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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 29, 2002

OR

For the transition period from                              to                             

Commission file number 0-7597

COURIER CORPORATION
(Exact name of registrant as specified in its charter)

Massachusetts
(State or other jurisdiction of incorporation or organization)

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

(978) 251-6000
(Registrant's telephone number, including area code)

NO CHANGE
(Former name, former address and former fiscal year, if changed since last report)

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

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

COURIER CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollars in thousands except per share amounts)

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

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

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

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COURIER CORPORATION

CONSOLIDATED CONDENSED BALANCE SHEETS (UNAUDITED)

(Dollars in thousands)

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

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COURIER CORPORATION

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollars in thousands)

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

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COURIER CORPORATION

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)

A.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Financial Statements

        The balance sheet as of June 29, 2002, the statements of income for the three-month and nine-month periods ended June 29, 2002 and June 30, 2001, and the statements of cash flows for the nine-month periods ended June 29, 2002 and June 30, 2001 are unaudited and, in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been recorded. Such adjustments consisted only of normal recurring items. Certain amounts for fiscal 2001 have been reclassified in the accompanying financial statements in order to be consistent with the current year's classification.

        Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("generally accepted accounting principles") have been condensed or omitted. The balance sheet data as of September 29, 2001 was derived from audited year-end financial statements, but does not include disclosures required by generally accepted accounting principles. It is suggested that these interim financial statements be read in conjunction with the Company's most recent Form 10-K and Annual Report for the year ended September 29, 2001.

New Accounting Pronouncements

        Effective September 30, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which changes the accounting for goodwill and certain other intangible assets from an amortization method to an impairment-only approach. The Company completed the transitional impairment test required by SFAS No. 142 during the second quarter of fiscal 2002, resulting in no change to the nature or carrying amounts of its intangible assets from the adoption of this standard. If these rules had applied to goodwill for fiscal year 2001, the result would have been to increase related pretax income by approximately $325,000 and $1,025,000 for the third quarter and the first nine months of fiscal 2001, respectively. The corresponding increase in net income would have been approximately $250,000, or $.05 per diluted share, in the third quarter of fiscal 2001 and $750,000, or $.14 per diluted share, for the nine months ended June 30, 2001. As of June 29, 2002, "Goodwill and other intangibles, net" consists of goodwill of $25.4 million and other intangibles of $0.1 million; such goodwill has been allocated $9.3 million to the book manufacturing segment and $16.1 million to the specialty publishing segment.

        In July 2000, the Emerging Issues Task Force (EITF) of the Financial Accounting Standards Board reached a consensus on Issue 00-10, "Accounting for Shipping and Handling Fees and Costs." The Company adopted the provisions of EITF 00-10 in the fourth quarter of its fiscal year ended September 29, 2001. EITF 00-10 requires companies to classify as revenues shipping and handling fees billed to customers. Results of last year's third quarter and first nine months have been reclassified to conform to the fiscal 2002 presentation. The impact of this adoption was to increase both sales and cost of sales by approximately $1.0 million and $2.9 million in the third quarter and the first nine months of fiscal 2001, respectively, and thus had no impact on reported earnings.

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 45% of the Company's inventories at both June 29, 2002 and

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September 29, 2001. Other inventories are determined on a first-in, first-out (FIFO) basis. Inventories consisted of the following:

C.    INCOME TAXES

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

D.    NET INCOME PER SHARE

        Following is a reconciliation of the shares used in the calculation of basic and diluted net income per share. Potentially dilutive shares, calculated using the treasury stock method, consist of shares issued under the Company's stock option plans. Prior year shares have been adjusted to reflect a three-for-two stock split effected in the form of a dividend distributed on August 31, 2001.

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E.    OTHER INCOME

        In March 2001, the Company sold the assets of its subsidiary, The Home School, and ceased operating this business. The proceeds from the sale were $0.8 million resulting in a pretax gain of approximately $300,000 and an after-tax gain of approximately $200,000, or $.04 per diluted share.

        During the first quarter of fiscal 2001, the Company completed the sale of its Raymond, NH facility. In February 2000, the Company entered into a five-year lease agreement for this facility, which had been vacant. The lease provided for a purchase option at a price of $1.3 million. The option was exercised in August 2000 and the transaction closed in October 2000, resulting in a pretax gain of approximately $0.9 million and approximately $0.6 million after tax, or $.10 per diluted share. Other income in the prior year also includes $49,000 of net rental income from this facility.

F.    BUSINESS SEGMENTS

        The Company has three business segments: full-service book manufacturing, customized education and specialty publishing. The book manufacturing segment offers a full range of services from production through storage and distribution for religious, educational and specialty trade book publishers. The customized education segment is comprised of Courier Custom Publishing, a provider of customized college coursepacks and textbooks. Prior year results for this segment also included The Home School, which ceased operations in March 2001 when substantially all of its assets were sold. The specialty publishing segment consists of Dover Publications, Inc., acquired by the Company in September 2000.

        In evaluating segment performance, management primarily focuses on income or loss before taxes and other income (see Note E). The elimination of intersegment sales and related profit represents sales from the book manufacturing segment to the specialty publishing segment. Corporate expenses that are allocated to the segments include various support functions such as information technology services, finance, human resources and engineering, and include depreciation and amortization expense related to corporate assets.

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        The following table provides segment information for the three-month and nine-month periods ended June 29, 2002 and June 30, 2001:

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Item 2.

COURIER CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies and Estimates:

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

        Accounts Receivable    Management performs ongoing credit evaluations of the Company's customers and adjusts credit limits based upon payment history and the customer's current credit worthiness. Collections and payments from customers are continuously monitored. A provision for estimated credit losses is determined based upon historical experience and any specific customer collection issues that have been identified. If the financial condition of the Company's customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

        Inventories    Management records a reserve for excess and obsolete inventory based primarily upon historical and forecasted product demand. If actual market conditions are less favorable than those projected by management, additional inventory reserves may be required.

        Goodwill    Effective September 30, 2001, the Company adopted Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets," which changes the accounting for goodwill and certain other intangible assets from an amortization method to an impairment-only approach. The Company evaluates possible impairment whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. The Company has completed the transitional impairment test required by SFAS No. 142 resulting in no change to the nature or carrying amounts of its intangible assets from adoption of this standard. Changes in market conditions or poor operating results could result in a decline in value thereby potentially requiring an impairment charge in the future.

        Prepublication Costs    The Company capitalizes prepublication costs, consisting primarily of art and editorial costs incurred in the creation of a book or other media. Prepublication costs are amortized on a straight-line basis over a four-year period. Management regularly evaluates the sales and profitability of the products based upon historical and forecasted demand. Based upon this evaluation, adjustments may be required to amortization expense.

        Income Taxes    Income tax liabilities and assets are determined based upon the differences among the financial statement and tax bases of assets and liabilities, and taxes reported on the Company's tax returns. Changes in the recoverability of the Company's tax assets or audits by tax authorities could result in future charges or credits to income tax expense.

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Results of Operations:

        Sales in the third quarter of fiscal 2002 were $51.8 million, up 2% from $50.9 million in the corresponding period last year. Sales from the Company's book manufacturing segment were $44.7 million, also up 2% from the third quarter of fiscal 2001. Within this segment, sales to the religious market increased by 22% compared to the prior year, reflecting higher order levels and elimination of backlogs associated with the installation of a new press earlier in the year. For the first nine months of fiscal 2002, sales in this market were up 6% which is more in line with historical growth rates. Sales to the educational market rose by 2% over the prior year's third quarter after a 13% decline in sales in the first half of the year. The earlier decline in sales was attributed to the slowdown in the economy and related cautiousness by publishers, distributors and retailers in managing their inventories. Sales to the specialty trade market remained below fiscal 2001 levels in the third quarter, however, the 16% decrease in this market improved from the 22% decline experienced in the first half of the year. Sales from the Company's specialty publishing segment, which is comprised of Dover Publications, Inc. ("Dover"), were $8.5 million in the third quarter of fiscal 2002, a 6% increase over the prior year period, partially due to a shift in last year's quarterly sales patterns, as similarly indicated in the second quarter when sales were up 31%. For the first nine months of fiscal 2002, Dover's sales were up 11% from the corresponding period last year. The Company's customized education segment, consisting of Courier Custom Publishing, had sales of approximately $125,000 in the third quarter of fiscal 2002 compared to approximately $95,000 last year. Revenues from this segment occur primarily in the second and fourth quarters of the Company's fiscal year.

        The Company adopted EITF 00-10 "Accounting for Shipping and Handling Fees and Costs" in the fourth quarter of its fiscal year ended September 29, 2001. The impact of the adoption of EITF 00-10 was to increase both sales and cost of sales by approximately $1.0 million and $2.9 million in the third quarter and the first nine months of fiscal 2001, respectively. It had no impact on net income.

        Gross profit increased to $15.7 million in the third quarter compared to $15.2 million in the same period last year, and, as a percentage of sales, remained at 30% of sales. Within the book manufacturing segment, gross profit in the third quarter of 27% of sales was comparable to the prior year's third quarter and improved from 25% and 26% in the first and second quarters, respectively. The year to date improvement reflects tighter cost controls and gains in productivity. Gross profit as a percent of sales in the specialty publishing segment was 47%, comparable to the same period last year.

        Selling and administrative expenses decreased to $9.6 million in the third quarter of fiscal 2002 from $9.9 million in the same period last year, largely due to tighter cost controls. As a percentage of sales, selling and administrative expenses were 19% in the third quarter of fiscal 2002 compared to 20% in the corresponding period last year. Within the book manufacturing segment, selling and administrative expenses in the third quarter decreased by 7% and, as a percent of sales, decreased to 15% from 16%. In the specialty publishing segment, selling and administrative expenses of $2.9 million were 7% higher than the same period last year reflecting increased selling expenses such as commissions, as well as spending on e-commerce and other marketing programs.

        Amortization of goodwill decreased by $327,000 from last year's third quarter, reflecting the Company's adoption, effective at the beginning of fiscal 2002, of Statement of Financial Accounting Standards ("SFAS") No. 142, "Goodwill and Other Intangible Assets." This standard changes the accounting for goodwill and certain other intangible assets from an amortization method to an impairment-only approach. If these rules had applied to goodwill for the third quarter of fiscal 2001, the result would have been to increase related pretax income by $327,000 and net income by approximately $250,000, or $.05 per diluted share.

        Interest expense was $86,000 in the third quarter of fiscal 2002 compared to $389,000 in the same period of fiscal 2001, reflecting decreased average borrowings of approximately $22 million, as well as a reduction in average interest rates from 5.1% last year to 2.3% this year.

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        Third quarter pretax income from the book manufacturing segment was $5.4 million, up 17% compared to the prior year period, and net income per diluted share was $.68, also an increase of 17% over last year. The third quarter of fiscal 2001 included goodwill amortization in this segment of approximately $125,000, or $.025 per diluted share. Pretax income in the specialty publishing segment was approximately $900,000, or $.11 per diluted share, compared to $377,000, or $.04 per diluted share, in the third quarter of fiscal 2001. Goodwill amortization in the prior year's third quarter accounted for approximately $200,000, or $.025 per diluted share, of this improvement. Pretax losses in the customized education segment were approximately $110,000, or $.01 per diluted share, compared to a loss of approximately $210,000, or $.03 per diluted share, for the same period last year. This improvement reflects an improving sales mix and a reduction in costs for Courier Custom Publishing.

        The Company's effective tax rate for the third quarter of fiscal 2002 was 33% compared to 35% for the same period last year due to the impact of nondeductible goodwill amortization in the prior year.

        Net income for the third quarter of fiscal 2002 was $4.1 million, or $.76 per diluted share, versus $3.0 million, or $.57 per diluted share, in the prior year. After adjusting for the adoption of the new accounting pronouncement on goodwill, net income was approximately $3.2 million, or $.62 per diluted share, in the third quarter last year. The following table reflects the impact to both the third quarter and the first nine months of last year for the adoption of the new accounting pronouncement on goodwill amortization and the gains from the sale of The Home School and a real estate sale in fiscal 2001.

        For the first nine months ended June 29, 2002, sales were $146 million, a decline of 6% from the corresponding period in fiscal 2001. Net income for the first nine months of fiscal 2002 was $9.6 million, or $1.80 per diluted share, up 19% from the prior year's net income of $8.1 million, or $1.55 per diluted share, after the adjustments reflected in the table above. "Gains from asset sales" in the table above includes the sale of the Company's Raymond, New Hampshire facility in the first quarter of fiscal 2001. In February 2000, the Company entered into a five-year lease agreement for this facility, which had been vacant. The lease provided for a purchase option at a price of $1.3 million. The option was exercised in August 2000 and the transaction closed in October 2000, resulting in a pretax gain of approximately $0.9 million and approximately $0.6 million after tax, or $.10 per diluted share. Proceeds from the sale of the assets of The Home School in the second quarter of fiscal 2001 were $0.8 million resulting in a pretax gain of approximately $300,000 and an after-tax gain of approximately $200,000, or $.04 per diluted share.

        For the first nine months of fiscal 2002, book manufacturing segment sales were $123.5 million, 8% below the same period last year. For this segment, pretax income for the first nine months was $12.2 million, comparable to the same period last year. On a per share basis, earnings were $1.55 per diluted share compared with $1.53 per diluted share for the first nine months of fiscal 2001. Factors discussed for the quarter above similarly affected year-to-date results. The first nine months of this year were also impacted by start-up costs related to a new press, which were partially offset by a pretax gain of approximately $200,000 on the sale of an old, unused press. The first nine months of fiscal 2001 included goodwill amortization in this segment of approximately $380,000, or $.07 per diluted share.

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Within the specialty publishing segment, sales for the first nine months of fiscal 2002 were $25.9 million, an increase of 11% over the corresponding period last year. Pretax income year to date was $2.7 million, or $.32 per diluted share, compared with $0.4 million, or $.04 per diluted share, in the prior year period. The first nine months of fiscal 2001 included goodwill amortization in this segment of approximately $600,000, or $.07 per diluted share. For the first nine months of fiscal 2002, sales in the customized education segment were $0.6 million compared with $1.0 million in the corresponding period last year. The sale of The Home School in March 2001, as well as improvements in the remaining custom publishing operation, resulted in a reduction in the pretax loss from this segment for the first nine months of this year to $0.3 million, or $.03 per diluted share, compared to a loss of $0.8 million, or $.10 per diluted share, in the same period of fiscal 2001.

        For purposes of computing diluted net income per share, weighted average shares outstanding increased by approximately 135,000 shares over last year's third quarter. The increase was largely due to options exercised under the Company's stock plans. Prior year shares have been adjusted to reflect a three-for-two stock split effected in the form of a dividend distributed on August 31, 2001.

Liquidity and Capital Resources:

        During the first nine months of fiscal 2002, operations provided approximately $21.2 million of cash. Net income was $9.6 million, depreciation and amortization were $8.3 million, and deferred income taxes were approximately $1.4 million. Working capital reductions provided approximately $1.5 million of cash, primarily from a decrease of approximately $5.6 million in accounts receivable, offset by decreases of approximately $2.7 million in accounts payable and $1.7 million in accrued taxes.

        Investment activities in the first nine months of fiscal 2002 used approximately $5.2 million of cash. Capital expenditures were approximately $3.9 million and prepublication costs were approximately $1.3 million. For the entire fiscal year, capital expenditures are expected to be approximately $5 million to $6 million and prepublication costs are projected to be approximately $2 million.

        Financing activities for the first nine months of fiscal 2002 used approximately $16.1 million of cash including a decrease in long-term borrowings of $15.3 million. Dividends utilized approximately $1.5 million of cash while proceeds from stock plans provided approximately $0.7 million of cash. At June 29, 2002, the Company's borrowings under its $60 million long-term revolving credit facility were $0.5 million. The Company believes that its cash from operations and available credit facilities will be sufficient to meet its cash requirements through fiscal 2002.

        The following table summarizes the Company's contractual obligations and commitments to make future payments as well as its existing commercial commitments.

        The Company's $60 million long-term revolving credit facility bears interest at a floating rate. Therefore, the Company is exposed to market risk for changes in interest rates. At June 29, 2002, the interest rate in effect was 2.31%.

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        The Company recently extended the maturity date of the revolving credit facility to March 2005. Borrowings of $0.5 million are included in scheduled principal payments due in 2005.

        The standby letters of credit expire in December 2002.

Forward-Looking Information:

        Statements that describe future expectations, plans or strategies are considered "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission. The words "believe," "expect," "anticipate," "intend," "estimate" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated. Factors that could affect actual results include, among others, changes in customers' demand for the Company's products, including seasonal changes in customer orders, changes in raw material costs, pricing actions by competitors, consolidation among customers and competitors, success in the integration of acquired businesses, unanticipated changes in operating expenses, changes in technology, and general changes in economic conditions. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate. The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.

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Item 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        There have been no material changes from the information concerning the Company's "Quantitative and Qualitative Disclosures About Market Risk" as previously reported in the Company's Annual Report on Form 10-K for the year ended September 29, 2001.

PART II.    OTHER INFORMATION

Item 1.    Legal Proceedings

        None.

Item 2.    Changes in Securities and Use of Proceeds

        None.

Item 3.    Defaults Upon Senior Securities

        None.

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

        None.

Item 5.    Other Information

        None.

Item 6.    Exhibits and Reports on Form 8-K

(a)

Exhibits

(b)

Reports on Form 8-K

None.

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SIGNATURES

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

CERTIFICATIONS

        The undersigned officer of Courier Corporation (the "Company") hereby certifies that the Company's quarterly report on Form 10-Q for the quarterly period ended June 29, 2002, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

        The undersigned officer of Courier Corporation (the "Company") hereby certifies that the Company's quarterly report on Form 10-Q for the quarterly period ended June 29, 2002, as filed with the Securities and Exchange Commission on the date hereof, fully complies with the requirements of section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended, and that the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. This certification is provided solely pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

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