Critical Accounting Policies and Estimates:

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

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

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

Goodwill and Other Intangibles Other intangibles include customer lists which are amortized on a straight-line basis over periods ranging from ten to fifteen years. The Company evaluates possible impairment of goodwill and other intangibles at the reporting unit level, or one level below the operating segment, on an annual basis or whenever events or changes in circumstances indicate that the carrying value of the assets may not be recoverable. The Company completed its annual impairment test at September 27, 2008 resulting in no change to the nature or carrying amounts of its intangible assets in the book manufacturing segment. An impairment charge was recorded in the third quarter of fiscal 2008 in the specialty publishing segment related to Creative Homeowner. Changes in market conditions, further declines in operating results or cash flows, or deterioration in the market value of the Company or its peers, could result in an impairment charge in the future. However, the Company continues to monitor the value of its intangible assets closely in each of its segments. Continued disruption in the credit markets may contribute to possible future impairment charges.

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

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

Overview:

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

Results of Operations:



                              FINANCIAL HIGHLIGHTS
                (dollars in thousands except per share amounts)



                                                 Three Months Ended
                                       December 27,     December 29,      %
                                           2008             2007        Change

Net sales                             $       59,647   $       62,863       -5 %
Cost of sales                                 45,219           46,122       -2 %
Gross profit                                  14,428           16,741      -14 %
As a percentage of sales                        24.2 %           26.6 %
Selling and administrative expenses           13,076           14,216       -8 %
Operating income                               1,352            2,525      -46 %
Interest expense, net                            227              295      -23 %
Pretax income                                  1,125            2,230      -50 %
Provision for income taxes                       422              814      -48 %
Net income                            $          703   $        1,416      -50 %

Net income per diluted share          $         0.06   $         0.11      -45 %

Revenues in the first quarter of fiscal 2009 decreased 5% to $59.6 million compared to the same period last year. Book manufacturing segment revenues grew by 2% to $50.9 million due to an increase in sales of four-color textbooks and trade books as well as modest growth in religious sales. In the specialty publishing segment, revenues decreased 25% to $11.5 million in the first quarter of fiscal 2009 compared to the prior year period with sales declines in all three of the Company's publishing businesses, reflecting reduced spending by both retailers and consumers as the United States economy continued to slow.

Net income for the quarter was $0.7 million, down from $1.4 million in the first quarter of fiscal 2008, primarily due to the sales shortfall in the specialty publishing segment.

Book Manufacturing Segment



                               SEGMENT HIGHLIGHTS
                             (dollars in thousands)



                                                 Three Months Ended
                                       December 27,     December 29,      %
                                           2008             2007        Change

Net sales                             $       50,882   $       49,707        2 %
Cost of sales                                 40,270           39,316        2 %
Gross profit                                  10,612           10,391        2 %
As a percentage of sales                        20.9 %           20.9 %
Selling and administrative expenses            7,024            8,013      -12 %
Operating income                      $        3,588   $        2,378       51 %

Within the book manufacturing segment, the Company focuses on three key markets:
education, religious and specialty trade. In the first quarter of fiscal 2009, sales to the education market rose 4% to $17.3 million, primarily from sales of four-color textbooks to colleges and universities. However, sales of elementary and high school books, both four-color textbooks and one- and two-color workbooks, declined due to pressure on state and local school budgets. Sales to the specialty trade market were up 10% to $15.0 million for the first quarter of fiscal 2009 compared to last year due to growth in four-color sales as well as a number of new customers. Sales to the religious market were up 1% to $16.4 million from last year's first quarter, which is in line with long-term historical growth trends.

Growth in four-color sales in this segment was partly offset by a continuing decline in demand for one- and two-color books, resulting in reduced capacity utilization at some the Company's manufacturing plants. In response, faced with the weak economy and the need for cost reductions, the Company announced on January 12, 2009 that it would close Book-mart Press, Inc. ("Book-mart"), a business dedicated to short-run, one-color production. Book-mart had 72 employees and sales of approximately $7 million annually. The Company estimates that over the next two fiscal quarters, severance costs and other expenses related to the closing and to consolidating the operations into other existing book manufacturing facilities will total approximately $2 million.

Cost of sales in the book manufacturing segment increased by 2% to $40.3 million for the quarter compared to the same period last year. Gross profit in this segment also increased by 2% to $10.6 million for the quarter, and as a percentage of sales, was 20.9%, the same as last year's first quarter. The sales growth and improved capacity utilization were offset in part by increased depreciation expense as well as continued industry-wide competitive pricing pressures.

Selling and administrative expenses for the segment decreased 12% in the first quarter to $7.0 million and, as a percentage of sales, decreased to 13.8% from 16.1% last year. This decrease resulted from reductions in staffing and other cost saving initiatives along with reduced variable compensation.

First quarter operating income in this segment increased 51% to $3.6 million, compared to the same period last year, reflecting the growth in sales and results of cost saving initiatives.

Specialty Publishing Segment



                               SEGMENT HIGHLIGHTS
                             (dollars in thousands)



                                                 Three Months Ended
                                       December 27,     December 29,      %
                                           2008             2007        Change

Net sales                             $       11,503   $       15,256      -25 %
Cost of sales                                  7,761            9,009      -14 %
Gross profit                                   3,742            6,247      -40 %
As a percentage of sales                        32.5 %           40.9 %
Selling and administrative expenses            5,669            5,762       -2 %
Operating income (loss)               $       (1,927 ) $          485

The Company's specialty publishing segment reported first quarter sales of $11.5 million, down 25% from last year's first quarter, primarily due to the weak economy and reduced consumer spending. Sales at Creative Homeowner decreased 41% to $3.1 million, reflecting the persistent weakness in the nation's housing sector, which has reduced store traffic and sales in the home center market, its largest channel. In November 2008, the Company announced that Creative Homeowner would cease its book distribution service for one nationwide retailer, which was accomplished at the end of December 2008. This will allow Creative Homeowner to focus on its core publishing business. Dover's sales decreased 13% to $7.1 million compared to the first quarter last year, reflecting a weak holiday season for major book retailers as well as a decrease in direct-to-consumer sales. REA's sales declined 27% in the first quarter to $1.3 million compared to the prior year period, reflecting a softening in the market for test preparation books and study guides and greater competition for retail shelf space.

Cost of sales in the specialty publishing segment decreased 14% to $7.8 million for the first three months of fiscal 2009 due to the lower sales volume compared to the prior year period. Gross profit as a percentage of sales for the segment decreased in the quarter to 32.5% from 40.9% in the corresponding period last year. Despite productivity gains and cost reductions, gross profit percentages for all three publishers in this segment were lower than the first quarter of last year because of the drop in sales, most notably at Creative Homeowner when coupled with the lower margin distribution service. Creative Homeowner's margins are expected to improve beginning in the second quarter of fiscal 2009 after ceasing its distribution service.

Selling and administrative expenses in this segment decreased 2% to $5.7 million in the first quarter compared to the same period last year. Selling and administrative expenses in the first three months of fiscal 2009 include approximately $250,000 in severance pay and other costs related to Creative Homeowner ending its distribution service.

The operating loss for the specialty publishing segment for the first quarter was $1.9 million, compared to operating income of $0.5 million in last year's first quarter. This decline was largely due to the sales shortfall for all three publishing businesses resulting from reduced spending by both retailers and consumers. Creative Homeowner's operating loss in the first quarter was $1.5 million, compared to a loss of $0.3 million in the first three months last year.

Total Consolidated Company

Interest expense, net of interest income, was $227,000 in the first quarter of fiscal 2009, compared to $295,000 of net interest expense in the first three months of last year. Average debt under the revolving credit facility in the first quarter of fiscal 2009 was approximately $25.2 million at an average annual interest rate of 3.1%, generating interest expense of approximately $190,000. Average debt under the revolving credit facility in the first quarter of last year was approximately $18.3 million at an average annual interest rate of 5.5%, generating interest expense of approximately $250,000. Interest expense also includes commitment fees and other costs associated with maintaining the Company's $100 million

revolving credit facility. Interest capitalized in the first three months of fiscal 2008 was approximately $52,000; no interest was capitalized in the first quarter of fiscal 2009.

The Company's effective tax rate for the first quarter of fiscal 2009 was 37.5% compared to 36.5% for the same period last year with the increase primarily due to higher state income taxes.

For purposes of computing net income per diluted share, weighted average shares outstanding decreased by approximately 864,000 shares from last year's first quarter, primarily due to the Company's repurchase of approximately 856,000 shares during fiscal 2008.

Liquidity and Capital Resources:

During the first three months of fiscal 2009, operations provided $3.9 million of cash. Net income was $0.7 million and depreciation and amortization were $5.3 million. Working capital increased by $2.9 million in the quarter, with a decrease in accounts receivable of $10.2 million more than offset by an increase in inventories of $5.3 million and a decrease in accounts payable and accrued taxes of $6.4 million.

Investment activities in the first quarter of fiscal 2009 used $3.6 million of cash. Capital expenditures were $2.5 million. For the entire fiscal year, capital expenditures are expected to be approximately $13 to $16 million, including approximately $4 million for the completion of a 150,000 square foot warehouse to support the expanded capacity at the Kendallville, Indiana facility. Prepublication costs were $1.2 million, comparable to the first three months last year. For the full fiscal year, prepublication costs are projected to be slightly below last year's $5 million.

Financing activities for the first three months of fiscal 2009 used approximately $0.3 million of cash. Cash dividends of $2.5 million were paid and borrowings increased by $2.2 million during the first quarter of fiscal 2009. The Company has a $100 million long-term revolving credit facility in place under which the Company can borrow at a rate not to exceed LIBOR plus 1.5%. At December 27, 2008, the Company had $25.7 million in borrowings under this facility at an interest rate of 1.0%. The revolving credit facility, which matures in 2013, contains restrictive covenants including provisions relating to the maintenance of working capital, the incurrence of additional indebtedness and a quarterly test of EBITDA to debt service. The facility also provides for a commitment fee not to exceed 3/8% per annum on the unused portion. The revolving credit facility is used by the Company for both its long-term and short-term financing needs. The Company believes that its cash on hand, cash from operations and the available credit facility will be sufficient to meet its cash requirements through 2009.

Recent Accounting Pronouncements:

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

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

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

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

Forward-Looking Information:

This Quarterly Report on Form 10-Q includes forward-looking statements. Statements that describe future expectations, plans or strategies are considered "forward-looking statements" as that term is defined under the Private Securities Litigation Reform Act of 1995 and releases issued by the Securities and Exchange Commission. The words "believe," "expect," "anticipate," "intend," "estimate" and other expressions which are predictions of or indicate future events and trends and which do not relate to historical matters identify forward-looking statements. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those currently anticipated. Factors that could affect actual results include, among others, changes in customers' demand for the Company's products, including seasonal changes in customer orders and shifting orders to lower cost regions, changes in market growth rates, changes in raw material costs and availability, pricing actions by competitors and other competitive pressures in the markets in which the Company competes, consolidation among customers and competitors, success in the execution of acquisitions and the performance and integration of acquired businesses including carrying value of intangible assets, restructuring and impairment charges required under generally accepted accounting principles, changes in operating expenses including medical and energy costs, changes in technology including migration from paper-based books to digital, difficulties in the start up of new equipment or information technology systems, changes in copyright laws, changes in consumer product safety regulations, changes in environmental regulations, changes in tax regulations, changes in the Company's effective income tax rate and general changes in economic conditions, including currency fluctuations, changes in interest rates, changes in consumer confidence, changes in the housing market, and tightness in the credit markets. Although the Company believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements will prove to be accurate. The forward-looking statements included herein are made as of the date hereof, and the Company undertakes no obligation to update publicly such statements to reflect subsequent events or circumstances.