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Courier 10-K 2005

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

Form 10-K

 

(MARK ONE)

ý

 

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

 

 

 

For the fiscal year ended September 24, 2005

 

 

 

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 (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 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 an accelerated filer (as defined in Exchange Act Rule 12b-2).  Yesý Noo

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yeso Noý

 

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.

 

Common Stock, $1 par value - $295,148,021

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock as of November 21, 2005.

 

Common Stock, $1 par value - 12,314,764

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Portions of the registrant’s proxy statement for the annual meeting of stockholders scheduled to be held on Jan. 18, 2006 (Part III).

 

 



 

PART I

 

Item 1.  Business.

 

INTRODUCTION

 

Courier Corporation and its subsidiaries (“Courier” or the “Company”) are 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 book publishing.  In fiscal 2003, Courier sold all of the assets of Courier Custom Publishing, Inc. which comprised all of the remaining activities of the customized education segment.

 

The book manufacturing segment focuses on streamlining and enhancing the process of bringing books from the point of creation to the point of use.  Based on sales, Courier is the fifth largest book manufacturer in the United States and largest in the Northeast, 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 texts and consumer books. Revenues from this segment accounted for approximately 85% of Courier’s consolidated revenues in 2005.

 

The specialty publishing segment consists of Dover Publications, Inc. (“Dover”), acquired by Courier on September 22, 2000, as well as Research & Education Association, Inc. (“REA”), which was acquired on January 6, 2004.  Dover publishes over 9,000 titles in more than 30 specialty categories ranging from literature and poetry classics to paper dolls, and from music scores to clip art. REA publishes test preparation and study-guide books and software for high school, college and graduate students and professionals.  The combination of Dover’s and REA’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 18% of consolidated sales in 2005.

 

Sales by segment
(in thousands)

 

2005

 

%

 

2004

 

%

 

2003

 

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Book Manufacturing

 

$

193,623

 

85

%

$

177,225

 

84

%

$

171,858

 

85

%

Specialty Publishing

 

40,254

 

18

%

40,787

 

19

%

36,391

 

18

%

Intersegment sales

 

(6,838

)

(3

)%

(6,833

)

(3

)%

(6,247

)

(3

)%

Total

 

$

227,039

 

100

%

$

211,179

 

100

%

$

202,002

 

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 J in the Notes to Consolidated Financial Statements on pages F-18 to F-20 included in this Annual Report on Form 10-K.

 

On December 17, 2002, the Company sold the assets of its wholly owned subsidiary, Courier Custom Publishing, Inc.  Courier Custom Publishing provided customized coursepacks and textbooks.  The disposition was accounted for as a discontinued operation.  Additional information is contained in Note I in the Notes to Consolidated Financial Statements on page F-17 included in this Annual Report on Form 10-K.  In March 2001, Courier sold substantially all of the assets of The Home School and ceased operating this business.  The Company had purchased the assets of The Home School Books & Supplies in September 1997.

 

1



 

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 six facilities in Westford, Stoughton and North Chelmsford, Massachusetts; Philadelphia, Pennsylvania; North Bergen, New Jersey; and Kendallville, Indiana.

 

Early in fiscal 2006, the Company announced the acquisition of Moore-Langen Printing Company, Inc. (“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, will be accounted for as a purchase and, accordingly, Moore Langen’s financial results will be included in the consolidated financial statements from the date of acquisition.

 

Courier’s book manufacturing operations consist of both electronic and conventional film processing, platemaking and printing and binding of soft and hard cover books.  Each of Courier’s six facilities have certain specialties adapted to the needs of the market niches Courier serves, such as short-run book manufacturing, printing on lightweight paper and four-color book manufacturing.  These services are primarily sold to publishers of educational, religious and consumer books.  During 2004, the Company expanded 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 is scheduled for installation in the first quarter of fiscal 2006.

 

Courier’s book manufacturing sales force of 18 people is responsible for all of the Company’s sales to over 400 book-manufacturing customers.  Courier’s salespeople operate out of sales offices located in New York, New York; Chicago, Illinois; Philadelphia, Pennsylvania; Hayward, California; North Chelmsford, Massachusetts; and North Bergen and North Caldwell, New Jersey.

 

Sales to The Gideons International aggregated approximately 28% of consolidated sales in 2005, 27% in 2004, and 28% in 2003.  Sales to Pearson plc aggregated approximately 19% of consolidated sales in 2005 and 17% in both 2004 and 2003.  A significant reduction in order volumes or price levels from either of these customers would 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 21% in both 2005 and 2004, and 22% in 2003.  Approximately 90% of the export sales were in the book manufacturing segment in each of these years.

 

All phases of Courier’s business are highly competitive.  The printing industry, exclusive of newspapers, includes approximately 44,000 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, related services and technology support.

 

2



 

SPECIALTY BOOK 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 Editions.  In 2002, a new line of scholarly hardcover books valuable to scientists and mathematicians was launched under the name of Dover Phoenix Editions.

 

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, since 2001, over the Internet at www.doverpublications.com.  Dover mails its proprietary catalogs to over 500,000 consumers.  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 800 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.

 

The U.S. publishing market is comprised of over 80,000 publishers.  Many of these publishers are very small, but a few are much larger than Dover and REA 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 editorial quality study guides and test preparation books and software products in almost every academic area including many specialized areas such as teacher certification, adult education, and professional licensing.

 

3



 

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 and REA purchase a significant portion of their books from Courier’s book manufacturing operations.  Paper prices increased slightly in both 2005 and 2004 after a slight decrease in 2003.

 

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 are anticipated in 2006.  The Company does not believe that its compliance with applicable environmental laws and regulations will have a material impact on the Company’s earnings or competitive position.

 

EMPLOYEES

 

The Company employed 1,479 persons at September 24, 2005 compared to 1,465 a year ago.

 

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 World Wide Web in connection with each of its business segments.  Substantially all of Dover’s and REA’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.

 

The Company makes available free of charge (as soon as reasonably practicable after they are filed or furnished to the SEC) 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 Robert P. Story, Jr., Senior Vice President and Chief Financial Officer, Courier Corporation, 15 Wellman Avenue, North Chelmsford, MA 01863.

 

4



 

Item 2.  Properties.

 

REAL PROPERTIES

 

The following schedule lists the facilities owned or leased by Courier at September 24, 2005. Courier considers its plants and other facilities to be well maintained and suitable for the purposes intended.

 

 

 

Owned/

 

 

 

Principal Activity and Location (Year Constructed)

 

Leased

 

Sq. Ft.

 

Corporate headquarters and executive offices

 

 

 

 

 

North Chelmsford, MA (1973, 1996)

 

Owned

 

69,000

(1)

Book manufacturing and warehousing

 

 

 

 

 

Westford plant, Westford, MA (1900, 1968, 1969, 1981, 1990)

 

Owned

 

393,000

(2)

Kendallville plant, Kendallville, IN (1978, 2004)

 

Owned

 

205,000

 

National plant, Philadelphia, PA (1975, 1997)

 

Owned

 

229,000

 

Stoughton plant, Stoughton, MA (1980)

 

Leased

 

169,000

 

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

 

Leased

 

75,000

 

Dover offices and warehouses

 

 

 

 

 

Mineola, New York (1948-1981)

 

Leased

 

106,000

 

New Hyde Park, NY (1949-1969)

 

Leased

 

78,000

 

REA offices and warehouse

 

 

 

 

 

Piscataway, New Jersey (1990)

 

Leased

 

39,000

 

 


(1)                                  Also houses warehousing and end-user fulfillment operations supporting the book manufacturing segment.

(2)                                  In May 2004, the Company completed the sale of approximately 200,000 square feet of unoccupied and underutilized portions of its multi-building manufacturing complex in Westford, MA for $1.7 million.  The Company will continue its current levels of book manufacturing at the site.  Additional information is contained in Note K on page F-20 of this Annual Report on Form 10-K.

 

EQUIPMENT

 

The Company’s products are manufactured on equipment that in most cases is owned by the Company, although it leases computers, image setters and other electronic prepress equipment which are subject to more rapid obsolescence.  In addition, one printing press is leased whereby the lessor holds title and the Company has an option to purchase the equipment upon expiration of the lease in 2008 at a price of $161,658.  Capital expenditures amounted to approximately $19.7 million in 2005, $13.4 million in 2004, and $10.9 million in 2003. Capital expenditures in 2005 included approximately $11 million for deposits on another four-color press and related equipment, installed in December 2005 at the Kendallville, Indiana facility.  Capital expenditures also included investments of approximately $3.5 million in the specialty publishing segment for an integrated software solution, as well as a program to relocate and improve warehousing operations. Fiscal 2006 capital expenditures are expected to increase to approximately $30 million, including payments on another four-color press, which will further expand the Company’s capacity to produce four-color textbooks.  This latest press is expected to be installed in early fiscal 2007 and is identical to the presses installed in April 2004 and December 2005.  The fiscal 2006 capital projections also include bindery and warehouse expansion to support the additional four-color press capacity.  Courier considers its equipment to be in good operating condition and adequate for its present needs.

 

5



 

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-11 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-12 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 24, 2005.

 

6



 

PART II

 

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

 

The information required by this Item is contained in the section captioned “Selected Quarterly Financial Data (Unaudited)” which appears on page F-22 of this Annual Report on Form 10-K.

 

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-21 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-23 through F-30 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 Notes A and M of Notes to Consolidated Financial Statements, which appear on pages F-7 through F-9 and F-20 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.  There were no borrowings under this facility at any time during 2005.

 

Item 8.  Financial Statements and Supplementary Data.

 

The information required by this Item is contained on pages F-1 through F-20 of this Annual Report on Form 10-K.

 

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

 

None.

 

Item 9A.  Controls and Procedures

 

(a)                                  Disclosure Controls and Procedures

 

The Company maintains a system of disclosure controls and procedures that are designed to provide reasonable assurance that information, which is required to be timely disclosed, is accumulated and communicated to the Company’s management in a timely fashion.  An evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Act of 1934, as amended (the “Exchange Act”)) (“Disclosure Controls”) was performed as of the end of the period covered by this report.  This evaluation was performed under the supervision and with the participation of the Company’s

 

7



 

management, including the Company’s Chief Executive Officer and Chief Financial Officer.  Based upon that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that these Disclosure Controls are effective to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure and are effective to provide reasonable assurance that such information is recorded , processed, summarized and reported within the time periods specified by the SEC’s rules and forms.  The Company continually reviews its disclosure controls and procedures, and its internal controls over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that its systems evolve with its business. In designing and evaluating the disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, and management necessarily was required to apply its judgment in designing and evaluating the controls and procedures.

 

(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 2005 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, 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 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 has 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 24, 2005.  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 24, 2005.  These certifications are attached as exhibits to this Annual Report on Form 10-K for the year ended September 24, 2005.

 

8



 

(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 24, 2005.  In making its assessment, 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 24, 2005.  Management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of September 24, 2005 has been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their report dated November 30, 2005, which appears below in this Annual Report on Form 10-K.

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

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

 

We have audited management’s assessment, included in the accompanying Management’s Report on Internal Control Over Financial Reporting, that Courier Corporation and subsidiaries (the “Company”) maintained effective internal control over financial reporting as of September 24, 2005, 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.  Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of 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, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances.  We believe that our audit provides a reasonable basis for our opinions.

 

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

 

9



 

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

 

In our opinion, management’s assessment that the Company maintained effective internal control over financial reporting as of September 24, 2005, is fairly stated, in all material respects, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 24, 2005, 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 as of and for the year ended September 24, 2005 of the Company and our report dated November 30, 2005 expressed an unqualified opinion on those financial statements.

 

/s/ DELOITTE & TOUCHE LLP

 

 

Boston, Massachusetts

November 30, 2005

 

Item 9B.  Other Information

 

The following table sets forth information concerning the granting on September 22, 2005 of restricted stock awards and stock options under the Courier Corporation 1993 Stock Incentive Plan to each of the Executive Officers.

 

 

 

Number of Shares Underlying

 

Name

 

Options
Granted

 

Restricted
Stock Awards

 

 

 

 

 

 

 

J. F. Conway, III

 

5,627

 

1,679

 

R. P. Story, Jr.

 

4,901

 

1,462

 

G. Q. Nichols

 

 

 

P. D. Tobin

 

1,670

 

498

 

P. M. Folger

 

1,089

 

325

 

E. J. Zimmerman

 

2,033

 

607

 

 

10



 

PART III

 

Item 10.  Directors and Executive Officers of the Registrant.

 

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

 

53

 

Chairman, President and Chief Executive Officer

 

 

 

 

 

George Q. Nichols

 

76

 

Corporate Senior Vice President and Chairman of National Publishing Company

 

 

 

 

 

Robert P. Story, Jr.

 

54

 

Senior Vice President and Chief Financial Officer

 

 

 

 

 

Peter M. Folger

 

52

 

Vice President and Controller

 

 

 

 

 

Peter D. Tobin

 

50

 

Corporate Vice President and Executive Vice President of Courier Companies and National Publishing Company

 

 

 

 

 

Eric J. Zimmerman

 

40

 

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. Nichols became an executive officer of Courier in June 1989.  He was elected a Director of the Company in March 1995 and became Senior Vice President of the Company in November 1996.  He became Chairman of National Publishing Company in December 1999.  He had previously been President of National Publishing Company since 1976.

 

Mr. Story became Senior Vice President and Chief Financial Officer in 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 has been Controller since 1982 and became Vice President in November 1992.

 

Mr. Tobin became Vice President of Courier Corporation and Executive Vice President of Courier Companies in October 2000, and Executive Vice President of National Publishing Company in March 2002.  He joined Courier Companies as National Sales Manager in 1994 and became Vice

 

11



 

President of Sales and Marketing in 1997.

 

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.

 

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” 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 18, 2006.  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 “Executive Compensation,” to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006.  Such information is incorporated herein by reference.

 

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

 

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 “Executive Compensation,” to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006.  Such information is incorporated herein by reference.

 

Item 13.  Certain Relationships and Related Transactions.

 

Information called for by Item 13 is contained in the definitive Proxy Statement to be delivered to stockholders in connection with the Annual Meeting of Stockholders scheduled to be held on Wednesday, January 18, 2006.  Such information is incorporated herein by reference.

 

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 18, 2006.  Such information is incorporated herein by reference.

 

12



 

PART IV

 

Item 15.  Exhibits and Financial Statement Schedules.

 

 

(a)

Documents filed as part of this report

 

 

 

 

 

 

 

1.

Financial statements

 

 

 

 

 

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

 

Consolidated Statements of Income for each of the three years in the period ended September 24, 2005

 

 

 

Consolidated Balance Sheets as of September 24, 2005 and September 25, 2004

 

 

 

Consolidated Statements of Cash Flows for each of the three years in the period ended September 24, 2005

 

 

 

Consolidated Statements of Changes in Stockholders’ Equity for each of the three years in the period ended September 24, 2005

 

 

 

Notes to Consolidated Financial Statements

 

 

 

 

 

 

 

2.

Financial statement schedule

 

 

 

 

 

 

 

 

 

Schedule II - Consolidated Valuation and Qualifying Accounts

 

 

 

 

 

 

 

3.

Exhibits

 

 

Exhibit No.

 

Description of Exhibit

 

 

 

3A-1

 

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

 

 

 

3A-2

 

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

 

 

 

3A-3

 

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

 

 

 

3A-4

 

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

 

 

 

3A-5

 

Articles of Amendment of Courier Corporation (increasing number of shares of authorized Common Stock), as of January 16, 1986 (described in item #2 of the

 

13



 

 

 

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

 

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).

 

 

 

10.1+*

 

Amendment, effective March 1, 2005, to the Courier Corporation 1999 Employee Stock Purchase Plan.

 

 

 

10A-1+

 

Courier Corporation Stock Grant Plan (filed as Exhibit C to the Company’s Proxy Statement for the Annual Meeting of Stockholders held on January 20, 1977, and incorporated herein by reference).

 

 

 

10A-2+

 

Amendment, effective January 19, 1989, to the Courier Corporation Stock Grant Plan (described in Item 4 of the Company’s Proxy Statement for the Annual Meeting of Stockholders held January 19, 1989, and incorporated herein by reference).

 

 

 

10B+

 

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).

 

 

 

10C-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).

 

14



 

10C-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).

 

 

 

10C-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).

 

 

 

10C-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).

 

 

 

10D-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).

 

 

 

10D-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).

 

 

 

10D-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).

 

 

 

10E-1+

 

The Courier Executive Compensation Program, as amended and restated on December 2, 2004 (filed as Exhibit 10 to the Company’s Current Report on Form 8-K dated December 2, 2004, and incorporated herein by reference).

 

 

 

10E-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).

 

 

 

10F+

 

Courier Corporation Senior Executive Severance Program and Agreements, dated October 25, 1988 pursuant to the program with Messrs. Conway III, Nichols, Story, and Folger (filed as Exhibit 10P to the Company’s Annual Report on Form 10-K for the fiscal year ended September 24, 1988, and incorporated herein by reference).

 

 

 

10G-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).

 

 

 

10G-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).

 

15



 

10H+

 

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).

 

 

 

10I-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).

 

 

 

10I-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).

 

 

 

10I-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).

 

 

 

10J-1

 

Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003, between Courier Corporation, Fleet National Bank, KeyBank National Association, Citizens Bank of Massachusetts and Sovereign Bank, providing for a $60 million revolving credit facility (filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended June 28, 2003, and incorporated herein by reference).

 

 

 

10J-2

 

Amendment, dated March 31, 2004, to Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003, between Courier Corporation, Fleet National Bank, KeyBank National Association, Citizens Bank of Massachusetts and Sovereign Bank, providing for a $60 million revolving credit facility (filed as Exhibit 10 to the Company’s Quarterly Report on Form 10-Q for the period ended March 27, 2004, and incorporated herein by reference).

 

 

 

10J-3

 

Amendment, dated April 29, 2005, to Amended and Restated Revolving Credit Agreement, dated as of March 31, 2003, between Courier Corporation, KeyBank National Association, Citizens Bank of Massachusetts and Sovereign Bank, providing for a $45 million revolving credit facility (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the period ended March 26, 2005, and incorporated herein by reference).

 

 

 

10K-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).

 

 

 

10K-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).

 

 

 

10K-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).

 

16



 

10K-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).

 

 

 

10K-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).

 

 

 

10K-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).

 

 

 

10K-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).

 

 

 

10K-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).

 

 

 

10K-9+

 

Non-Qualified Stock Option Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. D. Tobin dated September 23, 2004 (filed as Exhibit 10.8 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10K-10+

 

Stock Grant Agreement for the Courier Corporation 1993 Stock Incentive Plan for P. D. Tobin dated September 23, 2004 (filed as Exhibit 10.9 to the Company’s Annual Report on Form 10-K for the fiscal year ended September 25, 2004, and incorporated herein by reference).

 

 

 

10K-11+

 

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).

 

 

 

10K-12+

 

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).

 

 

 

10K-13+

 

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).

 

17



 

10K-14+

 

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).

 

 

 

10K-15+

 

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).

 

 

 

10L-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).

 

 

 

10L-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).

 

 

 

10L-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).

 

 

 

10M

 

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).

 

 

 

10N+

 

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).

 

 

 

10O

 

Master Lease Finance Agreement, dated as of September 23, 1998 between Courier Corporation and General Electric Capital Corporation (filed as Exhibit 10R to the Company’s Annual Report on Form 10-K for the fiscal year ended September 26, 1998, and incorporated herein by reference).

 

 

 

10P

 

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).

 

 

 

10Q

 

Master Lease Finance Agreement, dated as of September 25, 2000 between Courier Corporation and Eastern Bank (filed as Exhibit 10T to the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2000, and incorporated herein by reference).

 

18



 

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.

 

19



 

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 30, 2005.

 

 

COURIER CORPORATION

 

 

 

 

By:

s/James F. Conway III

 

 

 

James F. Conway III

 

 

Chairman, President and Chief Executive Officer

 

 

 

 

By:

s/Robert P. Story, Jr.

 

 

 

Robert P. Story, Jr.

 

 

Senior Vice President and Chief Financial Officer

 

 

 

 

By:

s/Peter M. Folger

 

 

 

Peter M. Folger

 

 

Vice President and Chief Accounting Officer

 

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 30, 2005.

 

s/James F. Conway III

 

s/George Q. Nichols

 

James F. Conway III

George Q. Nichols

Chairman, President and

Director

Chief Executive Officer

 

 

 

s/Kathleen Foley Curley

 

s/Ronald L. Skates

 

Kathleen Foley Curley

Ronald L. Skates

Director

Director

 

 

s/Richard K. Donahue

 

s/Robert P. Story, Jr.

 

Richard K. Donahue

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

 

 

20



 

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 24, 2005 and September 25, 2004, and the related consolidated statements of income, stockholders’ equity, and cash flows for each of the three years in the period ended September 24, 2005.  Our audits also included the financial statement schedule in 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 24, 2005 and September 25, 2004, and the results of their operations and their cash flows for each of the three years in the period ended September 24, 2005, 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, present 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 effectiveness of the Company’s internal control over financial reporting as of September 24, 2005, 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 30, 2005 expressed an unqualified opinion on management’s assessment of the effectiveness of the Company’s internal control over financial reporting and an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

 

DELOITTE & TOUCHE LLP

Boston, Massachusetts

November 30, 2005

 

F-1



 

COURIER CORPORATION

CONSOLIDATED STATEMENTS OF INCOME

 

 

 

For the Years Ended

 

 

 

September 24, 2005

 

September 25, 2004

 

September 27, 2003

 

 

 

 

 

 

 

 

 

Net sales (Note A)

 

$

227,039,000

 

$

211,179,000

 

$

202,002,000

 

Cost of sales

 

151,853,000

 

142,609,000

 

134,630,000

 

 

 

 

 

 

 

 

 

Gross profit

 

75,186,000

 

68,570,000

 

67,372,000

 

 

 

 

 

 

 

 

 

Selling and administrative expenses

 

41,338,000

 

37,292,000

 

37,794,000

 

Interest (income) expense, net

 

(388,000

)

(23,000

)

52,000

 

Other income (Note K)

 

 

250,000

 

 

 

 

 

 

 

 

 

 

Pretax income

 

34,236,000

 

31,551,000

 

29,526,000

 

 

 

 

 

 

 

 

 

Provision for income taxes (Note C)

 

12,102,000

 

11,011,000

 

10,254,000

 

 

 

 

 

 

 

 

 

Income from continuing operations

 

$

22,134,000

 

$

20,540,000

 

$

19,272,000

 

 

 

 

 

 

 

 

 

Discontinued operations:

 

 

 

 

 

 

 

Loss from operations, net of tax

 

 

 

(65,000

)

Gain on disposal, net of tax

 

 

 

913,000

 

 

 

 

 

 

 

 

 

Net income

 

$

22,134,000

 

$

20,540,000

 

$

20,120,000

 

 

 

 

 

 

 

 

 

Income per basic share (Notes A and L):

 

 

 

 

 

 

 

Continuing operations

 

$

1.82

 

$

1.72

 

$

1.64

 

Discontinued operations (Note I):

 

 

 

 

 

 

 

Loss from operations

 

 

 

(0.01

)

Gain on disposal

 

 

 

0.08

 

Net income per basic share

 

$

1.82

 

$

1.72

 

$

1.71

 

 

 

 

 

 

 

 

 

Income per diluted share (Notes A and L):

 

 

 

 

 

 

 

Continuing operations

 

$

1.77

 

$

1.67

 

$

1.58

 

Discontinued operations (Note I):

 

 

 

 

 

 

 

Loss from operations

 

 

 

(0.01

)

Gain on disposal

 

 

 

0.08

 

Net income per diluted share

 

$

1.77

 

$

1.67

 

$

1.65

 

 

 

 

 

 

 

 

 

Cash dividends declared per share

 

$

0.33

 

$

0.23

 

$

0.20

 

 

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

 

F-2



 

COURIER CORPORATION

CONSOLIDATED BALANCE SHEETS

 

 

 

September 24, 2005

 

September 25, 2004

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

Cash and cash equivalents (Note A)

 

$

34,038,000

 

$

23,965,000

 

Accounts receivable, less allowance for uncollectible accounts of $1,139,000 in 2005 and $1,630,000 in 2004 (Note A)

 

34,207,000

 

34,072,000

 

Inventories (Note B)

 

25,451,000

 

25,108,000

 

Deferred income taxes (Note C)

 

2,945,000

 

2,852,000

 

Other current assets

 

962,000

 

840,000

 

 

 

 

 

 

 

Total current assets

 

97,603,000

 

86,837,000

 

 

 

 

 

 

 

Property, plant and equipment (Note A):

 

 

 

 

 

Land

 

1,059,000

 

1,059,000

 

Buildings and improvements

 

26,877,000

 

25,781,000

 

Machinery and equipment

 

134,222,000

 

128,484,000

 

Furniture and fixtures

 

1,850,000

 

1,468,000

 

Construction in progress

 

13,392,000

 

1,073,000

 

 

 

 

 

 

 

 

 

177,400,000

 

157,865,000

 

 

 

 

 

 

 

Less-Accumulated depreciation and amortization

 

(118,285,000

)

(109,383,000

)

 

 

 

 

 

 

Property, plant and equipment, net

 

59,115,000

 

48,482,000

 

 

 

 

 

 

 

Goodwill (Notes A, H and J)

 

33,255,000

 

33,255,000

 

Prepublication costs (Note A)

 

5,399,000

 

5,127,000

 

Other assets

 

1,593,000

 

1,498,000

 

 

 

 

 

 

 

Total assets

 

$

196,965,000

 

$

175,199,000

 

 

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

 

F-3



 

 

 

September 24, 2005

 

September 25, 2004

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

Current maturities of long-term debt (Note D)

 

$

85,000

 

$

83,000

 

Accounts payable (Note A)

 

10,534,000

 

10,059,000

 

Accrued payroll

 

7,799,000

 

6,470,000

 

Accrued taxes

 

5,770,000

 

5,735,000

 

Other current liabilities

 

6,474,000

 

7,194,000

 

 

 

 

 

 

 

Total current liabilities

 

30,662,000

 

29,541,000

 

 

 

 

 

 

 

Long-term debt (Notes A and D)

 

425,000

 

510,000

 

Deferred income taxes (Note C)

 

6,924,000

 

7,528,000

 

Other liabilities

 

3,020,000

 

2,630,000

 

 

 

 

 

 

 

Total liabilities

 

41,031,000

 

40,209,000

 

 

 

 

 

 

 

Commitments and contingencies (Note E)

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ equity (Notes A and F):

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

Common stock, $1 par value - authorized 18,000,000 shares; issued 12,313,000 shares in 2005 and 8,031,000 in 2004

 

12,313,000

 

8,031,000

 

Additional paid-in capital

 

1,453,000

 

869,000

 

Retained earnings

 

142,745,000

 

126,573,000

 

Unearned compensation

 

(577,000

)

(483,000

)

 

 

 

 

 

 

Total stockholders’ equity

 

155,934,000

 

134,990,000

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

196,965,000

 

$

175,199,000

 

 

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

 

F-4



 

COURIER CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

For the Years Ended

 

 

 

September 24, 2005

 

September 25, 2004

 

September 27, 2003

 

 

 

 

 

 

 

 

 

Operating Activities:

 

 

 

 

 

 

 

Net income

 

$

22,134,000

 

$

20,540,000

 

$

20,120,000

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

11,660,000

 

10,929,000

 

9,798,000

 

Deferred income taxes (Note C)

 

(697,000

)

2,293,000

 

938,000

 

Gain on sale of assets (Notes I and K)

 

 

(163,000

)

(913,000

)

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

(135,000

)

(3,843,000

)

1,718,000

 

Inventory

 

(343,000

)

(2,459,000

)

731,000

 

Accounts payable

 

475,000

 

2,775,000

 

(214,000

)

Accrued taxes

 

35,000

 

(786,000

)

(444,000

)

Other elements of working capital

 

486,000

 

(245,000

)

(492,000

)

Tax benefits of stock option activity

 

1,064,000

 

562,000

 

470,000

 

Other long-term, net

 

321,000

 

(1,271,000

)

(575,000

)

 

 

 

 

 

 

 

 

Cash provided from operating activities

 

35,000,000

 

28,332,000

 

31,137,000

 

 

 

 

 

 

 

 

 

Investment Activities:

 

 

 

 

 

 

 

Capital expenditures

 

(19,683,000

)

(13,416,000

)

(10,885,000

)

Business acquisition (Note H)

 

 

(11,850,000

)

 

Prepublication costs (Note A)

 

(2,867,000

)

(2,818,000

)

(2,232,000

)

Proceeds from sale of assets (Notes I and K)

 

 

1,664,000

 

1,500,000

 

 

 

 

 

 

 

 

 

Cash used for investment activities

 

(22,550,000

)

(26,420,000

)

(11,617,000

)

 

 

 

 

 

 

 

 

Financing Activities:

 

 

 

 

 

 

 

Long-term debt repayments

 

(83,000

)

(81,000

)

(78,000

)

Cash dividends

 

(4,066,000

)

(2,794,000

)

(2,354,000

)

Proceeds from stock plans

 

1,772,000

 

1,104,000

 

1,106,000

 

 

 

 

 

 

 

 

 

Cash used for financing activities

 

(2,377,000

)

(1,771,000

)

(1,326,000

)

 

 

 

 

 

 

 

 

Increase in cash and cash equivalents

 

10,073,000

 

141,000

 

18,194,000

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the beginning of the period

 

23,965,000

 

23,824,000

 

5,630,000

 

 

 

 

 

 

 

 

 

Cash and cash equivalents at the end of the period

 

$

34,038,000

 

$

23,965,000

 

$

23,824,000

 

 

 

 

 

 

 

 

 

Supplemental cash flow information:

 

 

 

 

 

 

 

Interest paid

 

$

219,000

 

$

249,000

 

$

245,000

 

Income taxes paid (net of receipts)

 

$

11,707,000

 

$

8,935,000

 

$

9,697,000

 

 

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

 

F-5



 

COURIER CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

 

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’

 

Common

 

Additional

 

Retained

 

Unearned

 

Treasury

 

 

 

Equity

 

Stock

 

Paid-In Capital

 

Earnings

 

Compensation

 

Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 28, 2002

 

$

95,919,000

 

$

5,445,000

 

$

2,246,000

 

$

91,061,000

 

$

(509,000

)

$

(2,324,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

20,120,000

 

 

 

20,120,000

 

 

 

Cash dividends

 

(2,354,000

)

 

 

(2,354,000

)

 

 

Stock dividend (Note A)

 

 

2,643,000

 

(2,643,000

)

 

 

 

Restricted stock grant/amortization activity, net (Note F)

 

159,000

 

 

 

 

159,000

 

 

Other stock plan activity

 

1,576,000

 

 

1,047,000

 

 

 

529,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 27, 2003

 

115,420,000

 

8,088,000

 

650,000

 

108,827,000

 

(350,000

)

(1,795,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

20,540,000

 

 

 

20,540,000

 

 

 

Cash dividends

 

(2,794,000

)

 

 

(2,794,000

)

 

 

Restricted stock grant/amortization activity, net (Note F)

 

160,000

 

 

200,000

 

 

(133,000

)

93,000

 

Other stock plan activity

 

1,664,000

 

 

772,000

 

 

 

892,000

 

Retire treasury stock (Note A)

 

 

(57,000

)

(753,000

)

 

 

810,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 25, 2004

 

134,990,000

 

8,031,000

 

869,000

 

126,573,000

 

(483,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

22,134,000

 

 

 

 

 

22,134,000

 

 

 

 

 

Cash dividends

 

(4,066,000

)

 

 

 

 

(4,066,000

)

 

 

 

 

Stock dividend (Note A)

 

 

4,061,000

 

(2,165,000

)

(1,896,000

)

 

 

 

 

Restricted stock grant/amortization activity, net (Note F)

 

214,000

 

8,000

 

300,000

 

 

 

(94,000

)

 

 

Other stock plan activity

 

2,662,000

 

213,000

 

2,449,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance, September 24, 2005

 

$

155,934,000

 

$

12,313,000

 

$

1,453,000

 

$

142,745,000

 

$

(577,000

)

$

 

 

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

 

F-6



 

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 January 6, 2004, Courier purchased substantially all of the assets of Research & Education Association, Inc. (“REA”) which is included in the specialty publishing segment (see Note H).  On December 17, 2002, the Company sold the assets of Courier Custom Publishing, Inc., which comprised all of the activities of the customized education segment (see Note I).

 

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 significant 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”), which require the use of certain estimates and assumptions.

 

Financial Instruments: Financial instruments consist primarily of cash, accounts receivable, accounts payable and debt obligations.  The Company classifies as cash and cash equivalents amounts on deposit in banks and cash invested temporarily in various instruments with maturities of three months or less at time of purchase.  At September 24, 2005 and September 25, 2004, the fair market value of the Company’s financial instruments approximated their carrying values.

 

Interest income from these instruments was $666,000 in 2005, $230,000 in 2004, and $200,000 in 2003 and is included in the caption “Interest (income) expense, net” in the accompanying Consolidated Statements of Income.

 

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 in 2004 was $74,000.   No interest was capitalized in 2005 and 2003.  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.

 

Goodwill: The Company evaluates possible impairment annually or whenever events or circumstances indicate that the carrying value of the assets may not be recoverable. Goodwill has been allocated $9.2 million and $24.0 million, net of accumulated amortization of $2.1 million and $0.9 million, to the book manufacturing and specialty publishing segments, respectively.  There has been no change in the carrying amount of goodwill during the year or in the allocation of goodwill by reportable segment.

 

F-7



 

Long-Lived Assets: Management periodically reviews long-lived assets for impairment and does not believe that there is any material impairment of any asset of the Company as measured in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”

 

Prepublication Costs: Prepublication costs, associated with the specialty publishing segment, are amortized to cost of sales using the straight-line method over estimated useful lives of three years for REA and four years for Dover Publications.

 

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.

 

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 of assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting period.  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 (see Note L).

 

Treasury Stock: Pursuant to a 2004 change in state law, the Company’s treasury stock was reclassified to the status of authorized but unissued shares.  The Company had historically used treasury stock for stock options exercised and stock grants.

 

Stock Splits: On May 27, 2005 and December 5, 2003, the Company distributed three-for-two stock splits, effected in the form of 50% stock dividends.  Previously authorized but unissued shares were used to effect these dividends.  Weighted average shares outstanding and per share amounts presented in the accompanying financial statements for periods prior to the stock splits have been restated to give effect to these stock splits.

 

Stock-Based Compensation: Pursuant to SFAS No. 123, “Accounting for Stock-Based Compensation,” as amended by SFAS No. 148, the Company applies the recognition and measurement principles of APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related interpretations.  Accordingly, because the number of shares is fixed and the exercise price of the stock options granted equals the market price of the underlying stock on the date of grant, no compensation expense has been recognized. Had compensation cost for stock options and for grants under the Employee Stock Purchase Plan been determined under the fair value provisions of

 

F-8



 

SFAS No. 123, the Company’s net income would have been as follows:

 

 

 

2005

 

2004

 

2003

 

Net income as reported

 

$

22,134,000

 

$

20,540,000

 

$

20,120,000

 

Deduct: Stock-based compensation expense determined under SFAS No. 123, net of related tax effects

 

(1,266,000

)

(1,306,000

)

(965,000

)

Pro forma net income

 

$

20,868,000

 

$

19,234,000

 

$

19,155,000

 

 

 

 

 

 

 

 

 

Net income per share as reported:

 

 

 

 

 

 

 

Basic

 

$

1.82

 

$

1.72

 

$

1.71

 

Diluted

 

1.77

 

1.67

 

1.65

 

 

 

 

 

 

 

 

 

Pro forma net income per share:

 

 

 

 

 

 

 

Basic

 

$

1.72

 

$

1.61

 

$

1.63

 

Diluted

 

1.67

 

1.56

 

1.57

 

 

For purposes of pro forma disclosures, the fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model (see Note F).

 

New Accounting Pronouncements: In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123R, “Share-Based Payment” (“SFAS 123R”).  Under this new standard, companies will no longer be able to account for share-based compensation transactions using the intrinsic method in accordance with APB 25. Instead, companies will be required to account for such transactions using a fair-value method and to recognize the expense over the service period.  SFAS 123R allows for several alternative transition methods. On April 14, 2005, the Securities and Exchange Commission announced the adoption of a rule that defers the required effective date of SFAS 123R for registrants to the beginning of the first fiscal year beginning after June 15, 2005.  Accordingly the Company will implement this new standard in the first quarter of its fiscal year 2006 and will restate all prior periods on a retrospective basis.  The Company believes that the pro forma disclosures in this Note A under Stock-Based Compensation appropriately reflect the anticipated impact this standard would have had on reported net income if adopted in the periods presented and will provide the basis for the retrospective restatement of such periods.

 

In November 2004, the FASB issued SFAS No. 151, “Inventory Costs” (“SFAS 151”), an amendment of ARB No. 43, Chapter 4.  SFAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material.  SFAS 151 is effective for inventory costs incurred during fiscal years beginning after June 15, 2005.  The Company does not believe the adoption of SFAS 151 will have a material effect on its consolidated financial position, results of operations or cash flows.

 

F-9



 

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 41% and 37% of the Company’s inventories at September 24, 2005 and September 25, 2004, 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 24, 2005 and September 25, 2004:

 

 

 

2005

 

2004

 

 

 

 

 

 

 

Raw materials

 

$

2,319,000

 

$

3,338,000

 

Work in process

 

6,276,000

 

5,317,000

 

Finished goods

 

16,856,000

 

16,453,000

 

Total

 

$

25,451,000

 

$

25,108,000

 

 

On a FIFO basis, reported year-end inventories would have been higher by $5.4 million in fiscal 2005 and $5.5 million in fiscal 2004.

 

C.  Income Taxes

 

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

 

 

 

2005

 

2004

 

2003

 

 

 

 

 

 

 

 

 

Federal taxes at statutory rate

 

$

11,983,000

 

$

11,043,000

 

$

10,334,000

 

State taxes, net of federal tax benefit

 

947,000

 

837,000

 

701,000

 

Tax benefit of export related income

 

(805,000

)

(882,000

)

(823,000

)

Other

 

(23,000

)

13,000

 

42,000

 

Total

 

$

12,102,000

 

$

11,011,000

 

$

10,254,000

 

 

The provision for income taxes from continuing operations consisted of the following:

 

 

 

2005

 

2004

 

2003

 

Currently payable:

 

 

 

 

 

 

 

Federal

 

$

11,457,000

 

$

7,503,000

 

$

8,238,000

 

State

 

1,342,000

 

1,215,000

 

1,078,000

 

 

 

12,799,000

 

8,718,000

 

9,316,000

 

Deferred:

 

 

 

 

 

 

 

Federal

 

(812,000

)

2,220,000

 

870,000

 

State

 

115,000

 

73,000

 

68,000

 

 

 

(697,000

)

2,293,000

 

938,000

 

Total

 

$

12,102,000

 

$

11,011,000

 

$

10,254,000

 

 

F-10



 

The following is a summary of the significant components of the Company’s deferred tax assets and liabilities as of September 24, 2005 and September 25, 2004:

 

 

 

2005

 

2004

 

Deferred tax assets:

 

 

 

 

 

Vacation accrual not currently deductible

 

$

732,000

 

$

719,000

 

Other accruals not currently deductible

 

516,000

 

689,000

 

Non-deductible reserves

 

1,110,000

 

1,387,000

 

Other

 

587,000

 

57,000

 

Classified as current

 

2,945,000

 

2,852,000

 

Deferred compensation arrangements

 

1,123,000

 

1,041,000

 

Tax benefits of stock option activity

 

826,000

 

178,000

 

Other

 

152,000

 

171,000

 

Total deferred tax assets

 

$

5,046,000

 

$

4,242,000

 

 

 

 

 

 

 

Deferred tax liabilities:

 

 

 

 

 

Accelerated depreciation

 

6,595,000

 

7,220,000

 

Goodwill amortization

 

2,430,000

 

1,698,000

 

Total deferred tax liabilities

 

$

9,025,000

 

$

8,918,000

 

 

Non-current deferred tax assets have been netted against non-current deferred tax liabilities for balance sheet classification purposes.

 

D.  Long-Term Debt

 

At September 24, 2005 and September 25, 2004, long-term debt consisted of an obligation under an industrial development bond arrangement totaling $510,000 and $593,000, respectively, including current maturities of $85,000 and $83,000, respectively.  This industrial bond arrangement bears interest at a 3% rate.  Scheduled aggregate principal payments of this obligation are $85,000 in 2006, $88,000 in 2007, $91,000 in 2008, $93,000 in 2009, $96,000 in 2010, and $57,000 thereafter.  The industrial bond arrangement provides for a lien on the assets acquired with the proceeds.

 

The Company has a $45 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%. During 2005, the Company extended the maturity date of this facility to March 2008 and amended certain provisions, including reducing the amount of the facility from $60 million to $45 million to reduce the cost of the commitment fee.  The revolving credit facility is available to the Company for both its long-term and short-term financing needs.

 

The revolving credit facility contains restrictive covenants including provisions relating to the maintenance of working capital, the level of capital expenditures, the incurring of additional indebtedness and a quarterly test of EBITDA to debt service.  It also provides for a commitment fee not to exceed 3/8% per annum on the unused portion.  These fees are included in the caption “Interest (income) expense, net” in the accompanying Consolidated Statements of Income.

 

F-11



 

E.  Commitments and Contingencies

 

The Company is committed under various operating leases to make annual rental payments for certain buildings and equipment. Amounts charged to operations under such leases approximated $3,363,000 in 2005, $3,902,000 in 2004 and $4,103,000 in 2003.  As of September 24, 2005, minimum annual rental commitments under the Company’s long-term operating leases are approximately $2,836,000 in 2006, $2,536,000 in 2007, $1,875,000 in 2008, $1,145,000 in 2009, $1,146,000 in 2010, and $1,998,000 in the aggregate thereafter.  The Company leases one of its facilities from a corporation owned in part by an executive of one of the Company’s subsidiaries.  The lease agreement requires annual payments of approximately $276,000 through July 2007.  At September 24, 2005 and September 25, 2004, the Company had letters of credit outstanding of $1,318,000 and $1,250,000, respectively.

 

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 consolidated financial statements.

 

F.  Stock Arrangements

 

Stock Incentive Plans: The Company’s stock incentive plans provide for the granting of stock options and stock grants up to a total of 2,064,375 shares.  Under the plan provisions, both non-qualified and incentive stock options to purchase shares of the Company’s common stock may be granted to key employees.  The option price per share may not be less than the fair market value of stock at the time the option is granted and incentive stock options must expire not later than ten years from the date of grant.  Additionally, during 2005 and 2004, 8,943 and 10,788 shares of restricted stock, respectively, with values of $319,000 and $293,000, respectively, were granted which vest in three years. No such shares were granted in 2003.  Amortization expense relating to restricted stock grants was $214,000, $160,000 and $159,000 for 2005, 2004 and 2003, respectively.

 

Directors’ Option Plan: In January 2005, stockholders approved the Courier Corporation 2005 Stock Equity Plan for Non-Employee Directors (the “2005 Plan”). Under the plan provisions, non-qualified stock options to purchase shares of the Company’s common stock may be granted to non-employee directors up to a total of 225,000 shares.  The option price per share is the fair market value of stock at the time the option is granted.  The options are immediately exercisable and have a term of five years. During 2005, 36,000 options were granted under the 2005 Plan. The 2005 Plan replaced the previous non-employee directors’ plan which had been adopted in 1989 (the “1989 Plan”). In the first quarter of fiscal 2005, 9,000 options were granted under the 1989 Plan. No further options will be granted under the 1989 Plan.

 

F-12



 

The following is a summary of all option activity for these plans:

 

 

 

Stock Option/Incentive Plans

 

Directors’ Option Plans

 

 

 

Shares

 

Average
Exercise
Price

 

Shares

 

Average
Exercise
Price

 

Outstanding at September 28, 2002

 

660,620

 

$

9.48

 

150,638

 

$

6.33

 

Issued

 

129,993

 

23.47

 

54,000

 

14.47

 

Exercised

 

(105,612

)

5.35

 

(45,000

)

6.82

 

Cancelled

 

(2,624

)

9.11

 

 

 

Outstanding at September 27, 2003

 

682,377

 

$

12.79

 

159,638

 

$

8.94

 

Issued

 

40,949

 

27.30

 

60,750

 

21.03

 

Exercised

 

(93,564

)

6.92

 

(31,100

)

5.83

 

Cancelled

 

(4,500

)

19.57

 

 

 

Outstanding at September 25, 2004

 

625,262

 

$

14.57

 

189,288

 

$

13.33

 

Issued

 

30,131

 

35.61

 

45,000

 

32.47

 

Exercised

 

(222,252

)

9.32

 

(60,112

)

9.39

 

Cancelled

 

(7,104

)

22.38

 

 

 

Outstanding at September 24, 2005

 

426,037

 

$

18.66

 

174,176

 

$

19.64

 

 

 

 

 

 

 

 

 

 

 

Exercisable at September 24, 2005

 

271,700

 

$

15.48

 

174,176

 

$

19.64

 

Available for future grants

 

327,878

 

 

 

184,940

 

 

 

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