U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549









FORM
10-K






(Mark
One)




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




For
the Fiscal Year Ended December 31, 2007




Or




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




For
the Period From
              
to              .




Commission
File Number:  333-110441






THE
SHERIDAN GROUP, INC.


(Exact
name of Registrant as specified in its charter)




Maryland
            52-1659314(State
      or other jurisdiction of incorporation
      or organization)
            (I.R.S.
      employer identification number)







11311
McCormick Road, Suite 260


Hunt
Valley, Maryland  21031-1437


(Address
of principal executive offices and zip code)


(410)
785-7277


(Registrant’s
telephone number, including area code)


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


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






Indicate
by check mark whether the Registrant is a well-known seasoned issuer, as defined
by Rule 405 of the Securities Act. Yes o  No x




Indicate
by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes x  No o




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 periods as the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes o  No x




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 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.  x




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




Check
one:  Large accelerated filer o  Accelerated
filer o   Non-accelerated
filer xSmaller reporting company o




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




None of
the Registrant’s common stock is held by non-affiliates of the
Registrant.




There was
1 share of the Registrant’s Common Stock outstanding as of March 28,
2008.









THE
SHERIDAN GROUP, INC.


ANNUAL
REPORT ON FORM 10-K


FOR
THE YEAR ENDED DECEMBER 31, 2007


INDEX




PagesITEM 1. BUSINESS
            3ITEM 1A. RISK FACTORS
            6ITEM 1B. UNRESOLVED STAFF COMMENTS
            11ITEM 2. PROPERTIES
            11ITEM 3. LEGAL PROCEEDINGS
            12ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
            12ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
            12ITEM 6. SELECTED FINANCIAL DATA
            12ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
            13ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
      MARKET RISK
            23ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
            24ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
            46ITEM 9A. CONTROLS AND PROCEDURES
            46ITEM 9B. OTHER INFORMATION
            47ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
      GOVERNANCE
            47ITEM 11. EXECUTIVE COMPENSATION
            51ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
      MANAGEMENT AND RELATED STOCKHOLDER MATTERS
            62ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
      DIRECTOR INDEPENDENCE
            65ITEM 14. PRINCIPAL ACCOUNTING FEES AND
      SERVICES
            66ITEM 15. EXHIBITS, FINANCIAL STATEMENT
      SCHEDULES
            67






SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS




This
Annual Report on Form 10-K includes “forward-looking statements.”
Forward-looking statements are those that do not relate solely to historical
fact. They include, but are not limited to, any statement that may predict,
forecast, indicate or imply future results, performance, achievements or events.
They may contain words such as “anticipate,” “believe,” “continue,” “could,”
“estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “predict,” “project,”
“should,” “will,” “would” or words or phrases of similar meaning. They may
relate to, among other things:




Index


·
              our liquidity and capital
      resources;




·
            competitive
      pressures and trends in the printing
industry;




·
            prevailing
      interest rates;




·
            legal
      proceedings and regulatory matters;




·
            general
      economic conditions;




·
            statements
      with respect to the Sheridan Acquisition and the Dingley Acquisition
      (each as defined in this Annual Report on Form
  10-K);




·
            predictions
      of net sales, expenses or other financial
items;




·
            future
      operations, financial condition and prospects;
  and




·
            our
      plans, objectives, strategies and expectations for the
    future.




Forward-looking
statements involve risks and uncertainties that may cause actual results to
differ materially from the forward-looking statements, might cause us to modify
our plans or objectives, may affect our ability to pay timely amounts due under
our notes and/or may affect the value of our notes. These risks and
uncertainties may include, but are not limited to, those discussed in Part I,
Item 1A, “Risk Factors.” New risk factors can emerge from time to time. It is
not possible for us to predict all of these risks, nor can we assess the extent
to which any factor, or combination of factors, may cause actual results to
differ from those contained in forward-looking statements. Given these risks and
uncertainties, we urge you to read this Annual Report on Form 10-K completely
with the understanding that actual future results may be materially different
from what we plan or expect. We caution you that any forward-looking statement
reflects only our belief at the time the statement is made. We will not update
these forward-looking statements even if our situation changes in the
future.




PART
I




ITEM 1.
            BUSINESS




Overview




We are a
leading specialty printer offering a full range of printing and value-added
support services for the journal, catalog, magazine, book and
article reprint markets. We believe that we enjoy strong and longstanding
relationships with our customers, which include publishers, catalog merchants,
associations and university presses.  We provide a wide range of printing
services and value-added support services, such as digital proofing, preflight
checking, offshore composition, copy editing, subscriber services, mail
sortation and distribution, customer workflow audits and training classes and
back issue fulfillment.  We utilize a decentralized management structure,
which provides our customers with access to the resources of a large company,
while maintaining the high level of service and flexibility of a smaller
company. We operate in three business segments:  publications, specialty
catalogs and books.  For the year ended December 31, 2007, we
generated net sales of $344.2 million, operating income of $26.3 million and net
income of $4.8 million.  As used in this Annual Report on Form 10-K, the
terms “we,” “us,” “our” and other similar terms refer to the consolidated
businesses of The Sheridan Group, Inc. and all of its subsidiaries.




History




We trace
our roots back to The Sheridan Press, the predecessor of which was founded in
1915. We entered the short-run journal market in 1980, targeting the printing of
scientific, technical, medical and scholarly journals for publishers. The
Sheridan Group, Inc. was formed in 1988 to complete the acquisition of
Braun-Brumfield, Inc., a short-run book printer located in Michigan. In 1994, we
entered the specialty magazine market with the acquisition of United Litho,
Inc., a printer of specialty magazines serving the Washington, D.C. metro area.
In conjunction with our recapitalization in 1998, we acquired Dartmouth Printing
Company, a specialty magazine printer in New Hampshire, and Capital City Press,
a journal printer in Vermont. In 1999, we acquired BookCrafters, Inc., a
short-run book printer in Chelsea, Michigan and consolidated it with
Braun-Brumfield to form Sheridan Books, Inc. In 2004, we acquired The Dingley
Press (the “Dingley Acquisition”), a specialty catalog printer in
Maine. During the first quarter of 2006, we shutdown the operations of
Capital City Press and consolidated the production of short-run journals at The
Sheridan Press. Currently, we are comprised of six specialty printing companies
operating in the domestic scientific, technical, medical and scholarly journal,
specialty catalog, short-run book, specialty magazine and article reprints
markets: The Sheridan Press in Pennsylvania; Sheridan Books in Michigan;
Dartmouth Printing Company in New Hampshire; Dartmouth Journal Services in
Vermont; United Litho in Virginia; and The Dingley Press in Maine.




3
 Index




Printing
Services




Our
printing services include transferring content onto printing plates in
pre-press, printing the content on press, binding the printed pages into the
finished product and distributing the finished product to either the customer or
the ultimate end user.  Pre-press processes, which include digital
techniques, as well as computer-to-plate technology, are critical front-end
elements of our printing services which ready the content for printing on our
presses.  Sheet-fed and web presses are used, depending on run length, to
produce the printed product.  We also offer ultra-short-run printing
services for article reprints, books and journals. We recently launched a
new product offering to digitally print books and journals on demand. We
utilize three types of binding techniques for the printed product:  perfect
binding, saddle stitching and case binding. The product is then labeled and
packaged prior to mailing. The majority of journals and magazines are
mailed to the subscribers; the remainder are shipped to the publisher. All of
our books are shipped in cases to the customer. Catalogs are drop-shipped to
various locations throughout the U.S. and placed into the mail stream close to
the recipient.




Value-Added
Support Services




In
addition to providing printing services to our customers, we offer a full range
of value-added support services.  While sales of these services constitute
a relatively small percentage of total revenues, they are critical to meeting
the customer’s needs.  These services are highly customized for each
customer’s specifications and logistics requirements.  Examples of the
value-added support services we provide are digital proofing, preflight
checking, offshore composition, copy editing, subscriber services, mail
sortation and distribution, customer workflow audits and training classes and
back issue fulfillment.




Printing
Segments




As a
leading publications printer, we offer a broad range of products and services,
including the printing of scientific, technical, medical and scholarly journals,
specialty catalogs, short-run books, specialty magazines, article reprints
and an extensive array of value-added support services.  Our products are
sold to a diverse set of customers, including publishers, catalog merchants,
university presses and associations. In the first quarter of 2007, we made
changes to our organizational structure that impacted our reportable segments.
The “Short-run Journals” and the “Other Publications” segments were reorganized.
Our business is now comprised of three operating segments: two of the segments
are newly created, “Publications” and “Books.” Our third segment, “Specialty
Catalogs,” was not impacted by these changes. See Note 16 to our Consolidated
Financial Statements for additional information regarding the changes in
reportable segments. The periods presented in this Form 10-K are reported on a
comparable basis.




The
following table presents the percentage of net sales contributed by each segment
during the past three fiscal years.




Net sales
      %
            
            2007
            
            
            2006
            
            
            2005Publications
            
            
            53
            
            
            
            53
            
            
            
            52Specialty
      catalogs
            
            
            29
            
            
            
            29
            
            
            
            32Books
            
            
            18
            
            
            
            18
            
            
            
            16Total
            
            
            100
            
            
            
            100
            
            
            
            100







Publications




The
publications segment provides products and services for journals and specialty
magazines to publishers, university presses and associations.




Journals




The
journal market includes journals for the scientific, technical, medical and
scholarly communities. We compete in both the short-run and medium-run portions
of the journal market.  We define short-run journals as journals produced
on sheet-fed and digital presses with typical production runs of less than
5,000. We consider medium-run journals to be journals with production runs
between 5,000 and 100,000 copies. Medium-run journals are typically
produced on web presses due to economies of scale versus sheet-fed presses.
Publishers, associations and university presses comprise the customers in the
journals market.  In 2007, we printed approximately 2,500 journal
titles.




Our
journals are primarily black and white with a small amount of color for
photographs, diagrams and advertisements.  They are printed on
schedules that range from weekly to annually. Journal printing typically results
in a high level of repeat business due to the periodic nature and complexity of
these publications. The vast majority of journals are perfect bound, with the
remainder saddle-stitched. Our journal customers rely on our consistency
and on-time reliability to meet the demands of their own customers.




4
 Index




Originally
developed as an ancillary product from the base journal business, we produce
article reprints on sheet-fed and digital presses. 
Article reprints are produced for customers who require reprints of an
individual article from a journal or magazine for marketing or other
purposes. Historically, we have primarily reprinted journal and magazine
articles for which we were the original printer. We have expanded our business
by winning article reprint business on publications for which we were not
the original printer.  We are a full-service reprint printer, producing
black and white as well as color reprints for publishers, university presses and
associations.




Specialty
Magazines




We
characterize specialty magazines as magazines having production runs of less
than 100,000 copies. Our customers in this market are publishers and
associations. Specialty magazines also have a high level of repeat business due
to the periodic nature of the publications. This is largely a regional market
defined by proximity to the customer. In 2007, we printed over 400 magazine
titles.




We
produce short-run magazines with average run lengths of 31,000 copies.  The
majority of these magazines are printed in four-color.  The magazines are
bound using the saddle-stitching and perfect binding techniques. The
magazines are produced in frequencies that range from weekly to annually. These
magazines are produced on web presses.  Although specialty magazine
customers do not require composition services, they do demand high levels of
customer service focused on distribution and mailing services, where managing
the customer’s subscriber database is critical to customer
satisfaction.




Specialty
Catalogs




We
entered the specialty catalog segment in 2004 with our purchase of The Dingley
Press.  We characterize specialty catalogs as catalogs distributed by
specialty catalog merchant companies, which are often smaller entrepreneurial
firms with high service requirements. We produce catalogs with run lengths
between 100,000 and 8,000,000 copies, most of which are printed in four-color
and are bound using the saddle stitching technique. Multiple versions of each
catalog are distributed during the year requiring high levels of customer
service and extensive distribution services.  In 2007, we printed over 130
catalog titles.




Books




We print
books for publishers, associations and university presses. Sales to this market
include both the initial printing of titles and subsequent reprints.  In
2007, we printed more than 10,200 book titles.




We
produce books in run lengths that average 1,900 copies and range from 100 to
10,000 copies.  The majority of these books are black and white. 
Books are produced on both sheet-fed and web presses.  About 50% of our
books have soft covers (perfect bound) and about 50% have hard covers (case
bound).




Competition




The
printing industry in the United States is fragmented and highly competitive in
most product categories and geographic regions. We compete in subsegments of the
overall printing market.  Competition is largely based on price, quality,
range of services offered, distribution capabilities, ability to service the
specialized needs of customers, availability of printing time on appropriate
equipment and use of state-of-the-art technology.  Competitive price
pressure continues to be strong in the product segments in which we
compete.




Customers




We
benefit from a highly diversified customer base. The majority of our business
comes from publishers, followed by catalog merchants, associations and
university presses.  The average length of our relationship with our top 50
customers is approximately 16 years. In 2007, Dr. Leonard’s Healthcare
Corp. (“Dr. Leonard’s”) accounted for about 10.7% of our net sales, which are
included in the specialty catalogs segment. In 2006,
we entered into a long-term contract to print all of Dr. Leonard's catalogs
through June 2011. Dr. Leonard's was acquired by another company in December
2007. Recent statements made by Dr. Leonard's suggest that it may be necessary
for us to take steps to enforce the provisions of our contract. The loss of this
customer would cause our net sales and profitability to decline
materially.




5
 Index




Sales
and Marketing




We have
developed a knowledgeable and experienced sales management team, which has
successfully cultivated and maintained strong relationships with customers
across the U.S. Our products are sold through internal direct sales
professionals and a dedicated network of sales representatives. Across all of
our companies, external representatives augment an internal customer service and
sales staff, providing our customers with multiple touch points. Our sales
representatives are paid a commission based on sales volume growth targets in a
structure that minimizes the fixed costs we incur to support our sales
force.




We
traditionally market through industry trade shows and industry association
conferences. In addition, in our article reprint business, we have
strategic relationships with four marketing firms that specialize in obtaining
reprint orders from customers, companies and individuals that were featured in a
recent publication produced by us or other printers.  These marketing firms
identify opportunities for these potential clients to utilize the identified
publication reprints as marketing tools.




Raw
Materials




The
principal raw material used in our business is paper, which represents a
significant portion of our cost of materials. Due to the significance of paper
in our business, we are dependent upon the availability of paper. In periods of
high demand, certain paper grades have been in short supply, including grades we
use in our business. In addition, during periods of tight supply, many paper
producers allocate shipments of paper based upon historical purchase levels of
customers. Historically, however, we generally have not experienced significant
difficulty in obtaining adequate quantities of paper. We do not have any
long-term paper supply agreements. We also use a variety of other raw materials
including ink, film, offset plates, chemicals and solvents, glue, wire and
subcontracted components. In general, we have not experienced any significant
difficulty in obtaining these raw materials.




Technology
and Operations




Our
capital investments have been focused on productivity improvement, more
efficient material usage and incremental capacity.  Additionally, our
investments in technology have been critical in helping achieve improved
workflow and reduced cycle times.




Employees




We have
about 1,900 employees as of December 31, 2007. We focus heavily on
fostering enthusiastic and positive cultures at each of our locations, evidenced
by the fact that we have been recognized with numerous “Best Workplace in
America” awards presented by Printing Industries of America. In addition, we
closely monitor our employees’ level of job satisfaction with comprehensive
surveys on a regular basis. Management believes our compensation and
benefits packages are competitive within the industry and local
markets.




Regulatory
Matters




We are
subject to a broad range of federal, state and local laws and regulations
relating to the pollution and protection of the environment, health and safety
and labor. Based on currently available information, we do not anticipate any
material adverse effect on our operations, financial condition or competitive
position as a result of our efforts to comply with environmental, health and
safety or labor requirements, and we do not anticipate needing to make any
material capital expenditures to comply with such requirements.




ITEM 1A.
            RISK
      FACTORS




Risk
Factors




Substantial
Leverage—Our substantial indebtedness could adversely affect our financial
health and prevent us from meeting our obligations under our
indebtedness.




We have a
significant amount of indebtedness.  On December 31, 2007, we had
total indebtedness of approximately $164.9 million.




Our
substantial indebtedness could have important consequences.  For example,
it could:




6
 Index




·
            make
      it more difficult for us to meet our payment and other obligations under
      our indebtedness;




·
            require
      us to dedicate a substantial portion of our cash flow from operations to
      payments on our indebtedness, thereby reducing the availability of our
      cash flow to fund working capital, capital expenditures and other general
      corporate purposes;




·
            increase
      our vulnerability to general adverse economic and industry
      conditions;




·
            limit
      our flexibility in planning for, or reacting to, changes in our business
      and the industry in which we
operate;




·
            place
      us at a competitive disadvantage compared to our competitors that have
      less debt or are less leveraged;
and




·
            limit
      our ability to borrow additional funds or raise additional
      financing.




In
addition, agreements governing our indebtedness contain financial and other
restrictive covenants that will limit our ability to engage in activities that
may be in our long-term best interests.  Our failure to comply with those
covenants could result in an event of default which, if not cured or waived,
could result in the acceleration of all of our debt.




Technological
Change—The evolution of technology may decrease the demand for our products and
services.




The
technology we use in our operations is rapidly evolving. We could experience
delays or difficulties in responding to changing technology, in addressing the
increasingly sophisticated needs of our customers or in keeping pace with
emerging industry standards. In addition, the cost required to respond to and
integrate changing technologies may be greater than we anticipate. If we do not
respond adequately to the need to integrate changing technologies in a timely
manner, or if the investment required to so respond is greater than anticipated,
our business, financial condition, results of operations, cash flow and ability
to make payments on the notes may be adversely affected. We remain largely
dependent on the distribution of scientific, technical, medical and other
scholarly information in printed form. Usage of the Internet and other
electronic media continues to grow. We cannot assure you that the acceleration
of the trend toward such electronic media will not decrease the demand for our
products which could result in lower profits and reduced cash
flows.




Changes
in technology could also result in digital printing methods becoming more cost
effective for printing short-run publications. If the use of digital printing
were expanded in this manner, it could allow smaller printers to compete against
us in our specialized market, which could cause a decrease in the demand for our
services or could force us to lower our prices to remain competitive. Such a
decrease in demand or price could result in decreased profitability and have a
material adverse effect on our business, financial condition and results of
operations. Similarly, if our new product offering in the digital printing
market is not successful, the same adverse impacts previously mentioned could
result.




Competition—The
printing industry is competitive and rapidly evolving and competition may
adversely affect our business.




The
printing industry is extremely competitive. We compete with numerous companies,
some of which have greater financial resources than we do. Two of our direct
competitors have recently been acquired by larger printing companies, which
could enable them to reduce operating costs and expand services, thus enhancing
their competitiveness. We compete on the basis of ongoing customer service,
quality of finished products, range of services offered, distribution
capabilities, use of state of the art technology and price. We cannot assure you
that we will be able to compete successfully with respect to any of these
factors. In certain circumstances, due primarily to factors such as freight
rates and customer preference for local services, printers with better access to
certain regions of the country may have a competitive advantage in such regions.
Our failure to compete successfully could cause us to lose existing business or
opportunities to generate new business and could result in decreased
profitability, adversely affecting our business.




Consolidation—Industry
consolidation of customers and increased competition for those customers may
result in increased expenses and reduced revenue and market
position.




The
continuing consolidation of publishing companies has shrunk the pool of
available customers. Large publishing companies often have preferred provider
arrangements with specific printing companies. As smaller publishing companies
are consolidated into the larger companies, the smaller publishing companies are
often required to use the printing company with which the acquiring company has
established an arrangement. If our customers were to merge or consolidate with
publishing companies utilizing other printing companies, we could lose our
customers to competing printing companies. If we were to lose a significant
portion of our current base of customers to competing printing companies, our
business, financial condition, results of operations and cash flow could be
materially adversely affected.




Customer
Concentration—The increase in business from a top customer may make our net
sales and profitability more sensitive to the loss of such a customer’s
business.




7
 Index





We have a
customer that accounted for approximately 10.7% of our net sales in 2007. In
2006, we entered into a long-term contract to print all of that customer's
catalogs through June 2011. This customer was acquired by another company in
December 2007. Recent statements made by this customer suggest that it may be
necessary for us to take steps to enforce the provisions of our contract. We
cannot assure you that this customer and our other large customers will continue
to use our printing services. The loss of this customer or any of our large
customers would cause our net sales and profitability to decline
materially.




Cost
and Availability of Paper and Other Raw Materials—Increases in prices of paper
and other raw materials and postal rates could cause disruptions in our services
to customers.




The
principal raw material used in our business is paper, which represents a
significant portion of our cost of materials. Although we believe that we have
been successful in negotiating favorable price relationships with our paper
vendors, prices in the overall paper market are beyond our control.
Historically, we have generally been able to pass increases in the cost of paper
on to our customers. If we are unable to continue to pass any price increases on
to our customers, future paper price increases could adversely affect our
margins and profits.




Due to
the significance of paper in our business, we are dependent upon the
availability of paper. In periods of high demand, certain paper grades have been
in short supply, including grades we use in our business. In addition, during
periods of tight supply, many paper producers allocate shipments of paper based
upon historical purchase levels of customers. Although we generally have not
experienced significant difficulty in obtaining adequate quantities of paper,
unforeseen developments in the overall paper markets could result in a decrease
in the supply of paper and could cause either or both of our revenues or profits
to decline.




We use a
variety of other raw materials including ink, film, offset plates, chemicals and
solvents, glue, wire and subcontracted components. In general, we have not
experienced any significant difficulty in obtaining these raw materials. We
cannot assure you, however, that a shortage of any of these raw materials will
not occur in the future or will not potentially adversely affect the financial
results of our business.




Our
journals, magazines and catalogs are mailed, either by us or our customers,
to subscribers. As a result, an increase in postal rates may cause our customers
to decrease the size and number of their publications. Although we generally
have not experienced significant decreases in mailings in the past due to postal
rate increases, we cannot assure you that such a decrease will not occur in the
future or will not potentially adversely affect the financial results of our
business.




We
require energy products, primarily natural gas and electricity, in our operating
facilities.  We also depend on gasoline and diesel fuel for our delivery
vehicles and the vehicles of the carriers we utilize to deliver our
products.  Possible disruption of supplies or an increase in the prices of
energy products could adversely affect the financial results of our
business.




Key
Employees—Our ability to attract, train and retain executives and other
qualified employees is crucial to results of operations and future
growth.




We rely
to a significant extent on our executive officers and other key management
personnel. There can be no assurance that we will be able to continue to retain
our executive officers and key management personnel or attract additional
qualified management in the future. In addition, the success of any acquisition
by us may depend, in part, on our ability to retain management personnel of the
acquired companies. There can be no assurance that we will be able to retain
such management personnel.




In
addition, to provide high-quality printed products in a timely fashion we must
maintain an adequate staff of skilled technicians, including pre-press
personnel, pressmen, bindery operators and fulfillment personnel. Accordingly,
our ability to maintain and increase our productivity and profitability will
depend, in part, on our ability to employ, train and retain the skilled
technicians necessary to meet our commitments. From time-to-time:




·
            the
      industry experiences shortages of qualified technicians, and we may not be
      able to maintain an adequate skilled labor force necessary to operate
      efficiently;




·
            our
      labor expenses may increase as a result of shortages of skilled
      technicians; or




·
            we
      may have to curtail our planned internal growth as a result of labor
      shortages.




If any of
these events were to occur, it could adversely affect our business.




Business
Interruption—Our printing facilities may suffer business interruptions which
could increase our operating costs, decrease our sales or cause us to lose
customers.




The
reliability of our printing facilities is critical to the success of our
business. Our facilities might be damaged or interrupted by fire, flood, power
loss, telecommunications failure, break-ins, earthquakes, terrorist attacks, war
or similar events. Equipment malfunctions, computer viruses, physical or
electronic break-ins and similar disruptions might cause interruptions and
delays in our printing services and could significantly diminish our reputation
and brand name and prevent us from providing services. Although we believe we
have taken adequate steps to address these risks, damage to, or unreliability
of, our printing facilities could have a material adverse effect on our
business, financial condition, results of operations and cash flow.




8
 Index




Research
Funding—Decreases in the types and amount of research funding could decrease the
demand for our journal printing services.




In our
journal business, we provide printing services primarily to scientific,
technical, medical and other scholarly journals. The supply of research papers
published in these journals is related to the amount of research funding
provided by the federal government and private companies. In the future, the
federal government or private companies could decrease the type and amount of
funding that they provide for scientific, technical, medical and other scholarly
research. A significant decrease in research funding might decrease the number
or length of journals that we print for our customers, which would decrease our
cash flow.




Environmental
Matters—Our printing and other facilities are subject to environmental laws and
regulations, which may subject us to liability or require us to incur
costs.




We use
various materials in our operations which contain substances considered
hazardous or toxic under environmental laws. In addition, our 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, waste water treatment and discharge and remediation of soil and
groundwater contamination. Permits are required for the operation of certain of
our businesses, and these permits are subject to renewal, modification and, in
some circumstances, revocation. Our operations also generate wastes which are
disposed of off-site. Under certain environmental laws, including the
Comprehensive Environmental Response, Compensation and Liability Act, as amended
(“CERCLA,” commonly referred to as “Superfund”) and similar state laws and
regulations, we may be liable for costs and damages relating to soil and
groundwater contamination at these off-site disposal locations, or at our own
facilities. In the past, such matters have not had a material impact on our
business or operations. We are not currently aware of any environmental matters
that are likely to have a material adverse effect on our business, financial
condition, results of operations and cash flow. However, we cannot assure you
that such matters will not have such an impact on us. Furthermore, future
changes to environmental laws and regulations may give rise to additional costs
or liabilities that could have a material adverse impact on us.




Health
and Safety Requirements—We could be adversely affected by health and safety
requirements.




We are
subject to requirements of federal, state and local occupational health and
safety laws and regulations. These requirements are complex, constantly changing
and have tended to become more stringent over time. It is possible that these
requirements may change or liabilities may arise in the future in a manner that
could have a material adverse effect on our business, financial condition,
results of operations and cash flow. We cannot assure you that we have been or
will be at all times in complete compliance with all those requirements or that
we will not incur material costs or liabilities in connection with those
requirements in the future.




Intellectual
Property—We may not protect our technology effectively, which would allow
competitors to duplicate our products and services, or our products and services
may infringe on claims of intellectual property rights of third
parties.




Our
success and ability to compete depend, in part, upon our technology. Among our
significant assets are our proprietary information and intellectual property
rights. We rely on a combination of copyright, trademark and patent laws, trade
secrets, confidentiality procedures and contractual provisions to protect these
assets. Unauthorized use and misuse of our intellectual property could have a
material adverse effect on our business, financial condition and results of
operations, and there can be no assurance that our legal remedies would
adequately compensate us for the damages caused by unauthorized use. In
addition, licenses for a number of software products have been granted to us.
Some of these licenses, individually and in the aggregate, are material to our
business. Although we believe that the risk that we will lose any material
license is remote, any loss could have a material adverse effect on our
business, financial condition, results of operations and cash flow.




We do not
believe that any of our products, services or activities infringe upon the
intellectual property rights of third parties in any material respect. There can
be no assurance, however, that third parties will not claim infringement by us
with respect to current or future products, services or activities. Any
infringement claim, with or without merit, could result in substantial costs and
diversion of management and financial resources, and a successful claim could
effectively block our ability to use or license products and services or cost us
money.




Additional
Capital—We may need additional capital in the future and it may not be available
on acceptable terms.




9
 Index


We may
require more capital in the future to:




·
            fund
      our operations;




·
            finance
      investments in equipment and infrastructure needed to maintain and expand
      our network;




·
            enhance
      and expand the range of services we offer;
and




·
            respond
      to competitive pressures and potential strategic opportunities, such as
      investments, acquisitions and international
  expansion.




We cannot
assure you that additional financing will be available on terms favorable to us,
or at all. The terms of available financing may place limits on our financial
and operating flexibility. If adequate funds are not available on acceptable
terms, we may be forced to reduce our operations or delay, limit or abandon
expansion opportunities. Moreover, even if we are able to continue our
operations, the failure to obtain additional financing could reduce our
competitiveness as our competitors may provide better maintained networks or
offer an expanded range of services.




Consummation
of Future Acquisitions—We may not be able to acquire other companies on
satisfactory terms or at all.




Our
business strategy includes pursuing acquisitions. Nonetheless, we cannot assure
you that we will identify suitable acquisitions or that such acquisitions can be
made at an acceptable price. If we acquire additional businesses, those
businesses may require substantial capital. Although we will be able to borrow
under our working capital facility under certain circumstances to fund
acquisitions, we cannot assure you that such borrowings will be available in
sufficient amounts or that other financing will be available in amounts and on
terms that we deem acceptable. In addition, future acquisitions could result in
us incurring debt and contingent liabilities. We cannot assure you that we will
be successful in consummating future acquisitions on favorable terms or at
all.




Integration
of Acquired Businesses—The integration of acquired businesses may result in
substantial costs, delays and other problems.




Our
future performance will depend heavily on our ability to integrate the
businesses that we may acquire. To integrate newly acquired businesses we must
integrate manufacturing facilities and extend our financial and management
controls and operating, administrative and information systems in a timely
manner and on satisfactory terms and conditions. This may be more difficult with
respect to significant acquisitions. We may not be able to successfully
integrate acquired businesses or realize projected cost savings and synergies in
connection with those acquisitions on the timetable contemplated or at
all.




Furthermore,
the costs of businesses that we may acquire could significantly impact our
short-term operating results. These costs could include:




·
            restructuring
      charges associated with the acquisitions;
and




·
            other
      expenses associated with a change of control, as well as non-recurring
      acquisition costs including accounting and legal fees, investment banking
      fees, recognition of transaction-related obligations and various other
      acquisition-related costs.




The
integration of newly acquired businesses will require the expenditure of
substantial managerial, operating, financial and other resources and may also
lead to a diversion of management’s attention from our ongoing business
concerns.




Finally,
although we conduct and intend to conduct what we believe to be a prudent level
of investigation regarding the businesses we purchase, in light of the
circumstances of each transaction, an unavoidable level of risk remains
regarding the actual condition of these businesses. Until we actually assume
operating control of such business assets and their operations, we may not be
able to ascertain the actual value or understand the potential liabilities of
the acquired entities and their operations. Once we acquire a business, we are
faced with risks, including:




·
            the
      possibility that we have acquired substantial undisclosed
      liabilities;




·
            the
      risks of entering markets in which we have limited or no prior
      experience;




·
            the
      potential loss of key employees or customers as a result of changes in
      management; and




·
            the
      possibility that we may be unable to recruit additional managers with the
      necessary skills to supplement the management of the acquired
      businesses.




10
 Index





We may
not be successful in overcoming these risks.




Principal
Stockholders—Our principal stockholders could exercise their influence over
us.




As a
result of their stock ownership of TSG Holdings Corp., our parent, Bruckmann,
Rosser, Sherrill & Co., L.L.C. (“BRS”), Jefferies Capital Partners (“JCP”)
and their respective affiliates together beneficially own about 71.6% of TSG
Holdings Corp.’s outstanding capital stock. By virtue of their stock ownership
and the terms of the securities holders agreement, these entities have
significant influence over our management and will be able to determine the
outcome of all matters required to be submitted to the stockholders for
approval, including the election of our directors and the approval of mergers,
consolidations and the sale of all or substantially all of our assets. The
interests of BRS and JCP as equity owners of TSG Holdings Corp. may differ from
the interests of our noteholders and the lenders under our working capital
facility, and, as such, BRS and JCP may take actions which may not be in the
interest of such noteholders and lenders. For example, if we encounter financial
difficulties or are unable to pay our debts as they mature, the interests of our
equity owners might conflict with the interests of our noteholders and the
lenders under our working capital facility. In addition, our equity owners may
have an interest in pursuing acquisitions, divestitures, financings or other
transactions that, in their judgment, could enhance their equity investments,
even though such transactions might involve risks to our noteholders and the
lenders under our working capital facility.




Effectiveness
of our internal controls — Failure to comply with the Sarbanes-Oxley Act could
impact our business.




There can
be no assurance that the periodic evaluation of our internal controls required
by the Sarbanes-Oxley Act will not result in the identification of significant
control deficiencies or that our independent registered public accounting firm
will be able to attest to the effectiveness of our internal control over
financial reporting. Failure to comply may have consequences for our business.
These consequences could include increased risks of financial statement
misstatements, investigations or sanctions by regulatory authorities, such as
the SEC, and negative capital market reactions.




ITEM 1B.
            UNRESOLVED
      STAFF COMMENTS




None.




ITEM 2.
            PROPERTIES




We
operate a network of 13 manufacturing, warehousing and office facilities located
throughout the East Coast and Midwest that occupy, in total, about 1.2 million
square feet. We maintain approximately 1.0 million square feet of production
space consisting of manufacturing and publication services. We own about 83% of
the square footage we use.  The following table provides an overview of our
manufacturing, warehousing and office facilities.


Location
              
              Function(s)
              
              Ownership
                Structure
              
              Total Size
                (Sq. Feet)Hunt
      Valley, MD
              
              Corporate
      Headquarters
              
              Leased
              
              6,366Hanover,
      PA
              
              Manufacturing
      (Publications)
              
              Owned
              (1)
              172,250Chelsea,
      MI
              
              Manufacturing
      (Books)
              
              Owned
              (1)
              160,569Hanover,
      NH
              
              Manufacturing
      (Publications)
              
              Owned
              (1)
              147,830Ashburn,
      VA
              
              Manufacturing
      (Publications)
              
              Owned
              (1)
              70,159Lisbon,
      ME
              
              Manufacturing
      (Specialty catalogs)
              
              Owned
              (1)
              276,787Ann
      Arbor, MI
              
              Manufacturing
      and Distribution (Books)
              
              Owned
              (1)
              124,726Hanover,
      PA
              
              Warehousing
      (Publications)
              
              Leased
              
              70,000Orford,
      NH
              
              Warehousing
      (Publications)
              
              Leased
              
              4,330Waterbury,
      VT
              
              Publication
      Services (Publications)
              
              Leased
              
              11,736Sterling,
      VA
              
              Warehousing
      (Publications)
              
              Leased
              
              6,304Lewiston,
      ME
              
              Warehousing
      (Specialty catalogs)
              
              Leased
              
              97,606Auburn,
      ME
              
              Warehousing
      (Specialty catalogs)
              
              Leased
              
              3,700Total
              
              1,152,363







(1)     Subject
to liens in favor of the holders of our outstanding senior secured notes and the
lenders under our working capital facility.




Some of our office and warehouse
leases are on yearly renewals, with the lease of our corporate headquarters
expiring in December 2011, subject to a renewal option.  We believe
that our office, manufacturing and warehousing facilities are adequate for our
immediate needs and that additional or substitute space is available at a
reasonable cost if needed to accommodate future growth and expansion.  In
addition to the properties listed above, we occasionally lease space for single
offices for our sales representatives.




11
 Index




In 2007,
The Sheridan Press, a component of the Publications segment, completed a 13,000
square foot expansion of its existing facility in Hanover, PA to provide
additional manufacturing capacity.




We are
continuing our efforts to sell the Ann Arbor, Michigan book facility. We may
consolidate this facility with our Chelsea, Michigan operation, pending a firm
offer from a third party at an acceptable price.




ITEM 3.
            LEGAL
      PROCEEDINGS




We
currently are involved in various litigation proceedings as a defendant and are
from time to time involved in routine litigation. In the opinion of our
management, these matters are not expected to have a material adverse effect on
our business, financial condition or results of operations.




ITEM 4.
            SUBMISSION
      OF MATTERS TO A VOTE OF SECURITY
HOLDERS




There
were no matters submitted to a vote of security holders during the fourth
quarter ended December 31, 2007.




PART
II




ITEM 5.
            MARKET
      FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
      PURCHASES OF EQUITY SECURITIES




We are
wholly-owned by TSG Holdings Corp, a privately owned corporation. There is no
public trading market for our equity securities or for those of TSG Holdings
Corp. As of March 28, 2008, there were 35 holders of TSG Holdings Corp.
common stock.




Our
working capital facility contains customary restrictions on our ability and the
ability of certain of our subsidiaries to declare or pay any dividends or
repurchase stock. The indenture governing our 101⁄4% Senior Secured Notes due 2011
also contains customary terms restricting our ability and the ability of certain
of our subsidiaries to declare or pay any dividends or repurchase stock. For
further information related to the payment of dividends, see the discussion
contained in Part III, Item 12, “Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters.”  Information with
respect to shares of common stock that may be issued under our equity
compensation plans is set forth in Part III, Item 12, “Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.”




ITEM 6.
            SELECTED
      FINANCIAL DATA




PredecessorSuccessor
      Basis
              
              
              Basis
      (1)Year
      ended
              
              
              Year
      ended
              
              
              Year
      ended
              
              
              Year
      ended
              
              
              August
      21, 2003
              
              
              January
      1, 2003December
      31,
              
              
              December
      31,
              
              
              December
      31,
              
              
              December
      31,
              
              
              to
      December 31,
              
              
              to
      August 20,(Dollars
      in thousands)
              
              2007
              
              
              2006
              
              
              2005
              
              
              2004
              
              
              2003
              
              
              2003Statement
      of Income Data:Net
      sales
              
              $
              344,240
              
              
              $
              337,540
              
              
              $
              347,959
              
              
              $
              287,513
              
              
              $
              81,193
              
              
              $
              131,904Gross
      profit
              
              
              70,050
              
              
              
              65,376
              
              
              
              64,456
              
              
              
              60,782
              
              
              
              18,745
              
              
              
              31,839Selling
      and administrative expenses
              
              
              41,746
              
              
              
              40,339
              
              
              
              39,594
              
              
              
              37,404
              
              
              
              12,704
              
              
              
              23,619Operating
      income
              
              
              26,308
              
              
              
              5,489
              
              
              
              21,897
              
              
              
              21,456
              
              
              
              5,415
              
              
              
              8,108Net
      income (loss)
              
              
              4,847
              
              
              
              (8,343
              )
              
              
              1,180
              
              
              
              2,330
              
              
              
              760
              
              
              
              1,169Balance
      Sheet Data (at end of period):Cash
      and cash equivalents
              
              $
              20,517
              
              
              $
              7,800
              
              
              $
              7,962
              
              
              $
              4,975
              
              
              $
              9,918Property,
      plant and equipment, net
              
              
              126,709
              
              
              
              129,666
              
              
              
              119,220
              
              
              
              115,253
              
              
              
              57,277Total
      assets
              
              
              298,968
              
              
              
              291,567
              
              
              
              300,721
              
              
              
              299,139
              
              
              
              202,488Total
      debt
              
              
              164,930
              
              
              
              164,915
              
              
              
              164,904
              
              
              
              164,894
              
              
              
              103,641Total
      stockholder's equity
              
              
              50,845
              
              
              
              46,688
              
              
              
              54,996
              
              
              
              54,065
              
              
              
              47,760Other
      Financial Data:Depreciation
      and amortization
              
              $
              17,834
              
              
              $
              18,991
              
              
              $
              17,072
              
              
              $
              14,593
              
              
              $
              4,168
              
              
              $
              4,874Capital
      expenditures
              
              
              15,158
              
              
              
              26,296
              
              
              
              21,282
              
              
              
              21,827
              
              
              
              2,915
              
              
              
              5,213




(1)
            Periods
      prior to August 20, 2003 represent the predecessor company prior to
      the consummation of the Sheridan Acquisition (discussed below under Item
      7, “Management’s Discussion and Analysis of Financial Condition and
      Results of Operations”), and our historical consolidated financial data
      for such periods do not give effect to the Sheridan Acquisition.  12
 Index




ITEM7.
            MANAGEMENT’S
      DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
      OPERATIONS




The
following discussion should be read in conjunction with, and is qualified in its
entirety by reference to, our historical consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K. The
discussions in this section contain forward-looking statements that involve
risks and uncertainties. Actual results could differ materially from those
discussed below. See “Special Note Regarding Forward-Looking Statements” and
Part I, Item 1A, “Risk Factors” for a discussion of some of the risks that could
affect us in the future.




Introduction




We are a
leading specialty printer offering a full range of printing and value-added
support services for the journal, catalog, magazine, book and
article reprint markets. We provide a wide range of printing services and
value-added support services, such as digital proofing, preflight checking,
offshore composition, copy editing, subscriber services, mail sortation and
distribution, customer workflow audits and training classes and back issue
fulfillment. We utilize a decentralized management structure, which provides our
customers with access to the resources of a large company, while maintaining the
high level of service and flexibility of a smaller company.




Overview




Acquisition
transactions




On
August 21, 2003, TSG Holdings Corp. purchased 100% of the outstanding
capital stock of The Sheridan Group, Inc. from its existing stockholders (the
“Sheridan Acquisition”) for total cash consideration of $142.0 million less net
debt (as defined in the stock purchase agreement), resulting in cash of $79.9
million being paid to the selling stockholders. The accounting purchase price
was $186.6 million, which was comprised of the $79.9 million of cash paid to the
selling stockholders, $51.4 million of assumed liabilities and $55.3 million of
refinanced debt. We funded the acquisition price and the related fees and
expenses with the proceeds of the sale of $105.0 million aggregate principal
amount of our 101⁄4% Senior Secured Notes due 2011 (the “2003 Notes”) and equity
investments in TSG Holdings Corp.




On May
25, 2004, The Sheridan Group, Inc., through a newly formed subsidiary, purchased
substantially all of the assets and business of The Dingley Press (the “Dingley
Acquisition”).  The accounting purchase price was $95.4 million, which
was comprised of cash paid of $65.5 million, $26.0 million of assumed
liabilities and $3.9 million of financing costs. We funded the acquisition price
and the related fees and expenses with the proceeds of the sale of $60.0
million aggregate principal amount of our 101⁄4% Senior Secured Notes due
2011 (the “2004 Notes”), available cash and equity investments in TSG Holdings
Corp. The 2003 Notes and the 2004 Notes are fully and unconditionally guaranteed
on a joint and several bases by all of our subsidiaries.




Facility
shutdown




Due to
trends in the short-run journal business and the high capital investment
necessary to maintain two manufacturing facilities serving the same market, our
Board of Directors, on December 15, 2005, approved a restructuring plan to
consolidate all short-run journal printing operations into one site. During
the first quarter of 2006, we consolidated the printing of short-run journals at
The Sheridan Press in Hanover, Pennsylvania and closed the Capital City Press
facility in Berlin, Vermont. Approximately 200 positions were eliminated as a
result of the closure. Of the 200 employees affected, approximately 45
Publication Services employees were offered jobs with one of our subsidiaries,
Dartmouth Journal Services.




We
recorded $0.1 million of restructuring costs during 2007. The costs related
primarily to employee health benefits (as a result of COBRA requirements) and
building lease costs and were partially offset by a $0.1 million reduction in
the reserve for potential workers’ compensation claims related to Capital City
Press recorded in the second and third quarters of 2007. We recorded $2.7
million of restructuring costs during 2006, related primarily to guaranteed
severance payments of $1.5 million, employee health benefits of $0.7 million and
other one-time costs of $0.5 million. Total restructuring costs, including
charges of $0.4 million recorded in 2005, were approximately $3.2 million. There
were no restructuring liabilities outstanding as of December 31, 2007 or
December 31, 2006.


13
 Index




We also
recorded non-cash charges of $2.4 million during 2006 associated with the
accelerated depreciation and amortization of plant and equipment and the Capital
City Press trade name, which was disposed of as a result of the
shutdown. During May 2006, excess equipment at Capital City Press was sold
through a public auction for cash proceeds of approximately $0.3 million,
resulting in a gain of approximately $0.1 million. On August 31, 2006, the
Capital City Press land and building, which had a carrying value of
approximately $1.6 million, was sold, resulting in a negligible
gain.




In
connection with the shutdown of Capital City Press, we transferred certain
tangible assets, primarily production equipment, to our other subsidiaries. We
also transferred intangible assets, which consisted of goodwill and customer
relationships, to The Sheridan Press. The tangible and intangible assets were
transferred at carryover, historical cost basis since the transfers took place
between entities under common control.




Critical
Accounting Estimates




The
preparation of 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 dates of the
financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates, and the
differences could be material. We consider the following accounting policies to
be critical policies which involve various estimation processes:




·
            Allowance
      for doubtful accounts;


·
            Goodwill
      and other long-lived assets;


·
            Income
      taxes; and


·
            Self-insurance.




Allowance
for Doubtful Accounts




Our
policy with respect to trade accounts and notes receivable is to maintain an
adequate allowance or reserve for doubtful accounts for estimated losses from
the inability of our customers to make required payments. The process to
estimate the collectibility of our trade accounts receivable balances consists
of two steps. First, we evaluate specific accounts for which we have information
that the customer may have an inability to meet its financial obligations (e.g.,
bankruptcy). In these cases, using our judgment based on available facts and
circumstances, we record a specific allowance for that customer against the
receivable to reflect the amount we expect to ultimately collect. Second, we
then establish an additional reserve for all customers based on a range of
percentages applied to aging categories, based on management’s best estimate. If
the financial condition of our customers were to deteriorate and result in an
impairment of their ability to make payments, additional allowances may be
required.




Goodwill
and Other Long-Lived Assets




We
conduct impairment reviews of long-lived assets and goodwill in accordance with
SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”
and SFAS No. 142, “Goodwill and Other Intangible Assets.”




On an
annual basis or as circumstances dictate, we review goodwill and evaluate events
or other developments that may indicate impairment in the carrying amount. As of
December 31, 2007, we tested goodwill for impairment using the two-step process
prescribed in SFAS No. 142. The first step was to screen for potential
impairment, while the second step measured the amount of the impairment, if
any.  No impairments were noted as a result of these tests. We also
performed the required impairment tests of goodwill to identify whether an
impairment existed under this statement on December 31, 2006. This
assessment indicated that goodwill related to the Dingley Acquisition was
impaired resulting in a write-down of goodwill totaling $12.8 million which was
recorded during the fourth quarter of 2006. We also performed the required
impairment tests of goodwill to identify whether impairment existed on
December 31, 2005. No impairments were noted as a result of these tests. At
December 31, 2007, we had $44.5 million in goodwill. While significant
judgment is required, we believe that our estimates of fair value are
reasonable. However, should our assumptions change in future years, our fair
value models could result in lower fair values for goodwill, which could
materially affect the value of goodwill and our results of
operations.




We review
long-lived assets, consisting primarily of property, plant and equipment and
identified intangibles subject to amortization, for impairment, pursuant to SFAS
No. 144, by analyzing the future undiscounted cash flows whenever events or
changes in circumstances indicate that the carrying value may not be
recoverable. No impairments were noted as a result of these tests. While
significant judgment is required, we believe that our estimates of future
undiscounted cash flows are reasonable. However, should our assumptions change
in future years, our fair value models could result in lower fair values of
long-lived assets, which could materially affect the value of long-lived assets
and the results of operations.




14
 Index




Income
Taxes




As part
of the process of preparing our consolidated financial statements, we are
required to estimate income taxes in each of the jurisdictions in which we
operate. In addition to estimating the actual current tax liability, we must
assess future tax effects of temporary differences between the tax bases of
assets and liabilities and amounts reflected on our consolidated balance sheets,
and operating loss carryforwards. Such differences result in deferred tax assets
and liabilities, which are recorded in our consolidated balance sheets. We then
assess the likelihood that deferred tax assets will be recovered from future
taxable income, and, to the extent recovery is not considered likely, establish
a valuation allowance against those assets. The valuation allowance is based on
estimates of future taxable income in jurisdictions in which we operate and the
period over which the deferred tax assets will be recoverable. We use our best
judgment in determining the provision for income taxes, the deferred tax assets
and liabilities and any valuation allowance recorded against the net deferred
tax assets.




To the
extent that actual results differ from our estimates, new information results in
changes to estimates or there is a material change in the actual tax rates or
time periods within which the underlying temporary differences become taxable or
deductible, we may need to establish an additional valuation allowance, reduce
our existing valuation allowance or adjust the effective tax rate, all of which
could materially impact our financial position and results of
operations.




We
adopted the provisions of FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes” (“FIN 48”) on January 1, 2007. FIN No. 48
provides that a tax benefit from an uncertain tax position may be recognized
when it is more likely than not that the position will be sustained upon
examination, including resolutions of any related appeals or litigation
processes, based on the technical merits. Income tax positions must meet a
more-likely-than-not recognition threshold at the effective date to be
recognized upon the adoption of FIN 48 and in subsequent periods. This
interpretation also provides guidance on measurement, derecognition,
classification, interest and penalties, accounting in interim periods,
disclosure and transition. As a result of the implementation of FIN 48, we
recorded a $0.5 million decrease in our retained earnings balance and a $0.3
million increase in goodwill.




We
recognize interest and penalties related to uncertain tax positions as part of
the income tax provision. We had accrued interest of $0.4 million and penalties
of $0.2 million as of December 31, 2007. Interest and penalties in the amount of
$0.1 million were expensed during the year. Interest and penalties will continue
to accrue on certain issues in 2008 and forward.




Self-Insurance




We are
self-insured for healthcare and workers’ compensation costs. We seek to mitigate
the risk related to our ultimate claims exposure under these self-insurance
arrangements through the purchase of various levels of individual and aggregate
claims stop-loss insurance coverage with third-party insurers. We periodically
review health insurance and workers’ compensation claims outstanding and
estimates of incurred but not reported claims with our third-party claims
administrators and adjust our reserves for self-insurance risk accordingly.
Provisions for medical and workers’ compensation claims are based on estimates,
which are subject to differing financial outcomes based upon the nature and
severity of those claims. As a result, additional reserves may be required in
future periods.




Results
of Operations




In the
first quarter of 2007, we made changes to our organizational structure that
impacted our reportable segments. The “Short-run Journals” and the “Other
Publications” segments were reorganized. Our business is now comprised of three
operating segments: two of the segments are newly created, “Publications” and
“Books.” Our third segment, “Specialty Catalogs,” was not impacted by these
changes. See Note 16 to our Consolidated Financial Statements for additional
information regarding the changes in reportable segments. The periods presented
in this Form 10-K are reported on a comparable basis. The Publications business
segment is focused on the production of short-run journals, medium-run journals
and specialty magazines and is comprised of the assets and operations of The
Sheridan Press, Dartmouth Printing, Dartmouth Journal Services, United Litho and
Capital City Press. We believe there are many similarities in the journal and
magazine markets such as the equipment used in the print and bind process,
distribution methods, repetitiveness and frequency of titles and the level of
service required by customers. We created the position of Group President,
Publication Services, to manage our journal and magazine business. Our Books
segment is focused on the production of short-run books and is comprised of the
assets and operations of Sheridan Books.  This market does not have
the repetitive nature of our other products and does not require the same level
of customer service. The Specialty Catalogs segment, which is comprised of the
assets and operations of The Dingley Press, is focused on catalog merchants that
require run lengths between 100,000 and 8,000,000 copies.




15
 Index





The
following tables set forth, for the periods indicated, information derived from
our consolidated statements of income, the relative percentage that those
amounts represent to total net sales (unless otherwise indicated), and the
percentage change in those amounts from period to period. These tables should be
read in conjunction with the commentary that follows them.







Comparison
of Years Ended December 31, 2007 and December 31, 2006




Percent
      of revenueYear
      ended December 31,
              
              
              Increase
      (decrease)
              
              
              Year
      ended December 31,(in
      thousands)
              
              2007
              
              
              2006
              
              
              Dollars
              
              
              Percentage
              
              
              2007
              
              
              2006Net
      salesPublications
              
              $
              182,906
              
              
              $
              179,541
              
              
              $
              3,365
              
              
              
              1.9
              %
              
              
              53.1
              %
              
              
              53.2
              %Specialty
      catalogs
              
              
              98,140
              
              
              
              99,060
              
              
              
              (920
              )
              
              
              (0.9
              %)
              
              
              28.5
              %
              
              
              29.3
              %Books
              
              
              63,278
              
              
              
              59,287
              
              
              
              3,991
              
              
              
              6.7
              %
              
              
              18.4
              %
              
              
              17.6
              %Intersegment
      sales elimination
              
              
              (84
              )
              
              
              (348
              )
              
              
              264
              
              
              
              75.9
              %
              
              
              -
              
              
              
              (0.1
              %)Total
      net sales
              
              
              344,240
              
              
              
              337,540
              
              
              
              6,700
              
              
              
              2.0
              %
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of sales
              
              
              274,190
              
              
              
              272,164
              
              
              
              2,026
              
              
              
              0.7
              %
              
              
              79.7
              %
              
              
              80.6
              %Gross
      profit
              
              
              70,050
              
              
              
              65,376
              
              
              
              4,674
              
              
              
              7.1
              %
              
              
              20.3
              %
              
              
              19.4
              %Selling
      and administrative expenses
              
              
              41,746
              
              
              
              40,339
              
              
              
              1,407
              
              
              
              3.5
              %
              
              
              12.1
              %
              
              
              12.0
              %Loss
      on disposition of fixed assets
              
              
              4
              
              
              
              255
              
              
              
              (251
              )
              
              
              (98.4
              %)
              
              
              -
              
              
              
              0.1
              %Restructuring
      costs
              
              
              115
              
              
              
              2,736
              
              
              
              (2,621
              )
              
              
              (95.8
              %)
              
              
              -
              
              
              
              0.8
              %Amortization
      of intangibles
              
              
              1,877
              
              
              
              3,782
              
              
              
              (1,905
              )
              
              
              (50.4
              %)
              
              
              0.6
              %
              
              
              1.1
              %Impairment
      of goodwill
              
              
              -
              
              
              
              12,775
              
              
              
              (12,775
              )
              
              
              (100.0
              %)
              
              
              -
              
              
              
              3.8
              %Total
      operating expenses
              
              
              43,742
              
              
              
              59,887
              
              
              
              (16,145
              )
              
              
              (27.0
              %)
              
              
              12.7
              %
              
              
              17.8
              %Operating
      incomePublications
              
              
              21,002
              
              
              
              15,263
              
              
              
              5,739
              
              
              
              37.6
              %
              
              
              11.5
              %
              
              
              8.5
              %Specialty
      catalogs
              
              
              1,551
              
              
              
              (12,695
              )
              
              
              14,246
              
              
              nm
              
              
              
              1.6
              %
              
              
              (12.8
              %)Books
              
              
              6,264
              
              
              
              5,213
              
              
              
              1,051
              
              
              
              20.2
              %
              
              
              9.9
              %
              
              
              8.8
              %Corporate
      expenses
              
              
              (2,509
              )
              
              
              (2,292
              )
              
              
              (217
              )
              
              
              (9.5
              %)
              
              
              N/A
              
              
              
              N/ATotal
      operating income
              
              
              26,308
              
              
              
              5,489
              
              
              
              20,819
              
              
              
              379.2
              %
              
              
              7.6
              %
              
              
              1.6
              %Other
      (income) expenseInterest
      expense
              
              
              18,577
              
              
              
              18,818
              
              
              
              (241
              )
              
              
              (1.3
              %)
              
              
              5.4
              %
              
              
              5.6
              %Interest
      income
              
              
              (446
              )
              
              
              (226
              )
              
              
              (220
              )
              
              
              (97.3
              %)
              
              
              (0.2
              %)
              
              
              (0.1
              %)Other,
      net
              
              
              (83
              )
              
              
              (316
              )
              
              
              233
              
              
              
              73.7
              %
              
              
              -
              
              
              
              (0.1
              %)Total
      other expense
              
              
              18,048
              
              
              
              18,276
              
              
              
              (228
              )
              
              
              (1.2
              %)
              
              
              5.2
              %
              
              
              5.4
              %Income
      (loss) before income taxes
              
              
              8,260
              
              
              
              (12,787
              )
              
              
              21,047
              
              
              nm
              
              
              
              2.4
              %
              
              
              (3.8
              %)Income
      tax provision (benefit)
              
              
              3,413
              
              
              
              (4,444
              )
              
              
              7,857
              
              
              nm
              
              
              
              1.0
              %
              
              
              (1.3
              %)Net
      income (loss)
              
              $
              4,847
              
              
              $
              (8,343
              )
              
              $
              13,190
              
              
              nm
              
              
              
              1.4
              %
              
              
              (2.5
              %)








Net sales
were $344.2 million in 2007, a $6.7 million or 2.0% increase compared to net
sales of $337.5 million for 2006, due primarily to increases in shipping revenue
and new work awarded to us by new and existing customers. Increases in the price
of fuel and postage have resulted in higher shipping costs which we were able to
pass through to our customers in 2007. Net sales for the publications segment
for 2007 increased by 1.9% due mainly to increases in shipping revenue partially
offset by planned customer attrition as a result of the
shutdown of the Capital City Press facility, which was completed during the
first quarter of 2006. Net sales for the specialty catalogs segment
decreased slightly primarily due to customer attrition partially offset by
increases in shipping and paper revenue. Net sales for the books segment grew by
6.7% primarily due to new work awarded to us by new and existing
customers.




Gross
profit for 2007 was $70.1 million, a $4.7 million or 7.1% increase compared to
gross profit of $65.4 million for 2006. Gross margin for 2007 increased to 20.3%
of net sales compared to 19.4% for 2006. The gross profit and margin increases
were attributable primarily to growth in sales revenues coupled with lower
outsourcing costs and increased revenue from recyclable
materials.


16
 Index





Selling
and administrative expenses for 2007 increased by $1.4 million or 3.5% compared
to 2006. The increase is due primarily to increased bonus accruals based on the
achievement of profit goals in 2007 that were not earned in the same period a
year ago and increased corporate overhead expenses as a result of the additional
resources added to the corporate office staff.





Restructuring
costs of $0.1 million were recorded in 2007 as a result of our decision to shut
down the operations of Capital City Press in 2006 and consolidate the production
of short-run journals at The Sheridan Press. This decision resulted from trends
in the short-run journals business and the capital investment required for
maintaining two facilities serving the same market. The restructuring costs
recorded in 2007 related primarily to employee health benefits (as a result of
COBRA requirements) and building lease costs and were partially offset by a $0.1
million reduction in the reserve for potential workers’ compensation claims
related to the Capital City Press facility. Restructuring costs of $2.7 million
were recorded in 2006 related primarily to guaranteed severance payments,
employee health benefits and other one-time costs. Total restructuring costs,
including charges recorded in 2005, were approximately
$3.2 million.





Amortization
expense for 2007 was $1.9 million, a $1.9 million decrease compared to
amortization expense of $3.8 million for 2006. Amortization expense in 2006
included a $1.9 million charge associated with accelerated amortization on
an intangible asset, the Capital City Press trade name, which was disposed of as
a result of the shutdown of Capital City Press.





In
connection with our annual assessment of goodwill in 2007, we concluded that
there were no indications of impairment. In 2006, as a result of our annual
assessment, we concluded that the goodwill related to the Dingley Acquisition
was impaired. This resulted in a non-cash impairment charge of $12.8 million
during the fourth quarter of 2006.




Operating
income of $26.3 million in 2007 represented a $20.8 million or 379.2% increase
compared to operating income of $5.5 million in 2006. This increase was due
principally to the absence, in 2007, of an impairment charge in the specialty
catalogs segment for goodwill related to the Dingley Acquisition, the cost
benefits realized from the shutdown of the Capital City Press facility, which
included lower restructuring and amortization costs, as well as
lower material and outsourcing expenses. Operating income of $21.0 million
for the publications segment in 2007 was $5.7 million higher than the operating
income for the same period in 2006 primarily due to the cost benefits realized
from the shutdown of the Capital City Press facility, partially offset by an
investment in a new product offering. Operating income of $1.5 million for the
specialty catalogs segment in 2007 represented a $14.2 million increase as
compared to an operating loss of $12.7 million for the same period last year.
This increase was due primarily to the absence, in 2007, of the charge related
to goodwill impairment which was recorded in 2006 coupled with lower bad debt
expense and increased revenues from recyclable materials. Operating income of
$6.3 million for the books segment in 2007 represented a $1.1 million increase
as compared to 2006. Increases in net sales partially offset by additional
costs for labor and supplies were the primary reasons for the book segment
increase.





Income
before income taxes for 2007 was $8.3 million, a $21.1 million increase as
compared to a loss before income taxes of 12.8 million for 2006. Income before
income taxes margin for 2007 was 2.4%, an increase of 6.2 margin points compared
to a negative 3.8% margin for 2006. The increase in income before income taxes
margin for 2007 was mainly the result of the absence, in 2007, of the full
impairment of the specialty catalogs segment goodwill related to the Dingley
Acquisition, along with lower restructuring costs and amortization expense
resulting from the shutdown of the Capital City Press facility in 2006, lower
outsourcing costs, lower bad debt expense and increased revenues.




Our
effective income tax rate in 2007 was 41.3% compared to 34.8% in 2006. The
increase in the effective tax rate in 2007 was caused primarily by changes in
the apportionment of taxable income among the states in which we conduct
business and the recognition of additional estimated tax liabilities upon the
adoption of FIN 48. The 2006 effective tax rate reflects a lower than expected
tax benefit resulting from the impact of taxable income, despite a consolidated
loss, incurred in states that do not have unitary tax filing
requirements.




Net
income for 2007 was $4.8 million, a $13.1 million increase as compared to a net
loss of $8.3 million for 2006 due to the factors mentioned
previously.


17
 Index




Comparison
of Years Ended December 31, 2006 and December 31, 2005




Percent
      of revenueYear
      ended December 31,
              
              
              Increase
      (decrease)
              
              
              Year
      ended December 31,(in
      thousands)
              
              2006
              
              
              2005
              
              
              Dollars
              
              
              Percentage
              
              
              2006
              
              
              2005Net
      salesPublications
              
              $
              179,541
              
              
              $
              181,149
              
              
              $
              (1,608
              )
              
              
              (0.9
              %)
              
              
              53.2
              %
              
              
              52.1
              %Specialty
      catalogs
              
              
              99,060
              
              
              
              111,846
              
              
              
              (12,786
              )
              
              
              (11.4
              %)
              
              
              29.3
              %
              
              
              32.1
              %Books
              
              
              59,287
              
              
              
              55,147
              
              
              
              4,140
              
              
              
              7.5
              %
              
              
              17.6
              %
              
              
              15.8
              %Intersegment
      sales elimination
              
              
              (348
              )
              
              
              (183
              )
              
              
              (165
              )
              
              
              (90.2
              %)
              
              
              (0.1
              %)
              
              
              -Total
      net sales
              
              
              337,540
              
              
              
              347,959
              
              
              
              (10,419
              )
              
              
              (3.0
              %)
              
              
              100.0
              %
              
              
              100.0
              %Cost
      of sales
              
              
              272,164
              
              
              
              283,503
              
              
              
              (11,339
              )
              
              
              (4.0
              %)
              
              
              80.6
              %
              
              
              81.5
              %Gross
      profit
              
              
              65,376
              
              
              
              64,456
              
              
              
              920
              
              
              
              1.4
              %
              
              
              19.4
              %
              
              
              18.5
              %Selling
      and administrative expenses
              
              
              40,339
              
              
              
              39,594
              
              
              
              745
              
              
              
              1.9
              %
              
              
              12.0
              %
              
              
              11.3
              %Loss
      on disposition of fixed assets
              
              
              255
              
              
              
              586
              
              
              
              (331
              )
              
              
              (56.5
              %)
              
              
              0.1
              %
              
              
              0.2
              %Restructuring
      costs
              
              
              2,736
              
              
              
              429
              
              
              
              2,307
              
              
              
              537.8
              %
              
              
              0.8
              %
              
              
              0.1
              %Amortization
      of intangibles
              
              
              3,782
              
              
              
              1,950
              
              
              
              1,832
              
              
              
              93.9
              %
              
              
              1.1
              %
              
              
              0.6
              %Impairment
      of goodwill
              
              
              12,775
              
              
              
              -
              
              
              
              12,775
              
              
              nm
              
              
              
              3.8
              %
              
              
              -Total
      operating expenses
              
              
              59,887
              
              
              
              42,559
              
              
              
              17,328
              
              
              
              40.7
              %
              
              
              17.8
              %
              
              
              12.2
              %Operating
      incomePublications
              
              
              15,263
              
              
              
              17,102
              
              
              
              (1,839
              )
              
              
              (10.8
              %)
              
              
              8.5
              %
              
              
              9.4
              %Specialty
      catalogs
              
              
              (12,695
              )
              
              
              2,599
              
              
              
              (15,294
              )
              
              nm
              
              
              
              (12.8
              %)
              
              
              2.3
              %Books
              
              
              5,213
              
              
              
              4,194
              
              
              
              1,019
              
              
              
              24.3
              %
              
              
              8.8
              %
              
              
              7.6
              %Corporate
      expenses
              
              
              (2,292
              )
              
              
              (1,998
              )
              
              
              (294
              )
              
              
              (14.7
              %)
              
              
              N/A
              
              
              
              N/ATotal
      operating income
              
              
              5,489
              
              
              
              21,897
              
              
              
              (16,408
              )
              
              
              (74.9
              %)
              
              
              1.6
              %
              
              
              6.3
              %Other
      (income) expenseInterest
      expense
              
              
              18,818
              
              
              
              18,968
              
              
              
              (150
              )
              
              
              (0.8
              %)
              
              
              5.6
              %
              
              
              5.5
              %Interest
      income
              
              
              (226
              )
              
              
              (280
              )
              
              
              54
              
              
              
              19.3
              %
              
              
              (0.1
              %)
              
              
              (0.1
              %)Other,
      net
              
              
              (316
              )
              
              
              (407
              )
              
              
              91
              
              
              
              22.4
              %
              
              
              (0.1
              %)
              
              
              (0.1
              %)Total
      other expense
              
              
              18,276
              
              
              
              18,281
              
              
              
              (5
              )
              
              
              (0.0
              %)
              
              
              5.4
              %
              
              
              5.3
              %(Loss)
      income before income taxes
              
              
              (12,787
              )
              
              
              3,616
              
              
              
              (16,403
              )
              
              nm
              
              
              
              (3.8
              %)
              
              
              1.0
              %Income
      tax (benefit) provision
              
              
              (4,444
              )
              
              
              2,436
              
              
              
              (6,880
              )
              
              nm
              
              
              
              (1.3
              %)
              
              
              0.7
              %Net
      (loss) income
              
              $
              (8,343
              )
              
              $
              1,180
              
              
              $
              (9,523
              )
              
              nm
              
              
              
              (2.5
              %)
              
              
              0.3
              %







Net sales
were $337.5 million in 2006, a $10.4 million or 3.0% decrease compared to net
sales of $347.9 million for 2005, due primarily to customer attrition. Net sales
for the publications segment for 2006 decreased by 0.9% due mainly to planned
customer attrition as a result of the shutdown of the Capital City Press
facility. Net sales for the specialty catalogs segment decreased by 11.4%
primarily due to customer attrition as well as reductions in run lengths for
specific customers. Net sales for the books segment grew by 7.5% primarily due
to new work awarded to us.




Gross
profit for 2006 was $65.4 million, a $0.9 million or 1.4% increase compared to
gross profit of $64.5 million for 2005. Gross margin for 2006 increased to 19.4%
of net sales compared to 18.5% for 2005. The gross profit and margin increases
were attributable primarily to productivity improvements, lower healthcare costs
due to plan changes and the shutdown of Capital City Press, partially offset by
the impact of decreased sales.




As a
result of our decision to shut down the operations of Capital City Press and
consolidate the production of short-run journals at The Sheridan Press, we
recorded restructuring costs of $2.7 million in 2006, a $2.3 million increase
compared to restructuring costs of $0.4 million in 2005. The restructuring costs
in 2006 related primarily to guaranteed severance payments of $1.5 million,
employee health benefits of $0.7 million and other one-time costs of $0.5
million. The restructuring costs in 2005 related primarily to guaranteed
severance payments of $0.3 million and other one-time costs of $0.1
million.




Amortization
expense for 2006 was $3.8 million, a $1.8 million increase compared to
amortization expense of $2.0 million for 2005. The increase in amortization
expense in 2006 was due to a $1.9 million charge associated with
accelerated amortization on an intangible asset, the Capital City Press trade
name, which was disposed of as a result of the shutdown of Capital City
Press.




18
 Index




In
connection with our annual assessment of goodwill, we concluded that the
goodwill related to the Dingley Acquisition was impaired. This resulted in a
non-cash impairment charge of $12.8 million during the fourth quarter of 2006.
There were no indications of impairment as a result of our annual goodwill
assessment in 2005.




Operating
income of $5.5 million in 2006 represented a $16.4 million or 74.9% decrease
compared to operating income of $21.9 million in 2005. This decrease was due
principally to the full impairment of the specialty catalogs segment goodwill
related to the Dingley Acquisition and the costs associated with the shutdown of
Capital City Press, partially offset by the decrease in costs associated with
the compliance requirements of the Sarbanes-Oxley Act of 2002. Operating income
of $15.3 million for the publications segment in 2006 was $1.8 million lower
than the operating income for the same period in 2005 primarily due to the
restructuring costs and the accelerated amortization of intangible assets
recorded in connection with the shutdown of the Capital City Press facility
partially offset by the cost savings realized as a result of the shutdown of the
Capital City Press facility. The operating loss of $12.7 million for the
specialty catalogs segment in 2006 represented a $15.3 million decline as
compared to the same period last year. The impairment of goodwill, the decrease
in net sales and an increase in the allowance for doubtful accounts of $1.1
million related to the liquidity concerns for a specific customer were the
primary reasons for the operating income decline. These adverse impacts
were partially offset by productivity improvements, lower healthcare costs due
to plan changes, as well as cost containment of materials and
maintenance costs. Operating income for the books segment increased by
$1.0 million in 2006. Increases in net sales partially offset by increased
costs, mainly paper, were the primary reasons for the increase.




Loss
before income taxes for 2006 was $12.8 million, a $16.4 million decrease as
compared to income before income taxes of $3.6 million for 2005. Loss before
income taxes margin for 2006 was negative 3.8%, a decrease of 4.8 margin points
compared to a 1.0% margin for 2005. The decrease in income before income taxes
margin for 2006 was mainly the result of the full impairment of the specialty
catalogs segment goodwill related to the Dingley Acquisition, the restructuring
costs and accelerated amortization expense resulting from the shutdown of the
Capital City Press facility, an increase in the allowance for doubtful accounts
for a specific customer in the specialty catalogs segment partially offset by
productivity improvements, lower healthcare costs due to plan changes and the
decrease in costs associated with the compliance requirements of the
Sarbanes-Oxley Act of 2002.




Our
effective income tax rate in 2006 was 34.8% compared to 67.4% in 2005. The 2006
and 2005 effective tax rates reflect the impact of apportioning the Company’s
taxable income to states with unitary tax filing requirements and higher tax
rates. The 2006 effective tax rate reflects a lower than expected tax benefit
resulting from the impact of taxable income, despite a consolidated loss,
incurred in states that do not have unitary tax filing requirements. The 2005
effective rate reflects a higher than expected tax expense resulting from the
recognition of taxable income in unitary tax states with higher state rates as
well as non-unitary tax filing states.




Net loss
for 2006 was $8.3 million, a $9.5 million decrease from net income of $1.2
million for 2005. The decrease in net income for 2006 was principally due to the
full impairment of goodwill related to the Dingley Acquisition, the
restructuring costs and accelerated amortization expense resulting from the
shutdown of the Capital City Press facility partially offset by cost containment
efforts and the income tax benefit.




Liquidity
and Capital Resources




Operating
Activities




Net cash
provided by operating activities was $27.4 million for 2007, an increase of $3.1
million as compared to $24.3 million for 2006. The increase was primarily due to
an increase in net income of $13.2 million partially offset by a decrease in
non-cash charges of $7.5 million and by unfavorable working capital changes of
$2.6 million.  The decline due to working capital changes was caused
by (i) an increase in accounts receivable due primarily to higher sales and
 (ii) a decrease in the level of accrued expenses, primarily customer
deposits on hand in our catalogs segment, at the end of 2007 as compared to the
same period in 2006 partially offset by the timing of vendor and tax payments
during 2007 as compared to 2006. The decrease in non-cash charges consisted
primarily of the absence, in 2007, of the charge related to goodwill impairment
in the specialty catalogs segment coupled with lower amortization in 2007 as
compared to 2006 as a result of the shutdown of Capital City Press partially
offset by the change in deferred income taxes.





Net cash
provided by operating activities was $24.3 million for 2006, an increase of $0.8
million as compared to $23.5 million for 2005. The net cash provided by
operating activities for 2006 reflects a net loss of $8.3 million offset by
$28.5 million of non-cash charges and favorable working capital changes of $4.1
million. The non-cash charges consisted primarily of depreciation, amortization,
goodwill impairment and an increase in the reserve for doubtful accounts
partially offset by a deferred tax benefit.  The working capital
changes consisted primarily of decreases in accounts receivable, due mainly to
the decrease in sales during 2006 as compared to 2005, and an increase in
accrued expenses, due mainly to an increase in the amount of customer-owned
paper inventory held by us as of December 31, 2006 as compared to December 31,
2005.




19
 Index




We had
cash of $20.5 million as of December 31, 2007 compared to $7.8 million as
of December 31, 2006. During 2007 and 2006, we utilized cash provided by
operating activities to make investments in new equipment and make the
semi-annual interest payments on the 2003 Notes and the 2004 Notes.




Investing
Activities




Net cash
used in investing activities was $14.5 million for 2007 compared to $24.5
million for 2006. This $10.0 million decrease was primarily the result of an
$11.1 million decrease in plant and equipment purchased in the ordinary
course of business and the proceeds from the repayment of funds previously
advanced to Holdings, partially offset by a decrease in proceeds from the sale
of excess equipment of $1.6 million.




Net cash
used in investing activities was $24.5 million for 2006 compared to $20.3
million for 2005. This $4.2 million increase was primarily the result of a
$5.0 million increase in plant and equipment purchased in the ordinary
course of business and the one-time impact of insurance proceeds of $0.8 million
received in 2005 as a result of a property damage claim, partially offset by
proceeds from the sale of excess equipment and the Capital City Press facility
in 2006 of $2.0 million.




Financing Activities




Net cash
used in financing activities for 2007 was $0.2 million which primarily resulted
from the payment of a cash dividend. Net cash provided by financing activities
for 2006 was negligible. Net cash used in financing activities for 2005 was $0.2
million which primarily resulted from the payment of a cash
dividend.




Total
debt outstanding at December 31, 2007 was $164.9 million which was
unchanged as compared to $164.9 million outstanding at December 31,
2006.




Indebtedness




As of
December 31, 2007, we had total indebtedness of $164.9 million comprised
entirely of amounts due under the 2003 Notes and the 2004 Notes, all with a
scheduled maturity of August 2011. We will have significant interest
payments due on the outstanding notes as well as interest payments due on any
borrowings under our working capital facility, under which there were no amounts
outstanding as of December 31, 2007. Total cash interest payments related
to our working capital facility and the 2003 Notes and the 2004 Notes are
expected to be in excess of $16.9 million on an annual basis.




The
terms of our working capital facility are substantially as set forth below.
Revolving advances are available from the lenders in an aggregate principal
amount of up to $30.0 million, subject to a borrowing base test. We are able to
repay and re-borrow such advances until the May 2009 maturity date.




Our
working capital facility and the indenture governing the 2003 Notes and the 2004
Notes contain various covenants which limit our discretion in the operation of
our businesses. Additionally, our working capital facility contains various
restrictive covenants. Among other things, it prohibits us from prepaying other
indebtedness, including the 2003 Notes and the 2004 Notes, and it requires us to
satisfy certain financial tests including an interest coverage ratio and
requires us to maintain a minimum EBITDA (as defined in and calculated pursuant
to our working capital facility) (such EBITDA being referred to hereinafter as
“WCF EBITDA”), both calculated for the period consisting of the four preceding
consecutive fiscal quarters. WCF EBITDA is defined in and calculated pursuant to
our working capital facility and is used below solely for purposes of
calculating our compliance with the covenants in our working capital facility.
Failure to satisfy the financial tests in our working capital facility would
constitute a default under our working capital facility. The required interest
coverage ratio is 2.00 to 1.00 and the minimum WCF EBITDA requirement
(calculated on a rolling twelve months) was $33.0 million through the end of the
third quarter of 2006 and $36.0 million thereafter. For the year ended
December 31, 2007, our interest coverage ratio was 2.68 to 1.00 and our WCF
EBITDA for purposes of our working capital facility was $46.0 million. In
addition, our working capital facility restricts our ability to declare or pay
any dividends and prohibits us from making any payments with respect to the 2003
Notes and the 2004 Notes if we fail to perform our obligations under, or fail to
meet the conditions of, our working capital facility or if payment creates a
default under our working capital facility.




WCF
EBITDA calculated pursuant to the working capital facility is defined as net
income (loss) before interest expense, income taxes, depreciation, amortization
and other non-cash charges (including all fees and costs relating to the
transactions contemplated by the working capital facility) as defined in the
working capital facility. WCF EBITDA calculated pursuant to the working capital
facility is not an indicator of financial performance or liquidity under
generally accepted accounting principles and may not be comparable to similarly
captioned information reported by other companies. In addition, it should not be
considered as an alternative to, or more meaningful than, income before income
taxes, cash flows from operating activities or other traditional indicators of
operating performance.




20
 Index




WCF
EBITDA is reconciled directly to cash flow from operations as follows (in
thousands):




Year
      ended
              
              
              Year
      ended
              
              
              Year
      endedDecember
      31,
              
              
              December
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2005Net
      cash provided by operating activities
              
              $
              27,459
              
              
              $
              24,336
              
              
              $
              23,543Accounts
      receivable
              
              
              3,815
              
              
              
              (1,174
              )
              
              
              704Inventories
              
              
              228
              
              
              
              9
              
              
              
              556Other
      current assets
              
              
              270
              
              
              
              (83
              )
              
              
              611Refundable
      income taxes
              
              
              (438
              )
              
              
              (671
              )
              
              
              (1,935
              )Other
      assets
              
              
              (527
              )
              
              
              171
              
              
              
              846Accounts
      payable
              
              
              (6,814
              )
              
              
              536
              
              
              
              (3,357
              )Accrued
      expenses
              
              
              1,545
              
              
              
              (3,214
              )
              
              
              (125
              )Accrued
      interest
              
              
              27
              
              
              
              1
              
              
              
              119Income
      taxes payable
              
              
              (765
              )
              
              
              -
              
              
              
              -Other
      liabilities
              
              
              268
              
              
              
              (507
              )
              
              
              (509
              )Provision
      for doubtful accounts
              
              
              (495
              )
              
              
              (1,220
              )
              
              
              (53
              )Provision
      for inventory realizability and LIFO value
              
              
              (44
              )
              
              
              (106
              )
              
              
              (64
              )Non-cash
      donation of property
              
              
              (45
              )
              
              
              -
              
              
              
              -Deferred
      income tax (expense) benefit
              
              
              (311
              )
              
              
              7,235
              
              
              
              269Loss
      on disposition of fixed assets, net
              
              
              (4
              )
              
              
              (254
              )
              
              
              (586
              )Income
      tax provision (benefit)
              
              
              3,413
              
              
              
              (4,444
              )
              
              
              2,436Cash
      interest expense
              
              
              17,123
              
              
              
              17,215
              
              
              
              17,201Management
      fees
              
              
              917
              
              
              
              784
              
              
              
              827Non
      cash adjustments:Adjustments
      to LIFO value
              
              
              12
              
              
              
              51
              
              
              
              30(Increase)
      decrease in market value of investments
              
              
              (58
              )
              
              
              120
              
              
              
              (85
              )Amortization
      of prepaid lease costs
              
              
              84
              
              
              
              83
              
              
              
              83Loss
      on disposition of fixed assets
              
              
              190
              
              
              
              317
              
              
              
              695Restructuring
      costs
              
              
              115
              
              
              
              2,736
              
              
              
              429Working
      Capital Facility EBITDA
              
              $
              45,965
              
              
              $
              41,921
              
              
              $
              41,635





The
indenture governing the 2003 Notes and the 2004 Notes also contains various
restrictive covenants. It, among other things: (i) limits our ability and the
ability of our subsidiaries to incur additional indebtedness, issue shares of
preferred stock, incur liens and enter into certain transactions with
affiliates; (ii) places restrictions on our ability to pay dividends or make
certain other restricted payments; and (iii) places restrictions on our ability
and the ability of our subsidiaries to merge or consolidate with any other
person or sell, assign, transfer, convey or otherwise dispose of all or
substantially all of our assets.




Our
principal sources of liquidity are expected to be cash flow generated from
operations and borrowings under our working capital facility. Our principal uses
of cash are expected to be to meet debt service requirements, finance our
capital expenditures and provide working capital. We estimate that our capital
expenditures for 2008 will total about $18.2 million. Based on our current level
of operations, we believe that our cash flow from operations, available cash and
available borrowings under our working capital facility will be adequate to meet
our future short-term and long-term liquidity needs. Our future operating
performance and ability to extend or refinance our indebtedness will be
dependent on future economic conditions and financial, business and other
factors that may be beyond our control.




21
 Index




Contractual
Obligations




The
following table summarizes our future minimum non-cancelable contractual
obligations as of December 31, 2007:




Remaining
      Payments Due by Period2009
      to
              
              
              2011
      to
              
              
              2013
      andTotal
              
              
              2008
              
              
              2010
              
              
              2012
              
              
              beyond(in
      thousands)Long
      term debt, including interest (1)
              
              $
              226,308
              
              
              $
              16,913
              
              
              $
              33,825
              
              
              $
              175,570
              
              
              $
              -Operating
      leases
              
              
              13,680
              
              
              
              5,376
              
              
              
              6,630
              
              
              
              1,674
              
              
              
              -Purchase
      obligations (2)
              
              
              12,945
              
              
              
              12,049
              
              
              
              824
              
              
              
              64
              
              
              
              8Other
      long-term obligations (3)
              
              
              917
              
              
              
              258
              
              
              
              344
              
              
              
              302
              
              
              
              13Total
      (4)
              
              $
              253,850
              
              
              $
              34,596
              
              
              $
              41,623
              
              
              $
              177,610
              
              
              $
              21




(1)
            Includes
      the $105.0 million aggregate principal amount due on the 2003 Notes and
      the $60.0 million aggregate principal amount due on the 2004 Notes plus
      interest at 10.25% payable semi-annually through August 15,
      2011.




(2)
            Represents
      payments due under purchase agreements for consumable raw materials and
      commitments for construction projects and equipment
      acquisitions.




(3)
            Represents
      payments due under non-compete arrangements with our former Chairman of
      the Board and the Chairman of The Dingley
Press.




(4)
            As
      discussed in Notes 2 and 11 in our Consolidated Financial Statements, we
      adopted the provisions of FIN 48 on January 1, 2007. At December 31, 2007,
      we have recognized $1.5 million of liabilities for unrecognized tax
      benefits. There is a high degree of uncertainty with respect to the timing
      of future cash outflows associated with our unrecognized tax benefits
      because they are dependent on various matters including tax examinations,
      changes in tax laws or interpretation of those laws, expiration of
      statutes of limitation, etc. Due to these uncertainties, our unrecognized
      tax benefits have been excluded from the contractual obligations table
      above.




Off-Balance
Sheet Arrangements




At
December 31, 2007 and 2006, we did not have any relationships with
unconsolidated entities or financial partnerships, such as entities often
referred to as structured finance or special purpose entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements
or other contractually narrow or limited purposes. We are, therefore, not
materially exposed to any financing, liquidity, market or credit risk that could
arise if we had engaged in such relationships.




Effect
of Inflation




Inflation
generally affects us by increasing our costs of labor, equipment and new
materials. We do not believe that inflation has had any material effect on our
results of operations during 2007, 2006 and 2005.




Recently
Issued Accounting Pronouncements




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not require any new fair value
measurements. Under SFAS 157, fair value is established by the price that would
be received to sell the item or the amount to be paid to transfer the liability
(an exit price), as opposed to the price to be paid for the asset or received to
assume the liability (an entry price).  SFAS 157 is effective for all
assets valued in financial statements for fiscal years beginning after November
15, 2007. We are currently evaluating whether the adoption of SFAS 157 will have
a material effect on our consolidated financial position, results of operations
or cash flows.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities,” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair value. SFAS
159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities. SFAS 159 is effective
for fiscal years beginning after November 15, 2007. We do not believe the
adoption of SFAS 159 will have a material effect on our consolidated financial
position, results of operations or cash flows.




22
 Index




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations,” (“SFAS 141R”) which replaces SFAS No 141. The statement
retains the purchase method of accounting for acquisitions, but requires a
number of changes, including changes in the way assets and liabilities are
recognized in purchase accounting. It also changes the recognition of assets
acquired and liabilities assumed arising from contingencies, requires the
capitalization of in-process research and development at fair value, and
requires the expensing of acquisition-related costs as incurred. SFAS 141R is
effective for acquisitions occurring in fiscal years beginning after
December 15, 2008 and is required to be adopted by us in the first quarter
of fiscal 2009. We believe that the adoption of SFAS 141R would have an impact
on the accounting for any future acquisition, if one were to occur.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51,” (“SFAS 160”) which
changes the accounting and reporting for minority interests. Minority interests
will be recharacterized as noncontrolling interests and will be reported as a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS 160 is effective for fiscal years beginning after
December 15, 2008 and requires retrospective application of its
presentation requirements. It is required to be adopted by us in the first
quarter of fiscal 2009. We have not determined the impact, if any, the adoption
of SFAS 160 will have on our financial position and results of operations, but
do not expect that the impact would be material.








ITEM
      7A.
            QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




Market
risk represents the risk of changes in value of a financial instrument,
derivative or non-derivative, caused by fluctuations in interest rates, foreign
exchange rates and equity prices. Changes in these factors could cause
fluctuations in results of our operations and cash flows. In the ordinary course
of business, we are exposed to foreign currency and interest rate risks. These
risks primarily relate to the sale of products and services to foreign customers
and changes in interest rates on our long-term debt.




Foreign
Exchange Rate Market Risk




We
consider the U.S. dollar to be the functional currency for all of our entities.
All of our net sales and virtually all of our expenses in fiscal years 2007,
2006 and 2005 were denominated in U.S. dollars. Therefore, foreign currency
fluctuations did not impact our financial results in those periods.




Interest
Rate Market Risk




We could
be exposed to changes in interest rates. Our working capital facility is
variable rate debt. Interest rate changes, therefore, generally do not affect
the market value of such debt but do impact the amount of our interest payments
and, therefore, our future earnings and cash flows, assuming other factors are
held constant. We currently do not have any borrowings under our working capital
facility. During 2007, we did have borrowings under our working capital facility
and we estimate that a 1.0% increase in interest rates would have resulted in a
negligible amount of additional interest expense for the year ended December 31,
2007. All of our other debt carries fixed interest rates.




23
 Index




ITEM
      8.
            FINANCIAL
      STATEMENTS AND SUPPLEMENTARY DATA




Report
of Independent Registered Public Accounting Firm




To the
Board of Directors and the Stockholder


of The
Sheridan Group, Inc.




In our
opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of changes in the stockholder’s equity
and of cash flows present fairly, in all material respects, the financial
position of The Sheridan Group, Inc. and Subsidiaries (the “Company”) at
December 31, 2007 and 2006, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States of
America.  These financial statements are the responsibility of the
Company’s management.  Our responsibility is to express an opinion on
these financial statements based on our audits.  We conducted our
audits of these statements 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.




As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for uncertain tax positions in 2007. As
discussed in Note 2 to the consolidated financial statements, the Company
changed the manner in which it accounts for stock based compensation in
2006.







/s/ PricewaterhouseCoopers
LLP


Baltimore,
Maryland


March 28,
2008


24
 Index




The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Balance Sheets


At
December 31, 2007 and 2006




December 31,
              
              
              December 31,2007
              
              
              2006AssetsCurrent
      assetsCash
      and cash equivalents
              
              $
              20,517,198
              
              
              $
              7,800,258Accounts
      receivable, net of allowance for doubtfulaccounts of $616,869 and
      $1,951,420, respectively
              
              
              34,469,418
              
              
              
              31,150,309Due
      from parent company
              
              
              -
              
              
              
              226,147Inventories,
      net
              
              
              19,142,545
              
              
              
              18,957,879Other
      current assets
              
              
              4,539,405
              
              
              
              4,043,345Refundable
      income taxes
              
              
              -
              
              
              
              437,504Deferred
      income taxes
              
              
              1,155,409
              
              
              
              1,803,716Total
      current assets
              
              
              79,823,975
              
              
              
              64,419,158Property,
      plant and equipment, net
              
              
              126,708,651
              
              
              
              129,665,739Intangibles,
      net
              
              
              40,545,117
              
              
              
              42,985,424Goodwill
              
              
              44,503,312
              
              
              
              44,697,800Deferred
      financing costs, net
              
              
              3,884,311
              
              
              
              5,324,014Other
      assets
              
              
              3,502,824
              
              
              
              4,474,484Total
      assets
              
              $
              298,968,190
              
              
              $
              291,566,619LiabilitiesCurrent
      liabilitiesAccounts
      payable
              
              $
              25,646,740
              
              
              $
              20,502,823Accrued
      expenses
              
              
              25,522,322
              
              
              
              27,433,944Income
      taxes payable
              
              
              72,513
              
              
              
              -Total
      current liabilities
              
              
              51,241,575
              
              
              
              47,936,767Notes
      payable
              
              
              164,929,659
              
              
              
              164,915,478Deferred
      income taxes
              
              
              27,153,776
              
              
              
              27,909,465Other
      liabilities
              
              
              4,797,887
              
              
              
              4,116,999Total
      liabilities
              
              
              248,122,897
              
              
              
              244,878,709Commitments
      and contingenciesStockholder's
      EquityCommon
      stock, $0.01 par value; 100 shares authorized;1 share issued and
      outstanding
              
              
              -
              
              
              
              -Additional
      paid-in capital
              
              
              51,043,554
              
              
              
              51,010,425Accumulated
      deficit
              
              
              (198,261
              )
              
              
              (4,322,515
              )Total
      stockholder's equity
              
              
              50,845,293
              
              
              
              46,687,910Total
      liabilities and stockholder's equity
              
              $
              298,968,190
              
              
              $
              291,566,619




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




25
 Index




The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Statements of Operations


Years
Ended December 31, 2007, 2006 and 2005




Year
      Ended December 31,
              
              
              Year
      Ended December 31,
              
              
              Year
      Ended December 31,2007
              
              
              2006
              
              
              2005Net
      sales
              
              $
              344,239,531
              
              
              $
              337,540,314
              
              
              $
              347,958,675Cost
      of sales
              
              
              274,189,774
              
              
              
              272,164,460
              
              
              
              283,502,625Gross
      profit
              
              
              70,049,757
              
              
              
              65,375,854
              
              
              
              64,456,050Selling
      and administrative expenses
              
              
              41,745,714
              
              
              
              40,338,796
              
              
              
              39,594,103Loss
      on disposition of fixed assets
              
              
              4,329
              
              
              
              254,742
              
              
              
              585,617Restructuring
      costs
              
              
              114,940
              
              
              
              2,736,027
              
              
              
              429,231Amortization
      of intangibles
              
              
              1,877,165
              
              
              
              3,781,944
              
              
              
              1,950,204Impairment
      of goodwill
              
              
              -
              
              
              
              12,774,931
              
              
              
              -Total
      operating expenses
              
              
              43,742,148
              
              
              
              59,886,440
              
              
              
              42,559,155Operating
      income
              
              
              26,307,609
              
              
              
              5,489,414
              
              
              
              21,896,895Other
      (income) expenseInterest
      expense
              
              
              18,576,598
              
              
              
              18,818,043
              
              
              
              18,967,623Interest
      income
              
              
              (445,935
              )
              
              
              (225,759
              )
              
              
              (280,254
              )Other,
      net
              
              
              (83,320
              )
              
              
              (315,874
              )
              
              
              (406,853
              )Total
      other expense
              
              
              18,047,343
              
              
              
              18,276,410
              
              
              
              18,280,516Income
      (loss) before income taxes
              
              
              8,260,266
              
              
              
              (12,786,996
              )
              
              
              3,616,379Income
      tax provision (benefit)
              
              
              3,413,273
              
              
              
              (4,444,148
              )
              
              
              2,436,000Net
      income (loss)
              
              $
              4,846,993
              
              
              $
              (8,342,848
              )
              
              $
              1,180,379




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




26
 Index




The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Statements of Changes in Stockholder’s Equity


Years
Ended December 31, 2007, 2006 and 2005




(AccumulatedAdditional
              
              
              Deficit)
              
              
              TotalCommon
      Stock
              
              
              Paid-In
              
              
              Retained
              
              
              Stockholder'sShares
              
              
              Amount
              
              
              Capital
              
              
              Earnings
              
              
              EquityBalance
      as of December 31, 2004
              
              
              1
              
              
              
              -
              
              
              $
              50,975,000
              
              
              $
              3,089,845
              
              
              $
              54,064,845Cash
      dividend
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (249,891
              )
              
              
              (249,891
              )Capital
      contribution from parent company - stock options exercised
              
              
              -
              
              
              
              -
              
              
              
              800
              
              
              
              -
              
              
              
              800Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,180,379
              
              
              
              1,180,379Balance
      as of December 31, 2005
              
              
              1
              
              
              
              -
              
              
              $
              50,975,800
              
              
              $
              4,020,333
              
              
              $
              54,996,133Capital
      contribution from parent company - stock options exercised
              
              
              -
              
              
              
              -
              
              
              
              1,200
              
              
              
              -
              
              
              
              1,200Income
      tax benefit from stock options exercised
              
              
              -
              
              
              
              -
              
              
              
              655
              
              
              
              -
              
              
              
              655Share-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              32,770
              
              
              
              -
              
              
              
              32,770Net
      loss
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (8,342,848
              )
              
              
              (8,342,848
              )Balance
      as of December 31, 2006
              
              
              1
              
              
              
              -
              
              
              $
              51,010,425
              
              
              $
              (4,322,515
              )
              
              $
              46,687,910Cash
      dividend
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (249,463
              )
              
              
              (249,463
              )Impact
      of adopting new accounting standard - FIN 48
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              (473,276
              )
              
              
              (473,276
              )Share-based
      compensation
              
              
              -
              
              
              
              -
              
              
              
              33,129
              
              
              
              -
              
              
              
              33,129Net
      income
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              4,846,993
              
              
              
              4,846,993Balance
      as of December 31, 2007
              
              
              1
              
              
              
              -
              
              
              $
              51,043,554
              
              
              $
              (198,261
              )
              
              $
              50,845,293




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




27
 Index





The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


Years
Ended December 31, 2007, 2006 and 2005




December
      31,
              
              
              December
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2005Cash
      flows provided by operating actvities:Net
      income (loss)
              
              $
              4,846,993
              
              
              $
              (8,342,848
              )
              
              $
              1,180,379Adjustments
      to reconcile net income (loss) to net cash provided by operating
      activitiesDepreciation
              
              
              15,957,244
              
              
              
              15,209,022
              
              
              
              15,121,343Amortization
      of intangible assets
              
              
              1,877,165
              
              
              
              3,781,944
              
              
              
              1,950,204Impairment
      of goodwill
              
              
              -
              
              
              
              12,774,931
              
              
              
              -Provision
      for doubtful accounts
              
              
              495,475
              
              
              
              1,219,661
              
              
              
              53,074Provision
      for inventory realizability and LIFO value
              
              
              43,493
              
              
              
              106,228
              
              
              
              63,950Stock-based
      compensation
              
              
              33,129
              
              
              
              32,770
              
              
              
              -Amortization
      of deferred financing costs and debt discount, included in interest
      expense
              
              
              1,453,884
              
              
              
              1,603,065
              
              
              
              1,766,857Non-cash
      donation of property
              
              
              45,000
              
              
              
              -
              
              
              
              -Deferred
      income tax benefit
              
              
              311,100
              
              
              
              (7,235,320
              )
              
              
              (269,136
              )Loss
      on disposition of fixed assets
              
              
              4,329
              
              
              
              254,742
              
              
              
              585,617Changes
      in operating assets and liabilitiesAccounts
      receivable
              
              
              (3,814,584
              )
              
              
              1,174,055
              
              
              
              (704,029
              )Inventories
              
              
              (228,159
              )
              
              
              (8,841
              )
              
              
              (556,346
              )Other
      current assets
              
              
              (269,913
              )
              
              
              82,368
              
              
              
              (610,456
              )Refundable
      income taxes
              
              
              437,504
              
              
              
              670,647
              
              
              
              1,934,664Other
      assets
              
              
              527,308
              
              
              
              (171,339
              )
              
              
              (845,880
              )Accounts
      payable
              
              
              6,813,640
              
              
              
              (535,703
              )
              
              
              3,357,249Accrued
      expenses
              
              
              (1,545,150
              )
              
              
              3,214,047
              
              
              
              125,202Accrued
      interest
              
              
              (26,458
              )
              
              
              (622
              )
              
              
              (118,767
              )Income
      tax payable
              
              
              765,438
              
              
              
              -
              
              
              
              -Other
      liabilities
              
              
              (267,974
              )
              
              
              506,730
              
              
              
              509,253Net
      cash provided by operating activities
              
              
              27,459,464
              
              
              
              24,335,537
              
              
              
              23,543,178Cash
      flows used in investing activities:Purchases
      of property, plant and equipment
              
              
              (15,157,782
              )
              
              
              (26,295,867
              )
              
              
              (21,282,193
              )Proceeds
      from sale of fixed assets
              
              
              438,574
              
              
              
              2,022,474
              
              
              
              165,926Proceeds
      from insurance coverage
              
              
              -
              
              
              
              -
              
              
              
              809,971Proceeds
      from (advances to) parent company
              
              
              226,147
              
              
              
              (226,147
              )
              
              
              -Net
      cash used in investing activities
              
              
              (14,493,061
              )
              
              
              (24,499,540
              )
              
              
              (20,306,296
              )Cash
      flows (used in) provided by financing activities:Borrowing
      of revolving line of credit
              
              
              6,847,000
              
              
              
              42,341,000
              
              
              
              21,568,000Repayment
      of revolving line of credit
              
              
              (6,847,000
              )
              
              
              (42,341,000
              )
              
              
              (21,568,000
              )Proceeds
      from capital contribution from parent company
              
              
              -
              
              
              
              1,200
              
              
              
              800Realized
      income tax benefit from stock options exercised
              
              
              -
              
              
              
              655
              
              
              
              -Payment
      of dividend
              
              
              (249,463
              )
              
              
              -
              
              
              
              (249,891
              )Net
      cash (used in) provided by financing activities
              
              
              (249,463
              )
              
              
              1,855
              
              
              
              (249,091
              )Net
      increase (decrease) in cash and cash equivalents
              
              
              12,716,940
              
              
              
              (162,148
              )
              
              
              2,987,791Cash
      and cash equivalents at beginning of period
              
              
              7,800,258
              
              
              
              7,962,406
              
              
              
              4,974,615Cash
      and cash equivalents at end of period
              
              $
              20,517,198
              
              
              $
              7,800,258
              
              
              $
              7,962,406Supplemental
      disclosure of cash flow informationCash
      paid during the year forInterest
              
              $
              17,149,172
              
              
              $
              17,215,599
              
              
              $
              17,319,533Income
      taxes, net of refunds
              
              $
              1,512,577
              
              
              $
              2,062,831
              
              
              $
              738,852Non-cash
      investing activitiesAsset
      additions in accounts payable
              
              $
              907,608
              
              
              $
              2,577,331
              
              
              $
              940,732




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




28
 Index





The
Sheridan Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


Years
Ended December 31, 2007, 2006 and 2005




1.
Business Organization




The
Sheridan Group, Inc. (“TSG”) is one of the leading specialty printers in
the United States, offering a full range of printing and value-added support
services for the journal, magazine, book, catalog and article reprint
markets. We provide a wide range of printing services and value-added support
services, such as electronic copy editing, composition, digital proofing,
subscriber database maintenance, distribution services and electronic publishing
support. We have eight wholly-owned subsidiaries: The Sheridan Press, Inc.
(“TSP”), Dartmouth Printing Company (“DPC”), Dartmouth Journal
Services, Inc. (“DJS”), United Litho, Inc., Capital City Press, Inc.
(“CCP”), Sheridan Books, Inc. (“SBI”), The Dingley Press, Inc. (“TDP”)
and The Sheridan Group Holding Company. As used in the Notes to the Consolidated
Financial Statements, the terms “we,” “us,” “our” and other similar terms refer
to the consolidated businesses of The Sheridan Group, Inc. and all of its
subsidiaries.




On
August 21, 2003, we became a wholly-owned subsidiary of TSG Holdings Corp.
(“Holdings”), when Holdings purchased 100% of the outstanding capital stock of
TSG from its existing stockholders (the “Sheridan Acquisition.”) We funded the
acquisition price and the related fees and expenses with the proceeds of the
sale of $105.0 million aggregate principal amount of 101⁄4% Senior Secured Notes
due 2011 (the “2003 Notes”) and equity investments in Holdings. On May 25, 2004,
we acquired all of the assets and business of The Dingley Press of Lisbon, Maine
(the “Dingley Acquisition.”) We funded the acquisition price and the related
fees and expenses with the proceeds of the sale of $65.0 million aggregate
principal amount of 101⁄4% Senior Secured Notes due 2011 (the “2004 Notes”) and
equity investments in Holdings.






2.
Summary of Significant Accounting Policies




Principles
of Consolidation




The
consolidated financial statements include the accounts of The Sheridan
Group, Inc. and its wholly-owned subsidiaries, TSP, DPC, DJS, ULI, CCP,
SBI, TDP and The Sheridan Group Holding Company. All material intercompany
balances and transactions have been eliminated.




Use
of Estimates




The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires us to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.




Within
the financial tables in these Consolidated Financial Statements, some columns
and rows may not add due to the use of rounded numbers for disclosure
purposes.




Segment
Changes




In the
first quarter of 2007, we made changes to our organizational structure which
impacted our reportable segments. These changes did not impact our consolidated
financial position, results of operations or cash flows. See Note 16 for
additional information regarding the changes in reportable segments. The periods
presented in these Consolidated Financial Statements are reported on a
comparable basis.




Revenue
Recognition




In
accordance with Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition,” we
record revenue when realized or realizable and earned when all of the following
criteria are met:




·
            Persuasive
      evidence of an arrangement exists,


·
            Delivery
      has occurred or services have been
rendered,


·
            The
      seller’s price to the buyer is fixed or determinable,
  and


·
            Collectibility
      is reasonably assured.




As such,
substantially all revenue is recognized when a product is shipped and title and
risk of loss transfers to the customer. Shipping and handling fees billed to
customers are included in net sales and any cost of shipping and handling is
included in cost of sales.




29
 Index




Cash
and Cash Equivalents




Cash and
cash equivalents include amounts invested in accounts which are readily
convertible to known amounts or have original maturities of three months or less
when purchased.




Business
and Credit Concentrations




Our
customers are not concentrated in any specific geographic region, but are
concentrated in the journal, magazine, book, specialty catalog and
article reprint markets. There were no significant accounts receivable from
a single customer. We establish an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historical trends and
other information.




Accounts
Receivable and Allowance for Doubtful Accounts




Trade
accounts receivable are recorded at the invoiced amount and do not bear
interest. The allowance for doubtful accounts is our best estimate of probable
credit losses in our existing accounts receivable. We review the allowance for
doubtful accounts on a regular basis. Past due balances over 120 days are
reviewed for collectibility and form the basis of our reserve. When we
determine that a particular customer poses a credit risk, a specific reserve is
established. Account balances are charged off against the allowance when we feel
it is probable the receivable will not be recovered. We do not have any
off-balance sheet credit exposure related to our customers. During 2007, we
recognized a significant reduction in our allowance for doubtful accounts as the
result of write-offs related primarily to two specific customers. These
customers accounted for charges to expense of approximately $0.5 million and
$1.1 million during 2007 and 2006, respectively.




A
rollforward of the allowance for doubtful accounts is as follows:




Year
      Ended December 31,
              
              
              Year
      Ended December 31,
              
              
              Year
      Ended December 31,2007
              
              
              2006
              
              
              2005Balance
      at beginning of period
              
              $
              1,951,420
              
              
              $
              956,612
              
              
              $
              1,136,719Charged
      to expense
              
              
              495,475
              
              
              
              1,219,661
              
              
              
              53,074Deductions
              
              
              (1,830,026
              )
              
              
              (224,853
              )
              
              
              (233,181
              )Balance
      at end of period
              
              $
              616,869
              
              
              $
              1,951,420
              
              
              $
              956,612







Inventories




Inventories
are stated at the lower of cost or market with the cost of TSP’s paper inventory
and SBI’s work-in-process inventory determined by the last-in, first-out
(“LIFO”) cost method. The cost of the remaining inventory (approximately 92% of
inventories at December 31, 2007 and 2006, respectively) is determined
using the first-in, first-out (“FIFO”) method.




Property
and Equipment




Property,
plant and equipment are recorded at cost, except those assets acquired through
acquisitions, in which case they are recorded at fair value. Depreciation is
provided using the straight-line method over the estimated useful lives of the
assets, as follows: 3-11 years for machinery and equipment; and 10-40 years for
buildings and land improvements. Leasehold improvements are amortized over their
estimated useful lives or the term of the underlying lease, whichever is
shorter. Upon disposal of property, plant and equipment, the cost of the asset
and the related accumulated depreciation are removed from the accounts and any
resulting gain or loss is reflected in earnings.




Expenditures
for renewals and improvements which extend the original estimated lives of the
assets are capitalized. Expenditures for maintenance and repairs are charged to
operations as incurred.




We review
long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable
pursuant to SFAS No. 144 (“SFAS 144”), “Accounting for the Impairment or
Disposal of Long-Lived Assets.” Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment recognized is measured by the amount by which the
carrying amount of the assets exceeds the fair value of the assets. Assets to be
disposed of by sale are reported at the lower of the carrying amount or fair
value less costs to sell.




30
 Index




Income
Taxes




Deferred
income taxes are recognized for the tax consequences of applying enacted
statutory tax rates applicable to future years to differences between the
financial statement carrying amounts and the tax bases of existing assets and
liabilities. A valuation allowance is recorded against deferred tax assets when
it is more likely than not that a deferred tax asset will not be
realized.




In June
2006, the FASB issued FASB Interpretation No. 48 “Accounting for
Uncertainty in Income Taxes, an interpretation of FASB Statement No. 109”,
(“FIN 48”). FIN 48 clarifies FASB Statement No. 109, “Accounting for Income
Taxes” by prescribing a recognition threshold a tax position is required to meet
before being recognized in the financial statements. FIN 48 provides guidance on
de-recognition, measurement, classification, interest and penalties, accounting
in interim periods, disclosure and transition. We adopted the provisions of FIN
48 on January 1, 2007. Upon adoption of FIN 48, we recognized a $0.5 million
decrease in our retained earnings balance and a $0.3 million increase in
goodwill. At the date of adoption of FIN 48, our gross unrecognized tax benefits
were $1.3 million. Of this total, $0.3 million, net of federal and state
benefits, represents the amount of unrecognized tax benefits that, if
recognized, would have a favorable impact on the effective tax
rate.





Goodwill




We review
goodwill and indefinite-lived assets at least annually for impairment. Separable
intangible assets that have finite useful lives are amortized over their useful
lives.




Goodwill
is tested for impairment at the reporting unit level at adoption and at least
annually thereafter, utilizing a two-step methodology. The initial step requires
us to determine the fair value of each reporting unit and compare it to the
carrying value, including goodwill, of such unit. If the fair value exceeds the
carrying value, no impairment loss is recognized. However, if the carrying value
of the reporting unit exceeds its fair value, the goodwill of this unit
may be impaired. The amount, if any, of the impairment is then measured in
the second step by comparing the implied fair value of goodwill to the carrying
value of goodwill for each reporting unit. To determine the implied fair value
of goodwill, we make a hypothetical allocation of the reporting unit’s estimated
fair value to the tangible and intangible assets (other than goodwill) of the
reporting unit. Based on this methodology, we concluded that $12.8 million of
the specialty catalogs segment goodwill was impaired and was required to be
expensed as a non-cash charge to continuing operations during the fourth quarter
of 2006. We do not believe there is any impairment of goodwill as of December
31, 2007.




Identified
Intangible and Other Long-Lived Assets




Identified
intangible assets, which primarily consist of customer relationships and trade
names, were valued at fair value with the assistance of independent appraisers,
effective with acquisitions. All long-lived assets are amortized over the
estimated useful lives. We periodically review long-lived assets for impairment
using undiscounted future cash flows whenever events or changes in circumstances
indicate that the carrying value may not be recoverable, and do not believe
there is any impairment of intangible assets or other long-lived assets as of
December 31, 2007 and 2006 pursuant to SFAS 144.




Deferred
Financing Costs




Deferred
financing costs incurred in connection with the 2003 Notes and the 2004 Notes
are being amortized over the term of the related debt using the effective
interest method. Deferred financing costs incurred in connection with
establishing the revolving credit agreement are being amortized over the term of
the agreement using the straight-line method. Accumulated amortization as of
December 31, 2007 and 2006 was $6.9 million and $5.4 million,
respectively.




Accounting
for Stock Based Compensation




Our
parent company, Holdings, established the 2003 Stock-based Incentive
Compensation Plan (the “2003 Plan”), pursuant to which Holdings has reserved for
issuance 55,500 shares of its Common Stock. There is currently no public trading
market for the Common Stock. When necessary, we determine fair value through
internal valuations based on historical financial information and/or through a
third party service provider. As of December 31, 2007, 150 shares were available
for future grants. Stock options are granted at exercise prices not less than
the fair market value of the stock at the date of grant. Options generally vest
ratably over a five-year period, except those options granted to officers,
portions of which vest ratably over five years, and the remainder of which vest
upon the achievement of certain performance targets, the occurrence of certain
future events, including the sale of the Company or a qualified public offering,
or after eight years from the date of grant, as specified in the 2003 Plan.
Options expire ten years from the date of grant. We have a policy of issuing new
shares to satisfy share options upon exercise.




31
 Index




In
December 2004, the FASB issued SFAS No. 123R, “Share-Based Payment,”
(“SFAS 123R”). SFAS 123R requires that the cost of equity-based service awards
be measured based on the grant-date fair value of the award. The cost will be
recognized over the period during which an employee is required to provide
service in exchange for the award or the requisite service period. This
statement became effective for us on January 1, 2006. We adopted the
“Modified Prospective Application” transition method which does not result in
restatement of previously issued financial statements upon adoption. Awards that
are granted after this date will be measured and non-cash compensation expense
will be recognized in the consolidated statements of income in accordance with
SFAS 123R. In addition, non-vested awards that were granted prior to the
effective date of SFAS 123R also result in recognition of non-cash compensation
expense after the date of adoption. We recognize stock-based compensation
expense ratably over the vesting periods of options, adjusted for estimated
forfeitures.




Years ended December 31,
2007 and 2006




For the
years ended December 31, 2007 and 2006, we recognized non-cash stock-based
compensation expense of approximately $33,100 (approximately $19,500 net of
taxes) and $32,800 (approximately $20,300 net of taxes), respectively, which is
included in selling and administrative expenses.




We value
options using the Black-Scholes option-pricing model which was developed for use
in estimating the fair value of traded options that are fully transferable and
have no vesting restrictions. The risk-free interest rate is based on the U.S.
Treasury yield curve in effect at the time of the grant. The expected term of
the options is an output of the option-pricing model and estimates the period of
time that options are expected to remain unexercised. We use historical data to
estimate the timing and amount of option exercises and forfeitures. The expected
volatility is calculated by averaging the 12-month volatility for five peer
group companies and a small-cap index. The following summarizes the assumptions
used for estimating the fair value of stock options granted during the years
ended December 31, 2007 and 2006:




December 31,
              
              
              December 31,2007
              
              
              2006Risk-free
      interest rate
              
              
              4.12%-4.32
              %
              
              
              4.03%-4.69
              %Average
      expected years until exercise
              
              7.75
      years
              
              
              5.0
      yearsExpected
      volatility
              
              
              25
              %
              
              
              35
              %Weighted-average
      expected volatility
              
              
              25
              %
              
              
              35
              %Dividend
      yield
              
              
              0
              %
              
              
              0
              %




The
following is a summary of option activity for the years ended December 31, 2007
and 2006:




Weighted
      averageWeighted
      average
              
              
              remaining
      contractual
              
              
              Aggregate
      intrinsicNumber of shares
              
              
              exercise price
              
              
              term (in years)
              
              
              valueYears
      ended December 31,
              
              
              Years
      ended December 31,
              
              
              Years
      ended December 31,
              
              
              Years
      ended December 31,2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006
              
              
              2007
              
              
              2006Options
      outstanding at beginning of year
              
              
              55,150
              
              
              
              52,400
              
              
              $
              11.52
              
              
              $
              10.00Granted
              
              
              900
              
              
              
              5,700
              
              
              
              53.06
              
              
              
              24.75Exercised
              
              
              -
              
              
              
              (120
              )
              
              
              
              
              
              
              10.00Forfeited
              
              
              (900
              )
              
              
              (2,830
              )
              
              
              10.00
              
              
              
              10.00Options
      outstanding at end of year
              
              
              55,150
              
              
              
              55,150
              
              
              $
              12.23
              
              
              $
              11.52
              
              
              
              6.7
              
              
              
              7.4
              
              
              $
              5,851,600
              
              
              $
              1,725,400Options
      exercisable at end of year
              
              
              20,230
              
              
              
              14,910
              
              
              $
              10.15
              
              
              $
              10.09
              
              
              
              6.7
              
              
              
              7.4
              
              
              $
              2,188,400
              
              
              $
              487,900


32
 Index




The
following is a summary of non-vested option activity for the years ended
December 31, 2007 and 2006:




Weighted
      average grantNumber of shares
              
              
              date fair valueYears
      ended December 31,
              
              
              Years
      ended December 31,2007
              
              
              2006
              
              
              2007
              
              
              2006Non
      vested options outstanding at beginning of year
              
              
              40,240
              
              
              
              42,280
              
              
              $
              3.32
              
              
              $
              2.67Granted
              
              
              900
              
              
              
              5,700
              
              
              
              20.06
              
              
              
              9.35Vested
              
              
              (5,680
              )
              
              
              (5,150
              )
              
              
              2.62
              
              
              
              2.38Forfeited
              
              
              (540
              )
              
              
              (2,590
              )
              
              
              2.49
              
              
              
              2.45Non
      vested options outstanding at end of year
              
              
              34,920
              
              
              
              40,240
              
              
              $
              4.11
              
              
              $
              3.32




The total
compensation cost related to nonvested awards not yet recognized as of December
31, 2007 is approximately $0.1 million and will be recognized over a weighted
average period of approximately 5.0 years.




During
the year ended December 31, 2007, no options to purchase Holdings Common Stock
were exercised. During the year ended December 31, 2006, 120 options to purchase
Holdings Common Stock were exercised and $1,200 of proceeds was received. The
total intrinsic value, the difference between the exercise price and the fair
value of Holdings Common Stock on the date of exercise of options exercised
during the year ended December 31, 2006, was $1,770.




Year Ended December 31,
2005




We used
the intrinsic value method as defined in Accounting Principles Board Opinion
No. 25, “Accounting for Stock Issued to Employees,” to account for stock
options issued to employees. Accordingly, no compensation expense was recognized
for stock options granted, as the exercise prices of the options were in excess
of or equal to the fair value of the underlying common stock on the date of the
option grants.




The
following table reflects pro forma net income had we elected to adopt the fair
value approach of SFAS No. 123, “Accounting for Stock-Based
Compensation”:




Year endedDecember 31,2005Net
      income as reported
            
            $
            1,180,379Less:
      Stock-based compensation, net of tax
            
            
            13,615Pro
      forma net income
            
            $
            1,166,764







The
estimated fair value of each option on the date of grant was calculated using
the Black-Scholes option-pricing model. The following table summarizes the
weighted-average of the assumptions used for stock options granted:




December 31,2005Risk-free
      interest rate
            
            
            4.38
            %Average
      expected years until exercise
            
            5.6
      yearsExpected
      volatility
            
            
            0
            %Dividend
      yield
            
            
            0
            %Weighted
      average fair value per share
            
            $
            2.17







Plan
activity in 2005 was as follows:




Year endedDecember 31,2005Shares
      under option at beginning of year
            
            
            55,500Options
      granted (weighted average exercise price of $10.00)
            
            
            900Options
      canceled (weighted average exercise price of $10.00)
            
            
            (3,920
            )Options
      exercised (exercise price of $10.00)
            
            
            (80
            )Shares
      under option at end of year
            
            
            52,400


33
 Index




At
December 31, 2005, the remaining weighted average life of the outstanding
options was approximately 8 years. All options issued since plan inception were
granted with an exercise price of $10.00, which equaled the fair market value of
Holdings Common Stock on the date of grant. At December 31, 2005, 10,120
options were exercisable. During 2005, 80 options to purchase Holdings Common
Stock were exercised and the $800 of proceeds received was contributed from
Holdings to us.




Fair
Value Information




We
believe that the carrying amounts of cash and cash equivalents, accounts and
notes receivable, accounts payable and accrued expenses reported in the
consolidated balance sheets approximate their fair values due to the short
maturity of these instruments. The estimated fair value of the our publicly
traded debt, based on quoted market prices, was approximately $165.0 million and
$171.6 million as of December 31, 2007 and 2006, respectively.




Advertising
Costs




We
expense advertising costs as the advertising occurs in accordance with American
Institute of Certified Public Accountants, Statement of Position 93-7,
“Reporting on Advertising Costs.” Advertising expense, included in selling and
administrative expenses in the consolidated statements of operations, was
approximately $0.4 million, $0.4 million and $0.5 million, for the years ended
December 31, 2007, 2006 and 2005, respectively.




New
Accounting Standards




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS
157”). SFAS 157 defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. SFAS 157 applies under other accounting pronouncements
that require or permit fair value measurements, the FASB having previously
concluded in those accounting pronouncements that fair value is the relevant
measurement attribute. Accordingly, SFAS 157 does not require any new fair value
measurements. Under SFAS 157, fair value is established by the price that would
be received to sell the item or the amount to be paid to transfer the liability
(an exit price), as opposed to the price to be paid for the asset or received to
assume the liability (an entry price).  SFAS 157 is effective for all
assets valued in financial statements for fiscal years beginning after November
15, 2007. We are currently evaluating whether the adoption of SFAS 157 will have
a material effect on our consolidated financial position, results of operations
or cash flows.




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities,” (“SFAS 159”). SFAS 159 permits
entities to choose to measure many financial instruments and certain other items
at fair value that are not currently required to be measured at fair value. SFAS
159 also establishes presentation and disclosure requirements designed to
facilitate comparisons between entities that choose different measurement
attributes for similar types of assets and liabilities.  SFAS 159 is
effective for fiscal years beginning after November 15, 2007. We do not believe
the adoption of SFAS 159 will have a material effect on our consolidated
financial position, results of operations or cash flows.




In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations,” (“SFAS 141R”)  which replaces SFAS No 141. The
statement retains the purchase method of accounting for acquisitions, but
requires a number of changes, including changes in the way assets and
liabilities are recognized in purchase accounting. It also changes the
recognition of assets acquired and liabilities assumed arising from
contingencies, requires the capitalization of in-process research and
development at fair value, and requires the expensing of acquisition-related
costs as incurred. SFAS 141R is effective for acquisitions occurring in fiscal
years beginning after December 15, 2008 and is required to be adopted by us
in the first quarter of fiscal 2009. We believe that the adoption of SFAS 141R
would have an impact on the accounting for any future acquisition, if one were
to occur.




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB 51,” (“SFAS 160”) which
changes the accounting and reporting for minority interests. Minority interests
will be recharacterized as noncontrolling interests and will be reported as a
component of equity separate from the parent’s equity, and purchases or sales of
equity interests that do not result in a change in control will be accounted for
as equity transactions. In addition, net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement and, upon a loss of control, the interest sold, as well
as any interest retained, will be recorded at fair value with any gain or loss
recognized in earnings. SFAS 160 is effective for fiscal years beginning after
December 15, 2008 and requires retrospective application of its
presentation requirements. It is required to be adopted by us in the first
quarter of fiscal 2009. We have not determined the impact, if any, the adoption
of SFAS 160 will have on our financial position and results of
operations.


34
 Index




Reclassifications





Certain
previously reported amounts have been reclassified to conform to the current
year presentation.







3.
Inventories




Inventories
consist of the following:




December 31,
              
              
              December 31,2007
              
              
              2006Work-in-process
              
              $
              10,471,590
              
              
              $
              8,966,708Raw
      materials (principally paper)
              
              
              8,793,555
              
              
              
              10,101,50419,265,145
              
              
              
              19,068,212Excess
      of current cost over LIFO inventory value
              
              
              (122,600
              )
              
              
              (110,333
              )$
              19,142,545
              
              
              $
              18,957,879




We
maintained a reserve for the realizability of inventory in the amounts of
$83,363 and $90,796 for the years ended December 31, 2007 and 2006,
respectively, which are included in the amounts in the table above relating to
work-in-process and raw materials. A rollforward of this inventory reserve is as
follows:




Year
      Ended December 31,
              
              
              Year
      Ended December 31,
              
              
              Year
      Ended December 31,2007
              
              
              2006
              
              
              2005Balance
      at beginning of period
              
              $
              90,796
              
              
              $
              95,988
              
              
              $
              127,144Charged
      to expense
              
              
              23,888
              
              
              
              55,759
              
              
              
              34,351Deductions
              
              
              (31,321
              )
              
              
              (60,951
              )
              
              
              (65,507
              )Balance
      at end of period
              
              $
              83,363
              
              
              $
              90,796
              
              
              $
              95,988




4.
Property, Plant and Equipment




Property,
plant and equipment consist of the following:




December 31,
              
              
              December 31,2007
              
              
              2006Land
              
              $
              4,853,918
              
              
              $
              4,893,202Buildings
      and improvements
              
              
              42,743,716
              
              
              
              39,880,509Machinery
      and equipment
              
              
              132,392,664
              
              
              
              123,875,309179,990,298
              
              
              
              168,649,020Accumulated
      depreciation
              
              
              (53,281,647
              )
              
              
              (38,983,281
              )Property,
      plant and equipment, net
              
              $
              126,708,651
              
              
              $
              129,665,739




Depreciation
and amortization expense for the years ended December 31, 2007, 2006 and
2005, was $16.0 million, $15.2 million, and $15.1 million,
respectively.




5.
Intangible Assets




In
conjunction with previous acquisitions, we acquired intangible assets relating
to customer relationships, trade names and technology. The customer
relationships, trade names and technology are being amortized using the
straight-line method over their estimated useful lives as described below.
Amortization expense for the years ended December 31, 2007, 2006 and 2005,
related to customer relationships, trade names and technology intangible assets
was $1.7 million, $3.6 million and $1.7 million, respectively. Other, in the
table below, as of December 31, 2007, consists of $0.8 million related to the
realization of the tax goodwill benefit in connection with the Dingley
Acquisition. Beginning in 2007, this benefit was applied to reduce intangibles
related to the Dingley Acquisition since the goodwill related to the Dingley
Acquisition was reduced to zero in 2006 as the result of our impairment analysis
(see Note 6.) Amortization expense for the year ended December 31, 2006 included
$1.9 million, representing the write-off of the Capital City Press trade name,
which had an original value of $2.0 million, as a result of the shutdown of the
Capital City Press facility.




35
 Index





December 31,
      2007
              
              
              December 31,
      2006Useful
      Life
              
              Cost
              
              
              Accumulated
      Amortization
              
              
              Other
              
              
              Net
              
              
              Cost
              
              
              Accumulated
      Amortization
              
              
              NetCustomerrelationships
              
              25
      years
              
              $
              27,800,000
              
              
              $
              4,750,073
              
              
              $
              652,509
              
              
              $
              22,397,418
              
              
              $
              27,800,000
              
              
              $
              3,652,018
              
              
              $
              24,147,982Trade
      names
              
              40
      years
              
              
              20,400,000
              
              
              
              2,215,186
              
              
              
              98,100
              
              
              
              18,086,714
              
              
              
              20,400,000
              
              
              
              1,706,392
              
              
              
              18,693,608Technology
              
              5
      years
              
              
              300,000
              
              
              
              208,277
              
              
              
              30,738
              
              
              
              60,985
              
              
              
              300,000
              
              
              
              156,166
              
              
              
              143,834$
              48,500,000
              
              
              $
              7,173,536
              
              
              $
              781,347
              
              
              $
              40,545,117
              
              
              $
              48,500,000
              
              
              $
              5,514,576
              
              
              $
              42,985,424




We
estimate annual amortization expense and the tax goodwill benefit related to
these intangibles as follows:




Yearsended
              
              AmortizationDecember 31,
              
              expense
              
              
              Other
              
              
              Total2008
              
              
              1,608,769
              
              
              
              778,000
              
              
              
              2,386,7692009
              
              
              1,547,072
              
              
              
              778,000
              
              
              
              2,325,0722010
              
              
              1,505,088
              
              
              
              368,674
              
              
              
              1,873,7622011
              
              
              1,500,000
              
              
              
              -
              
              
              
              1,500,0002012
              
              
              1,500,000
              
              
              
              -
              
              
              
              1,500,000Thereafter
              
              
              30,959,514
              
              
              
              -
              
              
              
              30,959,514Total
              
              $
              38,620,443
              
              
              $
              1,924,674
              
              
              $
              40,545,117




6.
Goodwill




Goodwill,
which arises from the purchase price exceeding the assigned value of the net
assets of an acquired business, represents the value attributable to
unidentifiable intangible elements being acquired. Goodwill at December 31,
2007 and 2006 totaled $44.5 million and $44.7 million, respectively. Goodwill
resulted from the Sheridan Acquisition as a result of a stock purchase and,
therefore, is not deductible for tax purposes and from the Dingley Acquisition
as a result of an asset purchase and is deductible for tax
purposes.




As of
December 31, 2006, the initial step in the annual test for goodwill
impairment indicated potential impairment in the specialty catalogs segment, as
a result of declining results at TDP. We completed the second step by comparing
the implied fair value of goodwill to the carrying value of goodwill for TDP. As
a result of the second step, we determined that the carrying value of goodwill
at TDP was fully impaired. The changes in the carrying amount of goodwill for
the years ended December 31, 2006 and 2007 are as follows:




36
 Index


SpecialtyPublications
              
              
              Catalogs
              
              
              Books
              
              
              ConsolidatedBalance
      at December 31, 2005
              
              $
              34,507,174
              
              
              $
              13,553,021
              
              
              $
              8,922,848
              
              
              $
              56,983,043Realization
      of tax goodwill benefit related to the Dingley Acquisition
              
              
              -
              
              
              
              (778,090
              )
              
              
              -
              
              
              
              (778,090
              )Adjustment
      of deferred tax liabilities related to assets acquired in the Sheridan
      Acquisition
              
              
              768,448
              
              
              
              -
              
              
              
              -
              
              
              
              768,448Adjustment
      of current tax liabilities related to assets acquired in the Sheridan
      Acquisition
              
              
              347,000
              
              
              
              -
              
              
              
              -
              
              
              
              347,000Adjustment
      of other liabilities related to assets acquired in the Sheridan
      Acquisition
              
              
              152,330
              
              
              
              -
              
              
              
              -
              
              
              
              152,330Impairment
      charge
              
              
              -
              
              
              
              (12,774,931
              )
              
              
              -
              
              
              
              (12,774,931
              )Balance
      at December 31, 2006
              
              $
              35,774,952
              
              
              $
              -
              
              
              $
              8,922,848
              
              
              $
              44,697,800Increase
      in other liabilities for uncertain tax positions upon adoption of FIN
      48
              
              
              276,032
              
              
              
              -
              
              
              
              -
              
              
              
              276,032Reduction
      of uncertain tax positions related to the lapse of a statute of
      limitations
              
              
              (470,520
              )
              
              
              -
              
              
              
              -
              
              
              
              (470,520
              )Balance
      at December 31, 2007
              
              $
              35,580,464
              
              
              $
              -
              
              
              $
              8,922,848
              
              
              $
              44,503,312




7.
Other Assets




Other
assets consist of the following:




December 31,
              
              
              December 31,2007
              
              
              2006Other
      receivables
              
              $
              1,396,820
              
              
              $
              1,409,750Prepaid
      expenses and deposits
              
              
              3,298,843
              
              
              
              2,904,721Non-compete
      agreements, net
              
              
              145,669
              
              
              
              363,875Deferred
      compensation plan assets
              
              
              3,091,430
              
              
              
              3,750,995Other
              
              
              109,467
              
              
              
              88,488Total
              
              
              8,042,229
              
              
              
              8,517,829Less:
      current portion
              
              
              4,539,405
              
              
              
              4,043,345Long-term
      portion
              
              $
              3,502,824
              
              
              $
              4,474,484




Non-compete
agreements are presented net of accumulated amortization of $1.6 million and
$1.3 million as of December 31, 2007 and 2006, respectively. Amortization
expense related to the non-compete agreements (which is included in amortization
of intangibles in the consolidated statements of income and cash flows) for the
years ended December 31, 2007, 2006 and 2005, was $0.2 million, $0.2
million and $0.2 million, respectively.




8.
Notes Payable and Revolving Credit Facility




In
conjunction with the Sheridan Acquisition, on August 21, 2003, we completed
a private debt offering of 10.25% senior secured notes totaling $105.0 million,
priced to yield 10.50%, that mature August 15, 2011. The carrying value of
the 2003 Notes was $104.2 million and $104.0 million as of December 31,
2007 and 2006, respectively.




In
conjunction with the Dingley Acquisition, on May 25, 2004, we completed a
private debt offering of 10.25% senior secured notes totaling $60.0 million,
priced to yield 9.86%, that mature August 15, 2011. The carrying value of
the 2004 Notes was $60.7 million and $60.9 million as of December 31, 2007
and 2006, respectively. The 2004 Notes have identical terms to the 2003
Notes.




The 2003
Notes and the 2004 Notes are collateralized by security interests in
substantially all of our assets, subject to permitted liens. The capital stock,
securities and other payment rights of our subsidiaries will constitute
collateral for the 2003 Notes and the 2004 Notes only to the extent that
Rule 3-10 and Rule 3-16 of Regulation S-X under the Securities Act do
not require separate financial statements of a subsidiary to be filed with the
SEC. Payment obligations under the 2003 Notes and the 2004 Notes are guaranteed
jointly and severally, irrevocably and unconditionally, by all of our
subsidiaries. The Sheridan Group, Inc. (the stand-alone parent company)
owns 100% of the outstanding stock of all of its subsidiaries and has no
material independent assets or operations. There are no restrictions on the
ability of The Sheridan Group, Inc. (the stand-alone parent company) to
obtain funds by dividend, advance or loan from its subsidiaries.




37
 Index




In
connection with the offerings of the 2003 Notes and the 2004 Notes (the
“Offerings”), we entered into registration rights agreements pursuant to which
we were required to register the 2003 Notes and the 2004 Notes with the SEC. We
filed Registration Statements on Form S-4 with the SEC in connection with
exchange offers of our outstanding 2003 Notes and 2004 Notes for like principal
amounts of new senior secured notes. The Registration Statement covering the
2003 Notes was declared effective on October 13, 2004. The Registration
Statement covering the 2004 Notes was declared effective on October 25,
2004. The new senior secured notes are identical in all material respects to the
2003 Notes and the 2004 Notes, except that the new senior secured notes do not
bear legends restricting the transfer thereof.




In an
event of default, the holders of at least 25% in aggregate principal amount of
the 2003 Notes and the 2004 Notes, may declare the principal, premium, if
any, and accrued and unpaid interest on the 2003 Notes and the 2004 Notes to be
due and payable immediately. Concurrent with the offering of the 2003 Notes, we
entered into a revolving credit agreement (the “Revolver”). The Revolver was
amended concurrent with the offering of the 2004 Notes. Terms of the Revolver
allow for revolving debt of up to $30.0 million, including letters of credit
commitments of up to $5.0 million, subject to a borrowing base test. Borrowings
under the Revolver bear interest at the bank’s base rate or the LIBOR rate plus
a margin of 1.75% at our option and mature in May 2009. Interest is payable
monthly in arrears. We have agreed to pay an annual commitment fee on the unused
portion of the Revolver at a rate of 0.35%. In addition, we have agreed to pay
an annual fee of 1.875% on all letters of credit outstanding. As of
December 31, 2007, we had no borrowings outstanding under the Revolver, had
unused amounts available of $28.3 million and had $1.7 million in outstanding
letters of credit. The outstanding letters of credit include $0.3 million to
secure a working capital facility for an affiliate of Holdings.




Borrowings
under the Revolver are collateralized by our assets, subject to permitted liens.
The Revolver contains various covenants including provisions that prohibit us
from incurring and prepaying other indebtedness and places restrictions on our
ability to pay dividends. It also requires us to satisfy financial tests, such
as an interest coverage ratio and the maintenance of a minimum amount of
earnings before interest, taxes depreciation and amortization (as defined in the
Revolver). We have complied with all of the restrictive covenants as of
December 31, 2007.




In an
event of default, all principal and interest due under the Revolver shall be
immediately due and payable.




9.
Accrued Expenses




Accrued
expenses consist of the following:




December 31,
              
              
              December 31,2007
              
              
              2006Payroll
      and related expenses
              
              $
              6,840,946
              
              
              $
              4,674,621Profit
      sharing accrual
              
              
              2,090,600
              
              
              
              2,226,696Accrued
      interest
              
              
              6,348,745
              
              
              
              6,375,204Customer
      prepayments
              
              
              3,976,704
              
              
              
              7,182,562Deferred
      revenue
              
              
              2,043,733
              
              
              
              1,333,852Self-insured
      health and worker's compensation accrual
              
              
              2,072,977
              
              
              
              2,728,251Other
              
              
              2,148,617
              
              
              
              2,912,758$
              25,522,322
              
              
              $
              27,433,944
  38
 Index


10.
Other Liabilities




Other
liabilities consist of the following:




December 31,
              
              
              December 31,2007
              
              
              2006Non-compete
      agreements
              
              $
              573,280
              
              
              $
              785,238Deferred
      compensation
              
              
              2,574,956
              
              
              
              3,228,927Tax
      reserves
              
              
              1,594,031
              
              
              
              -Other
              
              
              55,620
              
              
              
              102,834Total
              
              $
              4,797,887
              
              
              $
              4,116,999




11.
Income Taxes




The
components of the income tax provision (benefit) are as follows:




December
      31,
              
              
              December
      31,
              
              
              December
      31,2007
              
              
              2006
              
              
              2005CurrentFederal
              
              $
              2,605,734
              
              
              $
              2,066,843
              
              
              $
              2,151,489State
              
              
              496,439
              
              
              
              724,329
              
              
              
              553,6473,102,173
              
              
              
              2,791,172
              
              
              
              2,705,136DeferredFederal
              
              
              318,811
              
              
              
              (6,570,263
              )
              
              
              (1,173,117
              )State
              
              
              (7,711
              )
              
              
              (665,057
              )
              
              
              903,981311,100
              
              
              
              (7,235,320
              )
              
              
              (269,136
              )$
              3,413,273
              
              
              $
              (4,444,148
              )
              
              $
              2,436,000




Deferred
income taxes reflect the net tax effects of the temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
deferred tax assets and liabilities were as follows:




December 31,
              
              
              December 31,2007
              
              
              2006Deferred
      tax assetsIncentive
      and vacation accrual
              
              $
              1,307,479
              
              
              $
              1,434,550Bad
      debt reserve
              
              
              230,224
              
              
              
              725,715Self
      insurance accrual
              
              
              496,414
              
              
              
              689,402Intangible
      assets
              
              
              333,613
              
              
              
              645,901Amortization
      of financing costs
              
              
              488,484
              
              
              
              485,979Inventory-additional
      costs capitalized for tax
              
              
              307,912
              
              
              
              225,165Net
      operating loss carryforwards-Federal
              
              
              217,293
              
              
              
              319,012Net
      operating loss carryforwards-States
              
              
              697,803
              
              
              
              868,690Fixed
      asset basis related to state disallowance of bonus
      depreciation
              
              
              -
              
              
              
              148,434Goodwill
              
              
              4,443,660
              
              
              
              4,504,641Federal
      benefit related to State tax reserves
              
              
              351,166
              
              
              
              -Other
              
              
              156,008
              
              
              
              59,462Valuation
      allowance
              
              
              (686,924
              )
              
              
              (1,205,168
              )Total
      deferred tax assets
              
              
              8,343,132
              
              
              
              8,901,783Deferred
      tax liabilitiesIntangible
      assets
              
              
              16,029,452
              
              
              
              16,656,287Inventory
      basis difference
              
              
              284,821
              
              
              
              275,729Property
      and equipment
              
              
              16,842,036
              
              
              
              16,877,091Land
              
              
              1,039,395
              
              
              
              1,048,297Prepaid
      insurance
              
              
              145,795
              
              
              
              150,128Total
      deferred tax liabilities
              
              
              34,341,499
              
              
              
              35,007,532Net
      deferred tax liabilities
              
              $
              25,998,367
              
              
              $
              26,105,749  39
 Index


December 31,
            
            
            December 31,2007
            
            
            2006Included
      in the balance sheetNoncurrent
      deferred tax liabilities in excess of assets
            
            $
            27,153,776
            
            
            $
            27,909,465Current
      deferred tax assets in excess of liabilities
            
            
            1,155,409
            
            
            
            1,803,716Net
      deferred tax liability
            
            $
            25,998,367
            
            
            $
            26,105,749




As a
result of the impairment of tax deductible goodwill related to the Dingley
Acquisition, deferred tax assets were increased by approximately $4.7 million
during 2006 to record the future tax benefit.




In
accordance with FAS 109, “Accounting for Income Taxes”, we will realize a tax
benefit associated with the amount of tax goodwill in excess of book goodwill
associated with the Dingley Acquisition. We will only recognize the benefit when
realized on future tax returns and will apply the benefit first to reduce book
goodwill associated with the acquisition to zero, second to reduce to zero other
noncurrent intangible assets related to the acquisition, and third to reduce
income tax expense. During 2007 and 2006, we realized a tax benefit of $0.8
million and $0.8 million, respectively, associated with the realization of tax
deductible goodwill in excess of book goodwill. Such amount has been recorded as
a reduction to intangible assets for the year ending December 31, 2007 and as a
reduction to book goodwill for the year ending December 31, 2006 (see Note
6).  During 2006, deferred tax liabilities were increased by $0.8 million
to correct an immaterial error that existed as of the Sheridan Acquisition date
with a corresponding increase to book goodwill for the year ending December 31,
2006 (see Note 6).




At
December 31, 2007 and 2006, we had U.S. Federal net operating loss (“NOL”)
deduction carryforwards of approximately $0.6 million and $0.9 million,
respectively, attributable to one of our subsidiaries. The remaining Federal
NOLs as of December 31, 2007 are subject to limitations which allow for
approximately $0.3 million of NOLs to be available for use each year. Our
Federal NOLs will expire approximately as follows:




Amount of Regular
            
            Year ofNet Operating Loss
            
            Expiration$
            460,000
            
            2010$
            179,000
            
            2012




As of
December 31, 2007 and 2006, we had state NOLs with a tax effected value of
approximately $0.7 million and $0.9 million, respectively, in various
jurisdictions, which begin to expire in 2013. We have determined that a
valuation allowance is needed for approximately $0.7 million and $0.9 million as
of December 31, 2007 and 2006, respectively, against net operating losses
in State jurisdictions without sufficient prior earnings.




We
utilized NOLs against Federal and State taxable income, which reduced tax
expense for 2007 and 2006 by approximately $0.1 million,
respectively.




In 2007,
upon the adoption of FIN 48, we determined that the deferred tax asset related
to transaction costs from the Sheridan Acquisition did not meet the more likely
than not threshold. Accordingly, the deferred tax asset and full valuation
allowance were removed.




A
rollforward of our valuation allowance is as follows:




Year
      Ended December 31,
                
                
                Year
      Ended December 31,
                
                
                Year
      Ended December 31,2007
                
                
                2006
                
                
                2005Balance
      at beginning of period
                
                $
                1,205,168
                
                
                $
                978,482
                
                
                $
                669,180Charged
      to expense
                
                
                48,524
                
                
                
                226,686
                
                
                
                309,302Other,
      net
                
                
                (566,768
                )
                
                
                -
                
                
                
                -Balance
      at end of period
                
                $
                686,924
                
                
                $
                1,205,168
                
                
                $
                978,482
  40
 Index


Our
income tax provision differs from taxes computed using the U.S. Federal
statutory tax rate as follows:




Year
      ended December 31,
              
              
              Year
      ended December 31,
              
              
              Year
      ended December 31,2007
              
              
              2006
              
              
              2005Income
      before income taxes
              
              $
              8,260,266
              
              
              $
              (12,786,996
              )
              
              $
              3,616,379U.S.
      Federal statutory tax rate
              
              $
              2,808,491
              
              
              $
              (4,347,579
              )
              
              $
              1,229,569Increase  (decrease)
      in tax expense resulting from tax reserves
              
              
              281,229
              
              
              
              57,039
              
              
              
              31,620Non-deductible
      meals and entertainment
              
              
              75,235
              
              
              
              67,485
              
              
              
              79,459Change
      in valuation allowance
              
              
              48,524
              
              
              
              226,686
              
              
              
              309,302State
      income taxes, net of U.S. Federal income tax benefit
              
              
              366,831
              
              
              
              (137,730
              )
              
              
              168,352Change
      in state tax apportionment and rates
              
              
              (73,609
              )
              
              
              (275,872
              )
              
              
              780,198Domestic
      production activity deduction
              
              
              (77,066
              )
              
              
              (41,060
              )
              
              
              (65,179
              )Other,
      net
              
              
              (16,362
              )
              
              
              6,883
              
              
              
              (97,321
              )Income
      tax provision
              
              $
              3,413,273
              
              
              $
              (4,444,148
              )
              
              $
              2,436,000




During
2007 and 2006, we reported a decrease in our deferred State tax provision of
approximately $0.1 million and $0.3 million, respectively, to properly reflect
the lower anticipated State effective income tax rates due to decreased
apportionment of our taxable income to states with high tax
rates.  During 2007, we recognized a $0.3 million increase in our
effective rate related to the adoption of FIN 48.




We
adopted the provisions of FIN 48, on January 1, 2007. FIN 48 prescribes
recognition threshold and measurement parameters for the financial statement
recognition and measurement of tax positions taken or expected to be taken in
our tax returns. For those benefits to be recognized, a tax position must be
more-likely-than-not to be sustained upon examination by taxing authorities. The
amount recognized is measured as the largest amount of benefit that has a
greater than 50 percent likelihood of being realized upon ultimate settlement.
Upon adoption of FIN 48, we recognized a $0.5 million decrease in our retained
earnings balance and a $0.3 million increase in goodwill.




We
continue to recognize both interest and penalties related to uncertain tax
positions as part of the income tax provision. We had accrued interest of $0.4
million and penalties of $0.2 million as of December 31, 2007. Interest and
penalties in the amount of $0.1 million were expensed during the year. Interest
and penalties will continue to accrue on certain issues in 2008 and
forward.




Our tax
reserves relate primarily to state nexus and other related state tax issues. It
is not anticipated that the amount of unrecognized tax benefits will increase or
decrease significantly within the next 12 months. The total amount of net
unrecognized tax benefits that, if recognized, would affect the effective tax
rate are $0.5 million. The total amount of net unrecognized tax benefits that,
if recognized, would impact goodwill are $0.2 million. Our tax reserves,
excluding interest and penalties, are as follows:


41
 Index




Year
      Ended December 31,(Dollars in
      thousands)
              
              2007Balance
      at beginning of period
              
              $
              1,313Increases
      in tax positions for current year
              
              
              2Increases
      in tax positions for prior years
              
              
              301Decreases
      in tax positions for prior years
              
              
              (28
              )Lapse
      in statute of limitations
              
              
              (495
              )Balance
      at end of period
              
              $
              1,093




We are
subject to U.S. federal income tax as well as income tax of multiple state and
local jurisdictions.  The statute of limitations related to the
consolidated U.S. federal income tax return is closed for all tax years up to
and including 2003.   Currently, no federal or state income tax
returns are under examination by the respective taxing authorities.




On
October 22, 2004, the President of the U.S. signed into law the American
Jobs Creation Act of 2004. We realized a benefit of approximately $77,000,
$41,000 and $65,000 from the deduction associated with domestic production
activities in 2007, 2006 and 2005, respectively. This special deduction is 3% of
qualifying income for years 2005 and 2006, 6% in years 2007 through 2009 and 9%
thereafter.




12.
Commitments




In
February 1998, we entered into an employment agreement with our former
Chairman of the Board. This agreement includes a 10 year non-compete
arrangement, which expires in 2008. The liability for this agreement is to be
paid out in increments increasing from $126,000 to $151,200 per year, over 15
years. Included in accrued expenses and other liabilities as of
December 31, 2007 is approximately $0.6 million related to the net present
value of the obligation under this agreement.




In
May 2004, we entered into an employment agreement with the Chairman of The
Dingley Press. This agreement includes a 5 year non-compete arrangement, which
expires in 2009. The liability for this agreement is to be paid out in
increments of $108,000 per year over 5 years. Included in accrued expenses and
other liabilities as of December 31, 2007 is approximately $0.1 million
related to the net present value of the obligation under this
agreement.




We lease
warehouse, plant and office space, printing equipment, computer equipment and
delivery equipment under non-cancelable operating leases. Rental expense
relating to these leases was approximately $4.9 million, $5.2 million and $5.4
million for the years ended December 31, 2007, 2006 and 2005, respectively.
As of December 31, 2007 approximate minimum future rental payments under
non-cancelable operating leases are as follows:




Years
      Ended December 31,
              
              (in
      thousands)2008
              
              $
              5,3762009
              
              
              4,0462010
              
              
              2,5842011
              
              
              1,6582012
              
              
              16Thereafter
              
              
              -Total
              
              $
              13,680




In
exchange for certain pricing arrangements, we have entered into agreements to
purchase consumable raw materials. We have also entered into agreements to
acquire additional plant and equipment. As of December 31, 2007,
approximate future payments related to these agreements are as
follows:




42
 Index




(in thousands)Raw
              
              
              Plant
      andYears
      Ended December 31,
              
              materials
              
              
              equipment2008
              
              $
              1,330
              
              
              $
              10,7192009
              
              
              370
              
              
              
              4212010
              
              
              -
              
              
              
              332011
              
              
              -
              
              
              
              322012
              
              
              -
              
              
              
              32Thereafter
              
              
              -
              
              
              
              8Total
              
              $
              1,700
              
              
              $
              11,245




13.
Employee Benefit Plans




We
sponsor a 401(k) retirement plan (the “Plan”). We determine annual discretionary
contributions to the Plan. Contributions of approximately $3.0 million, $3.1
million and $2.9 million were charged to operations for the years ended
December 31, 2007, 2006 and 2005, respectively.




We
maintain a non-qualified deferred compensation plan for certain employees which
allows participants to annually elect (via individual contracts) to defer a
portion of their compensation on a pre-tax basis and which allows for make-whole
contributions for participants whose pre-tax deferrals are limited under our
401(k) Plan and other discretionary contributions. Contributions made by us and
our employees are maintained in an irrevocable trust. Legally, the assets remain
ours; however, access to the trust assets is severely restricted. The trust
cannot be revoked by the employer or an acquirer, but the assets are subject to
the claims of our general creditors. The employee has no right to assign or
transfer contractual rights in the trust. The participants are fully vested in
their compensation deferred; however, the make-whole contributions and any
employer discretionary contributions are subject to vesting requirements. We
account for the plan in accordance with Emerging Issues Task Force (“EITF”)
No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts
Earned Are Held in a Rabbi Trust and Invested.” Pursuant to EITF 97-14, as of
December 31, 2007 and 2006, we recorded a deferred compensation liability
of approximately $2.6 million and $3.2 million, respectively, in other
non-current liabilities in the accompanying consolidated balance sheets. The
change in the deferred compensation obligation related to changes in the fair
value of the vested diversified assets held in trust is recorded in accordance
with SFAS 115 as income (loss) in compensation expense with an offsetting entry
to other income (loss), respectively. The diversified assets held in trust were
approximately $3.1 million and $3.8 million as of December 31, 2007 and
2006, respectively, and are recorded at their fair value, based on quoted market
prices, in other non-current assets on the accompanying consolidated balance
sheets.





During
the fourth quarter of 2006, we recorded an adjustment to the deferred
compensation liability of approximately $0.6 million to correct an immaterial
error in the deferred compensation liability as of December 31, 2006. Of this
amount, approximately $0.4 million was charged to selling and administrative
expense and approximately $0.2 million was recorded as additional goodwill to
reflect the liability that existed as of the date of the Sheridan
Acquisition.




14.
Related Party Transactions




In
connection with the Sheridan Acquisition, we entered into a 10 year management
agreement with our principal equity sponsors, Bruckmann, Rosser, Sherrill &
Co. LLC and Jefferies Capital Partners. The management fee is equal to the
greater of $0.5 million or 2% of earnings before interest, taxes depreciation
and amortization (as defined in the management agreement), plus reasonable
out-of-pocket expenses. We incurred and paid approximately $0.9 million, $0.8
million and $0.8 million in such fees for the years ended December 31,
2007, 2006 and 2005, respectively.




During
2006, we advanced $0.2 million to our sole shareholder, Holdings, to fund due
diligence efforts related to an acquisition by Holdings. This advance was repaid
during 2007.




Pierce
Atwood LLP serves as legal counsel for The Dingley Press. A partner at Pierce
Atwood LLP is the brother of Christopher A. Pierce, one of our executive
officers in his role as Chairman of The Dingley Press. We incurred and paid
approximately $0.1 million in fees to Pierce Atwood LLP for the year ended
December 31, 2007 and negligible fees for the years ended December 31, 2006 and
2005. We believe the fees were reasonable based upon the services
rendered.




J. M.
Dryden Hall, Jr., a member of our board of directors until May 2007,
previously served us as legal counsel. Fees paid to Mr. Hall for the year
ended December 31, 2005, were approximately $0.1 million. Effective
January 1, 2006, Mr. Hall no longer served as legal counsel to
us.




43
 Index




15.
Contingencies




We are
party to legal actions as a result of various claims arising in the normal
course of business. We believe that the disposition of these matters will not
have a material adverse effect on our financial condition, results of operations
or liquidity.




An
affiliate of Holdings has entered into an agreement to lease equipment. As
a condition of the agreement, we have issued an unconditional guarantee of the
affiliated company’s obligations under the agreement. In the event the
affiliated company is unable to do so, we have agreed to satisfy the obligations
under the agreement up to a maximum of $4.0 million. This guarantee shall
remain in effect for the term of the agreement which expires in December
2012.







16.
Business Segments




We are a
specialty printer in the United States offering a full range of printing and
value–added support services for the journal, magazine, book, catalog and
article reprint markets. As discussed in Note 2, in the first quarter of
2007, we made changes to our organizational structure that impacted our
reportable segments. The “Short-run Journals” and the “Other Publications”
segments were reorganized. Our business is now comprised of three operating
segments: two of the segments are newly created, “Publications” and “Books.” The
third segment, “Specialty Catalogs,” was not impacted by these changes. The
Publications business segment is focused on the production of short-run
journals, medium-run journals and specialty magazines and is comprised of the
assets and operations of The Sheridan Press, Dartmouth Printing, Dartmouth
Journal Services, United Litho and Capital City Press. We believe there are many
similarities in the journal and magazine markets such as the equipment used in
the print and bind process, distribution methods, repetitiveness and frequency
of titles and the level of service required by customers. We created the
position of Group President, Publication Services, to manage our journal and
magazine business. The Books segment is focused on the production of short-run
books and is comprised of the assets and operations of Sheridan
Books.  This market does not have the repetitive nature of our other
products and does not require the same level of customer service. The Specialty
Catalogs segment, which is comprised of the assets and operations of The Dingley
Press, is focused on catalog merchants that require run lengths between 300,000
and 10,000,000 copies.




The
accounting policies of the operating segments are the same as those described in
the Summary of Significant Accounting Policies. The results of each segment
include certain allocations for general, administrative and other shared costs.
However, certain costs, such as corporate profit sharing and bonuses and the
amortization of a non-compete agreement with our former Chairman of the Board
(Note 12), are not allocated to the segments. Our customer base resides
primarily in the continental United States and our manufacturing, warehouse and
office facilities are located throughout the East Coast and
Midwest.




We had
one customer which accounted for 10.7% and 12.0% of consolidated net sales for
the years ended December 31, 2007 and 2006, respectively. Net sales for this
customer are reported in the Specialty Catalogs segment. In 2006, we entered
into a long-term contract with this customer to print all of their catalogs
through June 2011. This customer was acquired by another company in December
2007. Recent statements made by this customer suggest that it may be necessary
for us to take steps to enforce the provisions of our contract. The loss of this
customer would cause our net sales and profitability to decline materially. We
had another customer which accounted for 10.3% of consolidated net sales for the
year ended December 31, 2006. Net sales for this customer are reported in both
the Publications and Books segments.




The
following table provides segment information for continuing operations (in
thousands):




44
 Index





Year
      ended December 31,
              
              
              Year
      ended December 31,
              
              
              Year
      ended December 31,2007
              
              
              2006
              
              
              2005Net
      salesPublications
              
              $
              182,906
              
              
              $
              179,541
              
              
              $
              181,149Specialty
      catalogs
              
              
              98,140
              
              
              
              99,060
              
              
              
              111,846Books
              
              
              63,278
              
              
              
              59,287
              
              
              
              55,147Intersegment
      eliminations
              
              
              (84
              )
              
              
              (348
              )
              
              
              (183
              )Consolidated
      total
              
              $
              344,240
              
              
              $
              337,540
              
              
              $
              347,959Operating
      income (loss)Publications
              
              $
              21,002
              
              
              $
              15,263
              
              
              $
              17,102Specialty
      catalogs
              
              
              1,551
              
              
              
              (12,695
              )
              
              
              2,599Books
              
              
              6,264
              
              
              
              5,213
              
              
              
              4,194Corporate
              
              
              (2,509
              )
              
              
              (2,292
              )
              
              
              (1,998
              )Consolidated
      total
              
              $
              26,308
              
              
              $
              5,489
              
              
              $
              21,897AssetsPublications
              
              $
              183,965
              
              
              $
              172,993
              
              
              $
              168,912Specialty
      catalogs
              
              
              61,571
              
              
              
              69,335
              
              
              
              85,633Books
              
              
              50,082
              
              
              
              48,058
              
              
              
              44,028Corporate
              
              
              3,350
              
              
              
              1,181
              
              
              
              2,148Consolidated
      total
              
              $
              298,968
              
              
              $
              291,567
              
              
              $
              300,721Depreciation
      and amortizationPublications
              
              $
              9,484
              
              
              
              10,717
              
              
              $
              8,765Specialty
      catalogs
              
              
              5,834
              
              
              
              5,777
              
              
              
              5,785Books
              
              
              2,269
              
              
              
              2,268
              
              
              
              2,312Corporate
              
              
              247
              
              
              
              229
              
              
              
              210Consolidated
      total
              
              $
              17,834
              
              
              $
              18,991
              
              
              $
              17,072Capital
      expendituresPublications
              
              $
              7,449
              
              
              $
              17,059
              
              
              $
              15,645Specialty
      catalogs
              
              
              2,959
              
              
              
              3,959
              
              
              
              3,552Books
              
              
              4,720
              
              
              
              5,253
              
              
              
              1,869Corporate
              
              
              30
              
              
              
              25
              
              
              
              216Consolidated
      total
              
              $
              15,158
              
              
              $
              26,296
              
              
              $
              21,282GoodwillPublications
              
              $
              35,580
              
              
              $
              35,775
              
              
              $
              34,507Specialty
      catalogs
              
              
              -
              
              
              
              -
              
              
              
              13,553Books
              
              
              8,923
              
              
              
              8,923
              
              
              
              8,923Consolidated
      total
              
              $
              44,503
              
              
              $
              44,698
              
              
              $
              56,983Intangible
      assetsPublications
              
              $
              36,509
              
              
              $
              37,950
              
              
              $
              41,274Specialty
      catalogs
              
              
              2,086
              
              
              
              3,026
              
              
              
              3,208Books
              
              
              1,950
              
              
              
              2,009
              
              
              
              2,067Consolidated
      total
              
              $
              40,545
              
              
              $
              42,985
              
              
              $
              46,549


45
 Index




17.
Restructuring and Other Exit Costs




Due to
trends in the short-run journal business and the high capital investment
necessary to maintain two manufacturing facilities serving the same market, our
Board of Directors, on December 15, 2005, approved a restructuring plan to
consolidate all short-run journal printing operations into one site. During
the first quarter of 2006, we consolidated the printing of short-run journals at
The Sheridan Press in Hanover, Pennsylvania and closed the Capital City Press
facility in Berlin, Vermont. Approximately 200 positions were eliminated as a
result of the closure. Of the 200 employees affected, approximately 45
Publication Services employees were offered jobs with one of our subsidiaries,
Dartmouth Journal Services.




We
recorded $0.1 million of restructuring costs during 2007. The costs related
primarily to employee health benefits (as a result of COBRA requirements) and
building lease costs and were partially offset by a $0.1 million reduction in
the reserve for potential workers’ compensation claims related to Capital City
Press recorded in the second and third quarters of 2007. We recorded $2.7
million of restructuring costs during 2006, related primarily to guaranteed
severance payments of $1.5 million, employee health benefits of $0.7 million and
other one-time costs of $0.5 million. Total restructuring costs, including
charges of $0.4 million recorded in 2005, were approximately $3.2 million. There
were no restructuring liabilities outstanding as of December 31, 2007 or
December 31, 2006.





We also
recorded non-cash charges of $2.4 million during 2006 associated with the
accelerated depreciation and amortization of plant and equipment and the Capital
City Press trade name, which was disposed of as a result of the
shutdown. During May 2006, excess equipment at Capital City Press was sold
through a public auction for cash proceeds of approximately $0.3 million,
resulting in a gain of approximately $0.1 million. On August 31, 2006, the
Capital City Press land and building, which had a carrying value of
approximately $1.6 million, was sold, resulting in a negligible
gain.




In
connection with the shutdown of Capital City Press, we transferred certain
tangible assets, primarily production equipment, to our other subsidiaries. We
also transferred intangible assets, which consisted of goodwill and customer
relationships, to The Sheridan Press. The tangible and intangible assets were
transferred at carryover, historical cost basis since the transfers took place
between entities under common control.




On
August 31, 2005 we announced plans to reduce the scope of our Publications
Services operation at Capital City Press and eliminate approximately 35
positions involved with composition and graphics work and also lay off about 10
printing operations employees due to a reduced volume of printing work. In
connection with these layoffs, we recorded approximately $0.1 million of
restructuring costs in 2005, primarily related to severance payments. We also
incurred a charge of approximately $0.1 million, included in cost of sales, in
2005 related to the write-off of equipment.




18.
Quarterly Financial Information (unaudited)




Quarterly
financial information for the years ended December 31, 2007 and 2006 is as
follows (in thousands):




First
              
              
              Second
              
              
              Third
              
              
              Fourth2007
              
              Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              QuarterNet
      sales
              
              $
              86,185
              
              
              $
              82,182
              
              
              $
              85,356
              
              
              $
              90,517Gross
      profit
              
              
              16,972
              
              
              
              16,975
              
              
              
              17,110
              
              
              
              18,993Operating
      income
              
              
              6,229
              
              
              
              6,260
              
              
              
              6,359
              
              
              
              7,460Net
      income
              
              $
              890
              
              
              $
              995
              
              
              $
              1,298
              
              
              $
              1,664First
              
              
              Second
              
              
              Third
              
              
              Fourth2006
              
              Quarter
              
              
              Quarter
              
              
              Quarter
              
              
              QuarterNet
      sales
              
              $
              86,150
              
              
              $
              80,751
              
              
              $
              84,241
              
              
              $
              86,398Gross
      profit
              
              
              14,148
              
              
              
              16,351
              
              
              
              17,765
              
              
              
              17,112Operating
      (loss) income
              
              
              (380
              )
              
              
              5,612
              
              
              
              7,423
              
              
              
              (7,166
              )Net
      (loss) income
              
              $
              (2,555
              )
              
              $
              525
              
              
              $
              1,607
              
              
              $
              (7,920
              )




The
results for the first quarter of 2006 reflect the impact of the most of the
restructuring charges in connection with the shutdown of CCP (see Note
17.)  The results for the fourth quarter of 2006 reflect the impact of
the full impairment of goodwill at TDP (see Note 6.)




ITEM 9
            CHANGES
      IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE




Not
applicable.




ITEM
      9A.
            CONTROLS
      AND PROCEDURES




(a)
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures




As of the
end of the period covered by this Annual Report on Form 10-K, we conducted an
evaluation, under the supervision and with the participation of the principal
executive officer (“CEO”) and principal financial officer (“CFO”), of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
Exchange Act of 1934 (the “Exchange Act”)).  Based on this evaluation
and as of the end of the period for which this report is made, the CEO and CFO
concluded that our disclosure controls and procedures are effective to provide
reasonable assurance that information required to be disclosed by us in reports
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and that
information required to be disclosed in the reports that we file or submit under
the Exchange Act is accumulated and communicated to our management, including
the CEO and CFO, to allow timely decisions regarding required
disclosure.




46
 Index





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




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as that term is defined in Exchange Act Rules
13a-15(f) and 15d-15(f)). To evaluate the effectiveness of our internal control
over financial reporting, we use the framework in “Internal Control-Integrated
Framework” issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the “COSO Framework”). Using the COSO Framework, our management,
including the CEO and CFO, evaluated our internal control over financial
reporting and concluded that our internal control over financial reporting was
effective as of December 31, 2007. Because of the inherent limitations, a system
of internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. At this time, we are not required to receive an
independent opinion relating to our internal controls from our external
auditors. We anticipate that we will be required to receive an independent
assessment beginning with our 2008 Annual Report on Form 10-K.




(c)  Changes
in Internal Control Over Financial Reporting




There was
no change in our internal control over financial reporting during our most
recently completed fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.






ITEM
      9B.
            OTHER
      INFORMATION




Not
applicable.




PART III




ITEM
      10.
            DIRECTORS,
      EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE




We are a
wholly-owned subsidiary of TSG Holdings Corp., whose stockholders include
affiliates of Bruckmann, Rosser, Sherrill & Co., LLC and Jefferies
Capital Partners, Participatiemaatschappij Giraffe, B.V. and members of our
senior management.




Our
Equity Sponsors




Bruckmann,
Rosser, Sherrill & Co., LLC, or BRS, is a New York-based private equity
investment firm with about $1.2 billion under management. BRS was founded in
1995 and has since invested in approximately 40 companies in the following
industries: restaurants, consumer goods, specialty retail, recreation/leisure,
apparel, home furnishings, industrial and commercial services (including
equipment rental), commercial equipment manufacturing, wholesale distribution
and healthcare services. BRS and its affiliates are collectively referred to as
“BRS.”




Jefferies
Capital Partners, or JCP, is a New York-based private equity investment firm
with over $1.0 billion in equity commitments under management. Since 1994, JCP’s
professionals have invested in approximately 50 companies in a variety of
industries. JCP focuses on partnering with entrepreneurs and management teams in
industries in which JCP has expertise. JCP invests in management buyouts,
recapitalizations, industry consolidations and growth equity. JCP and its
affiliates are collectively referred to as “JCP.”




Directors
and Executive Officers




Our
executive officers and directors are as follows:




Name
            
            Age
            
            PositionJohn
      A. Saxton
            
            58
            
            President
      and Chief Executive Officer and DirectorRobert
      M. Jakobe
            
            54
            
            Executive
      Vice President and Chief Financial Officer and
SecretaryDouglas
      R. Ehmann
            
            51
            
            Vice
      President and Chief Technology OfficerDale
      A. Tepp
            
            51
            
            Vice
      President—Human ResourcesJoan
      B. Davidson
            
            46
            
            Group
      President—Sheridan Publication ServicesPatricia
      A. Stricker
            
            43
            
            President
      and Chief Operating Officer—The Sheridan Press, Inc.
      (“TSP”)Gary
      J. Kittredge
            
            57
            
            President
      and Chief Operating Officer—Dartmouth Printing Company
      (“DPC”),  Dartmouth Journal Services (“DJS”) and United Litho,
      Inc. (“ULI”)Robert
      M. Moore
            
            42
            
            President
      and Chief Operating Officer—The Dingley Press, Inc.
      (“TDP”)Michael
      J. Seagram
            
            51
            
            President
      and Chief Operating Officer—Sheridan Books, Inc.
    (“SBI”)J.
      Kenneth Garner
            
            54
            
            Vice
      President of Business Development – Sheridan Magazine
    ServicesG.
      Paul Bozuwa
            
            47
            
            Vice
      President—Global Business Development (through May
2007)Christopher
      A. Pierce
            
            59
            
            Chairman—The
      Dingley Press, Inc. (“TDP”)Thomas
      J. Baldwin
            
            49
            
            DirectorNicholas
      Daraviras
            
            34
            
            DirectorCraig
      H. Deery
            
            60
            
            DirectorGary
      T. DiCamillo
            
            57
            
            DirectorJ.
      Rice Edmonds
            
            37
            
            DirectorJ.
      M. Dryden Hall, Jr.
            
            74
            
            Director
      (through May 2007)Rainer
      Hampp
            
            65
            
            DirectorJames
      L. Luikart
            
            62
            
            DirectorAnne
      Ringsma
            
            54
            
            DirectorNicholas
      R. Sheppard
            
            33
            
            Director
      (through May 2007)George
      A. Whaling
            
            71
            
            Director


47
 Index




The table
above provides a current list of our executive officers and their respective
current positions. Effective May 16, 2007, the scope of responsibilities for
Messrs. Saxton, Jakobe and Ehmann were expanded to include Euradius BV and
Euradius International BV, upon the completion of their acquisition by Holdings.
Effective January 1, 2008, the following organizational changes were
implemented.  Mr. Garner became Vice President of Business Development
for Sheridan Magazine Services and Mr. Kittredge President and Chief Operating
Officer of DPC, DJS and ULI.  The new titles are used in the following
biographies.




John A. Saxton,
President, Chief Executive Officer and Director.Mr. Saxton joined us
in 1995 as our President and Chief Executive Officer and has served on our board
of directors since 1991. Prior to joining us, Mr. Saxton held various
positions at The Procter & Gamble Company, most recently serving as
President of the Noxell Corporation following its acquisition by The
Procter & Gamble Company in 1990. Mr. Saxton is a member of the
National Association for Printing Leadership’s Walter E. Soderstrom Society,
which honors individuals in the printing industry who have significantly
contributed to the development and the progress of the graphic arts.
Mr. Saxton holds a B.S. from Bucknell University.




Robert M. Jakobe,
Executive Vice President and Chief Financial Officer and Secretary. Mr. Jakobe joined us in
1994 and effective January 1, 2007, Mr. Jakobe began serving as Executive Vice
President and Chief Financial Officer and Secretary of TSG. Mr. Jakobe served as
our Vice President and Chief Financial Officer through 2006. Prior to joining
us, he worked at various positions within The Procter & Gamble Company,
most recently serving as Division Comptroller and Vice President of Finance for
the Noxell Corporation. Mr. Jakobe holds a B.A. from the University of
Notre Dame.




Douglas R.
Ehmann, Vice President and Chief Technology Officer.Mr. Ehmann joined us
in 1998 as our Vice President and Chief Technology Officer. Prior to joining us,
he worked at Northrop Grumman Corporation as a Sector Chief Information Officer
for Information Systems from 1995 to 1998 and in the Management Systems Division
at the Procter & Gamble Company from 1981 to 1995. Mr. Ehmann
serves on the Executive Committee of the Print Industries Market Information and
Research (PRIMIR) organization. He holds a B.S., an M.E. and an M.B.A. from
Cornell University.




Dale A. Tepp,
Vice President—Human Resources.Ms. Tepp joined us in
September 2006 as Vice President, Human Resources.  Prior to joining
us, she worked in various Human Resources positions with Great Northern Nekoosa
Corporation, Georgia-Pacific Corporation, Color-Box and Cenveo, most recently
serving as Executive Director of Human Resources.  She holds a B.S.
degree from the University of Wisconsin.




Joan B. Davidson,
Group President—Sheridan Publication Services.  Ms. Davidson
joined us in 1995, and effective January 1, 2007, began serving as Group
President, Sheridan Publication Services. Ms. Davidson served
as  President and Chief Operating Officer of TSP from 1996 through
2006. From 1995 to 1996, she served as Finance Manager of TSP. Prior to joining
us, Ms. Davidson worked in various positions in the marketing and finance
departments of The Procter & Gamble Company, most recently serving as a
Finance Manager. Ms. Davidson is active in the industry as former Chairman
of the National Association for Printing Leadership and as past Secretary and
past Treasurer of the Print and Graphic Scholarship Foundation of the Graphic
Arts. She is a member of the National Association for Printing Leadership’s
Walter E. Soderstrom Society. Ms. Davidson holds a B.S. from the College of
Notre Dame of Maryland and an M.B.A. from Loyola College in
Maryland.




48
 Index




Patricia A.
Stricker, President and Chief Operating Officer—TSP.Ms. Stricker joined us
in 1998 and effective January 1, 2007, began serving as President and Chief
Operating Officer of TSP.  Ms. Stricker served as Vice President,
Operations and Human Resources for TSG from January 2003 through 2006. From
2000 to 2003, she served as President of SBI. Ms. Stricker served as our
Vice President, Corporate Development from 1999 to 2000, and as our Projects
Manager from 1998 to 1999. Prior to joining us, Ms. Stricker held various
positions at General Physics Corporation, most recently serving as Vice
President, Finance and Administration. She holds a B.A. from the College of
Notre Dame of Maryland.




Ms.
Stricker, President and Chief Operating Officer of TSP, and Ms. Davidson, Group
President, Sheridan Publication Services, are sisters.




Gary J.
Kittredge, President and Chief Operating Officer—DPC, DJS and ULI.Mr. Kittredge
joined us in 2000, and effective January 1, 2008 began serving as President
and Chief Operating Officer of DPC, DJS, and ULI.  From April 2006 to
2008, he served as President and Chief Operating Officer of DPC and
DJS.  From 2002 to 2006, he served as President and Chief Operating
Officer of CCP. From 2000 to 2002, he served as Executive Vice President of CCP.
Prior to joining us, Mr. Kittredge was the General Manager and Vice
President of Manufacturing for IPD Printing. Prior to that, he served as a
Business Unit Manager and Manager of Technical Development of Litho-Krome Co., a
subsidiary of Hallmark Cards, Incorporated. Mr. Kittredge is a member of
the Board of Directors of the Printing Industry of New England. He holds a B.S.
and an M.S. from Rochester Institute of Technology.




Robert M. Moore,
President and Chief Operating Officer—TDP.Mr. Moore
joined us in 2000, and since April 1, 2006 has served as President and
Chief Operating Officer of TDP. From 2003 to 2006, he served as President and
Chief Operating Officer of SBI. From November 2001 to January 2003, he
served as Vice President of Finance of SBI, and, from 2000 to
November 2001, Mr. Moore served as Director of Finance of SBI. Prior
to joining us, Mr. Moore held several positions at The Procter &
Gamble Company, most recently serving as Assistant Brand Manager, New Business
Development from 1999 to 2000. He served as Finance Manager, Commercial Products
Group from 1998 to 1999 and as Manager, Profit Forecasting for the Food and
Beverage Sector from 1997 to 1998. Mr. Moore holds a B.A. from the
University of Cincinnati.




Michael J.
Seagram, President and Chief Operating Officer—SBI.Mr. Seagram
joined us in 2003, and since April 1, 2006 has served as President and
Chief Operating Officer of SBI. From 2003 to 2006, he served as Vice President
of Sales and Marketing of SBI. Before joining SBI, Mr. Seagram was Owner
and President of Aristoplay, Ltd., a publisher of children’s games, from 1997 to
2003. He was also the Owner and President of the marketing firm,
Seagram & Singer, Inc. from 1986 to 1998. Mr. Seagram holds a
B.S. from Wayne State University.




J. Kenneth
Garner, President and Chief Operating Officer—ULI.Mr. Garner
joined us in 1975 and effective January 1, 2008 began serving as Vice President
of Business Development for Sheridan Magazine Services.  From 1994 to
2008, he served as President and Chief Operating Officer of
ULI.   From 1985 to 1993, he served as Executive Vice President
and Chief Operating Officer of ULI. Mr. Garner is active in industry
affairs and is a past Chairman of the National Association for Printing
Leadership (“NAPL”), a member of the Walter E. Soderstrom Society and the
recipient of the 2002 Soderstrom Award. He is a former chairman of the Graphic
Arts Education & Research Foundation, Environmental Conservation Board,
and the Printing Industries of America’s (“PIA’s”) Executive Development
Committee. He is a former director of the Graphic Arts Show Company and the
Printing Industries of Virginia. Mr. Garner holds a B.A. from
Randolph-Macon College.




G. Paul Bozuwa,
Vice President—Global Business Development.Mr. Bozuwa
joined us in 1991 and effective January 1, 2007, Mr. Bozuwa began serving as
Vice President, Global Business Development. In May 2007, upon the completion of
Holdings’ acquisition of Euradius BV and Euradius International BV, Mr. Bozuwa
relocated to the Netherlands and became Managing Director of GPN International
BV, a subsidiary of Euradius BV. Mr. Bozuwa served as President of DJS from 2002
to 2006.  From 1995 to 2002, Mr. Bozuwa served as President and
Chief Operating Officer of CCP. From 1991 to 1995, he served as Chief Financial
Officer of CCP. Mr. Bozuwa is active in industry affairs serving
as past Chairman of the Finance Committee and past Treasurer of the Council
of Science Editors. He was also the Chairman of the task force on Science,
Journals, Poverty and Human Development. Prior to joining us, he was an
Associate of Kearsarge Ventures, a venture fund, from 1989 to 1991.
Mr. Bozuwa holds a B.A. from Dartmouth College and an M.B.A. from the
University of New Hampshire.




Christopher A.
Pierce—Chairman—TDP.Mr. Pierce joined us in May 2004, upon the consummation of the
Dingley Acquisition, and since April 1, 2006, has served as Chairman of
TDP. From 2004 to 2006, he served as President and Chief Operating Officer of
TDP. From 1980 to the time of the Dingley Acquisition, Mr. Pierce served as
President of The Dingley Press. Mr. Pierce holds a B.A. from Bowdoin
College.




Thomas J.
Baldwin, Director.Mr.
Baldwin has been a member of our board of directors since
2003.  Mr. Baldwin is a Managing Director of BRS. He joined BRS
in 2000. From 1995 to 2000, Mr. Baldwin was a Principal at PB Ventures, Inc.
From 1988 to 1995, he served as Vice President and then Managing Director of The
INVUS Group, Ltd., a private equity investment firm. Prior to that he was a
consultant with the Boston Consulting Group, a strategy consulting firm. Mr.
Baldwin holds a B.B.A. from Siena College and an M.B.A. from Harvard Business
School. Mr. Baldwin is also a director of Eurofresh, Inc., Lazy Days, Inc.,
Things Remembered, Inc. and Totes Isotoner Corporation.




49
 Index




Nicholas
Daraviras, Director.Mr.
Daraviras has been a member of our board of directors since August
2003.  Mr. Daraviras is a Managing Director of JCP. Mr. Daraviras
joined JCP in 1996. Mr. Daraviras holds a B.S. and an M.B.A. from the Wharton
School of the University of Pennsylvania. Mr. Daraviras also serves as a
director of various private companies in which JCP has an interest.




Craig H. Deery,
Director.Mr.
Deery has been a member of our board of directors since August
2003.  He was also member of our board of directors from 1991 through
2001.  Mr. Deery was a Managing Director of JCP from 2002 to 2003.
From 1987 to 2002, Mr. Deery was a Managing Director at BancBoston Capital,
where he served on the management committee of BancBoston Capital. While at
BancBoston Capital, Mr. Deery supervised a direct investment portfolio of $500
million, including mezzanine securities and equity as a minority, co-invest, and
control investor. Prior to 1987, Mr. Deery spent fifteen years at BancBoston,
serving as a team leader in domestic lending and as Deputy Managing Director and
Senior Credit Officer of BancBoston Australia, Ltd. Mr. Deery holds a B.A. from
Bucknell University and an M.B.A. from New York University. Mr. Deery also
serves as a director for several private companies.




Gary T.
DiCamillo, Director.Mr. DiCamillo has been a member of our board of directors since 1989. Mr.
DiCamillo has served as President and Chief Executive Officer of GWP,
International in Dedham, Massachusetts since 2005. From 2002 to 2005, Mr.
DiCamillo served as President, Chief Executive Officer, and Director of TAC
Worldwide Companies. From 1995 to 2002, he was Chairman and Chief Executive
Officer of Polaroid Corporation and from 1993 to 1995 he was President of
Worldwide Power Tools for Black & Decker Corporation. Mr. DiCamillo holds a
B.S. from Rensselaer Polytechnic Institute and an M.B.A. from Harvard Business
School. Mr. DiCamillo is also a director of 3Com Corporation and Whirlpool
Corporation.




J. Rice Edmonds,
Director.Mr.
Edmonds has been a member of our board of directors since 2003.  Mr.
Edmonds is a Managing Director at BRS. He joined BRS in 1996. From 1993 to 1996,
he worked in the high yield finance group of Bankers Trust. Mr. Edmonds holds a
B.S. from the University of Virginia McIntire School of Commerce and an M.B.A.
from The Wharton School of the University of Pennsylvania. Mr. Edmonds is also a
director of McCormick & Schmick Restaurant Corporation, Town Sports
International, Inc. and several private companies in which BRS has an
interest.




J.M. Dryden
Hall,
Director.Mr.
Hall was a member of our board of directors from 1967 through May
2007.  Mr. Hall formed and has been the principal in the law firm of
J.M.D. Hall, Jr., P.A. and its predecessors in Baltimore, Maryland since
1962.  Mr. Hall holds a B.A. from Johns Hopkins University and an
L.L.B. from New York University Law School.




Rainer Hampp,
Director.Mr.
Hampp has been a member of our board of directors since May 2007. Mr.
Hampp  has owned Unternehmensberatung Rainer Hampp, a consulting firm,
since January 2008. Mr. Hampp was CEO of HamppMedia, a publishing company in
Germany from 1993 to 2007. He worked for Bertelsmann AG in the United States
from 1984 to 1992, most recently as Chief Executive Officer. Mr. Hampp holds a
degree in engineering from Hochschule fuer Technik und Wirtschaft in Karlsruhe,
Germany.




James L.
Luikart,Director.
Mr. Luikart has been a member of our board of directors since
2003.  Mr. Luikart is Executive Vice President of JCP. Mr. Luikart
joined JCP in 1994 after spending over twenty years with Citicorp, the last
seven years of which were as a Vice President of Citicorp Venture Capital, Ltd.
Mr. Luikart holds a B.A. from Yale University and an M.I.A. from Columbia
University. Mr. Luikart also serves as a director of various private companies
in which JCP has an interest.




Anne Ringsma,
Director.Mr.
Ringsma has been a member of our board of directors since May
2007.  Mr. Ringsma is CEO of Shatho beheer b.v., a private equity firm
in Rotterdam, Holland.  Mr. Ringsma served as Vice Chairman and
Chairman of Roto Smeets de Boer NV (“RSDB”) from 1997 to
2000.  Prior to joining RSDB, he owned and operated Plantijn Printing in
the Netherlands from 1981 to 1997, when he sold it to RSDB.Mr.
Ringsma holds a B.B.A. from Nijenrode University, Breukelen,
Holland.




Nicholas R.
Sheppard, Director.Mr.
Sheppard was a member of our board of directors from 2003 through May 2007.
 Mr. Sheppard is a Vice President at BRS.  He joined BRS in
2000.  From 1997 to 2000, he worked as a Consultant in the London and
New York offices of Marakon Associates, a strategy consulting
firm.  Mr. Sheppard is a graduate of the London School of
Economics.




George A.
Whaling, Director.Mr.
Whaling has been a member of our board of directors since 1998 and
is Chairman of Kingston Capital Corporation in New York. From 1980 to 1997,
he was Chairman and owner of the Petty Printing Company, a commercial web
printer. Mr. Whaling holds a B.A. from Colgate University. He is Trustee
Emeritus of Colgate University, Chairman Emeritus of the Hamilton Initiative
LLC, on the board of directors of the Burr & Burton Academy in
Manchester, VT, and an advisor to Northern Business Products, a division of
Toshiba Incorporated.




50
 Index




Board
Composition and Director Independence




The
securities holders agreement among BRS, JCP and the other stockholders of TSG
Holdings Corp. provides that TSG Holdings Corp.’s and our board of directors
will consist of ten members, including four designees of BRS (who currently are
Messrs. Baldwin, DiCamillo, Edmonds and Saxton), four designees of JCP (who
currently are Messrs. Daraviras, Deery, Luikart and Whaling) and two directors
designated by the Euradius Investors, as defined in the securities holders
agreement, (who currently are Messrs. Hampp and Ringsma). Pursuant to the
securities holders agreement, we may not take certain significant actions
without the approval of each of BRS and JCP.  Although our securities
are not listed on the New York Stock Exchange, for purposes of this item we have
adopted the definition of “independence” applicable under the listing standards
of the New York Stock Exchange.  Using such definition, the board of
directors has determined that each of Messrs. DiCamillo and Whaling is
independent.  If we were listed on the New York Stock Exchange, we
would be exempt from certain independence requirements with respect to our board
of directors and board committees under the “controlled company”
exemption.  See Part III, Item 13, “Certain Relationships and Related
Transactions—Securities Holders Agreement.”




Audit
Committee




The board
of directors has an audit committee. The audit committee consists of
Messrs. Daraviras, DiCamillo and Edmonds. The audit committee reviews our
financial statements and accounting practices, selects our independent
registered public accounting firm and oversees our internal audit function. The
responsibilities of the Audit Committee are defined in a charter, which has been
approved by the Board of Directors. In carrying out their responsibilities, the
Committee has reviewed and discussed our audited financial statements with
management, and it has discussed the matters which are required to be discussed
by Statement on Auditing Standards No. 61, as amended by Statement on Auditing
Standards No. 90 (Communication with Audit Committees), with our
Independent Registered Public Accounting Firm. In addition, the Committee has
reviewed the written disclosures required by Independence Standards Board
Standard No. 1, which were received from our Independent Registered Public
Accounting Firm, and has discussed the Independent Registered Public Accounting
Firm’s independence with them. The Audit Committee has reviewed the fees of the
Independent Registered Public Accounting Firm for non-audit services and
believes that such fees are compatible with the independence of the Independent
Registered Public Accounting Firm.




Based on
these reviews and discussions, the Committee recommended to the Board of
Directors that our audited financial statements be included in our Annual Report
on Form 10-K for the fiscal year ended December 31, 2007.




The Board
of Directors has determined that Mr. DiCamillo, the chairman of the audit
committee, is the “audit committee financial expert” as defined in applicable
SEC rules and regulations. Mr. DiCamillo is “independent” as defined in the
listing standards of the New York Stock Exchange.




Code
of Business Conduct




Our Code
of Business Conduct applies to all employees of The Sheridan Group, Inc. and all
its wholly-owned subsidiaries.  Each supervisor and above has been
required to sign annually that they have read, understand and will comply with
the Code. This Code is posted on our Internet website at
http://www.sheridan.com.  If any substantive amendments are made to
the Code of Business Conduct or the Board of Directors grants any waiver from a
provision of the Code to any officers of The Sheridan Group, Inc. or its
wholly-owned subsidiaries, the nature of such amendment or waiver will be
disclosed on the website at the above address.






ITEM
      11.
            EXECUTIVE
      COMPENSATION




Compensation
Discussion and Analysis




Introduction




This
Compensation Discussion and Analysis (“CD&A”) provides an overview of our
executive compensation program together with a description of the material
factors underlying the decisions which resulted in the compensation provided to
our Chief Executive Officer (“CEO”), Chief Financial Officer (“CFO”) and certain
other executive officers (collectively, the named executive officers) for 2007
(as presented in the tables which follow this CD&A).




51
 Index




Compensation
Committee




The board
of directors has a compensation committee. The compensation committee consists
of three members, Messrs. Baldwin, Deery and Luikart. The compensation
committee has responsibility for establishing, implementing and continually
monitoring adherence with our compensation philosophy. The role of the
compensation committee is to make recommendations to our board of directors
concerning salaries, incentive compensation and employee benefit programs. The
compensation committee reviews and approves employment agreements and
compensation programs or benefit plans for all of our executive officers,
including the named executive officers, and certain other management employees.
The compensation committee periodically compares our executive compensation
levels with those of companies with which we believe that we compete in
recruitment and retention of senior executives. The compensation committee also
reviews and makes recommendations with respect to succession planning and
management development. The CEO recommends changes in compensation for his
direct reports, including each of the named executive officers, to the
compensation committee for approval. The compensation committee recommends
changes in compensation for the CEO to the full board for approval.




Compensation Philosophy and
Objectives




In
reviewing our compensation programs, the compensation committee applies a
philosophy which is based on the premise that our achievements result from the
coordinated efforts of all individuals working toward common objectives. We have
developed a compensation policy that is designed to attract and retain qualified
senior executives, reward executives for actions that result in the long-term
enhancement of stockholder value and reward results with respect to our
financial and operational goals.




Setting
Executive Compensation








2007
Executive Compensation Components




For the
fiscal year ending December 31, 2007, the principal components of compensation
for named executive officers were:




·
            Base
      salary;


·
            Non-equity
      annual incentive compensation;


·
            Stock-based
      incentive compensation;


·
            Non-qualified
      deferred compensation program; and


·
            Perquisites
      and other benefits.




We have
also entered into employment agreements and/or change in control arrangements
with all of the named executive officers. In addition to the compensation
components listed above, these agreements provide for post-employment severance
payments and benefits in the event of a termination of employment under certain
circumstances.  The terms of these agreements are described in more
detail below (see the section entitled “Potential Payments on Termination or a
Change in Control”). We believe that these agreements provide an incentive to
the named executive officers to remain with us and serve to align the interest
of the executives and the stockholders in the event of a potential acquisition.
Additionally, retention awards, made to the Deferred Compensation Plan described
below, were provided to certain named executive officers (excluding our CEO)
whose retention is determined by our board of directors to be critical to our
ongoing success.




Base
Salary




We
provide the named executive officers with base salaries to compensate them for
services rendered during the fiscal year. The base salaries for our CEO, Messrs.
Jakobe and Pierce, and Mss. Davidson and Stricker are contained in their
respective employment agreements and are subject to increase at the discretion
of our board of directors.  Base salary levels are intended to reflect
an individual’s responsibilities, performance and expertise and are designed to
be competitive with salary levels in effect at other manufacturing companies,
and in particular companies within the printing industry. Accordingly, we
establish salaries for the named executive officers on the basis of personal
performance and by reviewing available national (prepared by Watson Wyatt) and
printing industry compensation data from time to time, including published
salary surveys regarding compensation of officers of larger and smaller
companies, both within and outside the printing industry.The compensation
committee has reviewed the base salaries of our named executive officers for
2007 and is of the opinion that such salaries are in line with market
data.




52
 Index




Annual
Incentive Compensation




Management Performance Incentive
Plan.  Annual cash bonuses are included in our executive
compensation program because we believe that a significant portion of each named
executive officer’s compensation should be contingent on our annual performance,
as well as the individual contribution of the executive.  Accordingly,
our named executive officers participate in a management performance incentive
plan, which compensates them for achievement of certain objectives established
annually by our board of directors. For 2007, these objectives are based on our
earnings before interest, taxes, depreciation and amortization (“EBITDA”), the
EBITDA of each executive’s operating subsidiary and individual
performance.   Since we are owned by private equity investors, we
are operated to maximize cash flow and EBITDA is the primary measure of the cash
flow generated by us.  Under the management performance incentive
plan, our executive officers are eligible to receive a maximum award of 50% of
base salary, except Mr. Saxton, whose maximum award is 100% of base
salary.   Maximum award amounts are developed based on market
data but also set at a level to insure that a significant portion of potential
compensation is tied to delivering results.  For fiscal year 2007,
management performance incentive awards were based upon achievement of corporate
EBITDA financial objectives and individual performance
objectives.  Upon completion of the fiscal year, the compensation
committee assesses our performance for each corporate financial objective,
comparing actual year-end results to the objectives.  Then individual
performance is evaluated and an overall award is calculated. We believe that
disclosing individual business unit EBITDA goals for the named executive
officers would reveal business strategy and expose us to competitive
harm.




The board
of directors established the financial and discretionary objectives for our
named executive officers for 2007.The objectives are set
based on the annual plan that is approved by the Board of
Directors.  The maximum target is set to be approximately 2-4% above
the target and the minimum is set to be approximately 8-10% below the
target.  As stated earlier, EBITDA is the primary measure that private
equity investors like ours use to determine the success of their portfolio
companies, since this is a good measure of the cash flow generation capability
of a company.  We have focused all of our reward systems on EBITDA
generation.  This is very typical for companies owned by private
equity investors.  TSG and operating company subsidiary EBITDA targets
are set at levels to incent improvement over previous-year operating results and
are designed to be challenging to achieve, consistent with the company annual
financial plan that is approved by the board of directors. As detailed below,
TSG financial targets have been achieved in one out of the last three fiscal
years.  With the exception of the 2005 and 2006 TDP EBITDA targets set
for Mr. Pierce, operating company subsidiary EBITDA targets have been achieved
at least at the threshold level in each of the last three years.




Mr.
Saxton was eligible for a maximum award of 100% of base salary in
2007.  50% of this award was based on attainment of TSG financial
objectives, 25% was based on successfully completing Holdings’ acquisition and
assimilation of Euradius BV and Euradius International BV, and 25% was
discretionary based on individual performance.  The TSG financial
maximum was achieved; therefore, a 50% award ($280,000) for EBITDA was
earned.  The Euradius acquisition was successfully completed in 2007
resulting in a full 25% payout ($140,000) for this component.  There
is no minimum threshold for the discretionary portion of the
bonus.  It is totally discretionary based on the board’s view of an
individual’s contribution to our success.  Mr. Saxton received 25% as
a discretionary award ($140,000) based on the board’s evaluation of his
effectiveness as CEO.  The total 2007 award was equal to $560,000, or
100% of his base salary.  For 2006 and 2005, TSG financial targets
were not met and only the discretionary portion of the bonus was
earned.  Mr. Saxton’s bonus payments for 2006 and 2005, respectively,
were $102,000 and $102,000.




Mr.
Jakobe was eligible for a maximum award of 50% of base salary in
2007.  50% of this award was based on attainment of TSG financial
objectives, 25% was based on successfully completing Holdings’ acquisition and
assimilation of Euradius BV and Euradius International BV, and 25% was
discretionary based on individual performance.  The TSG financial
maximum was achieved; therefore, a 50% award ($67,500) for EBITDA was
earned.  The Euradius acquisition was successfully completed in 2007
resulting in a full 25% payout ($33,750) for this component.  There is
no minimum threshold for the discretionary portion of the bonus.  It
is totally discretionary based on the board’s view of an individual’s
contribution to our success.  Mr. Jakobe received 25% as a
discretionary award ($33,750) based on the board’s view of his effectiveness as
CFO.  The total 2007 award was equal to $135,000, or 50% of his base
salary.   For 2006 and 2005, TSG financial targets were not met
and only the discretionary portion of the bonus was earned.  Mr.
Jakobe’s bonus payments for 2006 and 2005, respectively, were $30,000 and
$30,000.




53
 Index




Ms.
Davidson was eligible for a maximum award of 50% of base salary in
2007.  25% of this award was based on attainment of TSG financial
objectives, 16.67% was based on attainment of TSP financial objectives, 16.67%
was based on attainment of DPC financial objectives, 16.66% was based on
attainment of ULI financial objectives, and 25% was discretionary based on
individual performance.  Ms. Davidson received an incentive award
equal to 84.9% of the maximum award as follows:  25% for achieving TSG
maximum EBITDA ($36,250), 16.06% for TSP EBITDA ($23,300), 16.67% for DPC EBITDA
($24,200), 2.20% for ULI EBITDA ($3,200), and 25% as a discretionary award
($36,250) for individual performance based on the board’s view of her
effectiveness as Group President - Sheridan Publication
Services.   There is no minimum threshold for the discretionary
portion of the bonus.  It is totally discretionary based on the
board’s view of an individual’s contribution to our success.  The
total 2007 award was equal to $123,200, or approximately 42.5% of her base
salary. For 2006, Ms. Davidson received an incentive award equal to 75% of the
maximum award as follows:  50% for achieving TSP maximum EBITDA, and
25% discretionary for individual performance as President and COO of
TSP.  The 2006 TSG EBITDA threshold was not achieved; therefore, no
award was earned for this component.  For 2005, 36.3% of a maximum of
50% was awarded for achievement of TSP financial targets and 25% was awarded for
individual performance.  TSG financial targets were not met, so there
was no payout for that component. This resulted in an award equal to 61.3% of
Ms. Davidson’s total bonus potential for the year.  Ms. Davidson’s
bonus payments for 2006 and 2005, respectively, were $95,700 and
$78,300.




Mr.
Pierce was eligible for a maximum award of 50% of base salary in
2007.  50% of this award was based on attaining TDP financial
objectives, 25% was based on TSG EBITDA, and 25% was discretionary based on
individual performance.  Mr. Pierce received an incentive award 86.9%
of the maximum award as follows:  36.9% for achieving target TDP
financial targets ($43,300), 25% for achieving TSG maximum EBITDA ($29,400), and
a 25% discretionary award for individual performance ($29,400) based on the
board’s view of his effectiveness as Chairman – TDP.  There is no
minimum threshold for the discretionary portion of the bonus.  It is
totally discretionary based on the board’s view of an individual’s contribution
to our success.  The total 2007 award was equal to $102,100, or
approximately 43.4% of his base salary.  Mr. Pierce did not earn any
bonus payment for 2006 or 2005 as TDP and TSG financial targets were not
met.




Ms.
Stricker was eligible for a maximum award of 50% of base salary in
2007.  50% of this award was based on attainment of TSP financial
objectives, 25% was based on TSG EBITDA, and 25% was discretionary based on
individual performance.  Ms. Stricker received an incentive award
equal to 98.2% of the maximum award as follows: 48.2% for achieving target TSP
financial targets ($55,500), 25% for achieving TSG maximum EBITDA ($28,750), and
a 25% discretionary award for individual performance ($28,750) based on the
board’s view of her effectiveness as President and Chief Operating Officer of
TSP.  There is no minimum threshold for the discretionary portion of
the bonus.  It is totally discretionary based on the board’s view of
an individual’s contribution to our success.   The total 2007
award was equal to $113,000 or approximately 49.1% of her base
salary.   For 2006 and 2005, Ms. Stricker was eligible for a
maximum award of 50% of her base salary with 75% of the award based on
attainment of TSG financial objectives and 25% discretionary based on individual
performance.  The TSG threshold was not met in either of these years
and only the discretionary award was earned.  Ms. Stricker’s bonus
payments for 2006 and 2005, respectively, were $27,500 and $27,400.




Awards
for 2007, 2006 and 2005 appear as “Non-Equity Incentive Plan Compensation” in
the Summary Compensation Table.  Plan threshold, target and maximum are
disclosed in the Grants of Plan-Based Awards table.




Profit Sharing
Plan.  The Sheridan Group Profit Sharing Plan is a broad-based
incentive program provided to all eligible employees at each location, excluding
TDP and DJS.  The annual discretionary profit sharing contribution for each
participating operating subsidiary company is determined by a formula approved
each year by our board of directors.




Under the
formula approved for 2007, a guideline has been established of 10% of EBITDA for
TSP, SBI and DPC, and 5% for ULI.  If company EBITDA is a positive
number, the established percent of EBITDA is put into the profit sharing
pool.  The total dollar contribution for an operating subsidiary
cannot exceed 10% (or 5% for ULI) of its total payroll for the year.
Additionally, a company must also meet a minimum threshold of an 8% net profit
margin (before profit sharing) in order to be eligible for profit
sharing.




All of
the companies that participate in the Profit Sharing Plan, except for Dartmouth
Printing Company, currently deposit profit sharing contributions into the
employees’ accounts in our 401(k) plan; however if the contribution would
otherwise exceed the contribution limits applicable to the 401(k) plan under the
Internal Revenue Code, then the excess will be contributed to the nonqualified
deferred compensation plan, discussed below. Dartmouth Printing Company had an
established cash payment policy when they were acquired, which remains in place,
although employees may choose to put their cash into their 401(k)
accounts.




Amounts
awarded to the named executive officers for 2007 under the Profit Sharing Plan
were $22,500, $22,500, $0, $22,500, and $22,500 for each of Messrs. Saxton,
Jakobe, and Pierce and Mss. Davidson and Stricker,
respectively.  These amounts are reported in the “All Other
Compensation” column in the Summary Compensation Table shown below.




54
 Index




Stock-Based
Incentive Compensation




TSG
Holdings Corp., our parent company, adopted a Stock-Based Incentive Compensation
Plan in October 2003. The purpose of the 2003 Stock-Based Incentive Compensation
Plan is to provide long-term equity incentives to assist us in attracting and
retaining valued management employees through the award of options to purchase
common stock of TSG Holdings Corp.  Option grants are designed to
align the interests of officers and employees with those of the stockholders, to
provide each individual with a significant incentive to manage our business from
the perspective of an owner and to remain employed by us.  Eligible
employees will receive options on terms determined by our board of
directors.  The compensation committee considers awards made by our
board of directors under the Stock-Based Incentive Plan in conjunction with the
recipient’s level of responsibility and relative position within our
organization, past performance, potential and annual base salary.  The
stock option awards are recommended by the CEO to the compensation committee,
who then makes a recommendation to our board of directors for
approval.




Options
granted under the Stock-Based Incentive Compensation Plan have exercise prices
equal to or above the fair market value of the underlying common stock (as
determined under the Stock-Based Incentive Compensation Plan) on the grant date
and are equally split 50% between a time-based vesting schedule and a
performance-based vesting schedule.  Time-based awards vest 20% per year
over five years subject to the executive’s continued employment with us. 
Performance-based awards vest 20% per year over five years based on us achieving
a per share equity value each year as determined by the board. The per share
equity value is calculated as a multiple of our trailing twelve month EBITDA
minus net debt. If an annual performance target is not met in any of the five
years, but is achieved by meeting subsequent year targets, shares will vest for
all preceding plan years.  The targets for the performance based
options were established based upon the original objectives that BRS and JCP
established when they bought us in 2003 (as modified in connection with the
Dingley Acquisition in 2004) and wanted to incent management to deliver the rate
of return expected on their investment in us.




No named
executive officer received an option award in fiscal year 2007.




We do not
require our named executive officers to maintain a minimum ownership interest in
us or our affiliates.




Nonqualified
Deferred Compensation




In General.  Our
nonqualified deferred compensation program serves primarily to attract and
retain qualified executives by providing them with enhanced tax deferral
opportunities and retirement benefits in addition to those provided under our
broad-based 401(k) plan.  Under the nonqualified deferred compensation
plan, officers, directors and certain management employees may annually elect
(via individual contracts) to defer a portion of their compensation, on a
pre-tax basis. The benefit is based on the amount of compensation (salary
and bonus) deferred, employer “make-whole” contributions, employer
discretionary contributions and earnings on these amounts.  Make-whole
contributions are matching and profit sharing contributions which we would have
made to the participants’ accounts under the 401(k) plan were we not prohibited
from making such contribution under the limits applicable to the 401(k) plan
under the Internal Revenue Code.  For example, if a participant was
eligible to receive 10% of compensation in a profit sharing contribution and the
limit on compensation that could be taken into account in determining
contribution amounts to the 401(k) plan for 2007 was $225,000, the maximum
contribution the participant could receive under the 401(k) plan would be
$22,500.  The make-whole contribution to the deferred compensation plan
takes the difference between the participant’s salary and $225,000 and
multiplies that number by the profit sharing contribution percentage of
10%.   Individuals are fully vested in deferred salary and bonus
amounts; however, the make-whole contributions vest in full after three years of
employment, which is the same schedule applicable to employer contributions
under the 401(k) plan. The employer discretionary contributions become vested
pursuant to a vesting schedule as determined by us.




Salary
and bonus amounts deferred by named executive officers in 2007 under the
nonqualified deferred compensation plan are shown in the “Executive
Contributions” column of the Deferred Compensation Table
below.  Employer make whole and discretionary contributions for 2007
are shown in the “Registrant Contributions” column of the Deferred Compensation
Table and in the “All Other Compensation” column of the Summary Compensation
Table.




Retention Awards.Annual
retention awards are employer discretionary contributions paid to certain
management employees whose retention is determined by our board of directors to
be critical to our ongoing success. These awards are deposited in the deferred
compensation plan under the employee’s name and vest after five
years.  Distribution is made on a date previously elected by the
executive. Other than the awards paid in accordance with the employment
agreement of Ms.  Davidson, these awards are solely awarded at the
board of directors’ discretion. Any awards made outside of an employment
agreement were equal to 10% of base salary.




In 2007,
our board of directors provided a retention award to Ms. Davidson in the amount
of $72,500 in accordance with the terms of her existing employment
agreement.  The retention awards for our named executive officers are
captured under “All Other Compensation” on the Summary Compensation Table and in
the Nonqualified Deferred Compensation table above under Registrant
Contributions.




55
 Index




Other
Compensation, Perquisites and Other Benefits




401(k) Plan.  We
sponsor a defined contribution plan, or 401(k) Plan, intended to qualify under
section 401 of the Internal Revenue Code. Substantially all of our employees are
eligible to participate in the 401(k) Plan on the first day of the month in
which the employee has attained 18 years of age and 90 days of employment.
Employees may make pre-tax contributions of their eligible compensation, not to
exceed the limits under the Internal Revenue Code.  We match 50% of the
employee’s contributions, up to a maximum of 4% of the employee’s eligible
compensation.  In addition, most of the companies that participate in the
Profit Sharing Plan deposit their Profit Sharing Plan contributions into the
401(k) plan.  Certain participating companies also make a 1% of pay fixed
contribution, for which the 90-day service requirement is waived. 
Employees may direct their investments among various pre-selected investment
alternatives.  Employer contributions to the 401(k) plan, including profit
sharing contributions, fixed contributions and employer matching contributions,
vest after three years of employment.




Perquisites and Other
Benefits.  The named executive officers are not generally
entitled to benefits that are not otherwise available to all of our
employees.  In this regard it should be noted that we do not provide
pension arrangements (other than the 401(k) plan and the nonqualified deferred
compensation plan), post-retirement health coverage or similar benefits for our
executives. However, some of the named executive officers are entitled to
certain insurance benefits, relocation benefits and an executive physical
program.  These perquisites are provided because we view the benefits
as being very closely related to the services our named executive officers
perform for us.  Supplemental Long-Term disability insurance is
provided as an income security measure in the event of a catastrophic
illness.  Relocation benefits are provided to all management employees
who are relocated at our request, including named executive
officers.  The executive physical program benefit is provided to all
of our key managers and officers, including the named executive officers, to
ensure their continuing ability to fulfill the responsibilities of their
respective positions.  These amounts are noted in the “All Other
Compensation” column in the Summary Compensation Table.  The Committee
believes that these benefits are consistent with the goal of attracting and
retaining superior executive talent.




Tax
and Accounting Implications




Deductibility of Certain
Compensation.Section 162(m) of the
Internal Revenue Code imposes a $1.0 million limit on the deductibility of
compensation paid to certain executive officers of public companies, unless the
compensation meets certain requirements for “performance-based”
compensation.  In determining executive compensation, the compensation
committee considers, among other factors, the possible tax consequences to us
and to the executives.  However, tax consequences, including but not
limited to tax deductibility by us, are subject to many factors (such as changes
in the tax laws and regulations or interpretations thereof and the timing and
nature of various decisions by executives regarding options and other rights)
that are beyond our control.  In addition, the compensation committee
believes that it is important for it to retain maximum flexibility in designing
compensation programs that meet its stated objectives.  For all of the
foregoing reasons, the compensation committee, while considering tax
deductibility as one of its factors in determining compensation, will not limit
compensation to those levels or types of compensation that will be
deductible.  The compensation committee will, of course, consider
alternative forms of compensation, consistent with its compensation goals, which
preserve deductibility.




Accounting
Impact.Considerations of accounting impacts do not
affect decisions on grants of equity compensation.




Compensation
Committee Report




Our
Compensation Committee has reviewed and discussed the Compensation Discussion
and Analysis required by Item 402(b) of Regulation S-K with management and,
based on such review and discussion, the Compensation Committee recommended to
the Board that the Compensation Discussion and Analysis be included in this
annual report for the fiscal year ending December 31, 2007.




Thomas J.
      BaldwinCraig H.
    DeeryJames L.
      Luikart




The
following table summarizes compensation awarded or paid by us during 2007, 2006
and 2005 to our President and Chief Executive Officer, our Executive Vice
President and Chief Financial Officer, and our three next most highly
compensated executive officers (our “named executive
officers”).  Perquisites and other benefits included in the All Other
Compensation column are disclosed and itemized in the “All Other Compensation”
table below.




56
 Index




Summary
Compensation Table




Name and Principal Position
            
            Year
            
            Salary
              ($)
            
            
            Bonus
              ($)
              (1)
            
            
            Stock
              Awards ($)
            
            
            Option
              Awards ($)
              (2)
            
            
            Non-Equity
              Incentive Plan
              Compensation
              ($)
              (3)
            
            
            All Other
              Compensation
              ($)
              (4)
            
            
            Total
              ($)John
      A. Saxton
            
            2007
            
            
            559,655
            
            
            
            —
            
            
            
            —
            
            
            
            2,102
            
            
            
            560,000
            
            
            
            106,158
            
            
            
            1,227,915President
      and Chief
            
            2006
            
            
            510,016
            
            
            
            —
            
            
            
            —
            
            
            
            2,102
            
            
            
            102,000
            
            
            
            138,295
            
            
            
            752,413Executive
      Officer
            
            2005
            
            
            509,939
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            102,000
            
            
            
            135,841
            
            
            
            747,780Robert
      M. Jakobe
            
            2007
            
            
            269,805
            
            
            
            —
            
            
            
            —
            
            
            
            2,102
            
            
            
            135,000
            
            
            
            68,696
            
            
            
            475,603Executive
      VicePresident
            
            2006
            
            
            240,032
            
            
            
            —
            
            
            
            —
            
            
            
            2,102
            
            
            
            30,000
            
            
            
            47,259
            
            
            
            319,393and
      Chief Financial Officer
            
            2005
            
            
            240,032
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            30,000
            
            
            
            70,835
            
            
            
            340,867Joan
      B. Davidson
            
            2007
            
            
            287,773
            
            
            
            —
            
            
            
            —
            
            
            
            1,338
            
            
            
            123,200
            
            
            
            128,707
            
            
            
            541,018Group
      President Sheridan
            
            2006
            
            
            257,239
            
            
            
            40,135
            
            
            
            —
            
            
            
            1,338
            
            
            
            95,700
            
            
            
            115,786
            
            
            
            510,198Publication
      Services
            
            2005
            
            
            254,893
            
            
            
            135
            
            
            
            —
            
            
            
            —
            
            
            
            78,300
            
            
            
            114,789
            
            
            
            448,117Christopher
      A. Pierce
            
            2007
            
            
            234,972
            
            
            
            108,002
            
            
            
            —
            
            
            
            1,223
            
            
            
            102,100
            
            
            
            4,588
            
            
            
            450,885Chairman
      - TDP
            
            2006
            
            
            234,988
            
            
            
            107,952
            
            
            
            —
            
            
            
            1,223
            
            
            
            —
            
            
            
            2,940
            
            
            
            347,1032005
            
            
            234,988
            
            
            
            108,002
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,862
            
            
            
            346,852Patricia
      A. Stricker
            
            2007
            
            
            228,278
            
            
            
            135
            
            
            
            —
            
            
            
            1,032
            
            
            
            113,000
            
            
            
            58,789
            
            
            
            401,234President
      & COO - TSP
            
            2006
            
            
            221,782
            
            
            
            —
            
            
            
            —
            
            
            
            1,032
            
            
            
            27,500
            
            
            
            43,362
            
            
            
            293,6762005
            
            
            218,764
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            27,400
            
            
            
            65,444
            
            
            
            311,608







(1) The
amount reported for Ms. Davidson as “Bonus” for 2006 consists of a $40,000
payment made as part of a special incentive related to the closing of CCP and
the transition of work from CCP to TSP. The additional $135 amounts in 2006 and
2005 for Ms. Davidson were Christmas bonuses.  Ms. Stricker received a
$135 Christmas bonus in 2007.  Mr. Pierce received a non-compete
payment in 2007, 2006 and 2005, and a $50 gift card in 2007 and
2005.




(2) The
amounts reflected are the stock based compensation expense recognized pursuant
to FAS 123(R) in 2007 and 2006 for stock options. Assumptions used in the
calculation of these amounts are disclosed in note 2 in our Consolidated
Financial Statements for the fiscal year ending December 31, 2007, included in
this annual report.




(3) The
amounts reported as “Non-Equity Incentive Plan Compensation” for 2007, 2006 and
2005 consist of bonuses paid as management performance incentive
compensation.




(4) The
amounts reported as “All Other Compensation” for 2007, 2006 and 2005 are
itemized in the “All Other Compensation” table below.




57
 Index




All
Other Compensation




Taxable
            
            
            Taxable
            
            
            
            
            
            Additional
            
            
            
            
            
            
            
            
            GTL
            
            
            
            
            
            Profit
            
            
            
            
            
            401k
            
            
            401(k)
            
            
            TotalSpousal
            
            
            Relocation
            
            
            Travel
            
            
            Retention
            
            
            Disability
            
            
            Taxable
            
            
            Physical
            
            
            Taxable
            
            
            Profit
            
            
            Sharing
            
            
            401k
            
            
            Fixed
            
            
            Make
            
            
            All OtherName
            
            Year
            
            Travel
            
            
            Income
            
            
            Income
            
            
            Awards
            
            
            Coverage
            
            
            Term Life
            
            
            Program
            
            
            Income
            
            
            Sharing
            
            
            Make Whole
            
            
            Match
            
            
            1%
            
            
            Whole
            
            
            Comp($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)
            
            
            ($)John
      A. Saxton
            
            2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,000
            
            
            
            12,230
            
            
            
            5,634
            
            
            
            4,082
            
            
            
            22,500
            
            
            
            39,202
            
            
            
            4,500
            
            
            
            2,250
            
            
            
            11,760
            
            
            
            106,158President
      and Chief
              Executive
      Officer
            
            2006
            
            
            1,238
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            4,000
            
            
            
            12,230
            
            
            
            140
            
            
            
            3,695
            
            
            
            22,000
            
            
            
            67,994
            
            
            
            4,400
            
            
            
            2,200
            
            
            
            20,398
            
            
            
            138,2952005
            
            
            717
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,992
            
            
            
            12,230
            
            
            
            5,819
            
            
            
            3,695
            
            
            
            21,000
            
            
            
            63,145
            
            
            
            4,200
            
            
            
            2,100
            
            
            
            18,943
            
            
            
            135,841Robert
      M. Jakobe
            
            2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            27,000
            
            
            
            1,384
            
            
            
            —
            
            
            
            3,575
            
            
            
            983
            
            
            
            22,500
            
            
            
            5,003
            
            
            
            4,500
            
            
            
            2,250
            
            
            
            1,501
            
            
            
            68,696Executive
      Vice President
              and
      Chief Financial Officer
            
            2006
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            858
            
            
            
            22,000
            
            
            
            13,693
            
            
            
            4,400
            
            
            
            2,200
            
            
            
            4,108
            
            
            
            47,2592005
            
            
            1,148
            
            
            
            —
            
            
            
            —
            
            
            
            24,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            858
            
            
            
            21,000
            
            
            
            13,484
            
            
            
            4,200
            
            
            
            2,100
            
            
            
            4,045
            
            
            
            70,835Joan
      B. Davidson
            
            2007
            
            
            611
            
            
            
            —
            
            
            
            —
            
            
            
            72,500
            
            
            
            1,544
            
            
            
            —
            
            
            
            2,969
            
            
            
            695
            
            
            
            22,500
            
            
            
            16,472
            
            
            
            4,500
            
            
            
            2,250
            
            
            
            4,666
            
            
            
            128,707Group
      President Sheridan
              Publication
      Services
            
            2006
            
            
            605
            
            
            
            —
            
            
            
            —
            
            
            
            63,750
            
            
            
            268
            
            
            
            —
            
            
            
            —
            
            
            
            599
            
            
            
            22,000
            
            
            
            17,017
            
            
            
            4,400
            
            
            
            2,200
            
            
            
            4,947
            
            
            
            115,7862005
            
            
            1,015
            
            
            
            —
            
            
            
            —
            
            
            
            63,750
            
            
            
            268
            
            
            
            —
            
            
            
            3,652
            
            
            
            400
            
            
            
            21,000
            
            
            
            14,202
            
            
            
            4,200
            
            
            
            2,100
            
            
            
            4,202
            
            
            
            114,789Christopher
      A. Pierce
            
            2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,290
            
            
            
            —
            
            
            
            —
            
            
            
            3,298
            
            
            
            —
            
            
            
            —
            
            
            
            4,588Chairman
      - TDP
            
            2006
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,290
            
            
            
            —
            
            
            
            —
            
            
            
            1,650
            
            
            
            —
            
            
            
            —
            
            
            
            2,9402005
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,290
            
            
            
            —
            
            
            
            —
            
            
            
            2,572
            
            
            
            —
            
            
            
            —
            
            
            
            3,862Patricia
      A. Stricker
            
            2007
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            23,000
            
            
            
            —
            
            
            
            —
            
            
            
            2,974
            
            
            
            355
            
            
            
            22,500
            
            
            
            2,918
            
            
            
            4,500
            
            
            
            2,250
            
            
            
            292
            
            
            
            58,789President
      & COO - TSP
            
            2006
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            337
            
            
            
            22,000
            
            
            
            11,096
            
            
            
            4,400
            
            
            
            2,200
            
            
            
            3,329
            
            
            
            43,3622005
            
            
            553
            
            
            
            —
            
            
            
            —
            
            
            
            21,500
            
            
            
            —
            
            
            
            —
            
            
            
            2,772
            
            
            
            337
            
            
            
            21,000
            
            
            
            9,986
            
            
            
            4,200
            
            
            
            2,100
            
            
            
            2,996
            
            
            
            65,444




Retention
awards and make-whole contributions are invested in the deferred compensation
plan. Profit sharing, 401(k) match and 1% fixed contributions are invested in
the 401(k) plan.




Grants
of Plan-Based Awards




All Other
            
            Exercise
            Grant(1)
            
            
            
            
            
            Option Awards
            
            or Base
            DateEstimated Possible Payouts
            
            
            Estimated Future Payouts
            
            
            Number of
            
            Price of
            FairUnder Non-Equity
            
            
            Under Equity Incentive
            
            
            Securities
            
            Option
            Value ofIncentive Plan Awards
            
            
            Plan Awards
            
            
            Underlying
            
            Awards
            OptionName
            
            Grant Date
            
            
            Threshold
            
            
            Target
            
            
            Maximum
            
            
            Threshold
            
            
            Target
            
            
            Maximum
            
            
            Options
            
            ($/sh)
            Awards($)
            
            
            ($)
            
            
            ($)
            
            
            (#)
            
            
            (#)
            
            
            (#)
            
            
            (#)
            
            ($)John
      A. Saxton

                President
      and Chief Executive
      Officer
            
            
            N/A
            
            
            
            140,000
            
            
            
            457,700
            
            
            
            560,000Robert
      M. Jakobe

                Executive
      Vice President and
      Chief Financial Officer
            
            
            N/A
            
            
            
            33,750
            
            
            
            110,400
            
            
            
            135,000Joan
      B. Davidson

                Group
      President Sheridan Publication
      Services
            
            
            N/A
            
            
            
            36,250
            
            
            
            118,500
            
            
            
            145,000Christopher
      A. Pierce

                Chairman
      - TDP
            
            
            N/A
            
            
            
            29,375
            
            
            
            95,700
            
            
            
            117,500Patricia
      A. Stricker

                President
      & COO - TSP
            
            
            N/A
            
            
            
            28,750
            
            
            
            90,700
            
            
            
            115,000






(1) The
“Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” for 2007
consist of Threshold, Target and Maximum bonus earnings possible under the
Management Performance Incentive Plan. The maximum bonus potential for Mr.
Saxton is 100% of annual base salary. For Messrs. Jakobe and Pierce and Mss.
Davidson and Stricker, the maximum bonus potential is 50% of annual base salary.
All bonus payments are reviewed and approved by our board of
directors.




There
were no stock options awarded under the Stock-Based Incentive Compensation Plan
in 2007.




Refer to
Non-Equity Incentive Plan Compensation in the summary compensation table for
actual payments of incentive plan awards for the year ended December 31,
2007.




58
 Index





Outstanding
Equity Awards at Fiscal Year-End




Option AwardsEquityIncentivePlanNumber of
            
            
            
            Awards:Securities
            
            Number of
            
            Number ofUnderlying
            
            Securities
            
            SecuritiesUnexercised
            
            Underlying
            
            UnderlyingOptions (#)
            
            Unexercised
            
            Unexercised
            
            
            Option
            
            Option(Exercisable)
            
            Options (#)
            
            Unearned
            
            
            Exercise
            
            ExpirationName
            
            (1)
            
            (Unexercisable)
            
            Options (#)
            
            
            Price ($)
            
            DateJohn
      A. Saxton
            
            
            2,200
            
            
            
            
            3,300
            
            
            
            10.00
            
            11/16/2013Robert
      M. Jakobe
            
            
            2,200
            
            
            
            
            3,300
            
            
            
            10.00
            
            11/16/2013Joan
      B. Davidson
            
            
            1,400
            
            
            
            
            2,100
            
            
            
            10.00
            
            11/16/2013Christopher
      A. Pierce
            
            
            1,280
            
            
            
            
            1,920
            
            
            
            10.00
            
            11/16/2013Patricia
      A. Stricker
            
            
            1,080
            
            
            
            
            1,620
            
            
            
            10.00
            
            11/16/2013







(1) Stock
option awards were awarded on October 16, 2003. The shares began vesting on
January 1, 2004. Twenty percent (20%) of the time-based shares vest each year on
January 1st, i.e.
20% vested on January 1, 2005, 20% vested on January 1, 2006, 20% vested on
January 1, 2007, 20% vested on January 1, 2008, and the remaining 20% will vest
on January 1, 2009.  As of December 31, 2007, 60% of the Named
Executive Officers’ time-based shares were vested. Because our 2007 performance
targets were not met, only 20% of performance shares vested through December 31,
2007. The established performance-based option targets (per share equity values)
are $20/share on 1/1/05, $52/share on 1/1/06, $86/share on 1/1/07, $118/share on
1/1/08, $148/share on 1/1/09, $178/share on 1/1/10. See Stock-Based Incentive
Compensation under the Compensation Discussion and Analysis for details on the
vesting schedule.




59
 Index





Option
Exercises and Stock Vested in Last Fiscal Year




Option AwardsNumber ofSharesAcquired on
            
            
            ValueExercise (#)
            
            
            Realized onName
            
            
            (1)
            
            
            Exercise ($)John
      A. Saxton
            
            
            —
            
            
            
            —President
      and ChiefExecutive
      OfficerRobert
      M. Jakobe
            
            
            —
            
            
            
            —Executive
      Vice Presidentand
      Chief Financial OfficerJoan
      B. Davidson
            
            
            —
            
            
            
            —Group
      President SheridanPublication
      ServicesChristopher
      A. Pierce
            
            
            —
            
            
            
            —Chairman
      – TDPPatricia
      A. Stricker
            
            
            —
            
            
            
            —President
      & COO – TSP






(1) No
options were exercised during 2007.




Nonqualified
Deferred Compensation




RegistrantContributionsin Last FY ($)
            
            
            Aggregate
            
            
            Aggregate
            
            
            AggregateExecutive
            
            
            (Retention Bonus
            
            
            Earnings
            
            
            Withdrawals/
            
            
            BalanceContributions
            
            
            and Make-Wholes)
            
            
            in Last
            
            
            Distributions
            
            
            at LastName
            
            in last FY ($)
            
            
            
            (1
            )
            
            FY ($)
            
            
            ($)
            
            
            FYE ($)John
      A. Saxton
            
            $
            15,600
            
            
            $
            50,962
            
            
            $
            (3,101
            )
            
            $
            258,531
            
            
            $
            62,578Robert
      M. Jakobe
            
            $
            —
            
            
            $
            33,504
            
            
            $
            5,800
            
            
            $
            122,704
            
            
            $
            142,198Joan
      B. Davidson
            
            $
            15,339
            
            
            $
            93,638
            
            
            $
            4,068
            
            
            $
            159,789
            
            
            $
            404,768Christopher
      A. Pierce
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —
            
            
            $
            —Patricia
      A. Stricker
            
            $
            10,000
            
            
            $
            26,210
            
            
            $
            (6,682
            )
            
            $
            134,766
            
            
            $
            111,128






(1)
Registrant contributions for Fiscal Years ending 2007, 2006 and 2005,
respectively, that were included in the Summary Compensation Table are as
follows: Mr. Saxton - Make Whole Contributions of $50,962, $88,392, and $82,088;
Mr. Jakobe – Make Whole Contributions of $6,504, $17,801 and $17,529 and
Retention Awards of $27,000, $0 and $24,000; Ms. Davidson – Make Whole
Contributions of $21,138, $21,964 and $18,404 and Retention Awards of $72,500,
$63,750 and $63,750; Mr. Pierce – Make Whole Contributions and Retention Awards
of $0, $0 and $0; and Ms. Stricker – Make Whole Contributions of $3,210, $14,425
and $12,982 and Retention Awards of $23,000, $0, and $21,500. Retention awards
and employer make-whole contributions (described below) are reported in the
Summary Compensation Table in the “All Other Compensation” column.




The types
of compensation that may be deferred under our nonqualified deferred
compensation plan are salary and bonus, deferred at the employee’s election,
employee retention awards, employer make-whole contributions, employer
discretionary contributions and earnings on the deferrals. The individuals are
fully vested in the compensation deferred; however, the make-whole
contributions, the employer discretionary contributions and employee retention
awards are subject to vesting requirements. Make-whole contributions vest once
the employee has attained three years of service.  Employee retention
awards cliff vest after five years.  Employees may defer up to 20% of their
base salary and up to 100% of any earned bonus into the deferred compensation
program on an annual basis.  Earnings under the nonqualified plan are
calculated by reference to the return on investment funds selected by the
executives from a menu of investment fund options offered under the plan. 
These investment fund options are the same options as are available to all
participants under our 401(k) plan.  Participants may change their
investment fund elections at any time.   A participant may elect
distribution of their vested account balance at a fixed payment date, no earlier
than the third calendar year after the calendar year in which the initial
election is made, five years after a subsequent election is made, or upon
separation of service from the company.




60
 Index




The table
below shows the funds available under our 401(k) plan and their annual rate of
return for the calendar year ended December 31, 2007:




Deferred
Compensation Investment Options




Name of Fund
            
            Rate of Return
            
            Name of Fund
            
            Rate of ReturnFidelity
      Advisor Freedom 2010 A
            
            7.33
            
            Fidelity
      Advisor Freedom 2015 A
            
            7.77Fidelity
      Advisor Freedom 2020 A
            
            8.36
            
            Fidelity
      Advisor Freedom 2025 A
            
            8.57Fidelity
      Advisor Freedom 2030 A
            
            8.98
            
            Fidelity
      Advisor Freedom 2035 A
            
            9.04Fidelity
      Advisor Freedom 2040 A
            
            9.08
            
            Fidelity
      Advisor Freedom 2045 A
            
            9.43Fidelity
      Advisor Freedom 2050 A
            
            9.63
            
            Fidelity
      Advisor High Income Advantage
            
            2.23Maxim
      Money Market Portfolio
            
            4.73
            
            Legg
      Mason Value, FI
            
            -6.05Legg
      Mason Investment Grade Income
            
            1.89
            
            Franklin
      Small-Mid-Cap Growth Fund A
            
            11.40PIMCO
      Low Duration Fund A
            
            7.47
            
            Legg
      Mason Special Investment FI
            
            -2.90American
      Funds Wash Mutual A
            
            3.62
            
            Pennsylvania
      Mutual Fund Consultant CI
            
            1.73Legg
      Mason American Leading Trust
            
            -3.49
            
            American
      Funds EuroPacific A
            
            18.58




Potential
Payments on Termination or Change of Control




Our
employment agreements with Mr. Saxton, Mr. Jakobe, Mr. Pierce, Ms. Stricker and
Ms. Davidson provide that if the executive is terminated by us without “cause”
or by the executive for “good reason,” the executive will be entitled to receive
the following amounts:  (1) severance pay equal to his or her annual base
salary and average annual incentive bonus during the two years preceding the
termination for a period of 18 months in the case of Messrs. Jakobe and Pierce
and Mss. Davidson and Stricker, and 24 months in the case of Mr. Saxton, (2) all
amounts credited to the executive under our deferred compensation plan will
fully vest and become payable in a single lump sum and (3) the executive will
continue to have coverage under our health insurance plan for 18 months, or 24
months in the case of Mr. Saxton.  A termination shall be for Cause,
as defined in the agreements, if any one or more of the following has
occurred:  i) the Employee shall have committed an act of fraud,
embezzlement or misappropriation against the Employer, including, but not
limited to, the offer, payment, solicitation or acceptance of any unlawful bribe
or kickback with respect to the Employer’s business; or, ii) the Employee shall
have been convicted by a court of competent jurisdiction of, or pleaded guilty
or nolo contendere to, any felony or any crime involving moral turpitude; or,
iii) the Employee shall have refused, after explicit written notice, to obey any
lawful resolution of or direction by the Board which is consistent with his
duties; or, iv) the Employee has been chronically absent from work (excluding
vacations, illnesses or leaves of absence approved by the Board); or, v) the
Employee shall have failed to perform the duties incident to his employment with
the Employer on a regular basis, and such failure shall have continued for a
period of twenty (20) days after written notice to the Employee specifying such
failure in reasonable detail (other than as a result of the Employee’s
disability); or, vi) the Employee shall have engaged in the unlawful use
(including being under the influence) or possession of illegal drugs on the
Employer’s premises; or vii) the Employee shall have breached any one or more of
the provisions of the Stock Purchase Agreement, dated as of August 1, 2003,
among the Employer and its stockholders as amended and in effect from time to
time, and such breach shall have continued for a period of ten (10) days after
written notice to the Employee specifying such breach in reasonable
detail.  Good reason is defined as the occurrence of: i) a material
reduction in the Employee’s status, position, scope of authority or
responsibilities, the assignment to the Employee of any duties or
responsibilities which are materially inconsistent with such status, position,
authority or responsibilities; involuntary relocation of the Employee to an
extent requiring an increase in his commute to his normal place of employment of
more than 50 miles; or any removal of the Employee from or failure to reappoint
him to any of positions to which the Employee has been appointed by the
Employer, except in connection with the termination of his employment; or, ii) a
material reduction by the Employer in the Employee’s compensation or benefits,
except in conjunction with a general reduction by the Employer in the salaries
of its executive level employees or the TSG site management team.




The
employment agreements contain non-compete and non-solicitation language
prohibiting such actions for the term of the severance
period.  Additionally, the severed employee is prohibited from
disclosing proprietary company information to any person, firm, corporation,
association or entity, during or after their term of employment.  Any
breach of these terms will be subject to appropriate injunctive and equitable
relief.




61
 Index




The
following table summarizes potential benefits that each of the Named Executive
Officers would have received under their employment agreements or change in
control arrangements on December 31, 2007, if a termination without cause or for
good reason occurred, or they had been terminated following a change in
control.




Named Executive
            
            Severance
            
            
            Incentive
            
            
            Deferred
            
            
            COBRAOfficer
            
            Pay
            
            
            Pay
            
            
            Compensation
            
            
            (Employer’s Portion)John
      A. Saxton
            
            $
            1,120,000
            
            
            $
            662,000
            
            
            $
            62,578
            
            
            $
            15,142Robert
      M. Jakobe
            
            $
            405,000
            
            
            $
            123,750
            
            
            $
            142,198
            
            
            $
            11,357Joan
      B. Davidson
            
            $
            435,000
            
            
            $
            164,175
            
            
            $
            404,768
            
            
            $
            11,357Christopher
      A. Pierce
            
            $
            352,500
            
            
            $
            76,575
            
            
            $
            0
            
            
            $
            17,890Patricia
      A. Stricker
            
            $
            345,000
            
            
            $
            105,375
            
            
            $
            111,128
            
            
            $
            18,673




Compensation
of Directors




Beginning
on January 1, 2008, each director who is not also one of our executive officers
or an employee of BRS or JCP will receive a fee of $30,000 per year for their
service on our board of directors. The chairman of the audit committee (Mr.
DiCamillo) will receive an additional fee of $5,000 per year. All directors are
reimbursed for any personal expenses incurred in the conduct of their duties as
a director. There were no stock options awarded to directors during 2007. A
summary of fees paid to our directors in 2007 is as follows:




Fees Earnedor Paid in
            
            
            All OtherName
            
            Cash
            
            
            Compensation
            
            
            Total($)
            
            
            ($)
            
            
            ($)Gary
      T. DiCamillo
            
            
            30,000
            (1)
            
            
            —
            
            
            
            30,000Craig
      H. Deery
            
            
            25,000
            (1)
            
            
            —
            
            
            
            25,000J.
      M. Dryden Hall, Jr.
            
            
            12,500
            (2)
            
            
            —
            
            
            
            12,500Rainer
      Hampp
            
            
            18,750
            (2)
            
            
            —
            
            
            
            18,750Anne
      Ringsma
            
            
            18,750
            (2)
            
            
            —
            
            
            
            18,750George
      A. Whaling
            
            
            25,000
            
            
            
            —
            
            
            
            25,000







(1)
Messrs. DiCamillo and Deery have elected deferred payment of their annual
director’s fees.


Their
fees are invested in TSG’s Non-Qualified Deferred Compensation Plan rather than
paid in cash.


See
Compensation Discussion and Analysis for further details.




(2) Mr.
Hampp and Mr. Ringsma became directors in May 2007 and Mr. Hall left the board
in May 2007.  Their fees are based on a partial year of
service.




Compensation
Committee Interlocks and Insider Participation




In 2007,
the compensation committee consisted of Messrs. Baldwin, Deery and Luikart. None
of the members of the compensation committee are currently, or have been at any
time since the time of our formation, one of our officers or
employees.






ITEM
      12.
            SECURITY
      OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
      STOCKHOLDER MATTERS




We are a
wholly-owned subsidiary of TSG Holdings Corp. The following table sets forth
certain information regarding the beneficial ownership of TSG Holdings Corp., as
of March 28, 2008, by (i) each person or entity known to us to own more than 5%
of any class of TSG Holdings Corp.’s outstanding securities, (ii) each member of
our board of directors and each of our named executive officers and (iii) all of
the members of the board of directors and executive officers as a group. TSG
Holdings Corp.’s outstanding securities consist of about 705,835 shares of TSG
Holdings Corp. common stock and about 45,327 shares and 12,639 shares of TSG
Holdings Corp. Series A and Series B preferred stock, respectively, the terms of
which are described in more detail below. Additionally, there are 18,420 options
to purchase common stock outstanding that are held by our executive officers. To
our knowledge, each of such stockholders will have sole voting and investment
power as to the stock shown unless otherwise noted. Beneficial ownership of the
securities listed in the table has been determined in accordance with the
applicable rules and regulation promulgated under the Exchange Act.




62
 Index




Number
      and Percent of Shares of TSG Holdings Corp. (1)Preferred
      Stock
              
              
              Common
      StockSeries
      A
              
              
              Series
      BNumber
              
              
              Percent
              
              
              Number
              
              
              Percent
              
              
              Number
              
              
              PercentGreater
      than 5% Stockholders:Bruckmann,
      Rosser, Sherrill & Co. II, L.P. (2)126
      East 56th Street, New York, NY, 10022
              
              
              19,210
              
              
              
              42.4
              %
              
              
              1,833
              
              
              
              14.5
              %
              
              
              252,756
              
              
              
              35.8
              %Funds
      affiliated with Jefferies Capital Partners (3)520
      Madison Avenue, New York, NY 10022
              
              
              19,210
              
              
              
              42.4
              %
              
              
              1,833
              
              
              
              14.5
              %
              
              
              252,756
              
              
              
              35.8
              %Participatiemaatschappij
      Giraffe B.V.Koestraat
      44, Zwolle, Netherlands
              
              
              -
              
              
              
              -
              
              
              
              8,405
              
              
              
              66.5
              %
              
              
              110,351
              
              
              
              15.6
              %Christopher
      A. Pierce (4)(5)
              
              
              3,096
              
              
              
              6.8
              %
              
              
              289
              
              
              
              2.3
              %
              
              
              42,257
              
              
              
              6.0
              %Named
      Executive Officers and Directors:John
      A. Saxton (4)(6)(7)
              
              
              1,340
              
              
              
              3.0
              %
              
              
              125
              
              
              
              *
              
              
              
              20,352
              
              
              
              2.9
              %Robert
      M. Jakobe (4)(8)(9)
              
              
              108
              
              
              
              *
              
              
              
              10
              
              
              
              *
              
              
              
              4,171
              
              
              
              *Joan
      B. Davidson (4)(10)
              
              
              67
              
              
              
              *
              
              
              
              6
              
              
              
              *
              
              
              
              2,630
              
              
              
              *Christopher
      A. Pierce (4)(5)
              
              
              3,096
              
              
              
              6.8
              %
              
              
              289
              
              
              
              2.3
              %
              
              
              42,257
              
              
              
              6.0
              %Patricia
      A. Stricker (4)(11)
              
              
              28
              
              
              
              *
              
              
              
              -
              
              
              
              -
              
              
              
              2,430
              
              
              
              *Thomas
      J. Baldwin (12)(13)
              
              
              19,210
              
              
              
              42.4
              %
              
              
              1,833
              
              
              
              14.5
              %
              
              
              252,756
              
              
              
              35.8
              %Nicholas
      Daraviras (14)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Craig
      H. Deery (4)
              
              
              245
              
              
              
              *
              
              
              
              23
              
              
              
              *
              
              
              
              3,212
              
              
              
              *Gary
      T. DiCamillo (4)
              
              
              268
              
              
              
              *
              
              
              
              25
              
              
              
              *
              
              
              
              3,520
              
              
              
              *J.
      Rice Edmonds (12)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -J.M.
      Dryden Hall, Jr. (4)
              
              
              89
              
              
              
              *
              
              
              
              8
              
              
              
              *
              
              
              
              1,173
              
              
              
              *James
      L. Luikart (14)(15)
              
              
              19,210
              
              
              
              42.4
              %
              
              
              1,833
              
              
              
              14.5
              %
              
              
              252,756
              
              
              
              35.8
              %Nicholas
      R. Sheppard (12)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -George
      A. Whaling (4)
              
              
              272
              
              
              
              *
              
              
              
              25
              
              
              
              *
              
              
              
              3,572
              
              
              
              *Rainer
      Hampp (4)
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Anne
      Ringsma (4)(16)
              
              
              -
              
              
              
              -
              
              
              
              8,405
              
              
              
              66.5
              %
              
              
              110,351
              
              
              
              15.6
              %All
      executive officers and directors as a group (23
    persons)(17)
              
              
              44,422
              
              
              
              98.0
              %
              
              
              12,619
              
              
              
              99.8
              %
              
              
              712,938
              
              
              
              98.4
              %






*
indicates less than 1%




(1)
            Pursuant
      to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a
      person has beneficial ownership of any securities as to which such person,
      directly or indirectly, through any contract, arrangement, undertaking,
      relationship or otherwise has or shares voting power and/or investment
      power and as to which such person has the right to acquire such voting
      and/or investment power within 60 days. Percentage of beneficial ownership
      as to any person as of a particular date is calculated by dividing the
      number of shares beneficially owned by such person by the sum of the
      number of shares outstanding as of such date and the number of shares as
      to which such person has the right to acquire voting and/or investment
      power within 60 days.




(2)
            The
      Sheridan Group Holdings (BRS), LLC (the “BRSLLC”) is controlled by
      Bruckmann, Rosser, Sherrill & Co. II, L.P. (the “BRS Fund”) which is a
      private equity investment fund managed by Bruckmann, Rosser, Sherrill
      & Co., LLC. BRSE, L.L.C. (“BRSE”) is the general partner of the BRS
      Fund and by virtue of such status may be deemed to be the beneficial owner
      of the shares owned by BRSLLC. BRSE has the power to direct BRSLLC as to
      the voting and disposition of shares held by BRSLLC. No single person
      controls the voting and dispositive power of BRSE with respect to the
      shares owned by BRSLLC. Bruce Bruckmann, Harold O. Rosser, Stephen C.
      Sherrill, Paul D. Kaminski and Thomas J. Baldwin are the managers of BRSE,
      and none of them individually has the power to direct or veto the voting
      or disposition of shares owned by BRSLLC. BRSE expressly disclaims
      beneficial ownership of the shares owned by BRSLLC. Each of Messrs.
      Bruckmann, Rosser, Sherrill, Kaminski and Baldwin expressly disclaims
      beneficial ownership of the shares owned by
  BRSLLC.  63
 Index




(3)
            The
      Sheridan Group Holdings (Jefferies), LLC is controlled by ING Furman Selz
      Investors III L.P., ING Barings U.S. Leveraged Equity Plan LLC and ING
      Barings Global Leveraged Equity Plan Ltd. which are private equity
      investment funds managed by Jefferies Capital Partners. Brian P. Friedman
      and Mr. Luikart are the Managing Members of JCP and may be considered the
      beneficial owners of the shares owned by The Sheridan Group Holdings
      (Jefferies), LLC, but each of Messrs. Friedman and Luikart expressly
      disclaim beneficial ownership of such shares, except to the extent of each
      of their pecuniary interests
therein.




(4)
            The
      address of each of Mr. Saxton, Mr. Jakobe, Ms. Davidson, Mr. Pierce, Ms.
      Stricker, Mr. Deery, Mr. DiCamillo, Mr. Hall, Mr. Whaling, Mr. Hampp and
      Mr. Ringsma is c/o The Sheridan Group, Inc., 11311 McCormick Road, Suite
      260, Hunt Valley, Maryland 21031.




(5)
            Includes
      options to purchase 1,600 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.




(6)
            Includes
      17,602 common shares, 1,340 Series A preferred shares and 125 Series B
      preferred shares which are owned by LMWW Custodian FBO John A. Saxton
      Roll-over IRA. Mr. Saxton may be deemed to beneficially own such
      shares.




(7)
            Includes
      options to purchase 2,750 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.




(8)
            Includes
      1,288 common shares and 108 Series A preferred shares which are owned by
      LMWW Custodian FBO Robert M. Jakobe Roll-over IRA. Mr. Jakobe may be
      deemed to beneficially own such
shares.




(9)
            Includes
      options to purchase 2,750 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.




(10)
            Includes
      options to purchase 1,750 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.




(11)
            Includes
      options to purchase 1,350 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.






(12)
            The
      address of each of Mr. Baldwin, Mr. Edmonds and Mr. Sheppard is c/o
      Bruckmann, Rosser, Sherrill & Co., Inc., 126 East 56th Street, New
      York, New York 10022.




(13)
            Consists
      of 19,210 shares and 1,833 shares of TSG Holdings Corp. Series A and
      Series B preferred stock, respectively, and 252,756 shares of TSG Holdings
      Corp. common stock owned and/or controlled by the BRSLLC. Mr. Baldwin may
      be deemed to share beneficial ownership of the shares owned of record
      and/or controlled by BRSLLC by virtue of his status as a manager of BRSE,
      but he expressly disclaims such beneficial ownership of the shares owned
      and/or controlled by BRSLLC. The members and managers of BRSE share
      investment and voting power with respect to securities owned and/or
      controlled by BRSE, but no individual controls such investment or voting
      power.




(14)
            The
      address of each of Mr. Daraviras and Mr. Luikart is c/o Jefferies Capital
      Partners, 520 Madison Avenue, 12th Floor, New York, New York
      10022.




(15)
            Consists
      of 19,210 shares and 1,833 shares of TSG Holdings Corp. Series A and
      Series B preferred stock, respectively, and 252,756 shares of TSG Holdings
      Corp. common stock owned by The Sheridan Group Holdings (Jefferies), LLC.
      Mr. Luikart is a Managing Member of JCP and may be considered the
      beneficial owner of such shares, but he expressly disclaims such
      beneficial ownership of the shares owned by The Sheridan Group Holdings
      (Jefferies), LLC, except to the extent of his pecuniary interest
      therein.




(16)
              Consists
      of 8,405 shares of TSG Holdings Corp. Series B preferred stock and 110,351
      shares of TSG Holdings Corp. common stock owned by
      Participatiemaatschappij Giraffe B.V. (“Giraffe.”) Mr. Ringsma is CEO of
      an investment company that owns shares in Giraffe and may be considered
      the beneficial owner of such shares, but he expressly disclaims such
      beneficial ownership of the shares owned by Giraffe, except to the extent
      of his pecuniary interest
therein.




(17)
            Includes
      options to purchase 18,420 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.




TSG
Holdings Corp. Preferred Stock




TSG
Holdings Corp.’s Certificate of Incorporation provides that TSG Holdings Corp.
may issue 200,000 shares of preferred stock, 50,000 of which is designated as
10% Series A Cumulative Compounding Preferred Stock (“Series A”), 20,000 of
which is designated as 10% Series B Cumulative Compounding Preferred Stock
(“Series B”) and 130,000 of which is undesignated. TSG Holdings Corp. preferred
stock has a stated value of $1,000 per share for Series A and $1,428.89 per
share for Series B and is entitled to annual dividends when, as and if declared,
which dividends will be cumulative, whether or not earned or declared, and will
accrue at a rate of 10%, compounding annually. As of March 28, 2008, there are
issued and outstanding about 45,326 and 12,640 shares of Series A and Series B
preferred stock, respectively.




64
 Index




Except as
otherwise required by law, the TSG Holdings Corp. preferred stock is not
entitled to vote. TSG Holdings Corp. may not pay any dividend upon (except for a
dividend payable in Junior Stock, as defined below), or redeem or otherwise
acquire shares of, capital stock junior to the TSG Holdings Corp. preferred
stock (including the common stock) (“Junior Stock”) unless all cumulative
dividends on the TSG Holdings Corp. preferred stock have been paid in full. Upon
liquidation, dissolution or winding up of TSG Holdings Corp., holders of TSG
Holdings Corp. Series A and Series B preferred stock are entitled to receive out
of the legally available assets of TSG Holdings Corp., before any amount shall
be paid to holders of Junior Stock, an amount equal to $1,000 per share and
$1,428.89 per share, respectively, of TSG Holdings Corp. preferred stock, plus
all accrued and unpaid dividends to the date of final distribution. If the
available assets are insufficient to pay the holders of the outstanding shares
of TSG Holdings Corp. preferred stock in full, the assets, or the proceeds from
the sale of the assets, will be distributed ratably among the holders. The TSG
Holdings Corp. preferred stock is not redeemable.




TSG
Holdings Corp. Common Stock




The
Certificate of Incorporation of TSG Holdings Corp. provides that TSG Holdings
Corp. may issue 1,000,000 shares of TSG Holdings Corp. common stock. About
705,835 shares of TSG Holdings Corp. common stock are issued and outstanding as
of March 28, 2008. The holders of TSG Holdings Corp. common stock are entitled
to one vote for each share held of record on all matters submitted to a vote of
the stockholders.




Equity
Compensation Plan Information




The
following table sets forth information as of December 31, 2007 regarding
all of our existing compensation plans pursuant to which equity securities are
authorized for issuance to employees and non-employee directors.




Plan Category
            
            Number of securities to
              be issued upon exercise
              of outstanding options,
              warrants and rights
            
            
            Weighted-average
              exercise price of
              outstanding options,
              warrants and rights(1)
            
            
            Number of Securities
              remaining available for
              future issuance under
              equity compensation
              plans (excluding
              securities reflected
              in column (a))(a)
            
            
            (b)
            
            
            (c)Equity
      compensation plans approved by security holders
            
            
            N/A
            
            
            
            N/A
            
            
            
            N/AEquity
      compensation plans not approved by security holders
            
            
            55,150
            
            
            $
            12.15
            
            
            
            150Total
            
            
            55,150
            
            
            $
            12.15
            
            
            
            150






(1)
            As
      of December 31, 2007.




ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE




Securities
Holders Agreement




The
amended and restated securities holders agreement among BRS, JCP and the other
stockholders of TSG Holdings Corp. provides that TSG Holdings Corp.’s and our
board of directors will consist of ten members, including four designees of BRS,
four designees of JCP and two directors designated by the Euradius Investors, as
defined in the securities holders agreement. Also pursuant to the securities
holders agreement, we may not take certain significant actions, such as
incurrences of indebtedness in excess of certain thresholds or a sale of all or
substantially all of our assets, without the approval of each of BRS and
JCP.




The
securities holders agreement generally restricts the transfer of shares of TSG
Holdings Corp. common stock or TSG Holdings Corp. preferred stock without the
consent of BRS and JCP. Exceptions to this restriction include transfers to
affiliates and transfers for estate planning purposes, in each case so long as
any transferee agrees to be bound by the terms of the agreement.




65
 Index




Each of
TSG Holdings Corp., BRS and JCP has a right of first refusal under the
securities holders agreement with respect to sales of shares of TSG Holdings
Corp. by management investors. Under certain circumstances, the stockholders
have “tag-along” rights to sell their shares on a pro rata basis with the
selling stockholder in certain sales to third parties. If BRS and JCP approve a
sale of TSG Holdings Corp., they have the right to require the other
stockholders of TSG Holdings Corp. to sell their shares on the same terms. The
securities holders agreement also contains a provision that gives TSG Holdings
Corp. the right to repurchase a management investor’s shares upon termination of
that management stockholder’s employment or removal or resignation from the
board of directors.




Registration
Rights Agreement




Pursuant
to the amended and restated registration rights agreement among BRS, JCP and the
other stockholders of TSG Holdings Corp., upon the written request of either BRS
or JCP, TSG Holdings Corp. has agreed to, on one or more occasions, prepare and
file a registration statement with the SEC concerning the distribution of all or
part of the shares of TSG Holdings Corp. common stock held by BRS or JCP or
certain of their respective affiliates, as the case may be, and use its best
efforts to cause the registration statement to become effective. Following an
initial public offering of TSG Holdings Corp., BRS, JCP and the management
investors also have the right, subject to certain exceptions and rights of
priority, to have their shares included in certain registration statements filed
by TSG Holdings Corp. Registration expenses of the selling stockholders (other
than underwriting discounts and commissions and transfer taxes applicable to the
shares sold by such stockholders or the fees and expenses of any accountants or
other representatives retained by a selling stockholder) will be paid by TSG
Holdings Corp. TSG Holdings Corp. has also agreed to indemnify the stockholders
against certain customary liabilities in connection with any
registration.




Management
Agreement




In
connection with the Sheridan Acquisition, we entered into a management agreement
with BRS and JCP pursuant to which BRS and JCP may provide financial, advisory
and consulting services to us. In exchange for these services, BRS and JCP will
be entitled to an annual management fee. The total management fee will be equal
to the greater of 2% of EBITDA (as defined in the Management Agreement) or $0.5
million per year, plus reasonable out-of-pocket expenses and will be split
equally between BRS and JCP. In addition, BRS and JCP may negotiate with us to
provide additional services in connection with any transaction in which we may
be, or may consider becoming, involved. At the closing of the Sheridan
Acquisition, BRS and JCP also were paid a transaction fee of about $1.0 million,
plus reasonable out-of-pocket expenses, pursuant to the management agreement.
The management agreement has an initial term of ten years. The agreement
automatically renews for additional one year terms unless either we or BRS and
JCP give written notice of termination within 90 days prior to the expiration of
the initial term or any extension thereof. There are no minimum levels of
service required to be provided pursuant to the management agreement. The
management agreement includes customary indemnification provisions in favor of
BRS and JCP.




Policy
for Approval of Related Transactions




We do not
have a written policy for the treatment of transactions required to be disclosed
under Item 404(a) of Regulation S-K.  Our securities holders agreement
described above generally prohibits entry into such transactions without the
consent of BRS and JCP.




Director
Independence




See Part
III, Item 10, “Directors, Executive Officers and Corporate Governance – Board
Composition and Director Independence.”






ITEM
      14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES




The
Company incurred fees for services performed by PricewaterhouseCoopers LLP as
follows:




(Dollars
      in thousands)
              
              Year
      ended
                December 31,
              
              
              Year
      ended
                December 31,2007
              
              
              2006Audit
      fees (include the review of interim consolidated financial statements,
      annual audit of the consolidated financial statements and assistance with
      SEC filings)
              
              $
              737
              
              
              $
              829Audit-related
      fees (include the review of internal controls and due diligence related to
      acquisitions)
              
              
              9
              
              
              
              14Tax
      fees (include tax compliance, transactional consulting and advice for
      state tax issues )
              
              
              136
              
              
              
              131All
      other fees (include license fees for online financial reporting and
      assurance literature)
              
              
              16
              
              
              
              2Total
              
              $
              898
              
              
              $
              976




All
services performed by PricewaterhouseCoopers LLP have been approved by the audit
committee prior to performance in accordance with legal
requirements.




66
 Index




PART
IV




ITEM
      15.
            EXHIBITS,
      FINANCIAL STATEMENT SCHEDULES




(a)  The
following documents are filed as part of this Annual Report on Form
10-K:




(1) All
Financial Statements:




Page
      No.Reports
      of Independent Registered Public Accounting Firm
            
            24Consolidated
      balance sheets as of December 31, 2007 and 2006
            
            25Consolidated
      statements of operations for the years-ended December 31, 2007, 2006 and
      2005
            
            26Consolidated
      statements of changes in stockholder’s equity for the years-ended December
      31, 2007, 2006 and 2005
            
            27Consolidated
      statements of cash flows for the years-ended December 31, 2007, 2006 and
      2005
            
            28Notes
      to consolidated financial statements
            
            29-46





(2) Financial
Statement Schedules:




All
schedules have been omitted because they are not applicable or the required
information is included in the consolidated financial statements and the
footnotes thereto.




(3)
Exhibits




The
following is a list of exhibits filed as part of this Annual Report on Form
10-K.  Where so indicated by footnote, exhibits which were previously
filed are incorporated by reference.




2.1
            
            Stock
      Purchase Agreement, dated as of August 1, 2003, by and among Sheridan
      Acquisition Corp., The Sheridan Group, Inc. and the shareholders,
      optionholders and warrantholders named therein.†2.2
            
            First
      Amendment to Stock Purchase Agreement, dated as of August 21, 2003, by and
      among Sheridan Acquisition Corp., The Sheridan Group, Inc. and BancBoston
      Ventures Inc. and John A. Saxton, on behalf of and solely in their
      capacity as representatives of all of the Sellers (as defined in the Stock
      Purchase Agreement).†2.3
            
            Asset
      Purchase Agreement, dated as of March 5, 2004, by and among The Sheridan
      Group, Inc., Lisbon Acquisition Corp. and The Dingley
    Press.†3.1
            
            Third
      Amended and Restated Certificate of Incorporation of TSG Holdings
      Corp.3.2
            
            Amended
      and Restated Bylaws of TSG Holdings Corp.†3.3
            
            Amended
      and Restated Articles of Incorporation of The Sheridan Group,
      Inc.†3.4
            
            Amended
      and Restated Bylaws of The Sheridan Group, Inc.†3.5
            
            Restated
      and Amended Articles of Association of Capital City Press,
      Inc.†3.6
            
            Restated
      and Amended By-laws of Capital City Press, Inc.†3.7
            
            Articles
      of Incorporation of Dartmouth Journal Services, Inc.†3.8
            
            Bylaws
      of Dartmouth Journal Services, Inc.†3.9
            
            Articles
      of Agreement of Dartmouth Printing Company, as
amended.†3.10
            
            By-Laws
      of Dartmouth Printing Company.†3.11
            
            Certificate
      of Incorporation of Sheridan Books, Inc., as amended.†3.12
            
            By-laws
      of Sheridan Books, Inc.†3.13
            
            Certificate
      of Incorporation of The Sheridan Group Holding
Company.†3.14
            
            By-Laws
      of The Sheridan Group Holding Company.†3.15
            
            Amended
      and Restated Articles of Incorporation of The Sheridan Press,
      Inc.†3.16
            
            By-Laws
      of The Sheridan Press, Inc.†3.17
            
            Amendment
      and Restatement of Articles of Incorporation of United Litho,
      Inc.†3.18
            
            By-Laws
      of United Litho, Inc.†3.19
            
            Amended
      and Restated Certificate of Incorporation of The Dingley Press,
      Inc.†3.20
            
            Amended
      and Restated Bylaws of The Dingley Press, Inc.^4.1
            
            Indenture,
      dated as of August 21, 2003, among Sheridan Acquisition Corp. and The Bank
      of New York, as trustee and notes collateral agent.†4.2
            
            Supplemental
      Indenture, dated as of August 21, 2003, among Capital City Press, Inc.,
      Dartmouth Printing Company, Dartmouth Journal Services, Inc., Sheridan
      Books, Inc., The Sheridan Group Holding Company, The Sheridan Press, Inc.,
      United Litho, Inc. and The Bank of New York, as trustee and notes
      collateral agent.†4.3
            
            Form
      of 101⁄4% Senior Secured Note Due 2011 (included in Exhibit
      4.1).†




67
 Index




4.4
            
            Registration
      Rights Agreement, dated as of August 21, 2003, by and between Sheridan
      Acquisition Corp. and Jefferies & Company, Inc.†4.5
            
            Joinder
      to the Registration Rights Agreement, dated as of August 21, 2003, by and
      among Capital City Press, Inc., Dartmouth Printing Company, Dartmouth
      Journal Services, Inc., Sheridan Books, Inc., The Sheridan Group Holding
      Company, The Sheridan Press, Inc., United Litho, Inc. and Jefferies &
      Company, Inc.†4.6
            
            Second
      Supplemental Indenture, dated as of May 11, 2004, by and among The
      Sheridan Group, Inc., Lisbon Acquisition Corp. and The Bank of New York,
      as trustee and notes collateral agent.†4.7
            
            Third
      Supplemental Indenture, dated as of May 11, 2004, by and among The
      Sheridan Group, Inc., Capital City Press, Inc., Dartmouth Printing
      Company, Dartmouth Journal Services, Inc., Lisbon Acquisition Corp.,
      Sheridan Books, Inc., The Sheridan Group Holding Company, The Sheridan
      Press, Inc., United Litho, Inc. and The Bank of New York, as trustee and
      notes collateral agent.†4.8
            
            Registration
      Rights Agreement, dated as of May 25, 2004, by and among The Sheridan
      Group, Inc., Capital City Press, Inc., Dartmouth Printing Company,
      Dartmouth Journal Services, Inc., Lisbon Acquisition Corp., Sheridan
      Books, Inc., The Sheridan Group Holding Company, The Sheridan Press, Inc.,
      United Litho, Inc. and Jefferies & Company, Inc.†10.1
            
            Amended
      and Restated Revolving Credit Agreement, dated as of May 25, 2004, by and
      among The Sheridan Group, Inc., Fleet National Bank, as administrative
      agent, issuer and a lender, and the other financial institutions party
      thereto.†10.2
            
            Intercreditor
      Agreement, dated as of August 21, 2003, among Sheridan Acquisition Corp.,
      The Sheridan Group, Inc., the guarantors signatory thereto, The Bank of
      New York, as trustee and collateral agent, and Fleet National
      Bank.†10.3
            
            Securities
      Holders Agreement, dated as of August 21, 2003, by and among TSG Holdings
      Corp., Bruckmann, Rosser, Sherrill & Co. II, L.P., ING Furman Selz
      Investors III L.P., ING Barings Global Leveraged Equity Plan Ltd., ING
      Barings U.S. Leveraged Equity Plan LLC and the management investors named
      therein.†10.4
            
            Registration
      Rights Agreement, dated as of August 21, 2003, by and among TSG Holdings
      Corp., Bruckmann, Rosser, Sherrill & Co. II, L.P., ING Furman Selz
      Investors III L.P., ING Barings Global Leveraged Equity Plan Ltd., ING
      Barings U.S. Leveraged Equity Plan LLC and the management investors named
      therein.†10.5
            
            Securities
      Purchase Agreement, dated as of August 21, 2003, by and among TSG Holdings
      Corp., Bruckmann, Rosser, Sherrill & Co. II, L.P., ING Furman Selz
      Investors III L.P., ING Barings Global Leveraged Equity Plan Ltd. and ING
      Barings U.S. Leveraged Equity Plan LLC.†10.6
            
            Securities
      Purchase and Exchange Agreement, dated as of August 21, 2003, by and among
      TSG Holdings Corp. and the management investors named
      therein.†10.7
            
            Management
      Agreement, dated as of August 21, 2003, by and among Bruckmann, Rosser,
      Sherrill & Co., LLC, FS Private Investments III LLC (d/b/a Jefferies
      Capital Partners) and Sheridan Acquisition Corp.†10.8
            
            Employment
      and Non-Competition Agreement, dated as of January 2, 1998, between The
      Sheridan Group, Inc. and John A. Saxton, as amended by First Amendment to
      Employment Agreement, dated as of April 1, 2000.†*10.9
            
            Employment
      and Non-Competition Agreement, dated as of June 30, 2001, between The
      Sheridan Group, Inc. and G. Paul Bozuwa, as amended by First Amendment to
      Employment Agreement, dated as of April 18, 2003.†*10.10
            
            Employment
      and Non-Competition Agreement, dated as of October 31, 2001, between The
      Sheridan Group, Inc. and Joan B. Davidson.†*10.11
            
            TSG
      Holdings Corp. 2003 Stock-Based Incentive Compensation
    Plan.†*10.12
            
            The
      Sheridan Group, Inc. Executive and Director Deferred Compensation
      Plan.†*10.13
            
            The
      Sheridan Group, Inc. Change-of-Control Incentive Plan for Corporate
      Staff.~10.14
            
            The
      Sheridan Group, Inc. Change-of-Control Incentive Plan for Key Management
      Employees.~10.15
            
            Amendment
      No. 1 to Intercreditor Agreement, dated as of May 11, 2004, by and among
      The Sheridan Group, Inc., the guarantors signatory thereto, The Bank of
      New York, as trustee and collateral agent, and Fleet National
      Bank.†10.16
            
            Securities
      Purchase Agreement, dated as of May 25, 2004, by and among TSG Holdings
      Corp. and the management investors named therein.†10.17
            
            Joinder
      Agreement—Securities Holders Agreement, dated as of May 25, 2004, by and
      among Christopher A. Pierce, Eric Lane, William Braley, Kenneth Stickley,
      Jr. and TSG Holdings Corp.†10.18
            
            Joinder
      Agreement—Registration Rights Agreement, dated as of May 25, 2004, by and
      among Christopher A. Pierce, Eric Lane, William Braley, Kenneth Stickley,
      Jr., TSG Holdings Corp., Bruckmann, Rosser, Sherrill & Co. II, L.P.,
      ING Furman Selz Investors III L.P., ING Barings U.S. Leveraged Equity Plan
      LLC and ING Barings Global Leveraged Equity Plan Ltd.†10.19
            
            Employment
      and Non-Competition Agreement, dated as of May 25, 2004, among The Dingley
      Press, Inc., Christopher A. Pierce and The Sheridan Group,
      Inc.*†10.20
            
            Limited
      Liability Company Agreement dated as of May 10, 2005, of The Sheridan
      Group Holdings (BRS), LLC by and between Bruckmann, Rosser,
      Sherrill & Co. II, L.P. and John A. Saxton.^^10.21
            
            Limited
      Liability Company Agreement dated as of May 10, 2005, of The Sheridan
      Group Holdings (Jefferies), LLC
      by and among ING Furman Selz Investors III L.P., ING Barings U.S.
      Leveraged Equity Plan LLC, ING Barings Global Leveraged Equity Plan
      Ltd. and John A. Saxton.^^




68
 Index




10.22
            
            Joinder
      Agreement—Securities Holders Agreement and Registration Rights Agreement,
      dated as of August 3, 2004, by and among William P. Walters and TSG
      Holdings Corp.^10.23
            
            Employment
      and Non-Competition Agreement, dated as of March 28, 2006, among Robert M.
      Moore and The Sheridan Group, Inc.*^10.24
            
            First
      Amendment to Employment Agreement, dated as of March 28, 2006, between The
      Sheridan Group, Inc. and Christopher A. Pierce.*^10.25
            
            First
      Amendment to Employment Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Christopher A. Pierce.*#10.26
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Robert M. Moore.*#10.27
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Douglas R. Ehmann.*#10.28
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Gary J. Kittredge.*#10.29
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and G. Paul Bozuwa, as amended by First Amendment to
      Employment Agreement, dated as of April 18, 2003.*#10.30
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and John A. Saxton, as amended by First Amendment to
      Employment Agreement, dated as of April 1, 2000.*#10.31
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Joan B. Davidson.*#10.32
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Patricia A. Stricker.*#10.33
            
            Employment
      and Non-Competition Agreement, dated as of March 29, 2007, between The
      Sheridan Group, Inc. and Robert M. Jakobe.*#10.34
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and Robert M.
    Moore.*10.35
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and Douglas R.
    Ehmann.*10.36
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and Gary J.
    Kittredge.*10.37
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and G. Paul
  Bozuwa.*10.38
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and John A.
  Saxton.*10.39
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and Joan B.
    Davidson.*10.40
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and Patricia A.
      Stricker.*10.41
            
            Addendum
      to Employment and Non-Competition Agreement, dated as of February 18,
      2008, between The Sheridan Group, Inc. and Robert M.
    Jakobe.*10.42
            
            Investor
      Agreement by and among Euradius Acquisition Co., TSG Holdings Corp.,
      Participatiemaatschappij Neushoorn B.V. and Participatiemaatschappij
      Olifant B.V. dated as of May 16, 2007.10.43
            
            Amendment,
      Restatement and Joinder to the Securities Holders Agreement and the
      Registration Rights Agreement by and among TSG Holdings Corp., The
      Sheridan Group Holdings (BRS) LLC, The Sheridan Group Holdings (Jefferies)
      LLC, Participatiemaatschappij Neushoorn B.V. and Participatiemaatschappij
      Olifant B.V. dated as of May 16, 2007.10.44
            
            Joinder
      to Investor Agreement by and among Euradius Acquisition Co., TSG Holdings
      Corp., and Participatiemaatschappij Giraffe B.V., dated as of January 15,
      2008.10.45
            
            Joinder
      to Amended and Restated Securities Holders Agreement and Amended and
      Restated Registration Rights Agreement by and among TSG Holdings Corp. and
      Participatiemaatschappij Giraffe B.V., dated as of January 15,
      2008.10.46
            
            Amendment
      No. 1 to Amended and Restated Revolving Credit Agreement, by and among The
      Sheridan Group, Inc. and Bank of America, dated as of December 18,
      2007.21.1
            
            Subsidiaries
      of The Sheridan Group, Inc.†31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.




69
 Index




31.2
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the
      Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1
            
            Certification
      pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002, executed by John A. Saxton, President and
      Chief Executive Officer of The Sheridan Group, Inc. and Robert Jakobe,
      Chief Financial Officer of The Sheridan Group,
  Inc.






†
            Filed
      as a like numbered exhibit to the Registrant’s Registration Statement on
      Form S-4 (File No. 333-110441) and incorporated herein by
      reference.




^
            Filed
      as a like numbered exhibit to the Registrant’s Annual Report on Form 10K
      for the year ended December 31, 2005, filed on March 30, 2006 and
      incorporated herein by reference.




^^
            Filed
      as a like numbered exhibit to the Registrant’s Quarterly Report on Form
      10Q for the quarter ended March 31, 2005, filed on May 13, 2005 and
      incorporated herein by reference.




~
            Filed
      as a like numbered exhibit to the Registrant’s Annual Report on Form 10K
      for the year ended December 31, 2004, filed on March 31, 2005 and
      incorporated herein by reference.




#
            Filed
      as a like numbered exhibit to the Registrant’s Annual Report on Form 10K
      for the year ended December 31, 2006, filed on March 30, 2007 and
      incorporated herein by reference.




*
            Management
      contract or compensatory plan or
arrangement.  70
 Index




SIGNATURES




Pursuant
to the requirements of Section 13 or Section 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to
be signed on its behalf by the undersigned, thereunto duly
authorized.




THE
      SHERIDAN GROUP, INC.By:
            /s/
      John A. SaxtonName:
            John
      A. SaxtonTitle:
            President
      and Chief ExecutiveOfficer
      and DirectorDate:
            March
      28, 2008





Pursuant
to the requirements of the Securities Exchange Act of 1934, this Annual Report
on Form 10-K has been signed below by the following persons on behalf of the
Registrant in the capacities and on the dates indicated.




Signature
            
            Title
            
            Date/s/
      John A. Saxton
            
            President
      and Chief Executive Officer and Director
            
            March
      28, 2008John
      A. Saxton
            
            (Principal
      Executive Officer)/s/
      Robert M. Jakobe
            
            Chief
      Financial Officer
            
            March
      28, 2008Robert
      M. Jakobe
            
            (Principal
      Financial and Accounting Officer)/s/
      Thomas J. Baldwin
            
            Director
            
            March
      28, 2008Thomas
      J. Baldwin/s/
      Nicholas Daraviras
            
            Director
            
            March
      28, 2008Nicholas
      Daraviras/s/
      Craig H. Deery
            
            Director
            
            March
      28, 2008Craig
      H. Deery/s/
      Gary T. DiCamillo
            
            Director
            
            March
      28, 2008Gary
      T. DiCamillo/s/
      J. Rice Edmonds
            
            Director
            
            March
      28, 2008J.
      Rice Edmonds/s/
      Rainer Hampp
            
            Director
            
            March
      28, 2008Rainer
      Hampp/s/
      James L. Luikart
            
            Director
            
            March
      28, 2008James
      L. Luikart/s/
      Anne Ringsma
            
            Director
            
            March
      28, 2008Anne
      Ringsma/s/
      George A. Whaling
            
            Director
            
            March
      28, 2008George
      A. Whaling






71