UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 26, 2010

OR

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

For the transition period from to

Commission file number 0-7597

COURIER CORPORATION

(Exact name of registrant as specified in its charter)

Massachusetts		04-2502514
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

15 Wellman Avenue, North Chelmsford, Massachusetts		01863
(Address of principal executive offices)		(Zip Code)

(978) 251-6000

(Registrant’s telephone number, including area code)

NO CHANGE

(Former name, former address and former fiscal year, if changed since last report)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one:)

Large accelerated filer o		Accelerated filer x

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

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

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date.

Class		Outstanding at July 23, 2010
Common Stock, $1 par value		12,001,459 shares

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)

(Dollars in thousands except per share amounts)

	QUARTER ENDED				NINE MONTHS ENDED
	June 26,		June 27,		June 26,		June 27,
	2010		2009		2010		2009

Net sales	$	64,919	$	61,390	$	186,902	$	180,397
Cost of sales (Note E)	51,036		47,313		141,423		141,269

Gross profit	13,883		14,077		45,479		39,128

Selling and administrative expenses (Note E)	10,877		11,305		35,374		36,462
Impairment charge (Note A)	—		—		—		15,607

Operating income (loss)	3,006		2,772		10,105		(12,941		)

Interest expense, net	130		153		367		574

Pretax income (loss)	2,876		2,619		9,738		(13,515		)

Income tax provision (benefit) (Note C)	1,106		1,007		3,749		(4,657		)

Net income (loss)	$	1,770	$	1,612	$	5,989	$	(8,858	)

Net income (loss) per share (Note G):

Basic	$	0.15	$	0.14	$	0.50	$	(0.75	)

Diluted	$	0.15	$	0.14	$	0.50	$	(0.75	)

Cash dividends declared per share	$	0.21	$	0.21	$	0.63	$	0.63

The accompanying notes are an integral part of the consolidated condensed financial statements.

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

	June 26,		September 26,
	2010		2009
ASSETS

Current assets:
Cash and cash equivalents	$	113	$	492
Investments	1,064		1,017
Accounts receivable, less allowance for uncollectible accounts of $1,797 at June 26, 2010 and $1,600 at September 26, 2009	36,340		34,176
Inventories (Note B)	40,724		38,026
Deferred income taxes	4,675		4,462
Other current assets	1,996		1,404

Total current assets	84,912		79,577

Property, plant and equipment, less accumulated depreciation of $167,066 at June 26, 2010 and $160,783 at September 26, 2009	91,046		89,754

Goodwill (Note A)	26,497		24,980

Other intangibles, net (Note A)	5,319		3,720

Prepublication costs, net (Note A)	8,426		9,194

Other assets	1,263		1,212

Total assets	$	217,463	$	208,437

The accompanying notes are an integral part of the consolidated condensed financial statements.

COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

	June 26,			September 26,
	2010			2009
LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Current maturities of long-term debt (Note I)	$	778		$	96
Accounts payable	11,270			10,974
Accrued payroll	7,408			5,950
Accrued taxes	441			3,032
Other current liabilities	7,180			7,098

Total current liabilities	27,077			27,150

Long-term debt (Note I)	21,651			13,514
Deferred income taxes	1,064			177
Other liabilities	3,515			3,006

Total liabilities	53,307			43,847

Stockholders’ equity (Note F):
Preferred stock, $1 par value - authorized 1,000,000 shares; none issued
Common stock, $1 par value - authorized 18,000,000 shares; issued 12,001,000 at June 26, 2010 and 11,956,000 at September 26, 2009	12,001			11,956
Additional paid-in capital	17,559			16,479
Retained earnings	135,223			136,782
Accumulated other comprehensive loss	(627		)	(627		)

Total stockholders’ equity	164,156			164,590

Total liabilities and stockholders’ equity	$	217,463		$	208,437

The accompanying notes are an integral part of the consolidated condensed financial statements.

COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

	NINE MONTHS ENDED
	June 26,			June 27,
	2010			2009
Operating Activities:
Net income (loss)	$	5,989		$	(8,858	)
Adjustments to reconcile net income (loss) to cash provided from operating activities:
Depreciation and amortization	15,527			15,824
Impairment charge (Note A)	—			15,607
Stock-based compensation	1,012			1,073
Deferred income taxes	674			(3,813		)
Gain on disposition of assets	(183		)	—
Changes in assets and liabilities:
Accounts receivable	(1,785		)	9,509
Inventory	(2,657		)	(2,379		)
Accounts payable	7			(6,792		)
Accrued taxes	(2,591		)	(2,830		)
Other elements of working capital	608			(2,245		)
Other long-term, net	(249		)	(150		)

Cash provided from operating activities	16,352			14,946

Investment Activities:
Capital expenditures	(12,635		)	(5,601		)
Acquisition (Note H)	(3,000		)	—
Prepublication costs	(3,151		)	(3,119		)
Proceeds on disposition of assets	590			—
Short-term investments	(47		)	(72		)

Cash used for investment activities	(18,243		)	(8,792		)

Financing Activities:
Long-term debt borrowings, net	8,819			878
Cash dividends	(7,548		)	(7,495		)
Proceeds from stock plans	241			412

Cash provided from (used for) financing activities	1,512			(6,205		)

Decrease in cash and cash equivalents	(379		)	(51		)

Cash and cash equivalents at the beginning of the period	492			178

Cash and cash equivalents at the end of the period	$	113		$	127

Supplemental disclosure of noncash investing activities:
Contingent consideration (Note H)	$	850		—

The accompanying notes are an integral part of the consolidated condensed financial statements.

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Financial Statements

The consolidated condensed balance sheet as of June 26, 2010, the consolidated condensed statements of operations for the three-month and nine-month periods ended June 26, 2010 and June 27, 2009, and the consolidated condensed statements of cash flows for the nine-month periods ended June 26, 2010 and June 27, 2009 are unaudited. In the opinion of management, all adjustments, consisting of normal recurring items, considered necessary for a fair presentation of such financial statements have been recorded. The Company considers events or transactions that occur after the balance sheet date, but before the financial statements are issued, to provide additional evidence relative to certain estimates or to identify matters that require additional disclosure.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”) have been condensed or omitted. The balance sheet data as of September 26, 2009 was derived from audited year-end financial statements, but does not include disclosures required by generally accepted accounting principles. It is suggested that these interim financial statements be read in conjunction with the Company’s most recent Annual Report on Form 10-K for the year ended September 26, 2009.

Goodwill and Other Intangibles

The Company evaluates possible impairment annually at the end of its fiscal year or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. There were no such events or changes in circumstances in the period ended June 26, 2010. In the second quarter of fiscal 2009, the Company recorded a $15.6 million impairment charge related to Dover Publications, Inc. (“Dover”), representing 100% of Dover’s goodwill.

During the second quarter of fiscal 2010, the Company acquired Highcrest Media LLC (“Highcrest Media”) and recorded goodwill of $1.5 million (see Note H). In addition, the Company recorded intangibles related to customer lists and technology with this acquisition totaling $1.9 million, which are being amortized over a 5-year period. “Other intangibles” also include customer lists related to Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”) and Moore-Langen Printing Company, Inc. (“Moore Langen”), which are being amortized over 15-year and 10-year periods, respectively. Related amortization expense was approximately $150,000 and $50,000 in the third quarters of fiscal years 2010 and 2009, respectively. For the first nine months, amortization expense was approximately $330,000 and $150,000 in fiscal years 2010 and 2009, respectively. Annual amortization expense over the next five years will be approximately $600,000 prospectively.

Fair Value of Financial Instruments

Financial instruments consist primarily of cash, investments in mutual funds, accounts receivable, accounts payable and debt obligations. At June 26, 2010 and September 26, 2009, the fair value of the Company’s financial instruments approximated their carrying values. The fair value of the Company’s revolving credit facility approximates its carrying value due to the variable interest rate and the Company’s current rate standing. At June 26, 2010, the Company had a forward exchange contract to purchase approximately 2.5 million euros as a hedge against a foreign currency equipment purchase commitment, designated as a fair value hedge. The fair value of the foreign exchange forward contract was valued using market exchange rates. The Company does not use financial instruments for trading or speculative purposes.

Prepublication Costs

Prepublication costs, associated with creating new titles in the specialty publishing segment, are amortized to cost of sales using the straight-line method over estimated useful lives of three to five years.

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

Recent Accounting Pronouncements:

At the beginning of fiscal 2010, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) authoritative literature on business combinations, which expands the definition of a business combination and changes the manner in which the Company accounts for business combinations. Significant changes include the capitalization of IPR&D as an indefinite-lived asset, the recognition of certain acquired contingent assets and liabilities at fair value, the expensing of acquisition-related restructuring actions and transaction costs, and the recognition of contingent purchase price consideration at fair value on the acquisition date. In addition, post-acquisition changes in deferred tax asset valuation allowances and acquired income tax uncertainties will be recognized as income tax expense or benefit. The accounting treatment for taxes will be applicable to acquisitions that close both prior and subsequent to the adoption of this guidance. The Company has applied this standard to the acquisition of Highcrest Media, described in Note H. As a result of adopting this guidance, the Company expensed approximately $55,000 of transaction costs related to the acquisition and recorded contingent consideration of $1.2 million in the initial purchase price at its estimated fair value of $850,000.

B. INVENTORIES

Inventories are valued at the lower of cost or market. Cost was determined using the last-in, first-out (LIFO) method for approximately 53% of the Company’s inventories at both June 26, 2010 and September 26, 2009. Other inventories, primarily in the specialty publishing segment, are determined on a first-in, first-out (FIFO) basis. Inventories consisted of the following:

	(000’s Omitted)
	June 26, 2010		September 26, 2009
Raw materials	$	5,074	$	4,384
Work in process	9,350		8,286
Finished goods	26,300		25,356
Total	$	40,724	$	38,026

C. INCOME TAXES

The provision (benefit) for income taxes differs from that computed using the statutory federal income tax rates for the following reasons:

	(000’s Omitted)
	Quarter Ended
	June 26, 2010					June 27, 2009
Federal taxes at statutory rates	$	1,007		35.0	%	$	917		35.0	%
State taxes, net of federal tax benefit	170			5.9		121			4.6
Federal manufacturer’s deduction	(41		)	(1.4	)	(27		)	(1.0	)
Other	(30		)	(1.0	)	(4		)	(0.2	)
Total	$	1,106		38.5	%	$	1,007		38.4	%

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

	(000’s Omitted)
	Nine Months Ended
	June 26, 2010					June 27, 2009
Federal taxes at statutory rates	$	3,408		35.0	%	$	(4,730	)	(35.0	)%
State taxes, net of federal tax benefit	518			5.3		96			0.7
Federal manufacturer’s deduction	(165		)	(1.7	)	(20		)	(0.1	)
Other	(12		)	(0.1	)	(3		)	—
Total	$	3,749		38.5	%	$	(4,657	)	(34.5	)%

The tax benefit related to the impairment charge for Dover recorded in the second quarter of last year was recognized at 35% (see Note A). No state tax benefit was recognized as the Company fully provided a valuation allowance on the related deferred state tax asset.

D. BUSINESS SEGMENTS

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

Segment performance is evaluated based on several factors, of which the primary financial measure is operating income. Operating income is defined as gross profit (sales less cost of sales) less selling and administrative expenses, and includes severance and other restructuring costs but excludes stock-based compensation. As such, segment performance is evaluated exclusive of interest, income taxes, stock-based compensation, intersegment profit, and impairment charges. The elimination of intersegment sales and related profit represents sales from the book manufacturing segment to the specialty publishing segment.

The following table provides segment information for the three-month and nine-month periods ended June 26, 2010 and June 27, 2009.

	(000’s Omitted)
	Quarter Ended						Nine Months Ended
	June 26,			June 27,			June 26,			June 27,
	2010			2009			2010			2009
Net sales:
Book manufacturing	$	56,838		$	52,691		$	161,659		$	153,472
Specialty publishing	10,854			11,327			34,136			34,888
Elimination of intersegment sales	(2,773		)	(2,628		)	(8,893		)	(7,963		)
Total	$	64,919		$	61,390		$	186,902		$	180,397

Pretax income (loss):
Book manufacturing operating income	$	3,727		$	3,740		$	12,224		$	6,676
Specialty publishing operating loss	(424		)	(624		)	(925		)	(3,117		)
Impairment charge (Note A)	—			—			—			(15,607		)
Stock-based compensation	(329		)	(347		)	(1,012		)	(1,072		)
Elimination of intersegment profit	32			3			(182		)	179
Interest expense, net	(130		)	(153		)	(367		)	(574		)
Total	$	2,876		$	2,619		$	9,738		$	(13,515	)

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

E. RESTRUCTURING COSTS

In fiscal 2009, the Company recorded restructuring costs of $65,000 in the third quarter and $3.8 million in the first nine months of the year. Restructuring costs included employee severance expenses related to cost savings initiatives in both of the Company’s segments, as well as winding down Creative Homeowner’s distribution services and closing and consolidating the Book-mart Press manufacturing facility during the second quarter of fiscal 2009. The following table details restructuring costs by segment and by classification in the accompanying consolidated condensed statements of operations.

	(000’s Omitted)
	Quarter Ended					Nine Months Ended
	Book Manufacturing Segment		Specialty Publishing Segment	Total Company		Book Manufacturing Segment		Specialty Publishing Segment		Total Company

Included in cost of sales	$	65	—	$	65	$	2,819	$	107	$	2,926
Included in selling and administrative expenses	—		—	—		491		377		868
Total restructuring costs	$	65	—	$	65	$	3,310	$	484	$	3,794

For the entire fiscal year 2009, the Company recorded restructuring costs totaling $4.8 million. The following table depicts the accrual balances for these restructuring costs that remained as of September 26, 2009 and June 26, 2010, which relate to closing and consolidating the Book-mart Press manufacturing facility.

	(000’s Omitted)
	Accrual at								Accrual at
	September 26,		Charges			Cash			June 26,
	2009		(Reversals)			Paid			2010

Employee severance and benefit costs	$	495	$	(125	)	$	(291	)	$	79
Lease termination, facility closure and other costs	546		65			(432		)	179

Total	$	1,041	$	(60	)	$	(723	)	$	258

In the first quarter of fiscal 2010, the Company accrued $140,000 for lease termination and facility closure costs. During the third quarter, $200,000 of accrued restructuring costs were reversed. Amounts accrued for restructuring costs at June 26, 2010 and September 26, 2009 are included in “Other current liabilities” in the accompanying consolidated balance sheet. In addition to the above, the Company recorded a gain on the disposition of Book-mart Press assets in the first quarter of fiscal 2010 of $140,000. The Company anticipates that payments associated with Book-mart Press, including rental payments related to the lease obligation and closing costs associated with the termination of the lease, will be substantially completed by the end of this fiscal year.

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

F. STOCK-BASED COMPENSATION

The Company records stock-based compensation expense for the cost of stock options and stock grants as well as shares issued under the Company’s 1999 Employee Stock Purchase Plan, as amended (the “ESPP”). The fair value of each option awarded is calculated on the date of grant using the Black-Scholes option-pricing model. Stock-based compensation recognized in selling and administrative expenses in the accompanying financial statements in the third quarters of fiscal 2010 and 2009 was $329,000 and $347,000, respectively. The related tax benefit recognized in the third quarters of fiscal 2010 and 2009 was $117,000 and $113,000, respectively. For the first nine months of 2010 and 2009, stock-based compensation was $1,012,000 and $1,072,000, respectively, and the related tax benefit recognized was $361,000 and $350,000, respectively. Unrecognized stock-based compensation cost at June 26, 2010 was $1.5 million, to be recognized over a weighted-average period of 2.0 years.

Stock Incentive Plan: The Company’s Amended and Restated 1993 Stock Incentive Plan provides for the granting of stock options and stock grants up to a total of 2,064,375 shares. Under the plan provisions, both non-qualified and incentive stock options to purchase shares of the Company’s common stock may be granted to key employees. The option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant. The Company annually issues a combination of stock options and stock grants to its key employees. Stock options and stock grants generally vest over 3 years.

The following is a summary of option activity under this plan in the first nine months of fiscal 2010:

		Weighted Average			Aggregate
	Option Shares	Exercise Price		Remaining Term (yrs)	Intrinsic Value
Outstanding at September 26, 2009	463,886	$	24.74
Granted	4,558	13.71
Outstanding at June 26, 2010	468,444	$	24.63	2.5	—

Exercisable at June 26, 2010	259,181	$	28.94	1.4	—
Available for future grants	193,050

The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model. The key assumptions used to value the options granted, which were issued in the second quarter of fiscal 2010, were a risk-free interest rate of 2.7%, expected volatility of 46%, a dividend yield of 6.1%, and an expected life of five years, resulting in a weighted average fair value of $3.46 per share.

In the second quarter of fiscal 2010, 869 stock awards were granted with a weighted-average fair value of $13.71 per share. During the first nine months of fiscal 2010, 7,093 stock grants vested with a weighted-average fair value of $38.47 per share. At June 26, 2010, there were 59,937 non-vested stock grants outstanding with a weighted-average fair value of $21.95.

Directors’ Stock Equity Plans: In January 2010, stockholders approved the Courier Corporation 2010 Stock Equity Plan for Non-Employee Directors (the “2010 Plan”). Under the plan provisions, stock grants as well as non-qualified stock options to purchase shares of the Company’s common stock may be granted to non-employee directors up to a total of 300,000 shares. The 2010 Plan replaced the previous non-employee directors’ plan, which had been adopted in 2005 (the “2005 Plan”). No further options will be granted under the 2005 Plan. Under the 2010 Plan, the option price per share is the fair market value of stock at the time the option is granted and options have a term of five years. Stock options and stock grants generally vest over three years.

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

During the second quarter of fiscal 2010, 53,179 options were granted under the 2010 Plan. The fair value of each option grant was estimated on the date of the grant using the Black-Scholes option-pricing model. The key assumptions used to value the options granted were a risk-free interest rate of 2.7%, expected volatility of 46%, a dividend yield of 6.1%, and an expected life of five years, resulting in a weighted average fair value of $3.46 per share.

The following is a summary of option activity under the 2010 Plan and the 2005 Plan in the first nine months of fiscal 2010:

			Weighted Average			Aggregate
	Option Shares		Exercise Price		Remaining Term (yrs)	Intrinsic Value
Outstanding at September 26, 2009	186,687		$	28.89
Granted	53,179		13.71
Expired	(33,000	)	32.65
Outstanding at June 26, 2010	206,866		$	24.39	2.8	—

Exercisable at June 26, 2010	153,687		$	28.08	2.2	—
Available for future grants	221,236

During the second quarter of fiscal 2010, 13,181 stock awards were granted to non-employee directors with a weighted-average fair value of $13.71 per share, representing all such non-vested stock grants outstanding at June 26, 2010. Directors may also elect to receive their annual retainer and committee chair fees as shares of stock in lieu of cash; 12,404 such shares were issued in the second quarter of fiscal 2010.

Employee Stock Purchase Plan: The ESPP allows eligible employees to purchase shares of Company common stock at not less than 85% of fair market value at the end of the grant period. On January 20, 2010, stockholders approved an amendment to the ESPP increasing the shares authorized under the plan by 300,000 to an aggregate of 637,500 shares of Company common stock available for issuance under the plan. During the second quarter of fiscal 2010, 18,419 shares were issued under the ESPP at a price of $13.08 per share. At June 26, 2010, there were 293,357 shares available for future issuances.

G. NET INCOME PER SHARE

The following is a reconciliation of the outstanding shares used in the calculation of basic and 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 the first nine months of fiscal 2009, approximately 6,000 potentially dilutive shares were excluded as the Company incurred a loss in that period.

	(000’s Omitted)
	Quarter Ended		Nine Months Ended
	June 26, 2010	June 27, 2009	June 26, 2010	June 27, 2009

Average shares outstanding for basic	11,928	11,861	11,910	11,844
Effect of potentially dilutive shares	34	10	27	—
Average shares outstanding for diluted	11,962	11,871	11,937	11,844

COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

H. BUSINESS ACQUISITION

On January 15, 2010, the Company acquired the assets of Highcrest Media, a Massachusetts-based provider of solutions that streamline the production of customized textbooks and other materials for use in colleges, universities and businesses. The acquisition also complements the Company’s investment during fiscal 2010 in digital printing technology. The $3 million cash acquisition, which has additional future “earn out” potential payments of up to $1.2 million, was accounted for as a purchase, and accordingly, Highcrest Media’s financial results are included in the book manufacturing segment in the consolidated financial statements from the date of acquisition. The future earn out potential payments were valued at acquisition at $850,000 using a probability weighted discounted cash flow model and may be paid out over three years.

The acquisition of Highcrest Media was recorded by allocating the fair value of consideration of the acquisition to the identified assets acquired, including intangible assets and liabilities assumed, based on their estimated fair value at the acquisition date. The excess of the fair value of consideration of the acquisition over the net amounts assigned to the fair value of the assets acquired and liabilities assumed was recorded as goodwill. Goodwill and other intangibles are tax deductible. Based on these valuations, the purchase 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		)
Total purchase price	$	3,850
Less: Fair value of contingent “earn out” consideration	(850		)
Net cash paid	$	3,000

The Company also assumed operating leases for some of Highcrest Media’s equipment. The acquisition of Highcrest Media is expected to be modestly accretive to the Company’s earnings for fiscal 2010. The Company expects to finalize the preliminary estimates of the fair value of the intangible assets in the next quarter.

I. LONG-TERM DEBT

On March 26, 2010, the Company entered into a four-year term loan providing up to $8 million to finance the new digital print operation assets. At June 26, 2010, $2.8 million of debt was outstanding under this arrangement with a fixed annual interest rate of 3.9%. Subsequent to the end of the third quarter, an additional $4.1 million was borrowed under this arrangement with a concurrent term and a fixed annual interest rate of 3.6%.

J. DERIVATIVES

In April 2010, the Company ordered a fourth manroland press to expand four-color capacity in its Kendallville, Indiana facility. At June 26, 2010, the Company had a forward exchange contract to purchase approximately 2.5 million euros as a hedge against the balance remaining under the equipment purchase commitment, designated as a fair value hedge (see Note A). The Company does not use financial instruments for trading or speculative purposes.

Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF
	FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates:

The Company’s consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates and judgments, including those related to collectibility of accounts receivable, recovery of inventories, impairment of goodwill and other intangibles, prepublication costs and income taxes. Management bases its estimates and judgments on historical experience and various other factors believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the periods presented. Actual results may differ from these estimates. The significant accounting policies which management believes are most critical to aid in fully understanding and evaluating the Company’s reported financial results include the following:

Accounts Receivable. Management performs ongoing credit evaluations of the Company’s customers and adjusts credit limits based upon payment history and the customer’s current creditworthiness. Collections and payments from customers are continuously monitored. A provision for estimated credit losses is determined based upon historical experience and any specific customer collection issues that have been identified. If the financial condition of the Company’s customers were to deteriorate, it may result in their inability to make payments, and such events could possibly lead to their insolvency, and therefore additional allowances may be required.

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

Goodwill and Other Intangibles. Other intangible assets include customer lists and technology, which are amortized on a straight-line basis over periods ranging from five to fifteen years. The Company evaluates possible impairment of goodwill and other intangibles on an annual basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company completed its annual impairment test at September 26, 2009 resulting in no change to the nature or carrying amounts of its intangible assets. An impairment charge had been recorded in the second quarter of fiscal 2009 in the specialty publishing segment related to Dover Publications, Inc. The Company continues to monitor the value of its intangible assets closely in each of its segments. Changes in market conditions or poor operating results could result in a decline in the value of the Company’s goodwill and other intangible assets thereby potentially requiring an additional impairment charge in the future.

Prepublication Costs. The Company capitalizes prepublication costs, which include the costs of acquiring rights to publish a work and costs associated with bringing a manuscript to publication such as artwork and editorial efforts. Prepublication costs are amortized on a straight-line basis over periods ranging from three to five years. Management regularly evaluates the sales and profitability of the products based upon historical and forecasted demand. If actual market conditions are less favorable than those projected by management, additional amortization expense may be required.

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

Overview:

Courier Corporation, founded in 1824, is one of America’s leading book manufacturers and specialty publishers. The Company has two business segments: book manufacturing and specialty publishing. The book manufacturing segment streamlines the process of bringing books from the point of creation to the point of use. Based on sales, Courier is the third largest book manufacturer in the United States, offering services from prepress and production, through storage and distribution. The specialty publishing segment consists of Dover Publications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”), and Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”). Dover publishes over 9,000 titles in more than 30 specialty categories ranging from literature to paper dolls, and from music scores to clip art. REA publishes test preparation and study-guide books and software for high school, college and graduate students, as well as professionals. Creative Homeowner publishes books on home design, decorating, landscaping, and gardening, and sells home plans.

Results of Operations:

	FINANCIAL HIGHLIGHTS
	(dollars in thousands except per share amounts)
	Quarter Ended								Nine Months Ended
	June 26, 2010			June 27, 2009			% Change		June 26, 2010			June 27, 2009			% Change

Net sales	$	64,919		$	61,390		5.7	%	$	186,902		$	180,397		3.6	%
Cost of sales	51,036			47,313			7.9	%	141,423			141,269			0.1	%
Gross profit	13,883			14,077			-1.4	%	45,479			39,128			16.2	%
As a percentage of sales	21.4		%	22.9		%			24.3		%	21.7		%
Selling and administrative expenses	10,877			11,305			-3.8	%	35,374			36,462			- 3.0	%
Impairment charge	—			—					—			15,607
Operating income (loss)	3,006			2,772			8.4	%	10,105			(12,941		)
Interest expense, net	130			153			-15.0	%	367			574			-36.1	%
Pretax income (loss)	2,876			2,619			9.8	%	9,738			(13,515		)
Income tax provision (benefit)	1,106			1,007			9.8	%	3,749			(4,657		)
Net income (loss)	$	1,770		$	1,612		9.8	%	$	5,989		$	(8,858	)
Net income (loss) per diluted share	$	0.15		$	0.14		7.1	%	$	0.50		$	(0.75	)

Revenues grew in the third quarter and first nine months of fiscal 2010 compared to the same periods last year. For the third quarter, revenues were up 6% to $64.9 million and for the first nine months were up 4% to $186.9 million compared to fiscal 2009. Book manufacturing segment revenues increased 8% in the quarter to $56.8 million and 5% year to date to $161.7 million. Sales growth was experienced in all three of this segment’s principal markets of education, religious and specialty trade largely due to increased demand for four-color books. In the specialty publishing segment, revenues were down 4% to $10.9 million in the quarter compared to last year’s third quarter, with sales growth at REA offset by sales declines at Dover and Creative Homeowner. On a year-to-date basis, sales in this segment were down 2% to $34.1 million compared to the first nine months of fiscal 2009 with sales growth at both REA and Dover largely offset by a decline in sales at Creative Homeowner. The winding down of Creative Homeowner’s book distribution services in January 2009 also contributed $1.2 million to its sales decline compared to the first nine months of this year.

Net income was $1.8 million for the quarter, or $0.15 per diluted share, compared to $1.6 million, or $0.14 per diluted share, in the third quarter last year. Year to date, net income was $6.0 million compared to a loss of $8.9 million in the first nine months of fiscal 2009. In the prior year, the Company recorded restructuring costs related to cost saving initiatives in both of the Company’s segments totaling $3.8 million in the first nine months. In addition, the Company recorded a pre-tax impairment charge of $15.6 million in last year’s second quarter related to Dover’s goodwill. Pre-tax restructuring and impairment charges totaled $19.4 million in the first nine months of fiscal 2009, or $1.06 per diluted share.

Business Acquisition

On January 15, 2010, the Company acquired the assets of Highcrest Media LLC (“Highcrest Media”), a Massachusetts-based provider of solutions that streamline the production of customized textbooks for use in colleges, universities and businesses. The acquisition also complements the Company’s investment during fiscal 2010 in digital printing technology. The $3 million cash acquisition, which has additional future “earn out” potential payments of up to $1.2 million, was accounted for as a purchase, and accordingly, Highcrest Media’s financial results are included in the book manufacturing segment in the consolidated financial statements from the date of acquisition. The acquisition of Highcrest Media is expected to be modestly accretive to the Company’s earnings for fiscal 2010.

Restructuring Costs

	(000’s Omitted)
	Quarter Ended June 27, 2009					Nine Months Ended June 27, 2009
	Book Manufacturing Segment		Specialty Publishing Segment	Total Company		Book Manufacturing Segment		Specialty Publishing Segment		Total Company

Included in cost of sales	$	65	—	$	65	$	2,819	$	107	$	2,926
Included in selling and administrative expenses	—		—	—		491		377		868
Total restructuring costs	$	65	—	$	65	$	3,310	$	484	$	3,794

	(000’s Omitted)
	Accrual at								Accrual at
	September 26,		Charges			Cash			June 26,
	2009		(Reversals)			Paid			2010

Employee severance and benefit costs	$	495	$	(125	)	$	(291	)	$	79
Lease termination, facility closure and other costs	546		65			(432		)	179

Total	$	1,041	$	(60	)	$	(723	)	$	258

Impairment Charge

The Company evaluates possible impairment of goodwill and other intangibles on an annual basis or whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. Due to a decline in sales and profits at Dover during the second quarter of fiscal 2009, resulting from the continued downturn in the economic environment and in consumer spending, the Company performed an interim test of Dover’s goodwill. As a result of the impairment test, the Company had concluded that the carrying value of Dover’s goodwill exceeded its estimated fair value and recorded a pre-tax impairment charge of $15.6 million, representing 100% of Dover’s goodwill, at the end of last year’s second quarter. On an after-tax basis, the impairment charge was $10.1 million, or $.86 per diluted share.

Book Manufacturing Segment

	SEGMENT HIGHLIGHTS
	(dollars in thousands)
	Quarter Ended								Nine Months Ended
	June 26, 2010			June 27, 2009			% Change		June 26, 2010			June 27, 2009			% Change

Net sales	$	56,838		$	52,691		7.9	%	$	161,659		$	153,472		5.3	%
Cost of sales	46,847			42,824			9.4	%	128,856			126,964			1.5	%
Gross profit	9,991			9,867			1.3	%	32,803			26,508			23.7	%
As a percentage of sales	17.6		%	18.7		%			20.3		%	17.3		%
Selling and administrative expenses	6,264			6,127			2.2	%	20,579			19,832			3.8	%
Operating income	$	3,727		$	3,740		-0.3	%	$	12,224		$	6,676		83.1	%

Within the book manufacturing segment, the Company focuses primarily on three key markets: education, religious and specialty trade. In the third quarter of fiscal 2010, sales to the education market were up 7% to $24.4 million and up 6% to $65.3 million in the first nine months compared to the same periods last year, primarily from sales of four-color textbooks to colleges and universities as well as elementary and high school books. Sales to the specialty trade market grew 22% to $15.4 million in the quarter and grew 9% to $44.5 million year to date compared to prior year periods, with growth in new accounts, computer game books and other four-color sales. Sales to the religious market were up 1% in the third quarter to $15.2 million and up 5% to $46.1 million compared to the first nine months of last year.

During the second quarter of fiscal 2010, the Company acquired Highcrest Media, a solutions provider specializing in customized textbooks for use in colleges, universities and businesses. The acquisition of Highcrest Media is expected to be modestly accretive to the Company’s earnings for fiscal 2010. In addition, the Company completed the installation of a new HP digital printing system during the third quarter and will add a second such system in fiscal 2011 to provide increased capacity.

Cost of sales in the book manufacturing segment increased by 9% to $46.8 million for the quarter and by 1% to $128.9 million year to date compared to the same periods last year, reflecting the increased sales volume. The strong demand for four-color textbooks necessitated the use of older, less productive presses during the third quarter. The Company ordered a fourth manroland press in April 2010 for its Kendallville, Indiana facility in order to expand its four-color production capacity. Cost of sales in fiscal 2010 also included start up expenses related to the Company’s digital print operation of approximately $500,000 in the quarter and $700,000 year to date, including over $150,000 of costs to relocate Highcrest Media to the Company’s digital facility in North Chelmsford, Massachusetts. In the prior year, cost of sales in the third quarter and first nine months included $65,000 and $2.8 million, respectively, of restructuring costs.

Gross profit increased by 1% to $10.0 million for the quarter, and as a percentage of sales, was 17.6% compared to 18.7% in last year’s third quarter. For the first nine months of the year, gross profit increased 24% to $32.8 million and, as a percentage of sales, improved to 20.3% from 17.3% in the same period last year. In addition to last year’s restructuring costs, the improvement in gross profit reflects the growth in sales, improved capacity utilization, the benefit of last year’s cost reduction measures, and increased revenue from recycling programs. These improvements were offset in part by continued industry-wide competitive pricing pressures and the impact of start-up costs for the digital print operation

and relocation of Highcrest Media.

Selling and administrative expenses for the segment increased 2% in the quarter to $6.3 million compared to the third quarter of fiscal 2009. Year-to-date selling and administrative expenses increased 4% in the first nine months of fiscal 2010 compared to the same period last year, which included approximately $0.5 million of severance-related restructuring costs. Cost savings from staff reductions in fiscal 2009 were offset by an increase in variable compensation tied to this year’s increased sales and income.

Operating income in the book manufacturing segment in the quarter was $3.7 million, comparable to last year’s third quarter. For the first nine months of fiscal 2010, operating income was $12.2 million compared to $6.7 million in the corresponding period last year, which included $3.3 million of restructuring costs.

Specialty Publishing Segment

	SEGMENT HIGHLIGHTS
	(dollars in thousands)
	Quarter Ended								Nine Months Ended
	June 26, 2010			June 27, 2009			% Change		June 26, 2010			June 27, 2009			% Change

Net sales	$	10,854		$	11,327		-4.2	%	$	34,136		$	34,888		-2.2	%
Cost of sales	6,992			7,120			-1.8	%	21,276			22,447			-5.2	%
Gross profit	3,862			4,207			-8.2	%	12,860			12,441			3.4	%
As a percentage of sales	35.6		%	37.1		%			37.7		%	35.7		%
Selling and administrative expenses	4,286			4,831			-11.3	%	13,785			15,558			-11.4	%
Operating loss	$	(424	)	$	(624	)			$	(925	)	$	(3,117	)

Within the Company’s specialty publishing segment, sales in the third quarter were down 4% to $10.9 million and down 2% for the first nine months to $34.1 million, compared to the corresponding periods in fiscal 2009, reflecting weak consumer spending and continued caution among book retailers. Sales were down 6% at Dover to $6.9 million with growth in sales through online retailers more than offset by lower bookstore, direct-to-consumer and international sales. For the first nine months of fiscal 2010, Dover’s sales grew 3% to $22.2 million compared to the same period last year. Sales at REA increased 2% over last year’s third quarter to $1.7 million and grew 22% to $5.9 million in the first nine months of fiscal 2010 compared to the same period last year. REA’s sales growth resulted from a strong list of new titles released early in the year to maximize sell-through to consumers as well as a generally robust market for test preparation books. Sales at Creative Homeowner decreased 4% to $2.2 million, reflecting the persistent weakness in the nation’s housing sector, which has reduced store traffic and sales in the home center market, its largest channel. Creative Homeowner’s year-to-date sales decreased 28% to $6.1 million compared to the first nine months of last year. The sales decrease on a year-to-date basis also includes the cessation of Creative Homeowner’s book distribution services in January 2009, which supported one nationwide retailer and contributed approximately $1.2 million of revenue last year.

Cost of sales in the specialty publishing segment decreased 2% to $7.0 million in the third quarter and decreased 5% to $21.3 million for the first nine months of fiscal 2010 compared to the corresponding prior year periods primarily due to the cost reductions initiated in fiscal 2009. Cost of sales in the first nine months of last year included approximately $100,000 of severance-related restructuring costs. During the third quarter of fiscal 2010, the Company continued to integrate functions across this segment and consolidated Creative Homeowner’s warehousing with the other publishing businesses in order to reduce costs. Gross profit as a percentage of sales decreased to 35.6% from 37.1% in last year’s third quarter. On a year-to-date basis, gross profit as a percentage of sales increased to 37.7% from 35.7% in the first nine months of fiscal 2009, primarily as a result of cost reductions.

Selling and administrative expenses in this segment decreased 11% in the quarter and first nine months to $4.3 million and $13.8 million, respectively, compared to the same periods in fiscal 2009. Selling and administrative expenses in the first nine months of last year included approximately $400,000 in severance pay as well as other costs related to Creative Homeowner ending its distribution service.

Fiscal 2010 expenses reflect the cost reductions achieved by prior year initiatives, which included centralizing back office and order fulfillment operations.

The specialty publishing segment had an operating loss of $424,000 in the third quarter, compared to an operating loss of $624,000 in last year’s third quarter. Creative Homeowner’s third quarter operating loss was $406,000, which was 30% less than it’s third quarter loss last year. The segment’s year-to-date operating loss was $0.9 million compared to $3.1 million in the first nine month’s of last year, which included approximately $500,000 of severance and other restructuring costs. This improvement reflects the benefit of the cost reductions initiated in fiscal 2009, particularly at Creative Homeowner, combined with sales growth at REA and Dover.

Total Consolidated Company

Interest expense, net of interest income, was $130,000 in the third quarter of fiscal 2010, compared to $153,000 of net interest expense in the same period last year. Year-to-date interest expense, net of interest income, was $367,000 compared to $574,000 in the first nine months of fiscal 2009. Average debt under the revolving credit facility in the third quarter of fiscal 2010 was approximately $16.4 million at an average annual interest rate of 0.8%, generating interest expense of approximately $32,000. Average debt under the revolving credit facility in the third quarter of last year was approximately $27.2 million at an average annual interest rate of 0.9%, generating interest expense of approximately $62,000. Average debt under the revolving credit facility for the first nine months of fiscal 2010 was approximately $13.4 million at an average annual interest rate of 0.8%, generating interest expense of approximately $76,000. For the first nine months of fiscal 2009, average debt under this facility was approximately $26.4 million at an average annual interest rate of 1.6%, generating interest expense of approximately $320,000. Interest expense also includes commitment fees and other costs associated with maintaining the Company’s $100 million revolving credit facility. In addition, on March 26, 2010, the Company entered into a four-year, $8 million term loan to finance the new digital print operation assets. At June 26, 2010, $2.8 million was borrowed under this term loan, which added $30,000 of interest expense in the third quarter. Interest capitalized in the third quarter and first nine months of fiscal 2010 was approximately $40,000; no interest was capitalized in the first nine months of fiscal 2009.

The Company’s effective tax rate for the third quarter of fiscal 2010 was 38.5% compared to 38.4% for the same period last year. On a year-to-date basis, income tax expense was $3.7 million compared to an income tax benefit of $4.7 million for the first nine months of fiscal 2009. The tax benefit in fiscal 2009 related to Dover’s impairment charge was recognized at 35%; no state tax benefit was recognized as the Company fully provided a valuation allowance on the related deferred state tax asset. Excluding the effect of the tax benefit of the impairment charge for Dover, the effective tax rate was 38.5% in the first nine months of both fiscal 2010 and 2009.

For purposes of computing net income per diluted share, weighted average shares outstanding increased by approximately 91,000 shares and 93,000 from last year’s third quarter and first nine months, respectively, primarily due to options exercised and shares issued under the Company’s stock plans.

Liquidity and Capital Resources:

During the first nine months of fiscal 2010, operations provided $16.4 million of cash, compared to $14.9 million in the same period last year. Net income was $6.0 million and depreciation and amortization were $15.5 million. Working capital used $6.4 million of cash compared to $4.7 million in the first nine months of last year.

Investment activities in the first nine months of fiscal 2010 used $18.2 million of cash, of which $3.0 million was attributable to the acquisition of Highcrest Media in January. Capital expenditures for the first nine months of the year used $12.6 million of cash, compared to $5.6 million last year. In April 2010, the Company ordered a fourth manroland press to expand four-color capacity in its Kendallville, Indiana facility. Spending in fiscal 2010 on this $17 million project is expected to be approximately $12 million. Capital expenditures relating to the new digital print operation are expected to be approximately $10 million in fiscal 2010, including progress payments on the second HP press. As a result, overall capital expenditures for fiscal 2010 are now projected to be approximately $27 to $29 million. Both presses are scheduled to be installed early in fiscal 2011. Taking into account remaining spending on these two presses, capital expenditures for fiscal 2011 are expected to be approximately $20 million. In fiscal 2010, proceeds of approximately $0.6 million were received on the disposition of assets, including equipment from the Book-mart Press manufacturing facility. Prepublication costs were $3.2 million year to date,

comparable to the first nine months of last year. For the full fiscal year, prepublication costs are projected to be approximately the same as last year’s $4.8 million.

Financing activities for the first nine months of fiscal 2010 provided approximately $1.5 million of cash. Borrowings increased by $8.8 million during the first nine months of fiscal 2010, including a new four-year term loan providing up to $8 million to finance the purchase of assets in the Company’s new digital print operation. At June 26, 2010, $2.8 million of debt was outstanding under this arrangement with a fixed annual interest rate of 3.9%. Subsequent to the end of the third quarter, an additional $4.1 million was borrowed under this arrangement with a concurrent term and a fixed annual interest rate of 3.6%. The Company also has a $100 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%. At June 26, 2010, the Company had $19.5 million in borrowings under this facility at an interest rate of 0.9%. The revolving credit facility, which matures in 2013, contains restrictive covenants including provisions relating to the maintenance of working capital, the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service. The Company was in compliance with all such covenants at June 26, 2010. The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion. The revolving credit facility is used by the Company for both its long-term and short-term financing needs. Cash dividends of $7.5 million were paid in the first nine months of fiscal 2010. The Company believes that its cash on hand, cash from operations, new financing arrangement, and the available credit facility will be sufficient to meet its cash requirements through 2011.

The following table summarizes the Company’s contractual obligations and commitments at June 26, 2010 to make future payments as well as its existing commercial commitments.

			(000’s Omitted)
			Payments due by period (1)
			Less than		1 to 3		3 to 5		More than
	Total		1 Year		Years		Years		5 Years
Contractual Payments:
Long-Term Debt (2)	$	22,429	$	778	$	21,000	$	651	$	—
Operating Leases (3)	7,746		1,663		2,734		2,444		905
Purchase Obligations (4)	10,071		10,071		—		—		—
Other Long-Term Liabilities	3,515		—		1,586		390		1,639
Total	$	43,761	$	12,512	$	25,320	$	3,485	$	2,544

(1) Amounts do not include interest expense.

(2) Includes the Company’s revolving credit facility, which has a maturity date of March 2013.

(3) Represents amounts at September 26, 2009.

(4) Represents capital commitments.

Recent Accounting Pronouncements:

At the beginning of fiscal 2010, the Company adopted the provisions of the Financial Accounting Standards Board (“FASB”) authoritative literature on business combinations, which expands the definition of a business combination and changes the manner in which the Company accounts for business combinations. Significant changes include the capitalization of IPR&D as an indefinite-lived asset, the recognition of certain acquired contingent assets and liabilities at fair value, the expensing of acquisition-related restructuring actions and transaction costs, and the recognition of contingent purchase price consideration at fair value on the acquisition date. In addition, post-acquisition changes in deferred tax asset valuation allowances and acquired income tax uncertainties will be recognized as income tax expense or benefit. The accounting treatment for taxes will be applicable to acquisitions that close both prior and subsequent to the adoption of this guidance. The Company has applied this standard to the acquisition of Highcrest Media in January 2010. As a result of adopting this guidance, the Company expensed approximately $55,000 of transaction costs related to the acquisition and recorded contingent consideration of $1.2 million in the initial purchase price at its estimated fair value of $850,000.

Forward-Looking Information:

This Quarterly Report on Form 10-Q includes forward-looking statements. Statements that describe future expectations, plans or strategies are considered “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission. The words “believe,” “expect,” “anticipate,” “intend,” “estimate” and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Such statements are subject to risks and

uncertainties that could cause actual results to differ materially from those currently anticipated. Some of the factors that could affect actual results are discussed in Item 1A of this Form 10-Q and include, among others, changes in customers’ demand for the Company’s products, including seasonal 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 markets in which the Company competes, consolidation among customers and competitors, success in the execution of acquisitions and the performance and integration of acquired businesses including carrying value of intangible assets, restructuring and impairment charges required under generally accepted accounting principles, changes in operating expenses including medical and energy costs, changes in technology including migration from paper-based books to digital, difficulties in the start up of new equipment or information technology systems, changes in copyright laws, changes in consumer product safety regulations, changes in environmental regulations, changes in tax regulations, changes in the Company’s effective income tax rate and general changes in economic conditions, including currency fluctuations, changes in interest rates, changes in consumer confidence, changes in the housing market, and tightness in the credit markets. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate. The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes from the information concerning the Company’s “Quantitative and Qualitative Disclosures About Market Risk” as previously reported in the Company’s Annual Report on Form 10-K for the year ended September 26, 2009. At June 26, 2010, the Company had a forward exchange contract to purchase approximately 2.5 million euros as a hedge against a foreign currency equipment purchase commitment, designated as a fair value hedge. The fair value of the foreign exchange forward contract was valued using market exchange rates. The Company does not use financial instruments for trading or speculative purposes.

Item 4. CONTROLS AND PROCEDURES

(a) Evaluation of disclosure controls and procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as of the end of the period covered by this Quarterly Report, the Company carried out an evaluation under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms.

(b) Changes in internal controls over financial reporting

There was no change in the Company’s internal control over financial reporting that occurred during the period covered by this Quarterly Report that has materially affected, or that is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

None.

Item 1A. RISK FACTORS

The Company’s consolidated results of operations, financial condition and cash flows can be adversely affected by various risks. Our business is influenced by many factors that are difficult to predict, involve uncertainties that may materially 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 this Quarterly Report on Form 10-Q. You should carefully consider all of these factors. For other factors that may cause actual results to differ materially from 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 Results of Operations.

Industry competition and consolidation may increase pricing pressures and 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 within the markets in which the Company competes has caused downward pricing pressures. In addition, excess capacity and competition from printing companies in lower cost countries may increase competitive pricing pressures. Furthermore, some of our competitors have greater sales, assets and financial resources than us, particularly those in foreign countries, who may derive significant advantages from local governmental regulation, including tax holidays and other subsidies. All or any of these competitive pressures could affect prices or customers’ demand for our products, impacting our profit margins and/or resulting in a loss of customers and market share.

A reduction in orders or pricing from, or the loss of, any of our significant customers may adversely impact our operating results.

We derived approximately 44% of our fiscal 2009 revenues from two major customers. In fiscal 2008, we derived approximately 50% of our revenues from three major customers. We expect similar concentrations in fiscal 2010. We do business with these customers on a purchase order basis and they are not bound to purchase at particular volume or pricing levels. As a result, any of these customers could determine to reduce their order volume with us or demand reduced pricing. A significant reduction in order volumes or price levels with, or the loss of, any of these customers could have a material adverse effect on our results of operations and financial condition.

The substitution of electronic delivery for printed materials may adversely affect our business.

Electronic delivery of documents and data, including the online distribution and hosting of media content, offers alternatives to traditional 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 with online hosted media content. To the extent that our customers’ acceptance of these electronic alternatives should continue to grow, demand for our printed products may be adversely affected.

Declines in general economic conditions may adversely impact our business.

Economic conditions have the potential to impact our financial results significantly. Within the book manufacturing and specialty publishing segments, we may be adversely affected by the current worldwide economic downturn, including as a result of changes in government, business and consumer spending. Examples of how our financial results may be impacted include:

· Fluctuations in federal or state government spending on education, including a reduction in tax revenues due to the current economic environment, could lead to a corresponding decrease in the demand for educational materials, which are produced in our book manufacturing segment and comprise a portion of our publishing products.

· Consumer demand for books can be impacted by reductions in disposable income when costs such as electricity and gasoline reduce discretionary spending.

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

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

· Reduced fundraising by religious customers may decrease their order levels.

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

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

The printing industry is in a period of rapid technological evolution. Our future financial performance will depend, in part, upon the ability to anticipate and adapt to rapid industrial and technological changes occurring in the industry and upon the ability to offer, on a timely basis, services that meet evolving industry standards. If we are unable to adapt to such technological changes, we may lose customers and may not be able to maintain our competitive position. In addition, we may encounter difficulties in the implementation and start-up of new equipment and technology.

We are unable to predict which of the many possible future product and service offerings will be important to establish and maintain a competitive position or what expenditures will be required to develop and provide these products and services. We cannot assure investors that one or more of these factors will not vary unpredictably, which could have a material adverse effect on us. In addition, we cannot assure investors, even if these factors turn out as we anticipate, that we will be able to implement our strategy or that the strategy will be successful in this rapidly evolving market.

Our operating results are unpredictable and fluctuate significantly, which may adversely affect our stock price.

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

· the timing and size of the orders for our books;

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

· the lengthy and unpredictable sales cycles associated with sales of textbooks to the elementary and high school market;

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

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

· issues that might arise from the integration of acquired businesses, including their inability to achieve expected results; and

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

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

Our financial results could be negatively impacted by impairments of goodwill or other intangible assets.

We perform an annual assessment for impairment of goodwill and other intangible assets at the end of our fiscal year or whenever events or changes in circumstances occur that would more likely than not reduce the fair value of a reporting unit below it’s carrying value. A downward revision in the fair value of one of our acquired businesses could result in impairments of goodwill and non-cash charges. Any impairment charge could have a significant negative effect on our reported results of operations. For example, in the second quarter of fiscal 2009, due to a decline in sales and profits at Dover resulting from the continued downturn in the economic environment and in consumer spending, the Company recorded a non-cash, pre-tax impairment charge of $15.6 million, which represented 100% of Dover’s goodwill.

Fluctuations in the cost and availability of paper and other raw materials may cause disruption and impact margins.

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

Availability of paper is important to both our book manufacturing and specialty publishing segments. Although we generally have not experienced difficulty in obtaining adequate supplies of paper, unexpected changes in the paper markets could result in a shortage of supply. If this were to occur in the future, it could cause disruption to the business or increase paper costs, adversely impacting either or both net sales or profits.

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

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

Energy costs and availability may negatively impact our financial results.

Energy costs are incurred directly to run production equipment and facilities and indirectly through expenses such as freight and raw materials such as ink. In a competitive market environment, increases to these direct and indirect energy related costs might not be able to be passed through to customers through price increases or mitigated through other means. In such instances, increased energy costs could adversely impact operating costs or customer demand. In addition, interruption in the availability of energy could disrupt operations, adversely impacting operating results.

Inadequate intellectual property protection for our publications could negatively impact our financial results.

Certain of our publications are protected by copyright, primarily held in the Company’s name. Such copyrights protect our exclusive right to publish the work in the United States and in many other countries for specified periods. Our ability to continue to achieve anticipated results depends in part on our ability to defend our intellectual property against infringement. Our operating results may be adversely affected by inadequate legal and technological protections for intellectual property and proprietary rights in some jurisdictions and markets. In addition, some of our publications are of works in the public domain, for which there is nearly no intellectual property protection. Our operating results may be adversely 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 could adversely impact our profitability.

Because the markets in which we operate are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability. Although we have been able to

expand our capacity, improve our productivity and reduce costs in the past, there is no assurance that we will be able to do so in the future. In addition, reducing operating costs in the future may require significant initial costs to reduce headcount, close or consolidate operations, or upgrade equipment and technology.

Changes in postal rates and postal regulations may adversely impact our business.

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

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

We use various materials in our operations that contain substances considered hazardous or toxic under environmental laws. In addition, our operations are subject to federal, state, and local environmental laws relating to, among other things, air emissions, waste generation, handling, management and disposal, waste water treatment and discharge and remediation of soil and groundwater contamination. Permits are required for the operation of certain of our businesses and these permits are subject to renewal, modification and in some circumstances, revocation. Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA,” commonly referred to as “Superfund”), and similar state laws and regulations, we may be liable for costs and damages relating to soil and groundwater contamination at off-site disposal locations or at our facilities. Future changes to environmental laws and regulations may give rise to additional costs or liabilities that could have a material adverse impact on our financial position and results of operations.

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

Over the past several years, we have completed four acquisitions, including Moore Langen and Creative Homeowner in fiscal year 2006, REA in fiscal 2004 and Highcrest Media in fiscal 2010, and may continue to make acquisitions in the future. We believe that these acquisitions provide strategic growth opportunities for us. Achieving the anticipated benefits of these acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner. The challenges involved in successfully integrating acquisitions include:

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

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

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

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

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

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

· we may experience significant problems or liabilities associated with technology and legal contingencies of the acquired business.

These factors could have a material adverse effect on our business, results of operations and financial condition or cash flows, particularly in the case of a larger acquisition or multiple acquisitions in a short period of time. From time to time, we may enter into negotiations for acquisitions that are not ultimately consummated. Such negotiations could result in significant diversion of management’s time from our business as well as significant out-of-pocket costs. Tightness in credit markets may also affect

our ability to consummate such acquisitions.

The consideration that we pay in connection with an acquisition could affect our financial results. If we were to proceed with one or more significant acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash and credit facilities to consummate such acquisitions. To the extent we issue shares of stock or other rights to purchase stock, including options or other rights, our existing stockholders may experience dilution in their share ownership in our company and their earnings per share may decrease. In addition, acquisitions may result in the incurrence of debt, large one-time write-offs and restructuring charges. They may also result in goodwill and other intangible assets that are subject to impairment tests, which could result in future impairment charges. Any of these factors may materially and adversely affect our business and operations.

A failure to hire and train key executives and other qualified employees could adversely affect our business.

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

A lack of skilled employees to manufacture our products may adversely affect our business.

If we experience problems hiring and retaining skilled employees, our business may be negatively affected. The timely manufacture and delivery of our products requires an adequate supply of skilled employees, and the operating costs of our manufacturing facilities can be adversely 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 the skilled employees necessary to meet our requirements. Although our book manufacturing locations are geographically dispersed, individual locations may encounter strong competition with other manufacturers for skilled employees. There can be no assurance that we will be able to maintain an adequate skilled labor force necessary to efficiently operate our facilities. In addition, unions represent certain groups of employees at two of our locations, and periodically, contracts with those unions come up for renewal. The outcome of those negotiations could have an adverse affect on our operations at those locations. Also, changes in federal and/or state laws may facilitate the organization of unions at locations that do not currently have unions, which could have an adverse affect on our operations.

We are subject to various laws and regulations that may require significant expenditures.

We are subject to federal, state and local laws and regulations affecting our business, including those promulgated under the Consumer Product Safety Act, the rules and regulations of the Consumer Products Safety Commission as well as laws and regulations relating to personal information. We may be required to make significant expenditures to comply with such governmental laws and regulations and any amendments thereto. Complying with existing or future laws or regulations may materially limit our business and increase our costs. Failure to comply with such laws may expose us to potential liability and have a material adverse effect on our results of operations.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

Item 3. DEFAULTS UPON SENIOR SECURITIES

None.

Item 4. REMOVED AND RESERVED

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

COURIER CORPORATION
(Registrant)


July 28, 2010	By:	s/James F. Conway III
Date		James F. Conway III
		Chairman, President and Chief Executive Officer


July 28, 2010	By:	s/Peter M. Folger
Date		Peter M. Folger
		Senior Vice President and Chief Financial Officer


July 28, 2010	By:	s/Kathleen M. Leon
Date		Kathleen M. Leon
		Vice President and Controller

Exhibit No.		Description

31.1*		Certification of Chief Executive Officer
31.2*		Certification of Chief Financial Officer
32.1*		Certification of Chief Executive Officer
32.2*		Certification of Chief Financial Officer

Exhibit No.		Description

31.1*		Certification of Chief Executive Officer
31.2*		Certification of Chief Financial Officer
32.1*		Certification of Chief Executive Officer
32.2*		Certification of Chief Financial Officer