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Courier Corp (CRRC) SEC Filing 10-K Annual report for the fiscal year ending Saturday, September 27, 2008

Courier Corp

CIK: 25212 Ticker: CRRC

Exhibit 99.1

Courier Reports Fourth-Quarter and Year-end Results

Earnings in Line with Q4 Guidance

NORTH CHELMSFORD, Mass.--(BUSINESS WIRE)--November 6, 2008--Courier Corporation (Nasdaq: CRRC), one of America’s leading book manufacturers and specialty publishers, today announced fourth-quarter and full-year results for its fiscal year ended September 27, 2008.

Revenues for the fourth quarter were $76.3 million, down 5% from $80.5 million a year earlier. Net income for the fourth quarter was $7.2 million or $.60 per diluted share, versus $9.4 million or $.74 per diluted share in fiscal 2007’s fourth quarter.

For fiscal 2008 overall, revenues were $280 million, down 5% from $295 million in 2007, and the company incurred a net loss for the year of $370,000 or $.03 per diluted share, versus fiscal 2007 net income of $25.7 million or $2.03 per diluted share. Included in the loss for fiscal 2008 was a non-cash, pre-tax impairment charge of $23.8 million taken in the third quarter due to disappointing results at Courier’s Creative Homeowner publishing business. With the completion of the impairment assessment in the fourth quarter, this charge was reduced by $200,000 to $23.6 million, with an after-tax impact of $15.4 million, or $1.25 per share. Excluding the impairment charge, income for fiscal 2008 was $15 million or $1.22 per diluted share.

Full-year sales and income were off in both of Courier’s business segments, book manufacturing and specialty book publishing. The challenges were greatest at Creative Homeowner, a publishing business focused on home design and home improvement, markets hit hard by the nationwide crisis in housing and home financing. In response, Courier took a variety of measures to streamline Creative Homeowner’s operations and reduce market risks, including headcount reductions, inventory writedowns, a tightening of editorial focus and a planned withdrawal from its book distribution business. Taken together, these measures are expected to reduce the loss at Creative Homeowner by more than $3 million in 2009.


The following information was filed by Courier Corp (CRRC) on Thursday, November 6, 2008 as an 8K 2.02 statement, which is an earnings press release pertaining to results of operations and financial condition. It may be helpful to assess the quality of management by comparing the information in the press release to the information in the accompanying 10-K Annual Report statement of earnings and operation as management may choose to highlight particular information in the press release.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-K

 

(MARK ONE)

x

 

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

 

For the fiscal year ended September 27, 2008

 

OR

 

o

 

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

 

For the transition period from                   to                   

 

Commission file number 0-7597

 

Courier Corporation

 

A Massachusetts corporation

 

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

 

15 Wellman Avenue, North Chelmsford, Massachusetts  01863

Telephone No. 978-251-6000

 

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

 

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

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes   o       No   x

 

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

Yes   o       No   x

 

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  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 theExchange Act.

 

Large accelerated filer  o

 

Accelerated filer  x

 

Non-accelerated filer  o

 

Smaller reporting company  o

 

 

 

 

(Do not check if a smaller

 

 

 

 

 

 

reporting company)

 

 

 

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

 

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 29, 2008).

 

Common Stock, $1 par value - $240,498,678

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of November 17, 2008.

 

Common Stock, $1 par value - 11,878,461

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s proxy statement dated December 5, 2008 for the Annual Meeting of Stockholders to be held on

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

 

 

 



Table of Contents

 

TABLE OF CONTENTS

 

 

Form 10-K

 

 

 

 

 

Item No.

 

Name of Item

 

Page

 

 

 

 

 

 

Part I

 

 

 

 

 

 

Item 1.

 

Business

 

1

 

Item 1A.

 

Risk Factors

 

6

 

Item 1B.

 

Unresolved Staff Comments

 

12

 

Item 2.

 

Properties

 

13

 

Item 3.

 

Legal Proceedings

 

14

 

Item 4.

 

Submission of Matters to a Vote of Security Holders

 

14

 

 

 

 

 

 

Part II

 

 

 

 

 

 

Item 5.

 

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

 

14

 

Item 6.

 

Selected Financial Data

 

16

 

Item 7.

 

Management’s Discussion and Analysis of Financial Condition  and Results of Operations

 

16

 

Item 7A.

 

Quantitative and Qualitative Disclosure About Market Risk

 

16

 

Item 8.

 

Financial Statements and Supplementary Data

 

16

 

Item 9.

 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

17

 

Item 9A.

 

Controls and Procedures

 

17

 

Item 9B.

 

Other Information

 

20

 

 

 

 

 

 

Part III

 

 

 

 

 

 

Item 10.

 

Directors and Executive Officers and Corporate Governance

 

21

 

Item 11.

 

Executive Compensation

 

22

 

Item 12.

 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

 

22

 

Item 13.

 

Certain Relationships and Related Transactions and Director Independence

 

23

 

Item 14.

 

Principal Accounting Fees and Services

 

24

 

 

 

 

 

 

Part IV

 

 

 

 

 

 

Item 15.

 

Exhibits and Financial Statement Schedules

 

24

 

 

 

Signatures

 

32

 



Table of Contents

 

PART I

 

Item 1.  Business.

 

INTRODUCTION

 

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

 

The book manufacturing segment focuses on streamlining 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. Courier’s principal book manufacturing markets are religious, educational and specialty trade books with products including Bibles, educational textbooks and consumer books. On October 17, 2005, the Company acquired Moore-Langen Printing Company, Inc. (“Moore Langen”), an Indianapolis-based printer specializing in manufacturing book covers, which is included in this segment.  Revenues from this segment accounted for approximately 82% of Courier’s consolidated revenues in 2008.

 

The specialty publishing segment consists of Dover Publications, Inc. (“Dover”), Research & Education Association, Inc. (“REA”), which was acquired on January 6, 2004, and Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”), which was acquired on April 28, 2006.  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 for high school, college and graduate students, and professionals.  Creative Homeowner is a New Jersey-based publisher and distributor of books on home design, decorating, landscaping and gardening, and sells home plans. The combination of Dover’s, REA’s, and Creative Homeowner’s publishing, sales and distribution skills with Courier’s book manufacturing, digital content conversion, and e-commerce skills are providing a powerful end-to-end publishing solution for Courier.  Revenues in this segment were approximately 22% of consolidated sales in 2008.

 

Sales by segment
(in thousands)

 

2008

 

%

 

2007

 

%

 

2006

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book Manufacturing

 

$

229,792

 

82

%

$

231,474

 

78

%

$

220,115

 

82

%

Specialty Publishing

 

61,767

 

22

%

72,890

 

25

%

57,549

 

21

%

Intersegment sales

 

(11,235

)

(4

)%

(9,772

)

(3

)%

(8,613

)

(3

)%

Total

 

$

280,324

 

100

%

$

294,592

 

100

%

$

269,051

 

100

%

 

Additional segment information, including the amounts of earnings before taxes and total assets, for each of the last three fiscal years, is contained in Note I in the Notes to Consolidated Financial Statements on pages F-21 to F-24 included in this Annual Report on Form 10-K.

 

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BUSINESS SEGMENTS

 

BOOK MANUFACTURING SEGMENT

 

Courier’s book manufacturing segment produces hard and softcover books, as well as related services involved in managing the process of creating and distributing these products for publishers, religious organizations and other information providers.  Courier provides book manufacturing and related services from seven facilities in Westford, Stoughton and North Chelmsford, Massachusetts; Philadelphia, Pennsylvania; North Bergen, New Jersey; and Kendallville and Terre Haute, Indiana.

 

In October 2005, the Company acquired Moore Langen, an Indianapolis-based printer specializing in book covers and known for innovative production techniques. The acquisition, a $15 million cash transaction completed on October 17, 2005, was accounted for as a purchase and, accordingly, Moore Langen’s financial results were included in the consolidated financial statements from the date of acquisition.

 

Courier’s book manufacturing operations consist of both electronic and conventional film processing and platemaking combined with printing and binding of soft and hard cover books.  Each of Courier’s seven facilities have certain specialties adapted to the needs of the market niches Courier serves, such as short-run book manufacturing, printing on lightweight paper, book cover production, and four-color book manufacturing.  These services are primarily sold to publishers of educational, religious and consumer books.  During 2004, the Company began expanding its four-color book manufacturing capabilities with the addition of a major new four-color press at its Kendallville, Indiana facility. A second identical press was installed in December 2005 with a third such press installed in December 2006.

 

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

 

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

 

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All phases of Courier’s business are highly competitive.  The printing industry, exclusive of newspapers, includes almost 40,000 establishments.  While most of these establishments are relatively small, several of the Company’s competitors are considerably larger or are affiliated with companies that are considerably larger and have greater financial resources than Courier.  In recent years, consolidation of both customers and competitors within the Company’s markets has increased pricing pressures.  The major competitive factors in Courier’s book manufacturing business in addition to price are product quality, speed of delivery, customer service, availability of appropriate printing capacity and paper, related services and technology support.

 

SPECIALTY PUBLISHING SEGMENT

 

Dover, acquired by the Company in September 2000, is a publisher of books in over 30 specialty categories, including fine and commercial arts, children’s books, crafts, music scores, graphic design, mathematics, physics and other areas of science, puzzles, games, social science, stationery items, and classics of literature for both juvenile and adult markets, including the Dover Thrift Editionsä.  In 2005, Dover began developing proprietary packaged products under its Dover Fun Kitsä line.  In 2008, Dover introduced both a new crafts line, Dover DesignWorksä, and a new premium series of hardcover reproductions, Dover Calla Editionsä.

 

Dover sells its products through most American bookstore chains, independent booksellers, children’s stores, craft stores and gift shops, as well as a diverse range of distributors around the world.  Dover has also sold its books directly to consumers for over 50 years through its specialty catalogs and over the Internet at www.doverpublications.com.  Dover mails its proprietary catalogs to nearly 400,000 consumers and annually sends over 100 million emails to electing customers.  In 2002, Dover launched www.DoverDirect.com, which is a business-to-business site for its retailers and distributors.

 

REA, acquired by the Company in January 2004, publishes more 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 through major bookseller chains, college bookstores, and teachers’ supply stores, as well as directly to teachers and other consumers through catalogs and over the Internet at www.REA.com.

 

In April 2006, the Company acquired Creative Homeowner, a New Jersey-based publisher and distributor of books, home plans, and related products for the home and garden retail book market.  The Company purchased 100% of the stock of Creative Homeowner in a $37 million cash transaction.  The acquisition was accounted for as a purchase and accordingly, Creative Homeowner’s financial results were included in the consolidated financial statements from the date of acquisition.  Creative Homeowner’s 120 titles include books on home decoration, design and improvement, gardening and landscaping, home arts, and hunting and fishing.  Its products are sold primarily through home and garden centers, as well as bookstores and direct to consumers over the Internet at www.creativehomeowner.com.  From its line of home plan books, Creative Homeowner offers over 5,000 home plans from which consumers can order blueprints

 

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directly over the Internet at www.ultimatehomeplans.com.  In the third quarter of fiscal 2008, Creative Homeowner experienced a precipitous decline in sales and profits, due in large part to the continued downtown in the housing market and reduction in store traffic at home improvement 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, the Company decided to exit from Creative Homeowner’s book distribution business, allowing it to concentrate on its principal publishing operations.  This transition is expected to be completed in the first quarter of fiscal 2009.

 

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

 

The U.S. publishing market is comprised of approximately 72,000 publishers.  Many of these publishers are very small, but a few are much larger than Dover, REA, or Creative Homeowner, or are part of organizations that are much larger.  In addition, newer sources of competition have emerged with large retailers launching or expanding publishing operations and new web-based publishing businesses starting up, which compete in the specialty book publishing market, including publishing of electronic books.  Dover distinguishes its products by offering an extremely wide variety of high quality books at modest prices.  REA offers high quality study guides, test preparation books and software products in almost every academic area including many specialized areas such as teacher certification, adult education, and professional licensing.  Creative Homeowner provides books on home improvement and landscaping that include high-quality photographs, illustrations and written content.

 

MATERIALS AND SUPPLIES

 

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

 

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ENVIRONMENTAL REGULATIONS

 

The Company’s operations are subject to federal, state and local environmental laws and regulations relating to, among other things: air emissions; waste generation, handling, management and disposal; wastewater treatment and discharge; and remediation of soil and groundwater contamination.  The Company periodically makes capital expenditures so that its operations comply, in all material respects, with applicable environmental laws and regulations.  No significant expenditures for this purpose were made in 2008 or are anticipated in 2009.  In 2007, the Company adopted an “Environmental, Health and Safety Policy” which is available on the Company’s website at www.courier.com. The Company does not believe that its compliance with applicable environmental laws and regulations will have a material impact on the Company’s financial condition or liquidity.

 

EMPLOYEES

 

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

 

OTHER

 

Courier’s overall business is not significantly seasonal in nature, although demand is normally highest in the Company’s fourth quarter.  Educational publishers in the book manufacturing segment and Dover’s business all contribute to this higher fourth quarter demand. There is no portion of Courier’s business subject to cancellation of government contracts or renegotiation of profits.

 

Courier holds no material patents, licenses, franchises or concessions that are important to its operations, but does have trademarks, service marks, and Universal Resource Locators (URL’s) on the Internet in connection with each of its business segments.  Substantially all of REA’s and Creative Homeowner’s publications and a majority of Dover’s publications are protected by copyright, either in its own name, in the name of the author of the work, or in the name of a predecessor publisher from whom rights were acquired.  Many of Dover’s publications include material that is in the public domain.

 

The Company makes available free of charge (as soon as reasonably practicable after they are filed or furnished to the Securities and Exchange Commission) copies of its Annual Report on Form 10-K, as well as all other reports required to be filed by Section 13(a) or 15(d) of the Securities Exchange Act of 1934, via the Internet at www.courier.com or upon written request 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 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 Annual Report on Form 10-K.  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.

 

Highly competitive markets for our products and industry consolidation may create increased pricing pressures.

 

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 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.

 

We need to keep pace with rapid industry and technological change.

 

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 industry and technological changes occurring in the industry and upon the ability to offer, on a timely basis, services that meet evolving industry standards.  We cannot assure investors that we will be able to adapt to such technological changes or offer these services on a timely basis or establish or maintain a competitive position.  We are unable to predict which of the many possible future product and service offerings will be important to establish and maintain 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 dependent in part on unpredictable order patterns.

 

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;

 

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·                  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 press 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 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 some future quarters our operating results will fall below the expectations of securities analysts or investors. If this occurs, the trading price of our common stock could decline.

 

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.

 

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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.

 

We may not be able to continue to improve our operating efficiencies.

 

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.

 

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 much cheaper price.

 

We have a high degree of customer concentration.

 

We derived approximately 50% of our 2008 revenues from three major customers, and in 2007 and 2006 we derived approximately 35% and 40%, respectively, of our revenues from two major customers.  A significant reduction in order volumes or price levels from any of these customers could have a material adverse effect on the Company.

 

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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 or increase 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.

 

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

 

·                  Fundraising by religious customers.

 

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

 

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.  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 accept these electronic alternatives, demand for our printed products may be adversely affected.

 

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.

 

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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 own 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.

 

We may not be able to successfully integrate acquired businesses.

 

In recent years, we have completed three acquisitions, including Moore Langen and Creative Homeowner in fiscal year 2006 and REA in fiscal 2004, 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.

 

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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 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.

 

Our ability to hire and train key executives and other qualified employees is crucial.

 

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.  If that were to occur, it could adversely affect our business.

 

We need skilled employees to manufacture our products.

 

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.

 

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Compliance with changing regulation of corporate governance, public disclosure and accounting matters may result in additional expenses.

 

Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new rules subsequently implemented by the Securities and Exchange Commission and The NASDAQ Stock Market, as well as new accounting pronouncements, are creating uncertainty and additional complexities for companies.  To maintain high standards of corporate governance and public disclosure, we continue to invest resources to comply with evolving standards.  This investment may result in increased general and administrative expenses and a diversion of management time and attention from revenue generating and cost management activities.
 

We are subject to various laws and regulations where we operate our business.

 

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 1B.  Unresolved Staff Comments.

 

None.

 

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Item 2.  Properties.

 

REAL PROPERTIES

 

The following schedule lists the facilities owned or leased by Courier at September 27, 2008. Courier considers its plants and other facilities to be well maintained and suitable for the purposes intended.

 

 

 

Owned/

 

Square

 

Principal Activity and Location (Year Constructed)

 

Leased

 

Feet

 

Corporate headquarters and executive offices

 

 

 

 

 

North Chelmsford, MA (1973, 1996)

 

Owned

 

69,000

(1) 

Book manufacturing and warehousing

 

 

 

 

 

Westford plant, Westford, MA (1922, 1959, 1963, 1966, 1967, 1980, 1990)

 

Owned

 

303,000

 

Kendallville plant, Kendallville, IN (1978, 2004, 2006, 2007)

 

Owned

 

273,000

 

Kendallville warehouses, IN (1988)

 

Leased

 

164,000

(2)

National plant, Philadelphia, PA (1974, 1997)

 

Owned

 

229,000

 

Stoughton plant, Stoughton, MA (1980)

 

Leased

 

169,000

 

Book-mart plant, North Bergen, NJ (1917, 1935, 1997)

 

Leased

 

75,000

 

Moore Langen plant, Terre Haute, IN (1969, 1987)

 

Owned

 

43,000

 

Dover offices and warehouses

 

 

 

 

 

Mineola, New York (1948-1983)

 

Leased

 

106,000

 

Westford, MA (1922, 1963, 1966)

 

Owned

 

90,000

 

REA offices and warehouse

 

 

 

 

 

Piscataway, New Jersey (1987)

 

Leased

 

39,000

 

Creative Homeowner offices and warehouse

 

 

 

 

 

Upper Saddle River, New Jersey (1987)

 

Leased

 

42,000

 

 


(1)                              Also houses warehousing and fulfillment operations supporting the book manufacturing segment and sales and marketing offices for both the book manufacturing and specialty publishing segments.

(2)                              The Company is constructing a 150,000 square foot warehouse to replace the leased warehouses.

 

EQUIPMENT

 

The Company’s products are manufactured on equipment that in most cases is owned by the Company, although it leases certain computers, image setters and other electronic prepress equipment, which are subject to more rapid obsolescence.  Capital expenditures amounted to approximately $12.9 million in 2008, $26.4 million in 2007, and $29.4 million in 2006. Capital expenditures in 2008 included completion of the expansion of printing and binding capacity in the religious book manufacturing operation in Philadelphia and approximately half the costs of construction, starting in the fourth quarter of fiscal 2008, of a 150,000 square foot warehouse to replace existing leased warehouse space and to better support the significant expansion of the nearby manufacturing plant in Kendallville, Indiana.  Fiscal 2009 capital expenditures are expected to be approximately $14 to $16 million, including approximately $4 million to complete the Kendallville warehouse. Courier considers its equipment to be in good operating condition and adequate for its present needs.

 

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ENCUMBRANCES AND RENTAL OBLIGATIONS

 

For a description of encumbrances on certain properties and equipment, see Note D of Notes to Consolidated Financial Statements on page F-13 of this Annual Report on Form 10-K. Information concerning leased properties and equipment is disclosed in Note E of Notes to Consolidated Financial 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 is subject to various legal proceedings and claims.  The Company believes that the ultimate outcome of these matters will not have a material adverse effect on its financial statements.

 

Item 4.  Submission of Matters to a Vote of Security Holders.

 

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

 

PART II

 

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

 

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

 

 

 

 

 

 

 

Common Stock Prices

 

 

 

Dividends Paid

 

2008

 

2007

 

 

 

2008

 

2007

 

High

 

Low

 

High

 

Low

 

First quarter

 

$

0.20

 

$

0.18

 

$

38.91

 

$

31.37

 

$

40.71

 

$

36.22

 

Second quarter

 

0.20

 

0.18

 

33.01

 

23.94

 

40.84

 

37.50

 

Third quarter

 

0.20

 

0.18

 

26.19

 

20.28

 

42.02

 

38.20

 

Fourth quarter

 

0.20

 

0.18

 

22.54

 

15.84

 

40.07

 

34.17

 

 

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

 

On November 8, 2007, the Company announced the approval by its Board of Directors for the repurchase of up to $10 million of the Company’s outstanding common stock from time to time at management’s discretion either through the open market or privately negotiated transactions. On May 8, 2008, the Board of Directors of the Company expanded the Company’s share repurchase plan and authorized the repurchase

 

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of up to an additional $5 million of the Company’s outstanding common stock. On August 6, 2008, the Company’s Board of Directors further expanded the share repurchase program by authorizing the repurchase of up to an additional $5 million of the Company’s common stock, bringing the total amount authorized under the plan to $20 million. Since the inception of the share repurchase program through September 27, 2008, the Company has repurchased approximately 856,000 shares of common stock for approximately $19.6 million.  The Company currently has no plan to repurchase additional shares in fiscal 2009.  The following table summarizes the purchases under this program during the fourth quarter of the Company’s fiscal year 2008.

 

ISSUER PURCHASES OF EQUITY SECURITIES

 

Fiscal Period

 

(a) Total
Number
of Shares
Purchased

 

(b)
Average
Price Paid
per Share

 

(c) Total
Number of
Shares Purchased
As Part of
Publicly
Announced
Plans or
Programs

 

(d) Maximum
number (or
Approximate
Dollar Value) of
Shares that May
Yet be Purchased
Under the Plans or
Programs

 

June 29, 2008 - July 26, 2008

 

 

 

 

$

2,945,000

 

July 27, 2008 - August 23, 2008

 

289,735

 

$

18.169

 

289,735

 

$

2,664,000

(1)

August 24, 2008 - September 27, 2008

 

109,088

 

$

20.621

 

109,088

 

$

408,000

 

Total

 

398,823

 

$

18.839

 

398,823

 

 

 

 


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

 

PEER PERFORMANCE TABLE

 

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

 

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COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN

Courier Corporation, S&P 500 Index, Peer Group

 

 

The Peer 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.

 

Item 6.  Selected Financial Data.

 

The information required by this Item is contained in the section captioned “Five-Year Financial Summary” appearing on page F-25 of this Annual Report on Form 10-K.

 

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

 

The information required by this Item is contained in the section captioned “Management’s Discussion and Analysis” on pages F-26 through F-38 of this Annual Report on Form 10-K.

 

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

 

The Company does not hold any derivative financial instruments, derivative commodity instruments or other financial instruments except as noted in Note A of Notes to Consolidated Financial Statements, which appear on pages F-7 through F-11 of this Annual Report on Form 10-K.  The Company engages neither in speculative nor derivative trading activities. The Company is exposed to market risk for changes in interest rates on invested funds as well as borrowed funds.  The Company’s revolving bank credit facility bears interest at a floating rate, with further information contained in Note D on page F-13 of this Annual Report on Form 10-K.  The Company believes it is remote that this could 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-1 through F-24 of this Annual Report on Form 10-K.

 

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Item 9.  Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

 

None.

 

Item 9A.  Controls and Procedures

 

(a)                                  Disclosure Controls and Procedures

 

As of the end of the period covered by this Annual Report on Form 10-K, we carried out an evaluation under the supervision and with the participation of our management, including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e). Disclosure controls are procedures that are designed to ensure that information 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 periods specified by the Securities and Exchange Commission. Disclosure controls are also designed to ensure that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

 

(b)                              Changes in Internal Controls over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting during the fourth quarter of fiscal year 2008 that have 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 the preparation, integrity and objectivity of the Company’s consolidated financial statements and other financial information contained in its Annual Report to Stockholders.  Those consolidated financial statements were prepared in conformity with accounting principles generally accepted in the United States.  In preparing those consolidated financial statements, the Company’s management was required to make certain estimates and judgments, which are based upon currently available information and management’s view of current conditions and circumstances.

 

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

 

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

 

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

 

The Company has filed with the Securities and Exchange Commission the required certifications related to its consolidated financial statements as of and for the year ended September 27, 2008.  These certifications are exhibits to this Annual Report on Form 10-K for the year ended September 27, 2008.

 

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

 

Management has responsibility for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States.  Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Management has assessed the effectiveness of the Company’s internal control over financial reporting as of September 27, 2008.

 

In making its assessment of the Company’s internal control over financial reporting, the Company’s management has utilized the criteria set forth by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission in Internal Control-Integrated Framework.  Management concluded that based on its assessment, the Company’s internal control over financial reporting was effective as of September 27, 2008.   Deloitte & Touche LLP, an independent registered public accounting firm that audited our financial statements included in this Annual Report, has issued an audit report on the effectiveness of internal control over financial reporting as of September 27, 2008, which appears within this Annual Report on Form 10-K.

 

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Courier Corporation
North Chelmsford, Massachusetts

 

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

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.  Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinion.

 

A company’s internal control over financial reporting is a process designed by, or under the supervision of, the company’s principal executive and principal financial officers, or persons performing similar functions, and effected by the company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.  A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

 

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

 

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

 

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 27, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

 

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

 

/s/ Deloitte & Touche LLP

 

Boston, Massachusetts
November 26, 2008

 

(e)                                  Limitations on Design and Effectiveness of Controls.

 

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are effective at the reasonable assurance level. However, the Company’s management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of a control system must take into consideration resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected in a timely manner. These inherent limitations include the fact that controls can be circumvented by individual acts, by collusion of two or more people or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Finally, over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

Item 9B.  Other Information

 

None.

 

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PART III

 

Item 10.  Directors and Executive Officers and Corporate Governance.

 

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

 

James F. Conway III

 

56

 

Chairman, President and Chief Executive Officer

 

 

 

 

 

Robert P. Story, Jr.

 

57

 

Director, Executive Vice President, and Chief Operating Officer

 

 

 

 

 

Peter M. Folger

 

55

 

Senior Vice President and Chief Financial Officer

 

 

 

 

 

Rajeev Balakrishna

 

38

 

Vice President, General Counsel, Secretary and Clerk

 

 

 

 

 

Eric J. Zimmerman

 

43

 

Vice President, Publishing

 

The terms of office of all of the above executive officers continue until the first meeting of the Board of Directors following the next annual meeting of stockholders and the election or appointment and qualification of their successors, unless any officer sooner dies, resigns, is removed or becomes disqualified.

 

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

 

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

 

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

 

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

 

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

 

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

 

All other information called for by Item 10 is contained in the definitive Proxy Statement, under the captions “Item 1: Election of Directors,” “Corporate Governance” and “Section 16(a) Beneficial Ownership Reporting Compliance,” to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 14, 2009.  Such information is incorporated herein by reference.

 

Item 11.  Executive Compensation.

 

Information called for by Item 11 is contained in the definitive Proxy Statement, under the caption “Compensation Discussion and Analysis,” to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 14, 2009.  Such information is incorporated herein by reference.

 

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

 

The following table provides information as of September 27, 2008 regarding shares of common stock of the Company that may be issued under its existing compensation plans, including the Courier Corporation Amended and Restated 1993 Stock Incentive Plan (the “1993 Plan”), the Courier Corporation 1999 Employee Stock Purchase Plan, the Courier Corporation 2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”), and the Courier Corporation 1989 Deferred Income Stock Option Plan for Non-Employee Directors, which was replaced by the 2005 Plan.

 

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Equity Compensation Plan Information

 

Plan category

 

Number of
securities to be
issued upon
exercise of
outstanding
options, warrants
and rights (1)

 

Weighted-
average exercise
price of
outstanding 
options,
warrants and
rights

 

Number of securities
remaining available
for future issuance
under equity
compensation plans 
(excluding securities
reflected in column
(a))(2)(3)

 

 

 

(a)

 

(b)

 

(c)

 

Equity compensation plans approved by security holders

 

593,086

 

$

27.45

 

368,162

 

 

 

 

 

 

 

 

 

Equity compensation plans not approved by security holders

 

 

 

 

 

 

 

 

 

 

 

 

Total

 

593,086

 

$

27.45

 

368,162

 

 


(1)            Does not include any restricted stock as such shares are already reflected in the Company’s outstanding shares.

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

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

 

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

 

Item 13.  Certain Relationships and Related Transactions and Director Independence.

 

Information called for by Item 13 is contained in the definitive Proxy Statement, under the captions “Director Independence” and “Related Party Transactions,” to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 14, 2009.  Such information is incorporated herein by reference.

 

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Item 14.  Principal Accounting Fees and Services

 

Information called for by Item 14 is contained in the definitive Proxy Statement, under the caption “Item 2: Ratification and Approval of Selection of Independent Auditors,” to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 14, 2009.  Such information is incorporated herein by reference.

 

PART IV

 

Item 15.  Exhibits and Financial Statement Schedules.

 

(a)                              Documents filed as part of this report

 

 

 

 

 

Page(s)

 

1.

 

Financial statements

 

 

 

 

 

 

 

 

 

 

·

Report of Independent Registered Public Accounting Firm

 

F-1

 

 

·

Consolidated Statements of Operations for each of the three years in the period ended September 27, 2008

 

F-2

 

 

·

Consolidated Balance Sheets as of September 27, 2008 and September 29, 2007

 

F-3 to F-4

 

 

·

Consolidated Statements of Cash Flows for each of the three years in the period ended September 27, 2008

 

F-5

 

 

·

Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended September 27, 2008

 

F-6

 

 

·

Notes to Consolidated Financial Statements

 

F-7 to F-24

 

 

 

 

 

 

 

2.

 

Financial statement schedule

 

 

 

 

 

 

 

 

 

 

 

Schedule II - Consolidated Valuation and Qualifying Accounts

 

S-1

 

 

 

 

 

 

 

3.

 

Exhibits

 

 

 

 

Exhibit No.

 

Description of Exhibit

 

 

 

3A-1

 

Articles of Organization of Courier Corporation, as of June 29, 1972 (filed as Exhibit 3A-1 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference).

 

 

 

3A-2

 

Articles of Amendment of Courier Corporation (changing stockholder vote required for merger or consolidation), as of January 20, 1977 (filed as Exhibit 3A-2 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference).

 

24



Table of Contents

 

3A-3

 

Articles of Amendment of Courier Corporation (providing for staggered election of directors), as of January 20, 1977 (filed as Exhibit 3A-3 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference).

 

 

 

3A-4

 

Articles of Amendment of Courier Corporation (authorizing class of Preferred Stock), as of February 15, 1978 (filed as Exhibit 3A-4 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 1981, and incorporated herein by reference).

 

 

 

3A-5

 

Articles of Amendment of Courier Corporation (increasing number of shares of authorized Common Stock), as of January 16, 1986 (described in item #2 of the Company’s Proxy Statement for the Annual Meeting of Stockholders held on January 16, 1986, and incorporated herein by reference).

 

 

 

3A-6

 

Articles of Amendment of Courier Corporation (providing for fair pricing procedures for stock to be sold in certain business combinations), as of January 16, 1986 (filed as Exhibit A to the Company’s Proxy Statement for the Annual Meeting of Stockholders held on January 16, 1986, and incorporated herein by reference).

 

 

 

3A-7

 

Articles of Amendment of Courier Corporation (limiting personal liability of directors to the Corporation or to any of its stockholders for monetary damages for breach of fiduciary duty), as of January 28, 1988 (filed as Exhibit 3A-7 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference).

 

 

 

3A-8

 

Articles of Amendment of Courier Corporation (establishing Series A Preferred Stock), as of November 8, 1988 (filed as Exhibit 3A-8 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference).

 

 

 

3A-9

 

Articles of Amendment of Courier Corporation (increasing number of shares of authorized Common Stock), as of January 17, 2002 (filed as Exhibit 3 to the Company’s Quarterly Report on Form 10-Q for the period ended March 30, 2002, and incorporated herein by reference).

 

 

 

3B-1

 

By-Laws of Courier Corporation, amended and restated as of March 24, 2005 (filed as Exhibit 3 to the Company’s Current Report on Form 8-K, dated March 24, 2005, and incorporated herein by reference).

 

 

 

3B-2

 

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

 

25



Table of Contents

 

10.1+*

 

Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for Rajeev Balakrishna dated March 14, 2007.

 

 

 

10.2+*

 

Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for Rajeev Balakrishna dated March 14, 2007.

 

 

 

10A+

 

Letter Agreement, dated February 8, 1990, of Courier Corporation relating to supplemental retirement benefit and consulting agreement with James F. Conway, Jr. (filed as Exhibit 10B to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 1990, and incorporated herein by reference).

 

 

 

10B-1+

 

Courier Corporation 1989 Deferred Income Stock Option Plan for Non-employee Directors, effective September 28, 1989 (filed as Exhibit A to the Company’s Proxy Statement for the Annual Meeting of Stockholders held January 18, 1990, and incorporated herein by reference).

 

 

 

10B-2+

 

Amendment, effective November 4, 1993, to the 1989 Deferred Income Stock Option Plan for Non-employee Directors (filed as Exhibit 10C-2 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference).

 

 

 

10B-3+

 

Amendment, effective September 24, 1998, to the 1989 Deferred Income Stock Option Plan for Non-employee Directors (filed as Exhibit 10C-3 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 1998, and incorporated herein by reference).

 

 

 

10B-4+

 

Amendment, effective January 21, 1999, to the 1989 Deferred Income Stock Option Plan for Non-employee Directors (described in Item 3 of the Company’s Proxy Statement for the Annual Meeting of Stockholders held January 21, 1999, and incorporated herein by reference).

 

 

 

10C-1+

 

Courier Corporation 1983 Stock Option Plan (filed as Exhibit A to the Company’s Proxy Statement for the Annual Meeting of Stockholders held on January 20, 1983, and incorporated herein by reference).

 

 

 

10C-2+

 

Amendment, effective January 17, 1985, to the Courier Corporation 1983 Stock Option Plan (described in Item 2 of the Company’s Proxy Statement for the Annual Meeting of Stockholders held on January 17, 1985, and incorporated herein by reference).

 

 

 

10C-3+

 

Amendment, effective January 19, 1989, to the Courier Corporation 1983 Stock Option Plan (described in Item 3 of the Company’s Proxy Statement for the Annual Meeting of Stockholders held January 19, 1989, and incorporated herein by reference).

 

26



Table of Contents

 

10D-1+

 

The Courier Executive Compensation Program, as amended and restated on December 5, 2005 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on December 7, 2005, and incorporated herein by reference).

 

 

 

10D-2+

 

The Management Incentive Compensation Program, effective October 4, 1993 (filed as Exhibit 10E-3 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference).

 

 

 

10D-3+

 

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

 

 

 

10E+

 

Courier Corporation Senior Executive Severance Program, as amended and restated on December 5, 2005 (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K on December 7, 2005, and incorporated herein by reference).

 

 

 

10F-1

 

Rights Agreement between Courier Corporation and State Street Bank and Trust Company dated March 18, 1999 (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, dated March 18, 1999, and incorporated herein by reference).

 

 

 

10F-2

 

Amendment, dated November 8, 2001, to Rights Agreement between Courier Corporation and EquiServe Trust Company NA dated March 18, 1999 (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the period ended March 26, 2005, and incorporated herein by reference).

 

 

 

10G+

 

Courier Corporation 1999 Employee Stock Purchase Plan (filed as Exhibit A to the Company’s Proxy Statement for the Annual Meeting of Stockholders held on January 21, 1999, and incorporated herein by reference).

 

 

 

10H-1+

 

Agreement, as of March 3, 1993, of Courier Corporation relating to employment contract and supplemental retirement benefit with George Q. Nichols (filed as Exhibit 10J to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 1993, and incorporated herein by reference).

 

 

 

10H-2+

 

Amendment, as of April 16, 1997, to supplemental retirement benefit agreement with George Q. Nichols (filed as Exhibit 10J-2 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 27, 1997, and incorporated herein by reference).

 

27



Table of Contents

 

10H-3+

 

Amendment, as of November 9, 2000, to supplemental retirement benefit agreement with George Q. Nichols (filed as Exhibit 10I-3 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 29, 2001, and incorporated herein by reference).

 

 

 

10I

 

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

 

 

 

10J-1+

 

Courier Corporation Amended and Restated 1993 Stock Incentive Plan (filed January 19, 2005 as Exhibit 10.5 to the Company’s Registration Statement No. 333-122136 and incorporated herein by reference).

 

 

 

10J-2+

 

Form of Incentive Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-3+

 

Form of Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan (filed as Exhibit 10.2 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-4+

 

Form of Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan (filed as Exhibit 10.3 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-5+

 

Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for J. F. Conway, III dated September 23, 2004 (filed as Exhibit 10.4 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-6+

 

Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for J. F. Conway, III dated September 23, 2004 (filed as Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-7+

 

Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for R. P. Story, Jr. dated September 23, 2004 (filed as Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

28



Table of Contents

 

10J-8+

 

Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for R. P. Story, Jr. dated September 23, 2004 (filed as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-9+

 

Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. M. Folger dated September 23, 2004 (filed as Exhibit 10.10 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-10+

 

Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. M. Folger dated September 23, 2004 (filed as Exhibit 10.11 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-11+

 

Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for E. J. Zimmerman dated September 23, 2004 (filed as Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-12+

 

Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for E. J. Zimmerman dated September 23, 2004 (filed as Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10J-13+

 

Incentive Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for E. J. Zimmerman dated September 23, 2004 (filed as Exhibit 10.14 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10K-1+

 

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

 

 

 

10K-2+

 

Form of Non-Qualified Stock Option Agreement for the Courier Corporation 2005 Stock Equity Plan for Non-employee Directors (filed as Exhibit 10.15 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10K-3+

 

Form of Stock Unit Agreement for the Courier Corporation 2005 Stock Equity Plan for Non-employee Directors (filed as Exhibit 10.16 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

29



Table of Contents

 

10L

 

Stock Purchase Agreement by and among Courier Corporation and the stockholders of Book-mart Press, Inc., dated as of July 21, 1997 (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated July 21, 1997, and incorporated herein by reference).

 

 

 

10M-1+

 

Courier Corporation Deferred Compensation Program dated November 6, 1997 including Messrs. Conway III, Nichols, and Story (filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended December 27, 1997, and incorporated herein by reference).

 

 

 

10M-2+

 

Amendment to Courier Corporation Deferred Compensation Program, effective January 1, 2005, (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on December 7, 2005, and incorporated herein by reference).

 

 

 

10M-3+

 

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

 

 

 

10N

 

Stock Purchase Agreement by and among Courier Corporation, Mrs. Blanche Cirker, individually, the Estate of Hayward Francis Cirker, by Blanche Cirker, executrix, and each of the stockholders of Dover Publications, Inc., Dover Book Store Inc. and Transfolio Express, Inc. dated as of August 14, 2000 (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K dated September 22, 2000, and incorporated herein by reference).

 

 

 

10O+

 

Amendment, effective March 1, 2005, to the Courier Corporation 1999 Employee Stock Purchase Plan (filed as Exhibit 10.1 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 2005, and incorporated herein by reference).

 

 

 

10P

 

Stock Purchase Agreement, dated April 27, 2006, by and among Courier Corporation, Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”), and the stockholders of Creative Homeowner (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on May 3, 2006, and incorporated herein by reference).

 

 

 

10Q

 

Lease Agreement, dated April 27, 2006, between Courier Corporation and Thomas Minor Associates, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on May 3, 2006, and incorporated herein by reference).

 

30



Table of Contents

 

21*

 

Schedule of Subsidiaries.

 

 

 

23*

 

Consent of Deloitte & Touche LLP, independent registered public accounting firm.

 

 

 

31.1*

 

Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

31.2*

 

Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.1*

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2*

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 


* Exhibit is furnished herewith.

+ Designates a Company compensation plan or arrangement.

 

31



Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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, on November 26, 2008.

 

 

COURIER CORPORATION

 

 

 

 

By:

   /s/James F. Conway III

 

 

James F. Conway III

 

 

   Chairman, President and Chief Executive Officer

 

 

 

 

By:

   /s/Peter M. Folger

 

 

Peter M. Folger

 

 

   Senior Vice President and Chief Financial Officer

 

 

 

 

By:

   /s/Kathleen M. Leon

 

 

Kathleen M. Leon

 

 

   Vice President and Controller

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities indicated, on November 26, 2008.

 

/s/James F. Conway III

 

/s/Ronald L. Skates

James F. Conway III

 

Ronald L. Skates

Chairman, President and

 

Director

Chief Executive Officer

 

 

 

 

 

/s/Kathleen Foley Curley

 

/s/Robert P. Story, Jr.

Kathleen Foley Curley

 

Robert P. Story, Jr.

Director

 

Director

 

 

 

/s/Edward J. Hoff

 

/s/W. Nicholas Thorndike

Edward J. Hoff

 

W. Nicholas Thorndike

Director

 

Director

 

 

 

/s/Arnold S. Lerner

 

/s/Susan L. Wagner

Arnold S. Lerner

 

Susan L. Wagner

Director

 

Director

 

 

 

/s/Peter K. Markell

 

 

Peter K. Markell

 

 

Director

 

 

 

32



Table of Contents

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Courier Corporation
North Chelmsford, Massachusetts

 

We have audited the accompanying consolidated balance sheets of Courier Corporation and subsidiaries (the “Company”) as of September 27, 2008 and September 29, 2007, and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for each of the three years in the period ended September 27, 2008.  Our audits also included the financial statement schedule listed in the Index at Item 15(a)2.  These financial statements and financial statement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.

 

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.  An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

 

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Courier Corporation and subsidiaries as of September 27, 2008 and September 29, 2007, and the results of their operations and their cash flows for each of the three years in the period ended September 27, 2008, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

 

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

 

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

 

/s/ Deloitte & Touche LLP

 

 

Boston, Massachusetts
November 26, 2008

 

F-1



Table of Contents

 

COURIER CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(Dollars in thousands except per share amounts)

 

 

 

For the Years Ended

 

 

 

September 27,

 

September 29,

 

September 30,

 

 

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

Net sales (Note A)

 

$

280,324

 

$

294,592

 

$

269,051

 

Cost of sales

 

202,445

 

198,229

 

180,535

 

 

 

 

 

 

 

 

 

Gross profit

 

77,879

 

96,363

 

88,516

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

53,034

 

53,926

 

50,144

 

Impairment charge (Note A)

 

23,643

 

 

 

Interest expense, net (Note A)

 

1,133

 

1,571

 

182

 

 

 

 

 

 

 

 

 

Pretax income

 

69

 

40,866

 

38,190

 

 

 

 

 

 

 

 

 

Provision for income taxes (Note C)

 

439

 

15,121

 

9,810

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(370

)

$

25,745

 

$

28,380

 

 

 

 

 

 

 

 

 

Net income (loss) per share (Notes A and J):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.03

)

$

2.06

 

$

2.30

 

 

 

 

 

 

 

 

 

Diluted

 

$

(0.03

)

$

2.03

 

$

2.25

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.80

 

$

0.72

 

$

0.48

 

 

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

 

Fiscal year 2006 was a 53-week period.

 

F-2



Table of Contents

 

COURIER CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

September 27,

 

September 29,

 

 

 

2008

 

2007

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents (Note A)

 

$

178

 

$

1,549

 

Investments (Note A)

 

820

 

 

Accounts receivable, less allowance for uncollectible accounts of $1,611 in 2008 and $1,531 in 2007 (Note A)

 

45,626

 

47,673

 

Inventories (Note B)

 

37,166

 

38,183

 

Deferred income taxes (Note C)

 

4,680

 

3,469

 

Other current assets

 

1,528

 

1,550

 

 

 

 

 

 

 

Total current assets

 

89,998

 

92,424

 

 

 

 

 

 

 

Property, plant and equipment (Note A):

 

 

 

 

 

Land

 

1,934

 

1,296

 

Buildings and improvements

 

35,541

 

35,110

 

Machinery and equipment

 

205,537

 

190,127

 

Furniture and fixtures

 

2,341

 

1,837

 

Construction in progress

 

3,945

 

10,487

 

 

 

 

 

 

 

 

 

249,298

 

238,857

 

 

 

 

 

 

 

Less-Accumulated depreciation and amortization

 

(153,606

)

(141,079

)

 

 

 

 

 

 

Property, plant and equipment, net

 

95,692

 

97,778

 

 

 

 

 

 

 

Goodwill, net (Notes A, H and I)

 

39,912

 

55,199

 

Other intangibles, net (Notes A and H)

 

3,920

 

12,904

 

Prepublication costs, net (Note A)

 

9,595

 

10,220

 

Other assets (Note G)

 

1,381

 

1,310

 

 

 

 

 

 

 

Total assets

 

$

240,498

 

$

269,835

 

 

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

 

F-3



Table of Contents

 

COURIER CORPORATION

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)

 

 

 

September 27,

 

September 29,

 

 

 

2008

 

2007

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt (Note D)

 

$

93

 

$

91

 

Accounts payable (Note A)

 

16,966

 

20,111

 

Accrued payroll

 

6,587

 

7,409

 

Accrued taxes (Note C)

 

3,560

 

2,129

 

Other current liabilities (Note G)

 

5,970

 

6,652

 

Total current liabilities

 

33,176

 

36,392

 

 

 

 

 

 

 

Long-term debt (Notes A and D)

 

23,646

 

17,375

 

Deferred income taxes (Note C)

 

4,687

 

9,446

 

Other liabilities (Notes C and G)

 

2,765

 

3,619

 

 

 

 

 

 

 

Total liabilities

 

64,274

 

66,832

 

 

 

 

 

 

 

Commitments and contingencies (Note E)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (Notes A, C, F and G):

 

 

 

 

 

Preferred stock, $1 par value - authorized 1,000,000 shares; none issued

 

 

 

Common stock, $1 par value - authorized 18,000,000 shares; issued 11,878,000 shares in 2008 and 12,612,000 in 2007

 

11,878

 

12,612

 

Additional paid-in capital

 

14,788

 

12,977

 

Retained earnings

 

149,920

 

177,919

 

Accumulated other comprehensive loss

 

(362

)

(505

)

 

 

 

 

 

 

Total stockholders’ equity

 

176,224

 

203,003

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

240,498

 

$

269,835

 

 

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

 

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COURIER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Dollars in thousands)

 

 

 

For the Years Ended

 

 

 

September 27,

 

September 29,

 

September 30,

 

 

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

Net income (loss)

 

$

(370

)

$

25,745

 

$

28,380

 

Adjustments to reconcile net income to cash provided from operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

21,373

 

18,856

 

14,804

 

Impairment charge (Note A)

 

23,643

 

 

 

Stock-based compensation (Notes A and F)

 

1,313

 

1,460

 

1,431

 

Deferred income taxes (Note C)

 

(5,970

)

1,098

 

1,093

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

2,047

 

(1,671

)

(2,845

)

Inventory

 

1,017

 

(8,618

)

(895

)

Accounts payable

 

(3,145

)

4,333

 

219

 

Accrued taxes

 

1,431

 

(1,233

)

(2,408

)

Other elements of working capital

 

(1,482

)

(2,966

)

(204

)

Other long-term, net

 

(1,118

)

451

 

(351

)

 

 

 

 

 

 

 

 

Cash provided from operating activities

 

38,739

 

37,455

 

39,224

 

 

 

 

 

 

 

 

 

Investment Activities:

 

 

 

 

 

 

 

Capital expenditures

 

(12,865

)

(26,378

)

(29,429

)

Business acquisitions (Note H)

 

 

 

(51,164

)

Prepublication costs (Note A)

 

(5,000

)

(5,417

)

(4,253

)

Short-term investments

 

(820

)

 

 

 

 

 

 

 

 

 

 

Cash used for investment activities

 

(18,685

)

(31,795

)

(84,846

)

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

Long-term debt borrowings

 

6,273

 

156

 

16,800

 

Cash dividends

 

(9,881

)

(9,007

)

(5,927

)

Proceeds from stock plans

 

1,749

 

2,608

 

1,691

 

Share repurchases (Note K)

 

(19,592

)

 

 

Excess tax benefits from stock-based compensation

 

26

 

649

 

503

 

 

 

 

 

 

 

 

 

Cash provided from (used for) financing activities

 

(21,425

)

(5,594

)

13,067

 

 

 

 

 

 

 

 

 

Increase (decrease) in cash and cash equivalents

 

(1,371

)

66

 

(32,555

)

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

1,549

 

1,483

 

34,038

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$

178

 

$

1,549

 

$

1,483

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

1,246

 

$

1,604

 

$

564

 

Income taxes paid (net of refunds)

 

$

4,926

 

$

14,447

 

$

10,725

 

 

 

 

 

 

 

 

 

Supplemental disclosure of noncash investing and financing activities:

 

 

 

 

 

 

 

Property and equipment costs included in accounts payable and accrued expenses

 

$

3,246

 

$

5,301

 

$

3,204

 

 

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

 

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COURIER CORPORATION

CONSOLIDATED STATEMENTS 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 24, 2005

 

$

156,460

 

$

12,313

 

$

5,311

 

$

138,836

 

$

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

28,380

 

 

 

28,380

 

 

Cash dividends

 

(5,927

)

 

 

(5,927

)

 

Stock-based compensation (Note F)

 

1,431

 

6

 

1,425

 

 

 

Other stock plan activity

 

1,982

 

126

 

1,856

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 30, 2006

 

182,326

 

12,445

 

8,592

 

161,289

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

25,745

 

 

 

25,745

 

 

Cash dividends

 

(9,007

)

 

 

(9,007

)

 

SFAS 158 transition adjustment (Note G)

 

(505

)

 

 

 

(505

)

Stock-based compensation (Note F)

 

1,460

 

5

 

1,455

 

 

 

Other stock plan activity

 

3,092

 

162

 

2,930

 

 

 

Cumulative effect of change in accounting principle (“FIN 48”) (Note C)

 

(108

)

 

 

(108

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 29, 2007

 

203,003

 

12,612

 

12,977

 

177,919

 

(505

)

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

(370

)

 

 

(370

)

 

Cash dividends

 

(9,881

)

 

 

(9,881

)

 

Change in pension obligation, net of tax (Note G)

 

143

 

 

 

 

143

 

Stock-based compensation (Note F)

 

1,313

 

6

 

1,307

 

 

 

Share repurchases (Note K)

 

(19,592

)

(856

)

(988

)

(17,748

)

 

Other stock plan activity

 

1,608

 

116

 

1,492

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 27, 2008

 

$

176,224

 

$

11,878

 

$

14,788

 

$

149,920

 

$

(362

)

 

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

 

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Table of Contents

 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

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: book manufacturing and specialty book publishing.  On April 28, 2006, the Company acquired Federal Marketing Corporation, d/b/a Creative Homeowner (“Creative Homeowner”), a New Jersey-based publisher and distributor of books, home plans, and related products for the home and garden retail book market. On October 17, 2005, the Company acquired Moore-Langen Printing Company, Inc. (“Moore Langen”) an Indianapolis-based printer specializing in manufacturing book covers.  Creative Homeowner is included in the specialty publishing segment and Moore Langen is included in the book manufacturing segment (see Note H).

 

Principles of Consolidation and Presentation: The consolidated financial statements, prepared on a fiscal year basis, include the accounts of Courier Corporation and its subsidiaries after elimination of all intercompany transactions.  Such financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“generally accepted accounting principles”).  Fiscal years 2008 and 2007 were 52-week periods compared with fiscal year 2006, which was a 53-week period.

 

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

 

Property, Plant and Equipment: Property, plant and equipment are recorded at cost, including interest on funds borrowed to finance the acquisition or construction of major capital additions.  Interest capitalized was $123,000 in 2008 and $169,000 in 2007; no such interest was capitalized in 2006.  The Company provides for depreciation of property, plant and equipment on a straight-line basis over periods ranging from 10 to 40 years on buildings and improvements and from 3 to 11 years on equipment and furnishings.

 

Leasehold improvements are amortized on a straight-line basis over the shorter of their useful life or the term of the lease.  Expenditures for maintenance and repairs are charged against income as incurred; betterments that increase the value or materially extend the life of the related assets are capitalized.  When assets are sold or retired, the cost and accumulated depreciation are removed from the accounts and any gain or loss is included in income.

 

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Goodwill and Other Intangibles: The Company evaluates possible impairment annually at the end of its fiscal year or whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. These tests are performed at the reporting unit level, or one level below the operating segment.  In the third quarter of fiscal 2008, the Company performed an interim test of goodwill and other intangible assets for Creative Homeowner, one of the companies in its specialty publishing segment. These additional tests were performed as a result of a precipitous decline in sales and profits at Creative Homeowner in the third quarter, due in large part to the continued downturn in the housing market and reduction in store traffic at home improvement centers and other large retail chain stores.

 

The goodwill impairment test is a two-step test.  In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds the carrying value of its net assets, then goodwill is not impaired and the Company is not required to perform further testing.  If the carrying value of the net assets of the reporting unit exceeds its fair value, then the Company must perform the second step in order to determine the implied fair value of the reporting unit’s goodwill and compare it to the carrying value of its goodwill.  The Company used a valuation methodology to estimate the fair value of Creative Homeowner based primarily on the discounted cash flow approach.  Key assumptions and estimates included revenue and operating income forecasts and the assessed growth rate after the forecast period.  After performing the step-one test, the Company determined that the fair value of Creative Homeowner at the end of the third quarter was below its carrying value and as such the second step was required.  The second step of the impairment test included valuing the tangible and intangible assets and liabilities of the impaired reporting unit based on their fair value and determining the fair value of the impaired reporting unit’s implied goodwill.  The implied goodwill is the residual of the total fair value of the reporting unit less the accumulated fair value of identified tangible and intangible assets and liabilities.  Based on the step-two valuations, the Company recorded a pre-tax impairment charge of $15.3 million in 2008 relating to Creative Homeowner’s goodwill.

 

Trade names with indefinite lives are also not subject to amortization and are reviewed at least annually for potential impairment at the end of the fiscal year or whenever events or circumstances indicate that the carrying value of the assets may not be recoverable.  As a result of the impairment analysis performed in fiscal 2008 for Creative Homeowner, the Company determined that the carrying value of Creative Homeowner’s trade name exceeded its estimated fair value.  Accordingly, the Company recorded a pre-tax impairment charge of $0.8 million relating to Creative Homeowner’s trade name.

 

“Other intangibles” also includes customer lists related to Creative Homeowner and Moore Langen.  As a result of the impairment analysis performed for Creative Homeowner, the Company determined that the carrying value of Creative Homeowner’s customer list exceeded its estimated fair value.  Accordingly, the Company recorded a pre-tax impairment charge of $7.5 million in 2008 for Creative Homeowner’s customer list.

 

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

 

Amortization related to customer lists for Moore Langen and Creative Homeowner was $629,000 for fiscal 2008 compared with $787,000 and $343,000 in fiscal years 2007 and 2006, respectively.  Customer lists for Moore Langen and Creative Homeowner are being amortized over 10-year and 15-year periods, respectively.  Annual amortization expense for the next five years will be approximately $200,000 prospectively.

 

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

 

 

 

(000’s omitted)

 

 

 

Book
Manufacturing

 

Specialty
Publishing

 

Total

 

Balance at September 29, 2007

 

$

14,771

 

$

40,428

 

$

55,199

 

Impairment charge

 

 

(15,287

)

(15,287

)

Balance at September 27, 2008

 

$

14,771

 

$

25,141

 

$

39,912

 

 

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

 

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

 

 

 

(000’s omitted)

 

 

 

Book Manufacturing

 

Specialty Publishing

 

 

 

 

 

Trade
Name

 

Customer
Lists

 

Trade
Name

 

Customer
Lists

 

Total

 

Balance at September 29, 2007

 

$

931

 

$

193

 

$

1,370

 

$

10,410

 

$

12,904

 

Impairment charge

 

 

 

 

 

(820

)

(7,535

)

(8,355

)

Amortization expense

 

 

 

(23

)

 

 

(606

)

(629

)

 

 

 

 

 

 

 

 

 

 

 

 

Balance at September 27, 2008

 

$

931

 

$

170

 

$

550

 

$

2,269

 

$

3,920

 

 

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

 

Long-Lived Assets: Management periodically reviews long-lived assets for impairment and has not recorded an impairment of any asset of the Company, other than the assets of Creative Homeowner discussed above in the caption “Goodwill and Other Intangibles.”

 

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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. In fiscal 2008, such amortization includes approximately $0.5 million to write down the investment in underperforming titles at Creative Homeowner.

 

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

 

Revenue Recognition: Revenue is recognized upon shipment of goods to customers or upon the transfer of ownership for those customers for whom the Company provides manufacturing and distribution services.  Revenue for distribution services is recognized as services are provided.  Shipping and handling fees billed to customers are classified as revenue.  In the specialty publishing segment, revenue is recognized net of an allowance for sales returns.  The process which the Company uses to determine its net sales, including the related reserve allowance for returns, is based upon applying an estimated return rate to current year sales.  This estimated return rate is based on actual historical return experience.

 

Use of Estimates: The process of preparing financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts at the date of the financial statements.  Actual results may differ from these estimates.

 

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

 

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

 

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

 

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Table of Contents

 

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

 

The Company does not believe the adoption of SFAS No. 141R, SFAS No. 161 or FSP 142-3 will have a material effect on its consolidated financial position, results of operations, or cash flows.

 

B. Inventories

 

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

 

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

 

 

 

(000’s omitted)

 

 

 

2008

 

2007

 

 

 

 

 

 

 

Raw materials

 

$

5,263

 

$

5,295

 

Work in process

 

8,091

 

8,274

 

Finished goods

 

23,812

 

24,614

 

Total

 

$

37,166

 

$

38,183

 

 

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

 

C.  Income Taxes

 

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

 

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

 

The Company files federal and state income tax returns in various jurisdictions of the United States. With few exceptions, the Company is no longer subject to income tax examinations for years prior to fiscal 2005.  Substantially all U.S. federal tax years prior to fiscal 2005 have been audited by the Internal Revenue Service and closed.

 

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

 

 

 

(000’s omitted)

 

 

 

2008

 

2007

 

2006

 

 

 

 

 

 

 

 

 

Federal taxes at statutory rate

 

$

24

 

$

14,303

 

$

13,367

 

State taxes, net of federal tax benefit

 

800

 

1,312