurposes of computing net income per diluted share, weighted average sharesoutstanding for fiscal 2010 increased by approximately 85,000, primarily due toshares issued under the Company’s stock plans. Weighted average sharesoutstanding for fiscal 2009 decreased by approximately 444,000 compared to theprior year, primarily because of the repurchase of approximately 856,000 sharesduring fiscal 2008.

 

**LIQUIDITY AND CAPITAL RESOURCES**

 

Operating activities in fiscal 2010 provided$34.2 million of cash compared to $34.8 million in fiscal 2009.  Net income of $7.1 million included thenon-cash, after-tax impairment charge of $3.0 million.  In addition, stock-based compensation was$1.3 million, depreciation was $15.0 million, amortization of prepublicationcosts was $5.2 million, and amortization of other intangible assets was $0.5million. Working capital used $0.7 million of cash in fiscal 2010.

 

Investment activities in fiscal 2010 used $35.1million of cash, including $3.0 million for the acquisition of Highcrest Media.Capital expenditures were $28.4 million, compared with $10.1 million in fiscal2009.  In April 2010, theCompany ordered a fourth manroland press to expand four-color capacity in itsKendallville, Indiana facility. Spending in fiscal 2010 on this $17million project was approximately $13 million. Capital expenditures relating to the new digital print operation wereapproximately $12 million in fiscal 2010, including progress payments on asecond HP press.  Both new presses arescheduled to be installed in the first quarter of fiscal 2011.  Taking into account remaining spending onthese two press projects of approximately $8 million, capital expenditures forfiscal 2011 are expected to be between $16 and $18 million.  In fiscal 2010, proceeds of approximately$0.6 million were received on the disposition of assets, including equipmentfrom the Book-mart Press manufacturing facility.

 

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Prepublication costs in thespecialty publishing segment in 2010 were $4.2 million compared to $4.8 millionin the prior year. These costs are expected to be approximately $4 million in2011.

 

Financing activities in fiscal 2010 provided $0.5million of cash.  Cash dividends used$10.1 million and long-term debt increased by $10.1 million.  At September 25, 2010 and September 26,2009, the Company had $17.1 million and $13.5 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 25, 2010.  On March 26,2010, the Company entered into a four-year term loan providing up to $8 millionto finance new digital print operation assets and provides a lien on the assetsacquired with the proceeds.  At September 25,2010, $6.6 million of debt was outstanding under this arrangement, with $2.7million at a fixed annual interest rate of 3.9% and $3.9 million at a fixedannual interest rate of 3.6%.  The revolving credit facility, which matures in2013, and the four-year term loan contain restrictive covenants includingprovisions relating to the maintenance of working capital, the incurrence ofadditional indebtedness and a quarterly test of EBITDA to debt service.  The Company was in compliance with all suchcovenants at September 25, 2010. The revolving credit facility also provides for a commitment fee not toexceed 3/8% per annum on the unused portion. The Company believes that its cash on hand, cash from operations and theavailable credit facility will be sufficient to meet its cash requirementsthrough fiscal 2011.

 

The following table summarizes the Company’s contractual obligationsand commitments at September 25, 2010 to make future payments as well asits existing commercial commitments.  Theamounts in the table do not include interest expense.  Purchase obligations represent commitmentsfor capital expenditures.

 
| ** **                     | ** ** | ** ** | ** ** | **(000’s omitted)**             | ** ** |
|--------------------------------|------------|------------|------------|-------------------------------------------|------------|
| ** **                     | ** ** | ** ** | ** ** | **Payments due by period** | ** ** |
| ** **                     | ** ** | ** ** | ** ** | **Less than**                        | ** ** | **1 to 3** | ** ** | **3 to 5** | ** ** | **More than** | ** ** |
| **Contractual Payments:** | ** ** | **Total**  | ** ** | **1 Year**                           | ** ** | **Years** | ** ** | **Years** | ** ** | **5 Years** | ** ** |
| Long-Term Debt                 |       | $          | 23,698     |                                      | $          | 1,794 |   | $ | 20,758 |   | $ | 1,146 |   | $ | — |   |
| Operating Leases               |       | 9,969      |       | 1,566                                     |       | 2,593 |   | 2,097 |   | 3,713 |   |
| Purchase Obligations           |       | 3,235      |       | 3,235                                     |       | — |   | — |   | — |   |
| Other Long-Term Liabilities    |       | 3,788      |       | —                                    |       | 1,710 |   | 311 |   | 1,767 |   |
| Total                          |       | $          | 40,690     |                                      | $          | 6,595 |   | $ | 25,061 |   | $ | 3,554 |   | $ | 5,480 |   |

 

Long-termdebt includes $17.1 million under the Company’s long-term revolving creditfacility, which has a maturity date of March 2013.

 

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**NEW ACCOUNTING PRONOUNCEMENTS**

 

Atthe beginning of fiscal 2010, the Company adopted the provisions of theFinancial Accounting Standards Board (“FASB”) authoritative literature onbusiness combinations, which expands the definition of a business combinationand changes the manner in which the Company accounts for business combinations.Significant changes include the capitalization of IPR&D as anindefinite-lived asset, the recognition of certain acquired contingent assetsand liabilities at fair value, the expensing of acquisition-related restructuringactions and transaction costs, and the recognition of contingent purchase priceconsideration at fair value on the acquisition date. In addition,post-acquisition changes in deferred tax asset valuation allowances andacquired income tax uncertainties will be recognized as income tax expense orbenefit. The accounting treatment for taxes will be applicable to acquisitionsthat close both prior and subsequent to the adoption of this guidance. TheCompany has applied this standard to the acquisition of Highcrest Media,described in Note K. As a result of adopting this guidance, the Companyexpensed approximately $200,000 of transaction and relocation costs related tothe acquisition and recorded contingent consideration of $1.2 million in theinitial purchase price at its estimated fair value of $850,000.

 

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.Adoption of this guidance in the first quarter of 2010 did not have a materialeffect on the Company’s consolidated financial 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. As required, the Company complied with thesedisclosure requirements beginning in fiscal 2010.

 

**RISKS**

 

Ourbusinesses operate in markets that are highly competitive, and the Companyfaces competition on the basis of price, product quality, speed of delivery,customer service, availability of appropriate printing capacity and paper,related services and technology support. Some of our competitors have greater sales, assets and financialresources than our Company and others, particularly those in foreign countries,may derive significant advantages from local governmental regulation, includingtax holidays and other subsidies. These competitive pressures could affectprices or customers’ demand for our products, impacting both revenue and profitmargins and/or resulting in a loss of customers and market share. The Companyderived approximately 47% and 44% of its fiscal 2010 and 2009 revenues,respectively, from two major customers. A significant reduction in order volumes or price levels from either ofthese customers could have a material adverse effect on the Company.

 

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**CRITICAL ACCOUNTING POLICIES ANDESTIMATES**

 

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

 

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

 

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

 

Goodwill and Other Intangibles.   Other intangibles includecustomer lists, which are amortized on a straight-line basis over periodsranging from five to ten years. The Company evaluates possible impairment ofgoodwill and other intangibles at the reporting unit level, which is theoperating segment or one level below the operating segment, on an annual basisor whenever events or changes in circumstances indicate that the carrying valueof the assets may not be recoverable. The Company completed the annual impairment test at September 25,2010, which resulted in no change to the nature or carrying amounts of itsintangible assets in its book manufacturing segment.  However, the Company determined that the fairvalue of Creative Homeowner at the end of fiscal 2010 was below its carryingvalue and a pre-tax impairment charge of $4.7 million was recorded, whichrepresented 100% of Creative Homeowner’s goodwill and other intangible assetsas well as $0.5 million of prepublication costs.  In the second quarter of fiscal 2009, due toa decline in sales and profits at Dover, resulting from the continued downturnin the economic environment and in consumer spending, the Company performed aninterim test of Dover’s goodwill.  As aresult of the impairment test, the Company concluded that the carrying value ofDover’s goodwill exceeded its estimated fair value and recorded a pre-taximpairment charge 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 the quarter.  As a result of the impairment tests, theCompany concluded that the carrying value of Creative Homeowner’s goodwill andother intangible assets exceeded their estimated fair value. The total pre-taximpairment charge recorded in fiscal 2008 related to the goodwill, trade name,and customer list intangible assets of Creative

 

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Homeowner was $23.6 million.  Changes in market conditions or pooroperating results could result in a decline in value of the Company’s goodwilland other intangible assets thereby potentially requiring an additionalimpairment charge in the future.

 

PrepublicationCosts.   The Company capitalizesprepublication costs, which include the costs of acquiring rights to publish awork and costs associated with bringing a manuscript to publication such asartwork and editorial efforts. Prepublication costs are amortized on astraight-line basis over periods ranging from three to five years.  Management regularly evaluates the sales andprofitability of the products based upon historical and forecasted demand.  Based upon this evaluation, adjustments maybe required to amortization expense.  Infiscal 2010, an impairment charge was recorded for $0.5 million forunderperforming titles at Creative Homeowner.

 

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**COURIERCORPORATION**

**SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)**

(Dollars in thousands except per share data)

 
| **Fiscal 2010**                | ** ** | **First** | ** ** | **Second** | ** ** | **Third** | ** ** | **Fourth** | ** ** |
|-------------------------------------|------------|-----------|------------|------------|------------|-----------|------------|------------|------------|
|                                |       |      |       |       |       |      |       |       |       |
| Operating Results:                  |       |      |       |       |       |      |       |       |       |
| Net sales                           |       | $         | 63,104     |       | $          | 58,879    |       | $          | 64,919     |   | $ | 70,238 |   |
| Gross profit                        |       | 17,296    |       | 14,300     |       | 13,883    |       | 18,532     |       |
| Impairment charge                   |       | —    |       | —     |       | —    |       | (4,734     | )          |
| Net income                          |       | 2,784     |       | 1,435      |       | 1,770     |       | 1,125      |       |
| Net income per diluted share        |       | 0.23      |       | 0.12       |       | 0.15      |       | 0.09       |       |
| Dividends declared per share        |       | 0.21      |       | 0.21       |       | 0.21      |       | 0.21       |       |
| Stock price per share:              |       |      |       |       |       |      |       |       |       |
| Highest                             |       | 15.47     |       | 17.51      |       | 18.41     |       | 16.69      |       |
| Lowest                              |       | 12.42     |       | 13.01      |       | 12.74     |       | 11.92      |       |
|                                |       |      |       |       |       |      |       |       |       |
| **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      |       |

 

*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 1,022 stockholders of record as of September 25,2010.*

 

F-42

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Table ofContents

 

COURIER CORPORATION

 

SCHEDULE II

 

CONSOLIDATED VALUATION AND QUALIFYING ACCOUNTS

 
| ** **                            | ** ** | ** **          | ** ** | **ADDITIONS**         | ** ** | ** **     | ** ** | ** **         | ** ** |
|---------------------------------------|------------|---------------------|------------|-----------------------|------------|----------------|------------|--------------------|------------|
| ** **                            | ** ** | **BALANCE AT** | ** ** | **CHARGED TO**   | ** ** | ** **     | ** ** | **BALANCE**        | ** ** |
| ** **                            | ** ** | **BEGINNING**       | ** ** | **REVENUES AND** | ** ** | ** **     | ** ** | **AT END**    | ** ** |
| ** **                            | ** ** | **OF PERIOD**  | ** ** | **EXPENSES**          | ** ** | **DEDUCTIONS** | ** ** | **OF PERIOD** | ** ** |
|                                  |       |                |       |                  |       |           |       |               |       |
| Allowance for uncollectible accounts: |       |                |       |                  |       |           |       |               |       |
|                                  |       |                |       |                  |       |           |       |               |       |
| Fiscal year ended September 25, 2010  |       | $                   | 1,600,000  |                  | $          | (32,000        | )          | $                  | 600,000    |   | $ | 968,000 |   |
|                                  |       |                |       |                  |       |           |       |               |       |
| 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 |   |
|                                  |       |                |       |                  |       |           |       |               |       |
| Returns allowance:                    |       |                |       |                  |       |           |       |               |       |
|                                  |       |                |       |                  |       |           |       |               |       |
| Fiscal year ended September 25, 2010  |       | $                   | 1,945,000  |                  | $          | 3,691,000      |       | $                  | 3,528,000  |   | $ | 2,108,000 |   |
|                                  |       |                |       |                  |       |           |       |               |       |
| 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 |   |

 

S-1

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