U.S.
SECURITIES AND EXCHANGE COMMISSION


Washington,
D.C. 20549








FORM
10-K





(Mark
One)





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





For
the Fiscal Year Ended December 31, 2008





Or





£
            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 £  No
T





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 T  No
£





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 £  No
T





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.  T





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 £   
Accelerated filer £   
Non-accelerated filer TSmaller reporting
company £







1





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





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 30,
2009.





2





THE SHERIDANGROUP, INC.


ANNUAL
REPORT ON FORM 10-K


FOR
THE YEAR ENDED DECEMBER 31, 2008


INDEX





PagesITEM 1. BUSINESS
                  4ITEM 1A. RISK FACTORS
                  7ITEM 1B. UNRESOLVED STAFF COMMENTS
                  12ITEM 2. PROPERTIES
                  12ITEM 3. LEGAL PROCEEDINGS
                  13ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
      HOLDERS
                  13ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
      STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
      SECURITIES
                  13ITEM 6. SELECTED FINANCIAL DATA
                  13ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
      CONDITION AND RESULTS OF OPERATIONS
                  14ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
      RISK
                  24ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
      DATA
                  25ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
      ACCOUNTING AND FINANCIAL DISCLOSURE
                  46ITEM 9A. CONTROLS AND PROCEDURES
                  47ITEM 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
                  67ITEM 15. EXHIBITS, FINANCIAL STATEMENT
      SCHEDULES
                  68





3
 Index





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:





·
            our
      liquidity and capital resources, including our ability to refinance our
      debt;





·
            competitive
      pressures and trends in the printing
industry;





·
            prevailing
      interest rates;





·
            legal
      proceedings and regulatory matters;





·
            general
      economic conditions;




·
            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 long-standing 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,
distribution 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, 2008, we generated net sales of $348.0 million,
operating income of $12.8 million and a net loss of $5.9 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 shut down 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.





4
 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, distribution 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.





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





Net sales %
                  
                  2008
                  
                  
                  2007
                  
                  
                  2006Publications
                  
                  
                  54
                  
                  
                  
                  53
                  
                  
                  
                  53Specialty
      Catalogs
                  
                  
                  27
                  
                  
                  
                  29
                  
                  
                  
                  29Books
                  
                  
                  19
                  
                  
                  
                  18
                  
                  
                  
                  18Total
                  
                  
                  100
                  
                  
                  
                  100
                  
                  
                  
                  100




Additional financial
information about our segments is set forth in Note 16 to our consolidated
financial statements set forth in Part II, Item 8 of this report.





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 2008, we printed over 2,400 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.





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.





5
 Index





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 2008, we printed over 400 magazine
titles.





We
produce short-run magazines with average run lengths of 27,000
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 50,000 and 8,500,000 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 2008, we printed over
140 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 2008, we printed more than 10,200 book
titles.





We
produce books in run lengths that average 2,100 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 52% of our books have soft covers (perfect bound) and
about 48% 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 sub segments 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 17 years. During 2008, we had no customer that
accounted for more than 10% of our net sales. 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. The loss of this or
any other large customer could cause our net sales and profitability to decline
materially.





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.





6
 Index





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 1,850 employees as of December 31, 2008. 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, 2008, we had
total indebtedness of approximately $164.9 million.





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





·
            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.





7
 Index





Working Capital Facility
Maturing—Although we anticipate that we
willbe able to
refinance our working capital facility prior to its termination on May 25, 2009,
there can be no assurance that we will be able to do
so.
 
 Our
working capital facility presently terminates on May 25, 2009. As of December
31, 2008 we had no borrowings outstanding under our working capital facility,
although we borrowed under the facility from time to time in the past. We
recently executed a non-binding term sheet with one of the lenders under
our current working capital facility for a new working capital facility on
terms that are similar to our current facility. The proposed lender is in the
process of conducting due diligence. We anticipate that we will be able to
replace the current facility prior to its termination, but there can be no
assurances that we will be able to do so on the terms outlined in the term sheet
or at all. If we are not able to successfully negotiate a new working capital
facility it could adversely impact our ability to fund our liquidity
needs.





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 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.





During
2008 we did not derive more than 10% of our net sales from any single customer.
However,
we derived a significant portion of our net sales from our ten largest
customers.In the future, an increase in business from a large customer
could result in net sales to that customer comprising more than 10% of out total
net sales. We cannot assure you that our large customers will continue to use
our printing services. The loss of 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.





8
 Index





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.





Fluctuations
in the markets for paper and raw materials could adversely impact the market for
our recycled materials, such as paper, cardboard and used
plates.  This could have a negative effect on the income we generate
from such sales.





Economic
Conditions - Current and future economic conditions could adversely affect our
business and financial performance.





Our
operating results and performance are impacted by general economic conditions,
both domestic and abroad. Worldwide economic problems became more pronounced in
the fourth quarter of 2008 resulting in a decrease in demand for our products.
The current global economic downturn and credit crisis may continue to
negatively and materially affect demand for our products and services and our
financial performance. Examples of how our business and financial performance
may continue to be adversely affected by current and future economic conditions
include:





·
            increased
      price competition resulting in lower sales, profitability and cash
      flow;





·
            deterioration
      in the financial condition of our customers resulting in reduced orders,
      an inability to collect receivables, payment delays or customer
      bankruptcy;





·
            increased
      risk of insolvency of financial institutions, which may limit our
      liquidity in the future or adversely affect our ability to use or
      refinance our working capital
facility;





·
            increased
      turmoil in the financial markets may limit our ability and the ability of
      our customers and suppliers to access the capital markets or require
      limitations or terms and conditions for such access that are more
      restrictive and costly than in the past;
and





·
            declines
      in our businesses could result in material charges for restructuring or
      asset impairments.





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;





9
 Index





·
            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.





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. A reduction in the investment value of university endowments in the
current economic environment could also result in less demand by university
libraries for printed journals.





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.





10
 Index





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.





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 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:





11
 Index





·
            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.





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 84.6% 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.





ITEM2.
            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)
                
                OwnershipStructure
                
                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
                
                13,309Sterling,
      VA
                
                Warehousing
      (Publications)
                
                Leased
                
                6,304Lewiston,
      ME
                
                Warehousing
      (Specialty catalogs)
                
                Leased
                
                97,606Lisbon,
      ME
                
                Warehousing
      (Specialty catalogs)
                
                Leased
                
                3,200Total
                
                1,153,436


______________________


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





12
 Index





Some of
our office and warehouse leases are on yearly renewals.  The lease of our
corporate headquarters expires 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.





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. Accruals for litigation have
not been provided because information available at this time does not indicate
that it is probable that a liability has been incurred. In the opinion of our
management, these matters are not expected to have a material adverse effect on
our business, financial condition, results of operations or cash
flows.





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, 2008.





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 30, 2009, there were 33 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 10.25% 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.”





ITEM6.
            SELECTED
      FINANCIAL DATA





(Dollars in thousands)
                                
                                Year
      ended
                                  December 31,
      2008
                                
                                
                                Year
      ended
                                  December 31,
      2007
                                
                                
                                Year
      ended
                                  December 31,
      2006
                                
                                
                                Year
      ended
                                  December 31,
      2005
                                
                                
                                Year
      ended
                                  December 31,
      2004Statement
      of Income Data:Net
      sales
                                
                                $
                                348,027
                                
                                
                                $
                                344,240
                                
                                
                                $
                                337,540
                                
                                
                                $
                                347,959
                                
                                
                                $
                                287,513Gross
      profit
                                
                                
                                66,647
                                
                                
                                
                                70,050
                                
                                
                                
                                65,376
                                
                                
                                
                                64,456
                                
                                
                                
                                60,782Selling
      and administrative expenses
                                
                                
                                42,175
                                
                                
                                
                                41,746
                                
                                
                                
                                40,339
                                
                                
                                
                                39,594
                                
                                
                                
                                37,404Operating
      income
                                
                                
                                12,757
                                
                                
                                
                                26,308
                                
                                
                                
                                5,489
                                
                                
                                
                                21,897
                                
                                
                                
                                21,456Net
      (loss) income
                                
                                
                                (5,872
                                )
                                
                                
                                4,847
                                
                                
                                
                                (8,343
                                )
                                
                                
                                1,180
                                
                                
                                
                                2,330Balance
      Sheet Data (at end of period):Cash
      and cash equivalents
                                
                                $
                                16,397
                                
                                
                                $
                                20,517
                                
                                
                                $
                                7,800
                                
                                
                                $
                                7,962
                                
                                
                                $
                                4,975Property,
      plant and equipment, net
                                
                                
                                127,064
                                
                                
                                
                                126,709
                                
                                
                                
                                129,666
                                
                                
                                
                                119,220
                                
                                
                                
                                115,253Total
      assets
                                
                                
                                285,097
                                
                                
                                
                                298,968
                                
                                
                                
                                291,567
                                
                                
                                
                                300,721
                                
                                
                                
                                299,139Total
      debt
                                
                                
                                164,946
                                
                                
                                
                                164,930
                                
                                
                                
                                164,915
                                
                                
                                
                                164,904
                                
                                
                                
                                164,894Total
      stockholder's equity
                                
                                
                                44,882
                                
                                
                                
                                50,845
                                
                                
                                
                                46,688
                                
                                
                                
                                54,996
                                
                                
                                
                                54,065Other
      Financial Data:Depreciation
      and amortization
                                
                                $
                                18,400
                                
                                
                                $
                                17,834
                                
                                
                                $
                                18,991
                                
                                
                                $
                                17,072
                                
                                
                                $
                                14,593Capital
      expenditures
                                
                                
                                17,597
                                
                                
                                
                                15,158
                                
                                
                                
                                26,296
                                
                                
                                
                                21,282
                                
                                
                                
                                21,827





13
 Index





ITEM
      7.
            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, distribution 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.





Acquisition
transactions





On August
21, 2003, TSG Holdings Corp (“Holdings” or our
“Parent”) 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 10.25% Senior Secured Notes due 2011
(the “2003 Notes”) and equity investments in Holdings.





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 10.25% Senior Secured Notes due 2011 (the
“2004 Notes”), available cash and equity investments in Holdings. 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. 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. There were no restructuring liabilities
outstanding as of December 31, 2008 or December 31, 2007.





14
 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, 2008, 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.  This assessment indicated that goodwill related to
our United Litho reporting unit, a component of the Publications
segment, was fully impaired resulting in a write-down of goodwill totaling $3.4
million which was recorded during the fourth quarter of 2008. We performed the
required impairment tests of goodwill to identify whether impairment existed on
December 31, 2007. No impairments were noted as a result of these tests. We
performed the required impairment tests of goodwill to identify whether
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. At December 31, 2008, we had $41.0 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. As a result of the impairment analysis performed in 2008
for United Litho (a component of the Publications segment)
and The Dingley Press (our Specialty Catalogs segment), we concluded
that the carrying value of the customer relationship assets exceeded their fair
value. Therefore, during the fourth quarter of 2008, we recorded an impairment
charge of $2.0 million and $0.2 million for the customer relationship assets of
United Litho and The Dingley Press, respectively.  We do not believe
there was any impairment of intangible assets or other long-lived assets as of
December 31, 2007 and 2006 pursuant to SFAS 144. 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.





15
 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 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.





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 $0.3 million as of December 31, 2008. Interest and penalties in the amount of
$0.1 million were expensed during 2008 and 2007, respectively. Interest and
penalties will continue to accrue on certain issues in 2009 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





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 50,000
and 8,500,000 copies.





16
 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, 2008 and December 31, 2007





Year ended
December 31,
                                        
                                        
                                        Increase (decrease)
                                        
                                        
                                        Percent
      of revenue
                                          Year ended
December 31,(in
      thousands)
                                        
                                        2008
                                        
                                        
                                        2007
                                        
                                        
                                        Dollars
                                        
                                        
                                        Percentage
                                        
                                        
                                        2008
                                        
                                        
                                        2007Net
      salesPublications
                                        
                                        $
                                        188,714
                                        
                                        
                                        $
                                        182,906
                                        
                                        
                                        $
                                        5,808
                                        
                                        
                                        
                                        3.2
                                        %
                                        
                                        
                                        54.2
                                        %
                                        
                                        
                                        53.1
                                        %Specialty
      catalogs
                                        
                                        
                                        92,218
                                        
                                        
                                        
                                        98,140
                                        
                                        
                                        
                                        (5,922
                                        )
                                        
                                        
                                        (6.0
                                        %)
                                        
                                        
                                        26.5
                                        %
                                        
                                        
                                        28.5
                                        %Books
                                        
                                        
                                        67,282
                                        
                                        
                                        
                                        63,278
                                        
                                        
                                        
                                        4,004
                                        
                                        
                                        
                                        6.3
                                        %
                                        
                                        
                                        19.3
                                        %
                                        
                                        
                                        18.4
                                        %Intersegment
      sales elimination
                                        
                                        
                                        (187
                                        )
                                        
                                        
                                        (84
                                        )
                                        
                                        
                                        (103
                                        )
                                        
                                        
                                        (122.6
                                        %)
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Total
      net sales
                                        
                                        
                                        348,027
                                        
                                        
                                        
                                        344,240
                                        
                                        
                                        
                                        3,787
                                        
                                        
                                        
                                        1.1
                                        %
                                        
                                        
                                        100.0
                                        %
                                        
                                        
                                        100.0
                                        %Cost
      of sales
                                        
                                        
                                        281,380
                                        
                                        
                                        
                                        274,190
                                        
                                        
                                        
                                        7,190
                                        
                                        
                                        
                                        2.6
                                        %
                                        
                                        
                                        80.9
                                        %
                                        
                                        
                                        79.7
                                        %Gross
      profit
                                        
                                        
                                        66,647
                                        
                                        
                                        
                                        70,050
                                        
                                        
                                        
                                        (3,403
                                        )
                                        
                                        
                                        (4.9
                                        %)
                                        
                                        
                                        19.1
                                        %
                                        
                                        
                                        20.3
                                        %Selling
      and administrative expenses
                                        
                                        
                                        42,175
                                        
                                        
                                        
                                        41,746
                                        
                                        
                                        
                                        429
                                        
                                        
                                        
                                        1.0
                                        %
                                        
                                        
                                        12.1
                                        %
                                        
                                        
                                        12.1
                                        %Loss
      on disposition of fixed assets
                                        
                                        
                                        1,223
                                        
                                        
                                        
                                        4
                                        
                                        
                                        
                                        1,219
                                        
                                        
                                        nm
                                        
                                        
                                        
                                        0.4
                                        %
                                        
                                        
                                        -Related
      party guaranty
                                        
                                        
                                        3,000
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        3,000
                                        
                                        
                                        nm
                                        
                                        
                                        
                                        0.8
                                        %
                                        
                                        
                                        -Restructuring
      costs
                                        
                                        
                                        137
                                        
                                        
                                        
                                        115
                                        
                                        
                                        
                                        22
                                        
                                        
                                        
                                        19.1
                                        %
                                        
                                        
                                        -
                                        
                                        
                                        
                                        -Amortization
      of intangibles
                                        
                                        
                                        1,715
                                        
                                        
                                        
                                        1,877
                                        
                                        
                                        
                                        (162
                                        )
                                        
                                        
                                        (8.6
                                        %)
                                        
                                        
                                        0.5
                                        %
                                        
                                        
                                        0.6
                                        %Impairment
      charge
                                        
                                        
                                        5,640
                                        
                                        
                                        
                                        -
                                        
                                        
                                        
                                        5,640
                                        
                                        
                                        nm
                                        
                                        
                                        
                                        1.6
                                        %
                                        
                                        
                                        -Total
      operating expenses
                                        
                                        
                                        53,890
                                        
                                        
                                        
                                        43,742
                                        
                                        
                                        
                                        10,148
                                        
                                        
                                        
                                        23.2
                                        %
                                        
                                        
                                        15.4
                                        %
                                        
                                        
                                        12.7
                                        %Operating
      incomePublications
                                        
                                        
                                        12,481
                                        
                                        
                                        
                                        21,002
                                        
                                        
                                        
                                        (8,521
                                        )
                                        
                                        
                                        (40.6
                                        %)
                                        
                                        
                                        6.6
                                        %
                                        
                                        
                                        11.5
                                        %Specialty
      catalogs
                                        
                                        
                                        (426
                                        )
                                        
                                        
                                        1,551
                                        
                                        
                                        
                                        (1,977
                                        )
                                        
                                        nm
                                        
                                        
                                        
                                        (0.5
                                        %)
                                        
                                        
                                        1.6
                                        %Books
                                        
                                        
                                        5,524
                                        
                                        
                                        
                                        6,264
                                        
                                        
                                        
                                        (740
                                        )
                                        
                                        
                                        (11.8
                                        %)
                                        
                                        
                                        8.2
                                        %
                                        
                                        
                                        9.9
                                        %Corporate
      expenses
                                        
                                        
                                        (4,822
                                        )
                                        
                                        
                                        (2,509
                                        )
                                        
                                        
                                        (2,313
                                        )
                                        
                                        
                                        (92.2
                                        %)
                                        
                                        
                                        N/A
                                        
                                        
                                        
                                        N/ATotal
      operating income
                                        
                                        
                                        12,757
                                        
                                        
                                        
                                        26,308
                                        
                                        
                                        
                                        (13,551
                                        )
                                        
                                        
                                        (51.5
                                        %)
                                        
                                        
                                        3.7
                                        %
                                        
                                        
                                        7.6
                                        %Other
      (income) expenseInterest
      expense
                                        
                                        
                                        18,399
                                        
                                        
                                        
                                        18,577
                                        
                                        
                                        
                                        (178
                                        )
                                        
                                        
                                        (1.0
                                        %)
                                        
                                        
                                        5.3
                                        %
                                        
                                        
                                        5.4
                                        %Interest
      income
                                        
                                        
                                        (172
                                        )
                                        
                                        
                                        (446
                                        )
                                        
                                        
                                        274
                                        
                                        
                                        
                                        61.4
                                        %
                                        
                                        
                                        (0.1
                                        %)
                                        
                                        
                                        (0.2
                                        %)Other,
      net
                                        
                                        
                                        1,269
                                        
                                        
                                        
                                        (83
                                        )
                                        
                                        
                                        1,352
                                        
                                        
                                        nm
                                        
                                        
                                        
                                        0.4
                                        %
                                        
                                        
                                        -Total
      other expense
                                        
                                        
                                        19,496
                                        
                                        
                                        
                                        18,048
                                        
                                        
                                        
                                        1,448
                                        
                                        
                                        
                                        8.0
                                        %
                                        
                                        
                                        5.6
                                        %
                                        
                                        
                                        5.2
                                        %(Loss)
      income before income taxes
                                        
                                        
                                        (6,739
                                        )
                                        
                                        
                                        8,260
                                        
                                        
                                        
                                        (14,999
                                        )
                                        
                                        nm
                                        
                                        
                                        
                                        (1.9
                                        %)
                                        
                                        
                                        2.4
                                        %Income
      tax (benefit) provision
                                        
                                        
                                        (867
                                        )
                                        
                                        
                                        3,413
                                        
                                        
                                        
                                        (4,280
                                        )
                                        
                                        nm
                                        
                                        
                                        
                                        (0.2
                                        %)
                                        
                                        
                                        1.0
                                        %Net
      (loss) income
                                        
                                        $
                                        (5,872
                                        )
                                        
                                        $
                                        4,847
                                        
                                        
                                        $
                                        (10,719
                                        )
                                        
                                        nm
                                        
                                        
                                        
                                        (1.7
                                        %)
                                        
                                        
                                        1.4
                                        %


_______________


nm- not
meaningful





Net sales
were $348.0 million in 2008, a $3.8 million or 1.1% increase compared to net
sales of $344.2 million for 2007, due primarily to cost increases for shipping
and paper costs which were passed on to our customers during 2008. Net sales for
the Publications segment increased $5.8 million or 3.2% compared to the same
period a year ago due mainly to increases in shipping and paper costs which were
passed on to our customers. Net sales for the Specialty Catalogs segment
decreased $5.9 million or 6.0% compared with the same period a year ago
primarily because the largest customer began supplying their own paper in 2008
instead of purchasing it through us, partially offset by higher shipping and
paper costs which were passed on to our customers. Net sales for the Books
segment increased $4.0 million or 6.3% compared with the same period last year
due primarily to new work awarded to us by existing customers and the impact of
increases in paper costs, which were passed on to our customers.





Gross
profit for 2008 was $66.6 million, a $3.4 million or 4.9% decrease compared to
gross profit of $70.0 million for 2007. Gross margin for 2008 decreased to 19.1%
of net sales compared to 20.3% for 2007. The gross profit and margin decreases
were attributable primarily to a $0.7 million increase in start-up costs
incurred in establishing a new product offering in the Publications segment
coupled with higher costs for healthcare, workers’ compensation claims, energy,
materials and depreciation. These cost increases were partially offset by the
impact of higher revenue from recyclable materials, primarily paper, and
increased sales volume.





17
 Index





The loss
on the disposition of fixed assets was $1.2 million during 2008 and was minimal
during 2007. This loss was due primarily to the disposition of binding equipment
acquired for our new product offering in the digital printing market that was
replaced because it was not meeting our performance requirements.





We
recorded $3.0 million of related party guaranty costs during 2008 to satisfy
certain obligations of an affiliate of our parent company, GPN Asia. As
disclosed in prior periods, we guaranteed the obligations of GPN Asia related to
a lease agreement, up to a maximum of $4.0 million, and established a $0.3
million letter of credit to secure a working capital facility for GPN Asia. In
August 2008, GPN Asia began the process of shutting down operations. In
connection with this shutdown, we satisfied obligations under the lease
agreement and letter of credit. Based on current estimates, we expect our total
expenditures to be approximately $3.0 million. Of this amount, approximately
$0.4 million was included in accrued expenses as of December 31, 2008. We
anticipate that the remaining cash payments will be made during
2009.





We
evaluate possible impairment of goodwill and other intangibles on an annual
basis at the reporting unit level. We also evaluate possible impairment of other
intangible assets whenever circumstances indicate that the carrying value of the
assets may not be recoverable. As a result of our impairment tests, we concluded
that the carrying value of goodwill at United Litho and the customer
relationship assets at United Litho and The Dingley Press exceeded their fair
value. This resulted in a non-cash impairment charge of $5.6 million during the
fourth quarter of 2008. In connection with our annual assessment of goodwill and
other intangibles in 2007, we concluded that there were no indications of
impairment.





Operating
income of $12.8 million in 2008 represented a $13.6 million or 51.5% decrease
compared to operating income of $26.3 million in 2007. This decrease was due
principally to a $1.8 million increase in start-up costs incurred in
establishing a new product offering in the Publications segment, the related
party guaranty, the loss on the disposition of fixed assets, the impairment
charge for goodwill and other intangibles, an increase in claims for employee
healthcare and workers’ compensation benefits, and higher costs for energy,
materials and depreciation. These cost increases were partially offset by the
impact of higher revenue from recyclable materials, primarily paper, and
increased sales volume. The operating income of $12.5 million for the
Publications segment in 2008 was $8.5 million lower than the operating income
for the same period in 2007 primarily due to the impairment of goodwill and
other intangibles at United Litho along with an increase of $1.8 million in
start-up costs incurred in establishing a new product offering in the short-run
digital printing market, the loss on disposition of fixed assets and an increase
in claims for employee healthcare and workers’ compensation benefits and higher
costs for energy, repairs, supplies and equipment leases. These cost increases
were partially offset by the impact of higher revenue from recyclable materials,
primarily paper. The operating loss was $0.4 million for the Specialty Catalogs
segment in 2008 and represented a $2.0 million decrease as compared to the same
period last year. This decrease was primarily due to the impairment of
intangible assets, an increase in claims for employee healthcare and higher
costs for outside services, energy and depreciation partially offset by higher
recyclable revenue. Operating income of $5.5 million for the Books segment in
2008 represented a $0.7 million decrease as compared to 2007. The decrease was
due primarily to an increase in claims for employee healthcare and workers’
compensation benefits and higher costs for materials and depreciation. These
cost increases were partially offset by the impact of higher revenue from
recyclable materials, primarily paper, and increased sales volume. We had an
operating loss of $4.8 million in 2008 related to our corporate expenses which
represented a $2.3 million decrease as compared to the same period last year.
This decrease was due primarily to the related party guaranty costs recorded in
2008 partially offset by lower costs related to management performance incentive
payments.





The
increase in other expense of $1.4 million during 2008 as compared to the same
period last year was due primarily to decreases in the market value of
investments held in the deferred compensation plan during 2008.





Loss
before income taxes for 2008 was $6.7 million, a $15.0 million decrease as
compared to income before income taxes of $8.3 million for 2007. The decrease
was due primarily to the impairment of goodwill and other intangibles, the costs
incurred to settle the guaranty obligations in connection with the shutdown of
GPN Asia, the start-up costs incurred in establishing a new product offering in
the Publications segment, higher healthcare, workers’ compensation and energy
costs and decreases in the market value of investments held in the deferred
compensation plan, partially offset by higher recyclable revenue and increases
in sales volume.





Our
effective income tax rate in 2008 was 12.9% compared to 41.3% in 2007. The
decrease in the effective tax rate was due primarily to the impact of the
goodwill impairment charge in the Publications segment.





Net loss
for 2008 was $5.9 million, a $10.7 million decrease as compared to net income of
$4.8 million for 2007 due to the factors mentioned previously.





18
 Index





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





Year ended
December 31,
                                  
                                  
                                  Increase (decrease)
                                  
                                  
                                  Percent
      of revenue
                                    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
                                  %)


_______________


nm- not
meaningful





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.





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.





19
 Index





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.





Liquidity
and Capital Resources





Operating
Activities





Net cash
provided by operating activities was $14.6 million for 2008, a decrease of $12.8
million as compared to $27.4 million for 2007. The decrease was primarily due to
a decline in net income of $10.7 million coupled with unfavorable working
capital changes of $9.2 million partially offset by an increase in non-cash
charges of $7.1 million. The decline due to working capital changes was caused
by (i) a decrease in accounts payable at the end of 2008 as compared to 2007 due
primarily to the timing of vendor payments, (ii) a decrease in the level of
accrued expenses, primarily due to lower bonus accruals across all segments and
lower customer deposits and deferred revenue in our Specialty Catalogs segment,
at the end of 2008 as compared to the same period in 2007 and (iii) an increase
in refundable income taxes due to the impact of our loss before income taxes,
partially offset by an increase in cash receipts during 2008 as compared to 2007
and a reduction in our inventory balances at the end of 2008 as compared to
2007. The increase in non-cash charges consisted primarily of the $5.6 million
impairment charge for goodwill and intangibles, along with a $1.2 million loss
on the disposition of fixed assets and increases in depreciation expense, the
provision for doubtful accounts and the provision for inventory realizability
partially offset by the change in deferred income taxes.





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.





20
 Index





We had
cash of $16.4 million as of December 31, 2008 compared to $20.5 million as of
December 31, 2007. During 2008 and 2007, we utilized cash provided by operating
activities to fund operations, make investments in new equipment, fund the
related party guaranty costs and make the semi-annual interest payments on
the 2003 Notes and the 2004 Notes.





Investing
Activities





Net cash
used in investing activities was $18.7 million for 2008 compared to $14.5
million for 2007. This $4.2 million increase was primarily the result of a $2.4
million increase in plant and equipment purchased in the ordinary course of
business coupled with a $1.4 million increase in advances made to affiliated
companies.





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.





Financing Activities





Net cash
used in financing activities during 2008 and 2007 was $0.1 million and $0.2
million, respectively. The change was due primarily to the proceeds received and
income tax benefit realized from the exercise of stock options.





Total
debt outstanding at December 31, 2008 was $164.9 million which was unchanged as
compared to $164.9 million outstanding at December 31, 2007.





Indebtedness





As of
December 31, 2008, 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 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, 2008. 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. We
recently executed a non-binding term sheet with one of the lenders under our
current working capital facility for a new working capital facility on
terms that are similar to our current facility. The proposed lender is in the
process of conducting duediligence.
We anticipate that we will be able to replace the current facility prior to its
termination, but there can be no assurances that we will be able to do so on the
terms outlined in the term sheet or at all. If we are not able to successfully
negotiate a new working capital facility it could adversely impact our ability
to fund our liquidity needs.





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 places limits on our ability to
prepay 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, 2008, our interest coverage ratio was 2.42 to 1.00 and our
WCF EBITDA for purposes of our working capital facility was $41.5 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.





21
 Index





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





Year
      ended
                                        December 31,
      2008
                                      
                                      
                                      Year
      ended
                                        December 31,
      2007
                                      
                                      
                                      Year
      ended
                                        December 31,
      2006Net
      cash provided by operating activities
                                      
                                      $
                                      14,640
                                      
                                      
                                      $
                                      27,459
                                      
                                      
                                      $
                                      24,336Accounts
      receivable
                                      
                                      
                                      660
                                      
                                      
                                      
                                      3,815
                                      
                                      
                                      
                                      (1,174
                                      )Inventories
                                      
                                      
                                      (1,141
                                      )
                                      
                                      
                                      228
                                      
                                      
                                      
                                      9Other
      current assets
                                      
                                      
                                      (1,056
                                      )
                                      
                                      
                                      270
                                      
                                      
                                      
                                      (83
                                      )Refundable
      income taxes
                                      
                                      
                                      2,117
                                      
                                      
                                      
                                      (438
                                      )
                                      
                                      
                                      (671
                                      )Other
      assets
                                      
                                      
                                      (1,653
                                      )
                                      
                                      
                                      (527
                                      )
                                      
                                      
                                      171Accounts
      payable
                                      
                                      
                                      3,130
                                      
                                      
                                      
                                      (6,814
                                      )
                                      
                                      
                                      536Accrued
      expenses
                                      
                                      
                                      3,642
                                      
                                      
                                      
                                      1,572
                                      
                                      
                                      
                                      (3,213
                                      )Income
      taxes payable
                                      
                                      
                                      73
                                      
                                      
                                      
                                      (765
                                      )
                                      
                                      
                                      -Other
      liabilities
                                      
                                      
                                      1,049
                                      
                                      
                                      
                                      268
                                      
                                      
                                      
                                      (507
                                      )Provision
      for doubtful accounts
                                      
                                      
                                      (863
                                      )
                                      
                                      
                                      (495
                                      )
                                      
                                      
                                      (1,220
                                      )Provision
      for inventory realizability and LIFO value
                                      
                                      
                                      (199
                                      )
                                      
                                      
                                      (44
                                      )
                                      
                                      
                                      (106
                                      )Non-cash
      donation of property
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (45
                                      )
                                      
                                      
                                      -Deferred
      income tax benefit (expense)
                                      
                                      
                                      297
                                      
                                      
                                      
                                      (311
                                      )
                                      
                                      
                                      7,235Loss
      on disposition of fixed assets, net
                                      
                                      
                                      (1,223
                                      )
                                      
                                      
                                      (4
                                      )
                                      
                                      
                                      (254
                                      )Income
      tax (benefit) provision
                                      
                                      
                                      (867
                                      )
                                      
                                      
                                      3,413
                                      
                                      
                                      
                                      (4,444
                                      )Cash
      interest expense
                                      
                                      
                                      17,102
                                      
                                      
                                      
                                      17,123
                                      
                                      
                                      
                                      17,215Management
      fees
                                      
                                      
                                      767
                                      
                                      
                                      
                                      917
                                      
                                      
                                      
                                      784Non
      cash adjustments:Adjustments
      to LIFO value
                                      
                                      
                                      137
                                      
                                      
                                      
                                      12
                                      
                                      
                                      
                                      51(Increase)
      decrease in market value of investments
                                      
                                      
                                      319
                                      
                                      
                                      
                                      (58
                                      )
                                      
                                      
                                      120Amortization
      of prepaid lease costs
                                      
                                      
                                      90
                                      
                                      
                                      
                                      84
                                      
                                      
                                      
                                      83Loss
      on disposition of fixed assets
                                      
                                      
                                      1,318
                                      
                                      
                                      
                                      190
                                      
                                      
                                      
                                      317Related
      party guaranty
                                      
                                      
                                      3,000
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -Restructuring
      costs
                                      
                                      
                                      137
                                      
                                      
                                      
                                      115
                                      
                                      
                                      
                                      2,736Working
      Capital Facility EBITDA
                                      
                                      $
                                      41,476
                                      
                                      
                                      $
                                      45,965
                                      
                                      
                                      $
                                      41,921





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 may
from time to time seek to purchase or retire our outstanding debt, including the
2003 Notes and 2004 Notes, through cash purchases, in open market purchases,
privately negotiated transactions or otherwise. Such repurchases, if any, will
depend on prevailing market conditions, our liquidity requirements, contractual
restrictions and other factors. The amounts involved may be material.
Additionally, we may from time to time fund cash distributions to our Parent, as
we did in the first quarter of 2009, in accordance with the limitations outlined
in our bond indenture and our working capital facility.We
estimate that our capital expenditures for 2009 will total about $10.0 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.


2009
Activity
 On
January 5, 2009, we executed a waiver to our working capital facility. The
waiver allows us to pay a cash dividend and make a loan to our Parent, which is
not a registrant with the Securities and Exchange Commission, in the aggregate
amount of up to $14.0 million, provided that our Parent uses the entire cash
proceeds of such dividend and loan solely to purchase capital stock issued by
our Parent (the “Stock
Purchase”)
from Participatiemaatschappij Giraffe B.V. (“Giraffe”) and to pay related
expenses in connection therewith. On
January 5, 2009, we paid a dividend in the aggregate amount of $8.0 million to
our Parent and made a loan in the principal amount of $2.0 million to our
Parent. The loan will mature on January 4, 2012 and will accrue interest at the
rate of 1.36% per year payable in cash or in kind on February 15 and August
15 each year. Subsequent to January 5, 2009, we paid an additional dividend
in the amount of $1.1 million to our Parent to pay expenses and other amounts in
connection with the Stock Purchase. Inconnection with the
Stock Purchase, Euradius Acquisition Co., a wholly-owned subsidiary of our
Parent, sold all of the outstanding stock of Euradius International Dutch
Bidco B.V. (“Euradius”) to Giraffe. This resulted in our Parent fully divesting
its interest in Euradius, which was our Parent's only investment other than The
Sheridan Group, Inc. Neither Euradius nor its subsidiaries were guarantors of
the 2003 or 2004 Notes. Neither Euradius nor its subsidiaries were subsidiaries
of ours and their financial results were not included in our consolidated
financial statements.
  Financial
results in the first two months of 2009 have been weaker than the comparable
year ago period, reflecting the weak economy. In response to these economic
conditions, we are aggressively reducing costs and closely managing cash flow,
including reducing 2009 capital spending to approximately $10.0
million.


22
 Index





Contractual
Obligations





The
following table summarizes our future minimum non-cancelable contractual
obligations as of December 31, 2008:





Remaining Payments Due by
      PeriodTotal
                    
                    
                    2009
                    
                    
                    2010
      to 2011
                    
                    
                    2012
      to 2013
                    
                    
                    2014
      and beyond(in
      thousands)Long
      term debt, including interest (1)
                    
                    $
                    215,738
                    
                    
                    $
                    16,913
                    
                    
                    $
                    198,825
                    
                    
                    $
                    -
                    
                    
                    $
                    -Operating
      leases
                    
                    
                    9,003
                    
                    
                    
                    4,162
                    
                    
                    
                    4,531
                    
                    
                    
                    308
                    
                    
                    
                    2Purchase
      obligations (2)
                    
                    
                    9,024
                    
                    
                    
                    6,696
                    
                    
                    
                    2,328
                    
                    
                    
                    -
                    
                    
                    
                    -Other
      long-term obligations (3)
                    
                    
                    559
                    
                    
                    
                    193
                    
                    
                    
                    202
                    
                    
                    
                    164
                    
                    
                    
                    -Total
      (4)
                    
                    $
                    234,324
                    
                    
                    $
                    27,964
                    
                    
                    $
                    205,886
                    
                    
                    $
                    472
                    
                    
                    $
                    2


______________________


(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)
            At
      December 31, 2008, we have recognized $2.1 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, 2008 and 2007, 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 2008, 2007 and 2006.





Recently
Issued Accounting Pronouncements





Effective
January 1, 2008, we adopted SFAS No. 157, “Fair Value Measurements” (“SFAS
157”), which defines fair value, establishes a framework for measuring fair
value in generally accepted accounting principles and expands disclosures about
fair value measurements. 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).  In February 2008, the FASB
issued FASB Staff Position SFAS 157-2, “Effective Date of FASB Statement No.
157,” which delayed the effective date of SFAS 157 to fiscal years beginning
after November 15, 2008. We are currently evaluating whether the adoption of
Staff Position 157-2 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 was
effective beginning January 1, 2008. The adoption of SFAS 159 did not have a
material effect on our consolidated financial position, results of operations or
cash flows.





23
 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 do not believe the adoption of SFAS 160 will have a material impact on
our financial position, results of operations or cash flows.





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 purchase of products and services from foreign
suppliers 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 2008,
2007 and 2006 were denominated in U.S. dollars. Therefore, foreign currency
fluctuations had a negligible impact on 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 did not have any borrowings under our working capital facility
during 2008. All of our other debt carries fixed interest rates.





24
 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, 2008 and 2007, and the results of their operations and their cash
flows for each of the three years in the period ended December 31, 2008 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.








/s/ PricewaterhouseCoopers
LLP


Baltimore,
Maryland


March 30,
2009





25
 Index





The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Balance Sheets


At
December 31, 2008 and 2007





December 31,
                                            2008
                                          
                                          
                                          December 31,
                                            2007AssetsCurrent
      assetsCash
      and cash equivalents
                                          
                                          $
                                          16,396,628
                                          
                                          
                                          $
                                          20,517,198Accounts
      receivable, net of allowance for doubtful accounts of $1,080,208 and
      $616,869, respectively
                                          
                                          
                                          34,266,288
                                          
                                          
                                          
                                          34,469,418Inventories,
      net
                                          
                                          
                                          17,803,085
                                          
                                          
                                          
                                          19,142,545Due
      from affiliated companies
                                          
                                          
                                          662,212
                                          
                                          
                                          
                                          44,505Other
      current assets
                                          
                                          
                                          3,438,647
                                          
                                          
                                          
                                          4,494,900Refundable
      income taxes
                                          
                                          
                                          2,894,829
                                          
                                          
                                          
                                          -Deferred
      income taxes
                                          
                                          
                                          1,684,563
                                          
                                          
                                          
                                          1,155,409Total
      current assets
                                          
                                          
                                          77,146,252
                                          
                                          
                                          
                                          79,823,975Property,
      plant and equipment, net
                                          
                                          
                                          127,063,798
                                          
                                          
                                          
                                          126,708,651Intangibles,
      net
                                          
                                          
                                          35,004,531
                                          
                                          
                                          
                                          40,545,117Goodwill
                                          
                                          
                                          40,979,426
                                          
                                          
                                          
                                          44,503,312Deferred
      financing costs, net
                                          
                                          
                                          2,604,547
                                          
                                          
                                          
                                          3,884,311Due
      from affiliated companies - non current
                                          
                                          
                                          554,357
                                          
                                          
                                          
                                          -Other
      assets
                                          
                                          
                                          1,743,828
                                          
                                          
                                          
                                          3,502,824Total
      assets
                                          
                                          $
                                          285,096,739
                                          
                                          
                                          $
                                          298,968,190LiabilitiesCurrent
      liabilitiesAccounts
      payable
                                          
                                          $
                                          23,291,403
                                          
                                          
                                          $
                                          25,646,740Accrued
      expenses
                                          
                                          
                                          21,880,095
                                          
                                          
                                          
                                          25,522,322Income
      taxes payable
                                          
                                          
                                          -
                                          
                                          
                                          
                                          72,513Total
      current liabilities
                                          
                                          
                                          45,171,498
                                          
                                          
                                          
                                          51,241,575Notes
      payable
                                          
                                          
                                          164,946,468
                                          
                                          
                                          
                                          164,929,659Deferred
      income taxes
                                          
                                          
                                          26,313,410
                                          
                                          
                                          
                                          27,153,776Other
      liabilities
                                          
                                          
                                          3,782,954
                                          
                                          
                                          
                                          4,797,887Total
      liabilities
                                          
                                          
                                          240,214,330
                                          
                                          
                                          
                                          248,122,897Commitments
      and contingenciesStockholder's
      EquityCommon
      stock, $0.01 par value; 100 shares authorized; 1 share issued and
      outstanding
                                          
                                          
                                          -
                                          
                                          
                                          
                                          -Additional
      paid-in capital
                                          
                                          
                                          51,135,564
                                          
                                          
                                          
                                          51,043,554Accumulated
      deficit
                                          
                                          
                                          (6,253,155
                                          )
                                          
                                          
                                          (198,261
                                          )Total
      stockholder's equity
                                          
                                          
                                          44,882,409
                                          
                                          
                                          
                                          50,845,293Total
      liabilities and stockholder's equity
                                          
                                          $
                                          285,096,739
                                          
                                          
                                          $
                                          298,968,190





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





26
 Index





The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Statements of Operations


Years
Ended December 31, 2008, 2007 and 2006





Year
      Ended December 31,
                        
                        
                        Year
      Ended December 31,
                        
                        
                        Year
      Ended December 31,2008
                        
                        
                        2007
                        
                        
                        2006Net
      sales
                        
                        $
                        348,026,720
                        
                        
                        $
                        344,239,531
                        
                        
                        $
                        337,540,314Cost
      of sales
                        
                        
                        281,380,147
                        
                        
                        
                        274,189,774
                        
                        
                        
                        272,164,460Gross
      profit
                        
                        
                        66,646,573
                        
                        
                        
                        70,049,757
                        
                        
                        
                        65,375,854Selling
      and administrative expenses
                        
                        
                        42,175,411
                        
                        
                        
                        41,745,714
                        
                        
                        
                        40,338,796Loss
      on disposition of fixed assets
                        
                        
                        1,222,918
                        
                        
                        
                        4,329
                        
                        
                        
                        254,742Related
      party guaranty
                        
                        
                        3,000,000
                        
                        
                        
                        -
                        
                        
                        
                        -Restructuring
      costs
                        
                        
                        136,965
                        
                        
                        
                        114,940
                        
                        
                        
                        2,736,027Amortization
      of intangibles
                        
                        
                        1,714,628
                        
                        
                        
                        1,877,165
                        
                        
                        
                        3,781,944Impairment
      charges
                        
                        
                        5,639,613
                        
                        
                        
                        -
                        
                        
                        
                        12,774,931Total
      operating expenses
                        
                        
                        53,889,535
                        
                        
                        
                        43,742,148
                        
                        
                        
                        59,886,440Operating
      income
                        
                        
                        12,757,038
                        
                        
                        
                        26,307,609
                        
                        
                        
                        5,489,414Other
      (income) expenseInterest
      expense
                        
                        
                        18,398,974
                        
                        
                        
                        18,576,598
                        
                        
                        
                        18,818,043Interest
      income
                        
                        
                        (172,549
                        )
                        
                        
                        (445,935
                        )
                        
                        
                        (225,759
                        )Other,
      net
                        
                        
                        1,269,162
                        
                        
                        
                        (83,320
                        )
                        
                        
                        (315,874
                        )Total
      other expense
                        
                        
                        19,495,587
                        
                        
                        
                        18,047,343
                        
                        
                        
                        18,276,410(Loss)
      income before income taxes
                        
                        
                        (6,738,549
                        )
                        
                        
                        8,260,266
                        
                        
                        
                        (12,786,996
                        )Income
      tax (benefit) provision
                        
                        
                        (866,658
                        )
                        
                        
                        3,413,273
                        
                        
                        
                        (4,444,148
                        )Net
      (loss) income
                        
                        $
                        (5,871,891
                        )
                        
                        $
                        4,846,993
                        
                        
                        $
                        (8,342,848
                        )





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





27
 Index





The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Statements of Changes in Stockholder’s Equity


Years
Ended December 31, 2008, 2007 and 2006





Common Stock
                                  
                                  
                                  Additional
      Paid-In
                                  
                                  
                                  Retained
      Earnings (Accumulated
                                  
                                  
                                  Total
      Stockholder'sShares
                                  
                                  
                                  Amount
                                  
                                  
                                  Capital
                                  
                                  
                                  Deficit)
                                  
                                  
                                  EquityBalance
      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
                                  )
                                  
                                  $
                                  50,845,293Cash
      dividend
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (183,003
                                  )
                                  
                                  
                                  (183,003
                                  )Capital
      contribution from parent company - stock options exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  20,400
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  20,400Income
      tax benefit from stock options exercised
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  62,610
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  62,610Share-based
      compensation
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  9,000
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  9,000Net
      loss
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (5,871,891
                                  )
                                  
                                  
                                  (5,871,891
                                  )Balance
      as of December 31, 2008
                                  
                                  
                                  1
                                  
                                  
                                  
                                  -
                                  
                                  
                                  $
                                  51,135,564
                                  
                                  
                                  $
                                  (6,253,155
                                  )
                                  
                                  $
                                  44,882,409





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





28
 Index





The
Sheridan Group, Inc. and Subsidiaries


Consolidated
Statements of Cash Flows


Years
Ended December 31, 2008, 2007 and 2006





December 31,
                                  2008
                                
                                
                                December 31,
                                  2007
                                
                                
                                December 31,
                                  2006Cash
      flows provided by operating actvities:Net
      (loss) income
                                
                                $
                                (5,871,891
                                )
                                
                                $
                                4,846,993
                                
                                
                                $
                                (8,342,848
                                )Adjustments
      to reconcile net (loss) income to net cash provided by operating
      activitiesDepreciation
                                
                                
                                16,684,883
                                
                                
                                
                                15,957,244
                                
                                
                                
                                15,209,022Amortization
      of intangible assets
                                
                                
                                1,714,628
                                
                                
                                
                                1,877,165
                                
                                
                                
                                3,781,944Impairment
      of goodwill and intangibles
                                
                                
                                5,639,613
                                
                                
                                
                                -
                                
                                
                                
                                12,774,931Provision
      for doubtful accounts
                                
                                
                                862,897
                                
                                
                                
                                495,475
                                
                                
                                
                                1,219,661Provision
      for inventory realizability and LIFO value
                                
                                
                                198,755
                                
                                
                                
                                43,493
                                
                                
                                
                                106,228Stock-based
      compensation
                                
                                
                                9,000
                                
                                
                                
                                33,129
                                
                                
                                
                                32,770Amortization
      of deferred financing costs and debt discount, included in interest
      expense
                                
                                
                                1,296,573
                                
                                
                                
                                1,453,884
                                
                                
                                
                                1,603,065Non-cash
      donation of property
                                
                                
                                -
                                
                                
                                
                                45,000
                                
                                
                                
                                -Deferred
      income tax (benefit) provision
                                
                                
                                (297,475
                                )
                                
                                
                                311,100
                                
                                
                                
                                (7,235,320
                                )Loss
      on disposition of fixed assets
                                
                                
                                1,222,918
                                
                                
                                
                                4,329
                                
                                
                                
                                254,742Changes
      in operating assets and liabilitiesAccounts
      receivable
                                
                                
                                (659,767
                                )
                                
                                
                                (3,814,584
                                )
                                
                                
                                1,174,055Inventories
                                
                                
                                1,140,705
                                
                                
                                
                                (228,159
                                )
                                
                                
                                (8,841
                                )Other
      current assets
                                
                                
                                1,056,253
                                
                                
                                
                                (269,913
                                )
                                
                                
                                82,368Refundable
      income taxes
                                
                                
                                (2,116,829
                                )
                                
                                
                                437,504
                                
                                
                                
                                670,647Other
      assets
                                
                                
                                1,653,164
                                
                                
                                
                                527,308
                                
                                
                                
                                (171,339
                                )Accounts
      payable
                                
                                
                                (3,129,729
                                )
                                
                                
                                6,813,640
                                
                                
                                
                                (535,703
                                )Accrued
      expenses
                                
                                
                                (3,642,227
                                )
                                
                                
                                (1,571,608
                                )
                                
                                
                                3,213,425Income
      tax payable
                                
                                
                                (72,513
                                )
                                
                                
                                765,438
                                
                                
                                
                                -Other
      liabilities
                                
                                
                                (1,048,915
                                )
                                
                                
                                (267,974
                                )
                                
                                
                                506,730Net
      cash provided by operating activities
                                
                                
                                14,640,043
                                
                                
                                
                                27,459,464
                                
                                
                                
                                24,335,537Cash
      flows used in investing activities:Purchases
      of property, plant and equipment
                                
                                
                                (17,596,886
                                )
                                
                                
                                (15,157,782
                                )
                                
                                
                                (26,295,867
                                )Proceeds
      from sale of fixed assets
                                
                                
                                108,330
                                
                                
                                
                                438,574
                                
                                
                                
                                2,022,474(Advances
      to) proceeds from affiliated companies
                                
                                
                                (1,172,064
                                )
                                
                                
                                226,147
                                
                                
                                
                                (226,147
                                )Net
      cash used in investing activities
                                
                                
                                (18,660,620
                                )
                                
                                
                                (14,493,061
                                )
                                
                                
                                (24,499,540
                                )Cash
      flows used in financing activities:Borrowing
      of revolving line of credit
                                
                                
                                -
                                
                                
                                
                                6,847,000
                                
                                
                                
                                42,341,000Repayment
      of revolving line of credit
                                
                                
                                -
                                
                                
                                
                                (6,847,000
                                )
                                
                                
                                (42,341,000
                                )Proceeds
      from capital contribution from parent company
                                
                                
                                20,400
                                
                                
                                
                                -
                                
                                
                                
                                1,200Realized
      income tax benefit from stock options exercised
                                
                                
                                62,610
                                
                                
                                
                                -
                                
                                
                                
                                655Payment
      of dividend
                                
                                
                                (183,003
                                )
                                
                                
                                (249,463
                                )
                                
                                
                                -Net
      cash used in financing activities
                                
                                
                                (99,993
                                )
                                
                                
                                (249,463
                                )
                                
                                
                                1,855Net
      (decrease) increase in cash and cash equivalents
                                
                                
                                (4,120,570
                                )
                                
                                
                                12,716,940
                                
                                
                                
                                (162,148
                                )Cash
      and cash equivalents at beginning of period
                                
                                
                                20,517,198
                                
                                
                                
                                7,800,258
                                
                                
                                
                                7,962,406Cash
      and cash equivalents at end of period
                                
                                $
                                16,396,628
                                
                                
                                $
                                20,517,198
                                
                                
                                $
                                7,800,258Supplemental
      disclosure of cash flow informationCash
      paid during the year forInterest
                                
                                $
                                17,076,499
                                
                                
                                $
                                17,149,172
                                
                                
                                $
                                17,215,599Income
      taxes, net of refunds
                                
                                $
                                1,120,816
                                
                                
                                $
                                1,512,577
                                
                                
                                $
                                2,062,831Non-cash
      investing activitiesAsset
      additions in accounts payable
                                
                                $
                                1,682,000
                                
                                
                                $
                                907,608
                                
                                
                                $
                                2,577,331




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





29
 Index





The
Sheridan Group, Inc. and Subsidiaries


Notes
to Consolidated Financial Statements


Years
Ended December 31, 2008, 2007 and 2006





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 digital proofing, preflight checking, offshore composition, copy
editing, subscriber services, mail sortation, distribution and back issue
fulfillment. We have eight wholly-owned subsidiaries: The Sheridan Press, Inc.
(“TSP”), Dartmouth Printing Company (“DPC”), Dartmouth Journal Services, Inc.
(“DJS”), United Litho, Inc. (“ULI”), 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 10.25% 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 10.25% 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.





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. Deferred revenue is recognized when cash is received
from customers in advance of the shipment of their products.





30
 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, 2008
                          
                          
                          Year
      Ended December 31, 2007
                          
                          
                          Year
      Ended December 31, 2006Balance
      at beginning of period
                          
                          $
                          616,869
                          
                          
                          $
                          1,951,420
                          
                          
                          $
                          956,612Charged
      to expense
                          
                          
                          862,897
                          
                          
                          
                          495,475
                          
                          
                          
                          1,219,661Deductions
                          
                          
                          (399,558
                          )
                          
                          
                          (1,830,026
                          )
                          
                          
                          (224,853
                          )Balance
      at end of period
                          
                          $
                          1,080,208
                          
                          
                          $
                          616,869
                          
                          
                          $
                          1,951,420





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 86% and
92% of inventories at December 31, 2008 and 2007, 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. We do not believe there was any impairment of property
and equipment as of December 31, 2008.





31
 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 or whenever circumstances indicate that the carrying value
of the assets may not be recoverable, 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
$3.4 million of ULI goodwill (a component of our Publications segment) was fully
impaired and was required to be expensed as a non-cash charge to continuing
operations during the fourth quarter of 2008. In connection with our annual
assessment of goodwill and other intangibles in 2007, we concluded that there
were no indications of impairment. During the fourth quarter of 2006, 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.





Identified
Intangible and Other Long-Lived Assets





Identified
intangible assets, which primarily consist of customer relationships and trade
names, were valued at fair value, effective with acquisitions. All long-lived
assets are amortized over the estimated useful lives. We review long-lived
assets for impairment using undiscounted future cash flows annually or whenever
events or changes in circumstances indicate that the carrying value may not be
recoverable. As a result of the impairment analysis performed in 2008 for ULI (a
component of our Publications segment) and TDP (our Specialty Catalogs segment),
we concluded that the carrying value of the customer relationship assets
exceeded their fair value. Therefore, during the fourth quarter of 2008, we
recorded an impairment charge of $2.0 million and $0.2 million for the customer
relationship assets of ULI and TDP, respectively.  We do not believe
there was 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 our working capital facility are being amortized over the term of
the agreement using the straight-line method. Accumulated amortization as of
December 31, 2008 and 2007 was $8.2 million and $6.9 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, 2008, 5,060 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.





32
 Index





For the
years ended December 31, 2008, 2007 and 2006, we recognized non-cash stock-based
compensation expense of approximately $9,000 (approximately $7,800 net of
taxes), $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. There were no stock options granted
during the year ended December 31, 2008. 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,
      2007
                      
                      
                      December 31,
      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, 2006,
2007 and 2008:





Weighted averageNumber
      of shares
                      
                      
                      Exercise
      price
                      
                      
                      Remaining
      term (in years)
                      
                      
                      Aggregate
      intrinsic valueOptions
      outstanding at December 31, 2005
                      
                      
                      52,400
                      
                      
                      $
                      10.00Granted
                      
                      
                      5,700
                      
                      
                      
                      24.75Exercised
                      
                      
                      (120
                      )
                      
                      
                      10.00Forfeited
                      
                      
                      (2,830
                      )
                      
                      
                      10.00Options
      outstanding at December 31, 2006
                      
                      
                      55,150
                      
                      
                      $
                      11.52
                      
                      
                      
                      7.4
                      
                      
                      $
                      1,725,400Granted
                      
                      
                      900
                      
                      
                      
                      53.06Exercised
                      
                      
                      -Forfeited
                      
                      
                      (900
                      )
                      
                      
                      10.00Options
      outstanding at December 31, 2007
                      
                      
                      55,150
                      
                      
                      $
                      12.23
                      
                      
                      
                      6.7
                      
                      
                      $
                      5,851,600Granted
                      
                      
                      -
                      
                      
                      
                      -Exercised
                      
                      
                      (2,040
                      )
                      
                      
                      10.00Forfeited
                      
                      
                      (4,910
                      )
                      
                      
                      10.00Options
      outstanding at December 31, 2008
                      
                      
                      48,200
                      
                      
                      $
                      12.55
                      
                      
                      
                      5.4
                      
                      
                      $
                      -Options
      exercisable at December 31, 2008
                      
                      
                      22,700
                      
                      
                      $
                      10.51
                      
                      
                      
                      5.0
                      
                      
                      $
                      -





33
 Index





The
following is a summary of non-vested option activity for the years ended
December 31, 2008, 2007 and 2006:





Number
      of shares
                
                
                Weighted
      average grant date fair
      valueYears ended
    December 31,
                
                
                Years ended
    December 31,2008
                
                
                2007
                
                
                2006
                
                
                2008
                
                
                2007
                
                
                2006Non
      vested options outstanding at beginning of year
                
                
                34,920
                
                
                
                40,240
                
                
                
                42,280
                
                
                $
                4.11
                
                
                $
                3.32
                
                
                $
                2.67Granted
                
                
                -
                
                
                
                900
                
                
                
                5,700
                
                
                
                -
                
                
                
                20.06
                
                
                
                9.35Vested
                
                
                (4,960
                )
                
                
                (5,680
                )
                
                
                (5,150
                )
                
                
                3.19
                
                
                
                2.62
                
                
                
                2.38Forfeited
                
                
                (4,460
                )
                
                
                (540
                )
                
                
                (2,590
                )
                
                
                2.49
                
                
                
                2.49
                
                
                
                2.45Non
      vested options outstanding at end of year
                
                
                25,500
                
                
                
                34,920
                
                
                
                40,240
                
                
                $
                4.79
                
                
                $
                4.11
                
                
                $
                3.32





The total
compensation cost related to nonvested awards not yet recognized as of December
31, 2008 is approximately $0.1 million and will be recognized over a weighted
average period of approximately 4.5 years.





During
the year ended December 31, 2008, 2,040 options to purchase Holdings Common
Stock were exercised and $20,400 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, 2008, was $215,100. 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.





Fair
Value Measurements





We
adopted SFAS 157, “Fair Value Measurements” (“SFAS 157”) and SFAS 159, “The Fair
Value Option for Financial Assets and Financial Liabilities” (“SFAS 159”) as of
January 1, 2008. SFAS 157 defines fair value as the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date (an exit price).
SFAS  157 outlines a valuation framework and creates a fair value
hierarchy in order to increase the consistency and comparability of fair value
measurements and the related disclosures and prioritizes the inputs used in
measuring fair value as follows:





Level 1:
Observable inputs such as quoted prices in active markets;





Level 2:
Inputs, other than quoted prices in active markets, that are observable either
directly or indirectly; and





Level 3:
Unobservable inputs in which there is little or no market data which require the
reporting entity to develop its own assumptions.





Our
financial instruments consist of long-term investments in marketable securities
(held in trust for payment of non-qualified deferred compensation) and long-term
debt. SFAS 159 permits an entity to measure certain financial assets and
financial liabilities at fair value that were not previously required to be
measured at fair value. We have elected not to measure any financial assets or
financial liabilities, including long-term debt, at fair value which were not
previously required to be measured at fair value. We classify the investments in
marketable securities within level 1 of the hierarchy since quoted market prices
are available in active markets.





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 $115.7 million and
$165.0 million as of December 31, 2008 and 2007, 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 $0.3 million, $0.4 million and $0.4 million, for the years ended
December 31, 2008, 2007 and 2006, respectively.





New
Accounting Standards





Effective
January 1, 2008, we adopted SFAS No. 157 which defines fair value, establishes a
framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. 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).  In
February 2008, the FASB issued FASB Staff Position SFAS 157-2, “Effective Date
of FASB Statement No. 157,” which delayed the effective date of SFAS 157 to
fiscal years beginning after November 15, 2008. 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.





34
 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, results of operations and cash
flows.





Reclassifications





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





3.
Inventories





Inventories
consist of the following:





December 31,
      2008
                      
                      
                      December 31,
      2007Work-in-process
                      
                      $
                      8,243,280
                      
                      
                      $
                      10,471,590Raw
      materials (principally paper)
                      
                      
                      9,819,558
                      
                      
                      
                      8,793,55518,062,838
                      
                      
                      
                      19,265,145Excess
      of current cost over LIFO inventory value
                      
                      
                      (259,753
                      )
                      
                      
                      (122,600
                      )$
                      17,803,085
                      
                      
                      $
                      19,142,545





35
 Index





We
maintained a reserve for the realizability of inventory in the amounts of
$116,433 and $83,363 for the years ended December 31, 2008 and 2007,
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,
      2008
                        
                        
                        Year
      Ended
                          December 31,
      2007
                        
                        
                        Year
      Ended
                          December 31,
      2006Balance
      at beginning of period
                        
                        $
                        83,363
                        
                        
                        $
                        90,796
                        
                        
                        $
                        95,988Charged
      to expense
                        
                        
                        61,602
                        
                        
                        
                        23,888
                        
                        
                        
                        55,759Deductions
                        
                        
                        (28,532
                        )
                        
                        
                        (31,321
                        )
                        
                        
                        (60,951
                        )Balance
      at end of period
                        
                        $
                        116,433
                        
                        
                        $
                        83,363
                        
                        
                        $
                        90,796





4.
Property, Plant and Equipment





Property,
plant and equipment consist of the following:





December 31,
      2008
                        
                        
                        December 31,
      2007Land
                        
                        $
                        4,742,111
                        
                        
                        $
                        4,853,918Buildings
      and improvements
                        
                        
                        43,629,028
                        
                        
                        
                        42,743,716Machinery
      and equipment
                        
                        
                        147,953,713
                        
                        
                        
                        132,392,664196,324,852
                        
                        
                        
                        179,990,298Accumulated
      depreciation
                        
                        
                        (69,261,054
                        )
                        
                        
                        (53,281,647
                        )Property,
      plant and equipment, net
                        
                        $
                        127,063,798
                        
                        
                        $
                        126,708,651





Depreciation
and amortization expense for the years ended December 31, 2008, 2007 and 2006,
was $16.7 million, $16.0 million, and $15.2 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, 2008, 2007 and 2006,
related to customer relationships, trade names and technology intangible assets
was $1.6 million, $1.7 million and $3.6 million, respectively. As a result of
our impairment analysis, we recorded a charge of $2.2 million in 2008 related to
customer relationships at ULI and TDP. Other, in the table below, represents 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, as
a result of the shutdown of the Capital City Press facility.





December 31, 2008
                        
                        
                        December 31, 2007Useful
      Life
                        
                        Gross
      Carrying Amount
                        
                        
                        Accumulated
      Amortization
                        
                        
                        Impairment
      Charge
                        
                        
                        Other
                        
                        
                        Net
      Carrying Amount
                        
                        
                        Gross
      Carrying Amount
                        
                        
                        Accumulated
      Amortization
                        
                        
                        Other
                        
                        
                        Net
      Carrying AmountCustomer
      relationships
                        
                        25
      years
                        
                        $
                        27,800,000
                        
                        
                        $
                        5,816,653
                        
                        
                        $
                        2,202,626
                        
                        
                        $
                        2,135,806
                        
                        
                        $
                        17,644,915
                        
                        
                        $
                        27,800,000
                        
                        
                        $
                        4,750,073
                        
                        
                        $
                        652,509
                        
                        
                        $
                        22,397,418Trade
      names
                        
                        40
      years
                        
                        
                        20,400,000
                        
                        
                        
                        2,721,262
                        
                        
                        
                        -
                        
                        
                        
                        319,122
                        
                        
                        
                        17,359,616
                        
                        
                        
                        20,400,000
                        
                        
                        
                        2,215,186
                        
                        
                        
                        98,100
                        
                        
                        
                        18,086,714Technology
                        
                        5
      years
                        
                        
                        300,000
                        
                        
                        
                        243,416
                        
                        
                        
                        -
                        
                        
                        
                        56,584
                        
                        
                        
                        -
                        
                        
                        
                        300,000
                        
                        
                        
                        208,277
                        
                        
                        
                        30,738
                        
                        
                        
                        60,985$
                        48,500,000
                        
                        
                        $
                        8,781,331
                        
                        
                        $
                        2,202,626
                        
                        
                        $
                        2,511,512
                        
                        
                        $
                        35,004,531
                        
                        
                        $
                        48,500,000
                        
                        
                        $
                        7,173,536
                        
                        
                        $
                        781,347
                        
                        
                        $
                        40,545,117





36
 Index





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





Years
      ended December 31,
                                
                                Amortization
      expense
                                
                                
                                Other
                                
                                
                                Total2009
                                
                                $
                                1,398,400
                                
                                
                                $
                                39,981
                                
                                
                                $
                                1,438,3812010
                                
                                
                                1,398,400
                                
                                
                                
                                -
                                
                                
                                
                                1,398,4002011
                                
                                
                                1,398,400
                                
                                
                                
                                -
                                
                                
                                
                                1,398,4002012
                                
                                
                                1,398,400
                                
                                
                                
                                -
                                
                                
                                
                                1,398,4002013
                                
                                
                                1,398,400
                                
                                
                                
                                -
                                
                                
                                
                                1,398,400Thereafter
                                
                                
                                27,972,550
                                
                                
                                
                                -
                                
                                
                                
                                27,972,550Total
                                
                                $
                                34,964,550
                                
                                
                                $
                                39,981
                                
                                
                                $
                                35,004,531





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, 2008
and 2007 totaled $41.0 million and $44.5 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, 2008, the initial step in the annual test for goodwill impairment
indicated potential impairment at ULI, one of the components of the Publications
segment, as a result of the worldwide economic downturn and declining results.
We completed the second step by comparing the implied fair value of goodwill to
the carrying value of goodwill for ULI. As a result of the second step, we
determined that the carrying value of goodwill at ULI was fully impaired. 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, 2007 and 2008 are as follows:





37
 Index




Publications
                                      
                                      
                                      Specialty
      Catalogs
                                      
                                      
                                      Books
                                      
                                      
                                      ConsolidatedBalance
      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
                                      
                                      
                                      $
                                      44,503,312Reduction
      of uncertain tax positions related to the lapse of a statute of
      limitations
                                      
                                      
                                      (86,899
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (86,899
                                      )Impairment
      charge
                                      
                                      
                                      (3,436,987
                                      )
                                      
                                      
                                      -
                                      
                                      
                                      
                                      -
                                      
                                      
                                      
                                      (3,436,987
                                      )Balance
      at December 31, 2008
                                      
                                      $
                                      32,056,578
                                      
                                      
                                      $
                                      -
                                      
                                      
                                      $
                                      8,922,848
                                      
                                      
                                      $
                                      40,979,426





7.
Other Assets





Other
assets consist of the following:





December 31,
      2008
                      
                      
                      December 31,
      2007Other
      receivables
                      
                      $
                      1,027,947
                      
                      
                      $
                      1,352,315Prepaid
      expenses and deposits
                      
                      
                      2,410,699
                      
                      
                      
                      3,298,843Non-compete
      agreements, net
                      
                      
                      39,837
                      
                      
                      
                      145,669Due
      from affiliated companies
                      
                      
                      1,216,569
                      
                      
                      
                      44,505Deferred
      compensation plan assets
                      
                      
                      1,534,163
                      
                      
                      
                      3,091,430Other
                      
                      
                      169,829
                      
                      
                      
                      109,467Total
                      
                      
                      6,399,044
                      
                      
                      
                      8,042,229Less:
      current portion
                      
                      
                      4,100,859
                      
                      
                      
                      4,539,405Long-term
      portion
                      
                      $
                      2,298,185
                      
                      
                      $
                      3,502,824





Non-compete
agreements are presented net of accumulated amortization of $0.4 million and
$1.6 million as of December 31, 2008 and 2007, respectively. A non-compete
agreement valued at $1.2 million expired during 2008 and was fully amortized.
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, 2008, 2007 and 2006, was $0.1 million,
$0.2 million and $0.2 million, respectively.





8.
Notes Payable and Working Capital 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 $104.4 million and $104.2 million as of December 31, 2008 and
2007, 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 $60.5 million and $60.7 million as of December 31, 2008 and 2007,
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.





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.





38
 Index





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 working capital facility agreement. The working capital
facility was amended concurrent with the offering of the 2004 Notes. Terms
of the working capital facility 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 working capital facility 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 working capital
facility 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, 2008, we had no
borrowings outstanding under the working capital facility, had unused amounts
available of $28.6 million and had $1.4 million in outstanding letters of
credit.





Borrowings
under the working capital facility are collateralized by our assets, subject to
permitted liens. The working capital facility contains various covenants
including provisions that prohibit us from incurring other indebtedness, limit
our ability to prepay 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 working
capital facility). We have complied with all of the restrictive covenants as of
December 31, 2008.





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





9.
Accrued Expenses





Accrued
expenses consist of the following:





December 31,
      2008
                          
                          
                          December 31,
      2007Payroll
      and related expenses
                          
                          $
                          3,963,599
                          
                          
                          $
                          6,840,946Profit
      sharing accrual
                          
                          
                          2,123,887
                          
                          
                          
                          2,090,600Accrued
      interest
                          
                          
                          6,374,647
                          
                          
                          
                          6,348,745Customer
      prepayments
                          
                          
                          2,984,787
                          
                          
                          
                          3,976,704Deferred
      revenue
                          
                          
                          1,298,435
                          
                          
                          
                          2,043,733Self-insured
      health and workers' compensation accrual
                          
                          
                          2,298,030
                          
                          
                          
                          2,072,977Other
                          
                          
                          2,836,710
                          
                          
                          
                          2,148,617$
                          21,880,095
                          
                          
                          $
                          25,522,322





10.
Other Liabilities





Other
liabilities consist of the following:





December 31,
      2008
                          
                          
                          December 31,
      2007Non-compete
      agreements
                          
                          $
                          417,663
                          
                          
                          $
                          573,280Deferred
      compensation
                          
                          
                          1,270,540
                          
                          
                          
                          2,574,956Tax
      reserves
                          
                          
                          2,058,139
                          
                          
                          
                          1,594,031Other
                          
                          
                          36,612
                          
                          
                          
                          55,620Total
                          
                          $
                          3,782,954
                          
                          
                          $
                          4,797,887





39
 Index





11.
Income Taxes





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





December 31,
      2008
                    
                    
                    December 31,
      2007
                    
                    
                    December 31,
      2006CurrentFederal
                    
                    $
                    (1,198,197
                    )
                    
                    $
                    2,605,734
                    
                    
                    $
                    2,066,843State
                    
                    
                    629,014
                    
                    
                    
                    496,439
                    
                    
                    
                    724,329(569,183
                    )
                    
                    
                    3,102,173
                    
                    
                    
                    2,791,172DeferredFederal
                    
                    
                    118,837
                    
                    
                    
                    318,811
                    
                    
                    
                    (6,570,263
                    )State
                    
                    
                    (416,312
                    )
                    
                    
                    (7,711
                    )
                    
                    
                    (665,057
                    )(297,475
                    )
                    
                    
                    311,100
                    
                    
                    
                    (7,235,320
                    )$
                    (866,658
                    )
                    
                    $
                    3,413,273
                    
                    
                    $
                    (4,444,148
                    )





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,
      2008
                            
                            
                            December 31,
      2007Deferred
      tax assetsIncentive
      and vacation accrual
                            
                            $
                            1,119,282
                            
                            
                            $
                            1,307,479Bad
      debt reserve
                            
                            
                            403,561
                            
                            
                            
                            230,224Self
      insurance accrual
                            
                            
                            594,393
                            
                            
                            
                            496,414Intangible
      assets
                            
                            
                            320,514
                            
                            
                            
                            333,613Amortization
      of financing costs
                            
                            
                            427,020
                            
                            
                            
                            488,484Inventory-additional
      costs capitalized for tax
                            
                            
                            337,432
                            
                            
                            
                            307,912Net
      operating loss carryforwards-Federal
                            
                            
                            217,293
                            
                            
                            
                            217,293Net
      operating loss carryforwards-states
                            
                            
                            813,661
                            
                            
                            
                            697,803Goodwill
                            
                            
                            4,349,815
                            
                            
                            
                            4,443,660Federal
      benefit related to state tax reserves
                            
                            
                            472,047
                            
                            
                            
                            351,166Other
                            
                            
                            473,275
                            
                            
                            
                            156,008Valuation
      allowance
                            
                            
                            (762,906
                            )
                            
                            
                            (686,924
                            )Total
      deferred tax assets
                            
                            
                            8,765,387
                            
                            
                            
                            8,343,132Deferred
      tax liabilitiesIntangible
      assets
                            
                            
                            13,532,891
                            
                            
                            
                            16,029,452Inventory
      basis difference
                            
                            
                            262,490
                            
                            
                            
                            284,821Property
      and equipment
                            
                            
                            18,444,397
                            
                            
                            
                            16,842,036Land
                            
                            
                            1,033,967
                            
                            
                            
                            1,039,395Prepaid
      insurance
                            
                            
                            120,489
                            
                            
                            
                            145,795Total
      deferred tax liabilities
                            
                            
                            33,394,234
                            
                            
                            
                            34,341,499Net
      deferred tax liabilities
                            
                            $
                            24,628,847
                            
                            
                            $
                            25,998,367





December 31,
      2008
                      
                      
                      December 31,
      2007Included
      in the balance sheetNoncurrent
      deferred tax liabilities in excess of assets
                      
                      $
                      26,313,410
                      
                      
                      $
                      27,153,776Current
      deferred tax assets in excess of liabilities
                      
                      
                      1,684,563
                      
                      
                      
                      1,155,409Net
      deferred tax liability
                      
                      $
                      24,628,847
                      
                      
                      $
                      25,998,367





40
 Index





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 2008 and 2007, we realized a tax benefit of $0.8
million in both years 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 years ending December 31, 2008 and 2007.





At
December 31, 2008 and 2007, we had U.S. Federal net operating loss (“NOL”)
deduction carryforwards of approximately $0.6 million and $0.6 million,
respectively, attributable to one of our subsidiaries. The remaining Federal
NOLs as of December 31, 2008 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 Net
      Operating Loss
                        
                        Year of Expiration$
                        460,000
                        
                        2010$
                        179,000
                        
                        2012





As of
December 31, 2008 and 2007, we had state NOLs with a tax effected value of
approximately $0.8 million and $0.7 million, respectively, in various
jurisdictions, which begin to expire in 2012. We have determined that a
valuation allowance is needed for approximately $0.8 million and $0.7 million as
of December 31, 2008 and 2007, 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 2008 and 2007 by approximately $0.1 million for both
years.





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, as shown as a component of Other in the valuation
allowance rollforward.





A
rollforward of our valuation allowance is as follows:





Year Ended
December 31,
                          
                          
                          Year Ended
December 31,
                          
                          
                          Year Ended
December 31,2008
                          
                          
                          2007
                          
                          
                          2006Balance
      at beginning of period
                          
                          $
                          686,924
                          
                          
                          $
                          1,205,168
                          
                          
                          $
                          978,482Charged
      to expense
                          
                          
                          112,134
                          
                          
                          
                          48,524
                          
                          
                          
                          226,686Other,
      net
                          
                          
                          (36,152
                          )
                          
                          
                          (566,768
                          )
                          
                          
                          -Balance
      at end of period
                          
                          $
                          762,906
                          
                          
                          $
                          686,924
                          
                          
                          $
                          1,205,168





41
 Index





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





Year
      ended
                          December 31,
      2008
                        
                        
                        Year
      ended
                          December 31,
      2007
                        
                        
                        Year
      ended
                          December 31,
      2006Income
      before income taxes
                        
                        $
                        (6,738,549
                        )
                        
                        $
                        8,260,266
                        
                        
                        $
                        (12,786,996
                        )U.S.
      Federal statutory tax rate
                        
                        $
                        (2,291,106
                        )
                        
                        $
                        2,808,491
                        
                        
                        $
                        (4,347,579
                        )Increase  (decrease)
      in tax expense resulting fromTax
      reserves
                        
                        
                        430,127
                        
                        
                        
                        281,229
                        
                        
                        
                        57,039Non-deductible
      meals and entertainment
                        
                        
                        75,874
                        
                        
                        
                        75,235
                        
                        
                        
                        67,485Change
      in valuation allowance
                        
                        
                        112,134
                        
                        
                        
                        48,524
                        
                        
                        
                        226,686Goodwill
      Impairment
                        
                        
                        1,168,576
                        
                        
                        
                        -
                        
                        
                        
                        -State
      income taxes, net of U.S. Federal income tax benefit
                        
                        
                        79,376
                        
                        
                        
                        366,831
                        
                        
                        
                        (137,730
                        )Change
      in state tax apportionment and rates
                        
                        
                        (453,892
                        )
                        
                        
                        (73,609
                        )
                        
                        
                        (275,872
                        )Domestic
      production activity deduction
                        
                        
                        -
                        
                        
                        
                        (77,066
                        )
                        
                        
                        (41,060
                        )Other,
      net
                        
                        
                        12,253
                        
                        
                        
                        (16,362
                        )
                        
                        
                        6,883Income
      tax (benefit) provision
                        
                        $
                        (866,658
                        )
                        
                        $
                        3,413,273
                        
                        
                        $
                        (4,444,148
                        )





During
2008 and 2007, we reported a decrease in our deferred state tax liabilities and
our deferred state tax provision of approximately $0.5 million and $0.1 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 2008 and 2007, we recognized a $0.4 million
and $0.3 million increase, respectively, in our effective rate related to the
adoption of FIN 48.





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 $0.3 million as of December 31, 2008 and $0.4 million
and $0.2 million as of December 31, 2007. Interest and penalties in the amount
of $0.1 million were expensed during the years ended December 31, 2008 and 2007,
respectively. Interest and penalties will continue to accrue on certain issues
in 2009 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 $0.9 million. Our tax reserves, excluding interest and penalties, are
as follows:





Year Ended
December 31,
                            
                            
                            Year Ended
December 31,(Dollars in thousands)
                            
                            2008
                            
                            
                            2007Balance
      at beginning of period
                            
                            $
                            1,093
                            
                            
                            $
                            1,313Increases
      for current year tax positions
                            
                            
                            192
                            
                            
                            
                            2Increases
      for prior year tax positions
                            
                            
                            251
                            
                            
                            
                            273Lapse
      in statute of limitations
                            
                            
                            (91
                            )
                            
                            
                            (495
                            )Balance
      at end of period
                            
                            $
                            1,445
                            
                            
                            $
                            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 and most state income tax returns
are closed for all tax years up to and including 2004. Currently, no federal or
state income tax returns are under examination by the respective taxing
authorities.





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
expired 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, 2008 is
approximately $0.5 million related to the net present value of the obligation
under this agreement.





42
 Index





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. A nominal amount is included in accrued expenses
as of December 31, 2008 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 $5.3 million, $4.9 million and $5.2
million for the years ended December 31, 2008, 2007 and 2006, respectively. As
of December 31, 2008 approximate minimum future rental payments under
non-cancelable operating leases are as follows:





Years Ended December 31,
                                
                                
                                (in thousands)2009
                                
                                
                                $
                                4,1622010
                                
                                
                                
                                2,6352011
                                
                                
                                
                                1,8962012
                                
                                
                                
                                2842013
                                
                                
                                
                                24Thereafter
                                
                                
                                
                                2Total
                                
                                
                                $
                                9,003





We have
also entered into agreements to acquire raw materials and additional plant and
equipment. As of December 31, 2008, approximate future payments related to these
agreements are as follows:





(in thousands)Years
      Ended December 31,
                          
                          
                          Raw
      materials
                          
                          
                          Plant
      and equipment2009
                          
                          
                          $
                          449
                          
                          
                          $
                          6,2472010
                          
                          
                          
                          17
                          
                          
                          
                          2,3032011
                          
                          
                          
                          5
                          
                          
                          
                          32012
                          
                          
                          
                          -
                          
                          
                          
                          -2013
                          
                          
                          
                          -
                          
                          
                          
                          -Thereafter
                          
                          
                          
                          -
                          
                          
                          
                          -Total
                          
                          
                          $
                          471
                          
                          
                          $
                          8,553





13.
Employee Benefit Plans





We
sponsor a 401(k) retirement plan (the “Plan”). We determine annual discretionary
contributions to the Plan. Contributions of approximately $3.1 million, $3.0
million and $3.1 million were charged to operations for the years ended December
31, 2008, 2007 and 2006, 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, 2008 and 2007, we recorded a deferred compensation liability of
approximately $1.3 million and $2.6 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 $1.5 million and $3.1 million as of December 31, 2008 and 2007,
respectively, and are recorded at their fair value in accordance with SFAS 157,
based on quoted market prices, in other non-current assets on the accompanying
consolidated balance sheets.





43
 Index





14.
Related Party Transactions




On
January 5, 2009, we executed a waiver to our working capital facility. The
waiver allows us to pay a cash dividend and make a loan to our Parent, which is
not a registrant with the Securities and Exchange Commission, in the aggregate
amount of up to $14.0 million, provided that our Parent uses the entire cash
proceeds of such dividend and loan solely to purchase capital stock issued by
our Parent (the “Stock Purchase”) from Participatiemaatschappij Giraffe B.V.
(“Giraffe”) and to pay related expenses in connection therewith. On January 5,
2009, we paid a dividend in the aggregate amount of $8.0 million to our Parent
and made a loan in the principal amount of $2.0 million to our
Parent.  The loan will mature on January 4, 2012 and will accrue
interest at the rate of 1.36% per year payable in cash or in kind on February 15
and August 15 each year.  Subsequent to January 5, 2009, we paid an
additional dividend in the amount of $1.1 million to our Parent to pay
expenses and other amounts in connection with the Stock Purchase. In
connection with the Stock Purchase, Euradius Acquisition Co., a majority owned
subsidiary of our Parent, sold all of the outstanding stock of Euradius
International Dutch Bidco B.V. (“Euradius”) to Giraffe.  This resulted in
our Parent fully divesting its interest in Euradius, which was our Parent's only
investment other than The Sheridan Group, Inc.  Neither Euradius nor its
subsidaries were guarantors of the 2003 or 2004 Notes.  Neither
Euradius nor its subsidiaries were subsidiaries of ours and their financial
results were not included in our consolidated financial statements.


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 $0.8 million, $0.9
million and $0.8 million in such fees for the years ended December 31, 2008,
2007 and 2006, respectively.





As
disclosed in prior periods, we guaranteed certain obligations of an affiliate of
our parent company, GPN Asia Pte. Ltd. (“GPN Asia”), related to a lease
agreement, up to a maximum of $4.0 million, and established a $0.3 million
letter of credit to secure a working capital facility for GPN Asia. In August
2008, GPN Asia began the process of shutting down operations. In connection with
this shutdown, we satisfied obligations under the lease agreement and letter of
credit. Based on current estimates, we expect our total expenditures to be
approximately $3.0 million. Accordingly, we recorded approximately $3.0 million
during 2008. Of this amount, approximately $0.4 million was included in accrued
expenses as of December 31, 2008. To date we have made cash payments of
approximately $2.6 million and we anticipate that the remaining cash payments
will be made during 2009.





We engage
in transactions with our Parent and its affiliates, in the normal course of
business. These transactions primarily involve administrative costs and
management fees paid on behalf of the affiliates. The amounts owed to us by
affiliates were approximately $1.2 million as of December 31, 2008 and were
minimal as of December 31, 2007. In connection with the Stock Purchase, our
Parent ceased to have an ownership interest in an affiliate that owed us
approximately $1.1 million as of December 31, 2008. We believe this amount will
be paid in full by the former affiliate by January 9, 2010.





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 years ended
December 31, 2008 and 2007, respectively, and negligible fees for the year ended
December 31, 2006. We believe the fees were reasonable based upon the services
rendered.





15.
Contingencies





We are
party to legal actions as a result of various claims arising in the normal
course of business. Accruals for litigation have not been provided because
information available at this time does not indicate that it is probable that a
liability has been incurred. We believe that the disposition of these matters
will not have a material adverse effect on our financial condition, results of
operations or cash flows.





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. 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 50,000 and 8,500,000 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 no
customer which accounted for 10.0% or more of our net sales for the year ended
December 31, 2008. We had one customer which accounted for 10.7% of consolidated
net sales for the year ended December 31, 2007. Net sales for this customer are
reported in the Specialty Catalogs segment.





44
 Index





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





Year
      ended
                                                                                                      December 31,
                                                                                                    
                                                                                                    
                                                                                                    Year
      ended
                                                                                                      December 31,
                                                                                                    
                                                                                                    
                                                                                                    Year
      ended
                                                                                                      December 31,2008
                                                                                                    
                                                                                                    
                                                                                                    2007
                                                                                                    
                                                                                                    
                                                                                                    2006Net
      salesPublications
                                                                                                    
                                                                                                    $
                                                                                                    188,714
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    182,906
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    179,541Specialty
      catalogs
                                                                                                    
                                                                                                    
                                                                                                    92,218
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    98,140
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    99,060Books
                                                                                                    
                                                                                                    
                                                                                                    67,282
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    63,278
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    59,287Intersegment
      eliminations
                                                                                                    
                                                                                                    
                                                                                                    (187
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (84
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (348
                                                                                                    )Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    348,027
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    344,240
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    337,540Operating
      income (loss)Publications
                                                                                                    
                                                                                                    $
                                                                                                    12,481
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    21,002
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    15,263Specialty
      catalogs
                                                                                                    
                                                                                                    
                                                                                                    (426
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    1,551
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    (12,695
                                                                                                    )Books
                                                                                                    
                                                                                                    
                                                                                                    5,524
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    6,264
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,213Corporate
                                                                                                    
                                                                                                    
                                                                                                    (4,822
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (2,509
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    (2,292
                                                                                                    )Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    12,757
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    26,308
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    5,489Depreciation
      and amortizationPublications
                                                                                                    
                                                                                                    $
                                                                                                    9,284
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    9,484
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    10,717Specialty
      catalogs
                                                                                                    
                                                                                                    
                                                                                                    6,193
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,834
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,777Books
                                                                                                    
                                                                                                    
                                                                                                    2,769
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,269
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,268Corporate
                                                                                                    
                                                                                                    
                                                                                                    154
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    247
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    229Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    18,400
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    17,834
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    18,991Capital
      expendituresPublications
                                                                                                    
                                                                                                    $
                                                                                                    5,480
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    7,449
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    17,059Specialty
      catalogs
                                                                                                    
                                                                                                    
                                                                                                    3,715
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,959
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    3,959Books
                                                                                                    
                                                                                                    
                                                                                                    7,870
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    4,720
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    5,253Corporate
                                                                                                    
                                                                                                    
                                                                                                    532
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    30
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    25Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    17,597
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    15,158
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    26,296AssetsPublications
                                                                                                    
                                                                                                    $
                                                                                                    180,072
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    183,965Specialty
      catalogs
                                                                                                    
                                                                                                    
                                                                                                    53,587
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    61,571Books
                                                                                                    
                                                                                                    
                                                                                                    53,976
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    50,082Corporate
                                                                                                    
                                                                                                    
                                                                                                    (2,538
                                                                                                    )
                                                                                                    
                                                                                                    
                                                                                                    3,350Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    285,097
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    298,968GoodwillPublications
                                                                                                    
                                                                                                    $
                                                                                                    32,056
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    35,580Books
                                                                                                    
                                                                                                    
                                                                                                    8,923
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    8,923Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    40,979
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    44,503Intangible
      assetsPublications
                                                                                                    
                                                                                                    $
                                                                                                    33,073
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    36,509Specialty
      catalogs
                                                                                                    
                                                                                                    
                                                                                                    40
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    2,086Books
                                                                                                    
                                                                                                    
                                                                                                    1,892
                                                                                                    
                                                                                                    
                                                                                                    
                                                                                                    1,950Consolidated
      total
                                                                                                    
                                                                                                    $
                                                                                                    35,005
                                                                                                    
                                                                                                    
                                                                                                    $
                                                                                                    40,545





45
 Index





17.
Restructuring and Other Exit Costs





We
recorded $0.1 million of restructuring costs during 2008. The costs related
primarily to guaranteed severance payments and employee health benefits as a
result of a reduction in the workforce at our ULI facility in Ashburn, Virginia.
There was a nominal liability outstanding as of December 31, 2008 related to the
2008 restructuring costs. In January 2009, we announced our plan to consolidate
some administrative and production operations at our DPC facility in
Hanover, New Hampshire. Approximately 20 positions at ULI will be eliminated as
a result of this action. We expect to record approximately $0.2 million of
restructuring costs during 2009 in connection with this consolidation. The costs
will relate primarily to guaranteed severance payments and employee health
benefits.





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 TSP in Hanover, Pennsylvania and closed the CCP 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, DJS.





We
recorded $0.1 million of restructuring costs during 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. There were no restructuring liabilities
outstanding as of December 31, 2008 or December 31, 2007.





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 CCP trade name, which was disposed of as a result of the shutdown.
During May 2006, excess equipment at CCP 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 CCP land and building,
which had a carrying value of approximately $1.6 million, was sold, resulting in
a negligible gain.





18.
Quarterly Financial Information (unaudited)





Quarterly
financial information for the years ended December 31, 2008 and 2007 is as
follows (in thousands):





2008
                                                          
                                                          First
      Quarter
                                                          
                                                          
                                                          Second
      Quarter
                                                          
                                                          
                                                          Third
      Quarter
                                                          
                                                          
                                                          Fourth
      QuarterNet
      sales
                                                          
                                                          $
                                                          92,392
                                                          
                                                          
                                                          $
                                                          82,722
                                                          
                                                          
                                                          $
                                                          86,768
                                                          
                                                          
                                                          $
                                                          86,145Gross
      profit
                                                          
                                                          
                                                          16,886
                                                          
                                                          
                                                          
                                                          16,147
                                                          
                                                          
                                                          
                                                          16,985
                                                          
                                                          
                                                          
                                                          16,629Operating
      income
                                                          
                                                          
                                                          5,809
                                                          
                                                          
                                                          
                                                          4,907
                                                          
                                                          
                                                          
                                                          2,893
                                                          
                                                          
                                                          
                                                          (852
                                                          )Net
      income (loss)
                                                          
                                                          $
                                                          584
                                                          
                                                          
                                                          $
                                                          86
                                                          
                                                          
                                                          $
                                                          (83
                                                          )
                                                          
                                                          $
                                                          (6,459
                                                          )2007
                                                          
                                                          First Quarter
                                                          
                                                          
                                                          Second Quarter
                                                          
                                                          
                                                          Third Quarter
                                                          
                                                          
                                                          Fourth 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
                                                          
                                                          
                                                          $
                                                          1,664





The
results for the third quarter of 2008 reflect the impact of the related party
guaranty costs (see Note 14.)  The results for the fourth quarter of
2008 reflect the impact of the impairment charges for intangibles and goodwill
(see Notes 5 and 6.)





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





Not
applicable.





46
 Index





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.





(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, 2008. 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 2009 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





Effective
March 26, 2009, Mr. J. Rice Edmonds resigned as a member of our Board of
Directors.  There were no disagreements between him and the Company or any
of our officers or directors.





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 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 $1.4 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.”





47
 Index





Directors
and Executive Officers





Our
executive officers and directors are as follows:





Name
                                    
                                    Age
                                    
                                    PositionJohn A. Saxton
                                    
                                    59
                                    
                                    President
      and Chief Executive Officer and DirectorRobert M. Jakobe
                                    
                                    55
                                    
                                    Executive
      Vice President and Chief Financial Officer and
SecretaryJoan B. Davidson
                                    
                                    47
                                    
                                    Group
      President—Sheridan Publication ServicesDouglas R. Ehmann
                                    
                                    52
                                    
                                    Executive
      Vice President and Chief Technology OfficerDale A. Tepp
                                    
                                    52
                                    
                                    Vice
      President—Human ResourcesPatricia A. Stricker
                                    
                                    44
                                    
                                    President
      and Chief Operating Officer—The Sheridan Press, Inc.
    (“TSP”)Gary J. Kittredge
                                    
                                    58
                                    
                                    President
      and Chief Operating Officer—Dartmouth Printing Company
      (“DPC”),  Dartmouth Journal Services (“DJS”) and United Litho,
      Inc. (“ULI”)Michael J. Seagram
                                    
                                    52
                                    
                                    President
      and Chief Operating Officer—Sheridan Books, Inc.
(“SBI”)G.
      Paul Bozuwa
                                    
                                    48
                                    
                                    Vice
      President—Global Business DevelopmentEric
      D. Lane
                                    
                                    49
                                    
                                    President
      and Chief Operating Officer – The Dingley Press, Inc.
    (“TDP”)Christopher A. Pierce
                                    
                                    60
                                    
                                    Chairman—The
      Dingley Press, Inc. (“TDP”)Thomas J. Baldwin
                                    
                                    50
                                    
                                    DirectorNicholas Daraviras
                                    
                                    35
                                    
                                    DirectorCraig H. Deery
                                    
                                    61
                                    
                                    DirectorGary T. DiCamillo
                                    
                                    58
                                    
                                    DirectorJames L. Luikart
                                    
                                    62
                                    
                                    DirectorNicholas R. Sheppard
                                    
                                    34
                                    
                                    DirectorGeorge A. Whaling
                                    
                                    72
                                    
                                    Director





Anne Ringsma,
Rainer Hampp and J. Rice Edmonds served on our board during 2008.
Messrs. Ringsma and Hampp resigned during the fourth quarter of 2008.
Mr. Edmonds resigned in March 2009 and was replaced by
Nicholas R. Sheppard.





JohnA.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.





RobertM.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.


JoanB.Davidson, Group
President—SheridanPublication
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.


DouglasR.Ehmann, Executive Vice
President and Chief Technology Officer.Mr. Ehmann joined us
in 1998 as our Vice President and Chief Technology Officer. He was promoted to
Executive Vice President and Chief Technology Officer on January 1,
2009.  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. He holds a B.S., an M.E. and an M.B.A. from
Cornell University.





DaleA.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.





48
 Index





PatriciaA.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.





GaryJ.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. He holds a B.S. and an M.S. from
Rochester Institute of Technology.





MichaelJ.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.





G.PaulBozuwa, Vice
President—Global Business Development.Mr. Bozuwa
joined us in 1991 and effective January 1, 2007 began serving as Vice President,
Global Business Development. Mr. Bozuwa served as President of DJS from
2002 to 2006.  From 1995 to 2002, he 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.


Eric D.
Lane, President and
Chief Operating Officer—TDP.Mr. Lane joined us in 1986
and effective October, 2008 began serving as President and Chief Operating
Officer of TDP.  From 2000 to 2008 he served as Vice President of
Finance of TDP.  From 1986 to 2000 he served as Controller of
TDP.  Mr. Lane holds an A.S. in Accounting from
Andover College.


ChristopherA.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.





ThomasJ.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.





49
 Index





NicholasDaraviras,
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.





CraigH.Deery,
Director.Mr. Deery has been a member of our board of directors since August
2003.  He was also a 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.





GaryT.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
Radia 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.





JamesL.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.





NicholasR.Sheppard,
Director.Mr.
Sheppard was a member of our board of directors from 2003 to 2007, rejoining our
board in March 2009.  Mr. Sheppard is a Managing Director of BRS.
Prior to joining BRS in 2000, he worked as a Consultant in the London and New
York offices of Marakon Associates, a strategy consulting firm. Mr. Sheppard
received his BSc from the London School of Economics and Political Science and
his MBA from The Wharton School of the University of
Pennsylvania.  Mr. Sheppard is a director of Lazy Days R.V. Center,
Inc.





GeorgeA.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.





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 eight members, including four designees of BRS (who currently
are Messrs. Baldwin, DiCamillo, Sheppard and Saxton), four designees of JCP (who
currently are Messrs. Daraviras, Deery, Luikart and
Whaling).  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, Deery 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 Sheppard. 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, as
amended and adopted by the Public Company Accounting Oversight Board, 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, 2008.





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 2008
(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





Based on
the foregoing philosophy, the company’s annual and long-term incentive-based
cash and non-cash executive compensation has been structured to (a) pay
competitive levels of compensation in order to attract and retain qualified
executives, (b) motivate executives to achieve the short-term and long-term
business goals set by us and reward the executives for achieving such goals and
(c) reward long-term performance. We compete with many larger companies for top
executive-level talent.  Competitors include RR Donnelley,
Quebecor, Cenveo (previously Cadmus), Quad Graphics, Edwards Brothers, and
numerous other printing companies. We consider these our primary competitors
because we compete against these companies in each of our market segments.
Accordingly, we generally consider the compensation paid to similarly situated
executives at these larger corporations, together with individual experience,
performance and cost-of-living factors, when determining the overall
compensation available to our named executive officers. Variations to this
objective may occur as dictated by the experience level of the individual and
market factors. A significant percentage of total compensation is allocated to
incentive compensation. However, there is no pre-established policy or target
for the allocation between either cash and non-cash or short-term and long-term
incentive compensation. Rather, market data, internal pay equity and performance
are the factors considered in determining the appropriate level and mix of
incentive compensation.





2008
Executive Compensation Components





For the
fiscal year ending December 31, 2008, 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 interests
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 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.Our CEO annually reviews
and provides his subjective assessment of the performance of each of our named
executive officers and recommends whether any adjustment to base salary for any
named executive officer should be considered by the compensation
committee.  The compensation committee generally affords significant
consideration to the CEO’s recommendations based on his proximity to the other
named executive officers and understanding of their day-to-day performance and
responsibilities.  In setting the 2008 base salary for
Mr. Pierce, the compensation committee also considered the additional
annual non-compete payments made to Mr. Pierce pursuant to his employment
agreement.  Based on the CEO’s recommendations and the compensation
committee’s review of available market data, the compensation committee set base
salaries for 2008 at the levels reported in the Summary Compensation Table,
below.  The compensation committee believes such salaries are in line
with market data and reflect the responsibilities, performance and expertise of
our named executive officers.





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 2008, 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 2008,
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 performance objectives for our named
executive officers for 2008 and designated the portion of each named executive
officer’s annual bonus that would be eligible to be paid based on a subjective
assessment of such individual’s performance, in the board’s discretion.There is no calculation
or metric used for determining the subjective individual performance score; it
is determined in the Board’s discretion based on the input of the CEO and the
board’s view of the individual named executive officer’s contribution to our
success.





The
financial objectives are set based on the annual plan that is approved by the
Board of Directors.  For 2008, 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 relatively challenging to achieve at the target levels and very
difficult to obtain above target levels, consistent with the company annual
financial plan that is approved by the board of
directors.  Accordingly, the Board of Directors sets financial
performance goals at levels that it expects will be achieved, at least in part,
for a fiscal year.  As detailed below, TSG financial targets have been
achieved in one out of the last three fiscal years. With the exception of
the 2006 and 2008 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 2008.  50%
of this award was based on attainment of TSG financial objectives, 25% was based
on attainment of Sheridan Europe financial objectives, and 25% was discretionary
based on individual performance.  The TSG and Sheridan Europe
financial objectives were not achieved for fiscal year 2008; therefore, no award
was earned for these components.  In addition, because these financial
objectives were not achieved, no amount was awarded in respect of the
discretionary component.  For 2007, Mr. Saxton was eligible for a
maximum award of 100% of his base salary.  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.  100% of the 2007 bonus was earned.  For 2006,
TSG financial targets were not met and only the discretionary portion of the
bonus was earned.  Mr. Saxton’s bonus payments for 2007 and 2006,
respectively, were $560,000 and $102,000.





53
 Index





Mr.
Jakobe was eligible for a maximum award of 50% of base salary in
2008.  50% of this award was based on attainment of TSG financial
objectives, 25% was based on attainment of Sheridan Europe financial objectives,
and 25% was discretionary based on individual performance.  The TSG
and Sheridan Europe financial objectives were not achieved for fiscal year 2008;
therefore, no award was earned for these components.  In addition,
because these financial objectives were not achieved, no amount was awarded in
respect of the discretionary component.  For 2007, Mr. Jakobe was
eligible for a maximum award of 50% of his base salary.  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% discretionary based on individual
performance.  100% of the 2007 bonus was earned.  For 2006,
TSG financial targets were not met and only the discretionary portion of the
bonus was earned.  Mr. Jakobe’s bonus payments for 2007 and 2006,
respectively, were $135,000 and $30,000.





Ms. Davidson
was eligible for a maximum award of 50% of base salary in 2008.  50%
of this award was based on attainment of Publications financial objectives, 25%
was based on attainment of Sheridan US (TSG) financial objectives, and 25% was
discretionary based on individual performance.  The TSG financial
objectives were not attained for fiscal year 2008; therefore, no award was
earned for this component.  Ms. Davidson received an incentive
award equal to 42.5% of the maximum award, calculated as
follows:  27.4% for achieving Publications EBITDA financial targets
($44,600) and 15% as a discretionary award ($24,400) for individual performance
based on the board’s view of her effectiveness as Group President - Sheridan
Publication Services.   The total 2008 award was equal to
$69,000, or approximately 21.2% of her base salary. For 2007, Ms. Davidson
received an incentive award equal to 84.9% of the maximum award as
follows:  25% for achieving TSG maximum EBITDA, 16.06% for
TSP EBITDA, 16.66% for DPC EBITDA, 2.20% for ULI EBITDA, and 25%
discretionary for individual performance.  For 2006, Ms. Davidson
received an incentive award equal to 75% of the maximum award as
follows:  50% for achieving TSP maximum financial targets and 25% for
individual performance.  The TSG EBITDA threshold was not
achieved; therefore, no award was earned for this
component.  Ms. Davidson’s bonus payments for 2007 and 2006,
respectively, were $123,200 and $95,700.





Mr.
Pierce was eligible for a maximum award of 50% of base salary in
2008.  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.  The TDP and TSG financial objectives were not
achieved for fiscal year 2008; therefore, no award was earned for these
components.  In addition, because these financial objectives were not
achieved, no amount was awarded in respect of the discretionary
component.  For 2007, Mr. Pierce received an incentive award of 86.9%
of the maximum award as follows:  36.9% for achieving TDP financial
targets, 25% for achieving TSG maximum EBITDA, and a 25% discretionary award for
individual performance.  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 as TDP and TSG financial targets were not
met.





Ms. Stricker
was eligible for a maximum award of 50% of base salary in 2008.  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
75% of the maximum award as follows:  50% for achieving TSP financial
targets ($60,000) and a 25% discretionary award for individual performance
($30,000) 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 2008 award was equal to $90,000, or approximately
37.5% of her base salary.  For 2007, Ms. Stricker received an
incentive award equal to 98.2% of the maximum award, or approximately 49.1% of
her base salary as follows:  48.2% for achieving TSP financial
targets, 25% for achieving TSG maximum EBITDA and 25% discretionary based on
individual performance.  For 2006, 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 2006 and only the
discretionary award was earned.  Ms. Stricker’s bonus payments
for 2007 and 2006, respectively, were $113,000 and $27,500.





Annual
incentive compensation awards for 2008, 2007 and 2006 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 2008, 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.





For 2008,
all of the companies that participated in the Profit Sharing Plan, except for
Dartmouth Printing Company, deposited profit sharing contributions into the
employees’ accounts in our 401(k) plan; however if the contribution for certain
management and highly compensated employees would otherwise exceed the
contribution limits applicable to the 401(k) plan under the Internal Revenue
Code, then the excess was 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.  In
2009, all companies transitioned to payment of profit sharing in cash and
employees continue to have the option to put their cash into their 401(k)
accounts.





54
 Index





Amounts
awarded to the named executive officers for 2008 under the Profit Sharing Plan
were $23,000, $23,000, $0, $23,000, and $23,000 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.





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 the level of
responsibility, position, past and expected performance, potential incentive
payouts and annual base salary of each named executive officer when
determining  awards to be made under the Stock-Based Incentive Plan.
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 2008.





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 2008 was $230,000, the maximum contribution the
participant could receive under the 401(k) plan would be $23,000.  The
make-whole contribution to the deferred compensation plan takes the difference
between the participant’s salary and $230,000 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 two 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 2008 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 2008
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.





55
 Index





In 2008,
our board of directors provided a retention award to Ms. Davidson in the
amount of $81,250 in accordance with the terms of her existing employment
agreement.  The retention awards for our named executive officers are
disclosed under “All Other Compensation” on the Summary Compensation Table and
in the Nonqualified Deferred Compensation table above under Registrant
Contributions.





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. Employees may direct their
investments among various pre-selected investment alternatives. During 2008, we
matched 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 participated in the Profit Sharing Plan during 2008 deposited their Profit
Sharing Plan contributions into the 401(k) plan. Certain participating companies
also made a 1% of pay fixed contribution, for which the 90-day service
requirement was waived.





Effective
January 2009, we sponsor a Safe Harbor defined contribution plan, or 401(k)
Plan, intended to qualify under section 401 of the Internal Revenue Code. We
match the employee’s contributions, up to a maximum of 6% of the employee’s
eligible compensation; 100% of the first 1% invested and 50% of the next 5%
invested of the employee’s eligible compensation.  Employer
contributions to the 401(k) plan, including profit sharing contributions, fixed
contributions and employer matching contributions, vest after two 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.  Although Section 162(m) does not apply to companies
that do not have registered common equity securities, we generally consider the
potential loss of deduction under Section 162(m) in designing certain types of
compensation plans so that such plans may protect us from a potential loss of
deduction if our common equity securities become publicly traded.  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.The compensation committeedoes not consider
potential accounting treatment in making decisions regarding equity-based or
cash-based compensation.





56
 Index





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, 2008.





Thomas J. BaldwinCraig H. DeeryJames L. Luikart





The
following table summarizes compensation awarded or paid by us during 2008, 2007
and 2006 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.





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
                                              
                                              2008
                                              
                                              
                                              599,567
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,102
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              107,287
                                              
                                              
                                              
                                              708,956President
      and Chief
                                              
                                              2007
                                              
                                              
                                              559,655
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,102
                                              
                                              
                                              
                                              560,000
                                              
                                              
                                              
                                              106,158
                                              
                                              
                                              
                                              1,227,915Executive
      Officer
                                              
                                              2006
                                              
                                              
                                              510,016
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,102
                                              
                                              
                                              
                                              102,000
                                              
                                              
                                              
                                              138,295
                                              
                                              
                                              
                                              752,413Robert M. Jakobe
                                              
                                              2008
                                              
                                              
                                              299,694
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,102
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              78,160
                                              
                                              
                                              
                                              379,956Executive
      Vice President
                                              
                                              2007
                                              
                                              
                                              269,805
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,102
                                              
                                              
                                              
                                              135,000
                                              
                                              
                                              
                                              68,696
                                              
                                              
                                              
                                              475,603and
      Chief Financial Officer
                                              
                                              2006
                                              
                                              
                                              240,032
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,102
                                              
                                              
                                              
                                              30,000
                                              
                                              
                                              
                                              47,259
                                              
                                              
                                              
                                              319,393Joan B. Davidson
                                              
                                              2008
                                              
                                              
                                              324,596
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,338
                                              
                                              
                                              
                                              69,000
                                              
                                              
                                              
                                              136,238
                                              
                                              
                                              
                                              531,172Group
      President Sheridan
                                              
                                              2007
                                              
                                              
                                              287,773
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,338
                                              
                                              
                                              
                                              123,200
                                              
                                              
                                              
                                              128,707
                                              
                                              
                                              
                                              541,018Publication
      Services
                                              
                                              2006
                                              
                                              
                                              257,239
                                              
                                              
                                              
                                              40,135
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,338
                                              
                                              
                                              
                                              95,700
                                              
                                              
                                              
                                              115,786
                                              
                                              
                                              
                                              510,198Christopher A. Pierce
                                              
                                              2008
                                              
                                              
                                              237,651
                                              
                                              
                                              
                                              107,952
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,223
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              4,324
                                              
                                              
                                              
                                              351,150Chairman
      - TDP
                                              
                                              2007
                                              
                                              
                                              234,972
                                              
                                              
                                              
                                              108,002
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,223
                                              
                                              
                                              
                                              102,100
                                              
                                              
                                              
                                              4,588
                                              
                                              
                                              
                                              450,8852006
                                              
                                              
                                              234,988
                                              
                                              
                                              
                                              107,952
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,223
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              2,940
                                              
                                              
                                              
                                              347,103Patricia A. Stricker
                                              
                                              2008
                                              
                                              
                                              239,917
                                              
                                              
                                              
                                              135
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,032
                                              
                                              
                                              
                                              90,000
                                              
                                              
                                              
                                              58,437
                                              
                                              
                                              
                                              389,521President
      & COO - TSP
                                              
                                              2007
                                              
                                              
                                              228,278
                                              
                                              
                                              
                                              135
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,032
                                              
                                              
                                              
                                              113,000
                                              
                                              
                                              
                                              58,789
                                              
                                              
                                              
                                              401,2342006
                                              
                                              
                                              221,782
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              —
                                              
                                              
                                              
                                              1,032
                                              
                                              
                                              
                                              27,500
                                              
                                              
                                              
                                              43,362
                                              
                                              
                                              
                                              293,676


______________________


(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 amount in 2006 for
Ms. Davidson was a Christmas bonus.  Ms. Stricker received a
$135 Christmas bonus in 2007 and 2008.  Mr. Pierce received a
non-compete payment in 2008, 2007 and 2006, and a $50 gift card in
2007.





(2) The
amounts reflected are the stock based compensation expense recognized pursuant
to FAS 123(R) in 2008, 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, 2008, included in
this annual report.





(3) The
amounts reported as “Non-Equity Incentive Plan Compensation” for 2008, 2007 and
2006 consist of bonuses paid as management performance incentive
compensation.





(4) The
amounts reported as “All Other Compensation” for 2008, 2007 and 2006 are
itemized in the “All Other Compensation” table below.





57
 Index





All
Other Compensation





Name
                                          
                                          Year
                                          
                                          Spousal
      Travel
                                          
                                          
                                          Taxable
      Relocation Income
                                          
                                          
                                          Retention
      Awards
                                          
                                          
                                          Additional
      Disability Coverage
                                          
                                          
                                          Taxable
      Term Life
                                          
                                          
                                          Physical
      Program
                                          
                                          
                                          GTL
      Taxable Income
                                          
                                          
                                          Profit
      Sharing
                                          
                                          
                                          Profit
      Sharing Make Whole
                                          
                                          
                                          401k
      Match
                                          
                                          
                                          401(k)
      Fixed 1%
                                          
                                          
                                          401(k)
      Make Whole
                                          
                                          
                                          Total
      All Other Comp($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)
                                          
                                          
                                          ($)John A. Saxton
                                          
                                          2008
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,000
                                          
                                          
                                          
                                          12,230
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,391
                                          
                                          
                                          
                                          23,000
                                          
                                          
                                          
                                          43,666
                                          
                                          
                                          
                                          4,600
                                          
                                          
                                          
                                          2,300
                                          
                                          
                                          
                                          13,100
                                          
                                          
                                          
                                          107,287President
      and Chief
                                          
                                          2007
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,000
                                          
                                          
                                          
                                          12,230
                                          
                                          
                                          
                                          5,634
                                          
                                          
                                          
                                          4,082
                                          
                                          
                                          
                                          22,500
                                          
                                          
                                          
                                          39,202
                                          
                                          
                                          
                                          4,500
                                          
                                          
                                          
                                          2,250
                                          
                                          
                                          
                                          11,760
                                          
                                          
                                          
                                          106,158Executive
      Officer
                                          
                                          2006
                                          
                                          
                                          1,238
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,000
                                          
                                          
                                          
                                          12,230
                                          
                                          
                                          
                                          140
                                          
                                          
                                          
                                          3,695
                                          
                                          
                                          
                                          22,000
                                          
                                          
                                          
                                          67,994
                                          
                                          
                                          
                                          4,400
                                          
                                          
                                          
                                          2,200
                                          
                                          
                                          
                                          20,398
                                          
                                          
                                          
                                          138,295Robert M. Jakobe
                                          
                                          2008
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          30,000
                                          
                                          
                                          
                                          2,735
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,731
                                          
                                          
                                          
                                          2,069
                                          
                                          
                                          
                                          23,000
                                          
                                          
                                          
                                          7,481
                                          
                                          
                                          
                                          4,600
                                          
                                          
                                          
                                          2,300
                                          
                                          
                                          
                                          2,244
                                          
                                          
                                          
                                          78,160Executive
      Vice President
                                          
                                          2007
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          27,000
                                          
                                          
                                          
                                          1,384
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,575
                                          
                                          
                                          
                                          983
                                          
                                          
                                          
                                          22,500
                                          
                                          
                                          
                                          5,003
                                          
                                          
                                          
                                          4,500
                                          
                                          
                                          
                                          2,250
                                          
                                          
                                          
                                          1,501
                                          
                                          
                                          
                                          68,696and
      Chief Financial Officer
                                          
                                          2006
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          858
                                          
                                          
                                          
                                          22,000
                                          
                                          
                                          
                                          13,693
                                          
                                          
                                          
                                          4,400
                                          
                                          
                                          
                                          2,200
                                          
                                          
                                          
                                          4,108
                                          
                                          
                                          
                                          47,259Joan B. Davidson
                                          
                                          2008
                                          
                                          
                                          959
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          81,250
                                          
                                          
                                          
                                          2,740
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          788
                                          
                                          
                                          
                                          23,000
                                          
                                          
                                          
                                          15,847
                                          
                                          
                                          
                                          4,600
                                          
                                          
                                          
                                          2,300
                                          
                                          
                                          
                                          4,754
                                          
                                          
                                          
                                          136,238Group
      President Sheridan
                                          
                                          2007
                                          
                                          
                                          611
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          72,500
                                          
                                          
                                          
                                          1,544
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,969
                                          
                                          
                                          
                                          695
                                          
                                          
                                          
                                          22,500
                                          
                                          
                                          
                                          16,472
                                          
                                          
                                          
                                          4,500
                                          
                                          
                                          
                                          2,250
                                          
                                          
                                          
                                          4,666
                                          
                                          
                                          
                                          128,707Publication
      Services
                                          
                                          2006
                                          
                                          
                                          605
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          63,750
                                          
                                          
                                          
                                          268
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          599
                                          
                                          
                                          
                                          22,000
                                          
                                          
                                          
                                          17,017
                                          
                                          
                                          
                                          4,400
                                          
                                          
                                          
                                          2,200
                                          
                                          
                                          
                                          4,947
                                          
                                          
                                          
                                          115,786Christopher A. Pierce
                                          
                                          2008
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,392
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,932
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,324Chairman
      - TDP
                                          
                                          2007
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,290
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          3,298
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          4,5882006
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,290
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          1,650
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,940Patricia A. Stricker
                                          
                                          2008
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          24,000
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          373
                                          
                                          
                                          
                                          23,000
                                          
                                          
                                          
                                          3,241
                                          
                                          
                                          
                                          4,600
                                          
                                          
                                          
                                          2,300
                                          
                                          
                                          
                                          923
                                          
                                          
                                          
                                          58,437President
      &
                                          
                                          2007
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          23,000
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          2,974
                                          
                                          
                                          
                                          355
                                          
                                          
                                          
                                          22,500
                                          
                                          
                                          
                                          2,918
                                          
                                          
                                          
                                          4,500
                                          
                                          
                                          
                                          2,250
                                          
                                          
                                          
                                          292
                                          
                                          
                                          
                                          58,789COO
      - TSP
                                          
                                          2006
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          —
                                          
                                          
                                          
                                          337
                                          
                                          
                                          
                                          22,000
                                          
                                          
                                          
                                          11,096
                                          
                                          
                                          
                                          4,400
                                          
                                          
                                          
                                          2,200
                                          
                                          
                                          
                                          3,329
                                          
                                          
                                          
                                          43,362





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





(1)
      Estimated Possible Payouts Under Non-Equity Incentive Plan Awards
                                                              
                                                              Estimated
      Future Payouts Under Equity Incentive Plan
      Awards
                                                              
                                                              All
      Other Option Awards Number of Securities Underlying
                                                              
                                                              Exercise
      or Base Price of Option Awards
                                                              
                                                              Grant Date
      Fair Value of OptionName
                                                              
                                                              GrantDate
                                                              
                                                              
                                                              Threshold
                                                              
                                                              
                                                              Target
                                                              
                                                              
                                                              Maximum
                                                              
                                                              Threshold
                                                              
                                                              Target
                                                              
                                                              Maximum
                                                              
                                                              Options
                                                              
                                                              ($/sh)
                                                              
                                                              Awards($)
                                                              
                                                              
                                                              ($)
                                                              
                                                              
                                                              ($)
                                                              
                                                              ($)
                                                              
                                                              ($)
                                                              
                                                              ($)
                                                              
                                                              ($)
                                                              
                                                              ($)John A. Saxton
                                                              
                                                              
                                                              N/A
                                                              
                                                              
                                                              
                                                              150,000
                                                              
                                                              
                                                              
                                                              490,000
                                                              
                                                              
                                                              
                                                              600,000President
      and ChiefExecutive
      OfficerRobert M. Jakobe
                                                              
                                                              
                                                              N/A
                                                              
                                                              
                                                              
                                                              37,500
                                                              
                                                              
                                                              
                                                              122,500
                                                              
                                                              
                                                              
                                                              150,000Executive
      Vice Presidentand
      Chief Financial OfficerJoan B. Davidson
                                                              
                                                              
                                                              N/A
                                                              
                                                              
                                                              
                                                              40,625
                                                              
                                                              
                                                              
                                                              132,300
                                                              
                                                              
                                                              
                                                              162,500Group
      President SheridanPublication
      ServicesChristopher A. Pierce
                                                              
                                                              
                                                              N/A
                                                              
                                                              
                                                              
                                                              29,375
                                                              
                                                              
                                                              
                                                              95,600
                                                              
                                                              
                                                              
                                                              117,500Chairman
      - TDPPatricia A. Stricker
                                                              
                                                              
                                                              N/A
                                                              
                                                              
                                                              
                                                              30,000
                                                              
                                                              
                                                              
                                                              94,400
                                                              
                                                              
                                                              
                                                              120,000President
      & COO - TSP


______________________


(1) The
“Estimated Possible Payouts Under Non-Equity Incentive Plan Awards” for 2008
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.  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, 2008.





58
 Index





There
were no stock options awarded under the Stock-Based Incentive Compensation Plan
in 2008.





Outstanding
Equity Awards at Fiscal Year-End





Option AwardsName
                      
                      Number
      of Securities Underlying Unexercised Options (#) (Exercisable) (1)
                      
                      Number
      of Securities Underlying Unexercised Options (#) (Unexercisable)
                      
                      Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options (#)
                      
                      
                      Option
      Exercise Price ($)
                      
                      Option
      Expiration DateJohn A. Saxton
                      
                      
                      2,750
                      
                      
                      
                      
                      2,750
                      
                      
                      
                      10.00
                      
                      11/16/2013Robert M. Jakobe
                      
                      
                      2,750
                      
                      
                      
                      
                      2,750
                      
                      
                      
                      10.00
                      
                      11/16/2013Joan B. Davidson
                      
                      
                      1,750
                      
                      
                      
                      
                      1,750
                      
                      
                      
                      10.00
                      
                      11/16/2013Christopher A. Pierce
                      
                      
                      1,600
                      
                      
                      
                      
                      1600
                      
                      
                      
                      10.00
                      
                      11/16/2013Patricia A. Stricker
                      
                      
                      1,350
                      
                      
                      
                      
                      1,350
                      
                      
                      
                      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, 2008, 80% of the Named Executive
Officers’ time-based shares were vested. Because our 2008 performance targets
were not met, only 20% of performance shares vested through December 31, 2008.
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 AwardsName
                
                Number of Shares Acquired on Exercise (#) (1)
                
                
                Value Realized on 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 2008.





Nonqualified
Deferred Compensation





Name
                  
                  Executive
      Contributions in last FY
      ($)
                  
                  
                  Registrant
      Contributions in Last FY ($) (Retention Bonus and Make-Wholes) (1)
                  
                  
                  Aggregate
      Earnings in Last FY
    ($)
                  
                  
                  Aggregate
      Withdrawals/ Distributions ($)
                  
                  
                  Aggregate
      Balance at Last FYE
    ($)John A. Saxton
                  
                  
                  15,600
                  
                  
                  
                  56,766
                  
                  
                  
                  (54,243
                  )
                  
                  
                  —
                  
                  
                  
                  80,699Robert M. Jakobe
                  
                  
                  2,600
                  
                  
                  
                  39,725
                  
                  
                  
                  (62,274
                  )
                  
                  
                  41,291
                  
                  
                  
                  80,957Joan B. Davidson
                  
                  
                  17,912
                  
                  
                  
                  101,851
                  
                  
                  
                  (158,421
                  )
                  
                  
                  74,515
                  
                  
                  
                  291,595Christopher A. Pierce
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —
                  
                  
                  
                  —Patricia A. Stricker
                  
                  
                  —
                  
                  
                  
                  28,164
                  
                  
                  
                  (60,401
                  )
                  
                  
                  28,676
                  
                  
                  
                  50,215


______________________


(1)
Registrant contributions for Fiscal Years ending 2008, 2007 and 2006,
respectively, that were included in the Summary Compensation Table are as
follows: Mr. Saxton - Make Whole Contributions of $56,766, $50,962, and $88,392;
Mr. Jakobe – Make Whole Contributions of $9,725, $6,504, and $17,801 and
Retention Awards of $30,000, $27,000, and $0; Ms. Davidson – Make Whole
Contributions of $20,601, $21,138, and $21,964 and Retention Awards of $81,250,
$72,500, and $63,750; Mr. Pierce – Make Whole Contributions and Retention Awards
of $0, $0 and $0; and Ms. Stricker – Make Whole Contributions of $4,164, $3,210,
and $14,425 and Retention Awards of $24,000, $23,000, and $0. 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, profit share 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 two 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 or profit share
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 previously-scheduled distribution is to be 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, 2008:





Deferred
Compensation Investment Options





Name of Fund
                
                Rate of Return
                
                Name of Fund
                
                Rate of ReturnFidelity
      Advisor Freedom 2010 A
                
                
                -26.61
                
                Fidelity
      Advisor Freedom 2025 A
                
                
                -35.37Fidelity
      Advisor Freedom 2020 A
                
                
                -33.76
                
                Fidelity
      Advisor Freedom 2035 A
                
                
                -39.53Fidelity
      Advisor Freedom 2030 A
                
                
                -38.90
                
                Fidelity
      Advisor Freedom 2045 A
                
                
                -41.34Fidelity
      Advisor Freedom 2040 A
                
                
                -40.76
                
                Fidelity
      Advisor High Income Advantage
                
                
                -38.93Fidelity
      Advisor Freedom 2050 A
                
                
                -42.44
                
                Legg
      Mason Value, FI
                
                
                -54.77Maxim
      Money Market Portfolio
                
                
                1.94
                
                Franklin
      Small-Mid-Cap Growth Fund A
                
                
                -42.51Legg Mason
      Investment Grade Income
                
                
                -26.18
                
                Legg Mason
      Special Investment FI
                
                
                -53.95PIMCO
      Low Duration Fund A
                
                
                -1.68
                
                Pennsylvania
      Mutual Fund Consultant CI
                
                
                -35.52Davis NY
      Venture Fund
                
                
                -40.03
                
                American
      Funds EuroPacific A
                
                
                -40.53Hartford
      Capital Appreciation
                
                
                -46.09
                
                RS
      Value Fund
                
                
                -41.73Fidelity
      Advisor Freedom 2015 A
                
                
                -28.37
                
                American
      Funds Growth Fund of America
                
                
                -39.07





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 Sheridan Group, Inc. 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, 2008, if a termination without cause or for
good reason occurred, or they had been terminated following a change in
control.





Named
      Executive Officer
                
                Severance Pay
                
                
                Incentive Pay
                
                
                Deferred Compensation
                
                
                COBRA (Employer’s
      Portion)John A. Saxton
                
                $
                1,200,000
                
                
                $
                560,000
                
                
                $
                80,699
                
                
                $
                16,085Robert M. Jakobe
                
                $
                450,000
                
                
                $
                101,250
                
                
                $
                80,957
                
                
                $
                12,065Joan B. Davidson
                
                $
                487,500
                
                
                $
                144,150
                
                
                $
                291,595
                
                
                $
                12,065Patricia
      A. Stricker
                
                $
                360,000
                
                
                $
                152,250
                
                
                $
                50,215
                
                
                $
                16,984Christopher A. Pierce
                
                $
                352,500
                
                
                $
                76,575
                
                
                $
                0
                
                
                $
                16,984





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 2008. A summary of fees paid to our directors in 2008 is as
follows:





Name
                          
                          Fees Earned or Paid in Cash
                          
                          
                          All Other Compensation
                          
                          
                          Total($)
                          
                          
                          ($)
                          
                          
                          ($)Gary T. DiCamillo
                          
                          
                          35,000
                          (1)
                          
                          
                          —
                          
                          
                          
                          35,000Craig H. Deery
                          
                          
                          30,000
                          (1)
                          
                          
                          —
                          
                          
                          
                          30,000Rainer
      Hampp
                          
                          
                          30,000
                          (2)
                          
                          
                          —
                          
                          
                          
                          30,000Anne Ringsma
                          
                          
                          30,000
                          (2)
                          
                          
                          —
                          
                          
                          
                          30,000George A. Whaling
                          
                          
                          30,000
                          
                          
                          
                          —
                          
                          
                          
                          30,000


______________________


(1)
Messrs. DiCamillo and Deery elected deferred payment of their annual director’s
fees in 2008.


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)
Messrs. Hampp and Ringsma resigned from the Board of Directors in
2008.





Compensation
Committee Interlocks and Insider Participation





In 2008,
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, which has pledged our shares as
security for our obligations under our working capital facility. The following
table sets forth certain information regarding the beneficial ownership of TSG
Holdings Corp., as of March 30, 2009, 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 597,433 shares of TSG Holdings Corp. common stock and about 45,327 shares
and 4,234 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 18,650 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
                                                    
                                                    
                                                    
                                                    43.3
                                                    %
                                                    
                                                    
                                                    252,756
                                                    
                                                    
                                                    
                                                    42.3
                                                    %Funds
      affiliated with Jefferies Capital Partners (3)
                                                        520
      Madison Avenue, New York, NY 10022
                                                    
                                                    
                                                    19,210
                                                    
                                                    
                                                    
                                                    42.4
                                                    %
                                                    
                                                    
                                                    1,833
                                                    
                                                    
                                                    
                                                    43.3
                                                    %
                                                    
                                                    
                                                    252,756
                                                    
                                                    
                                                    
                                                    42.3
                                                    %Christopher
      A. Pierce (4)(5)
                                                    
                                                    
                                                    3,096
                                                    
                                                    
                                                    
                                                    6.8
                                                    %
                                                    
                                                    
                                                    289
                                                    
                                                    
                                                    
                                                    6.8
                                                    %
                                                    
                                                    
                                                    42,577
                                                    
                                                    
                                                    
                                                    7.1
                                                    %Named
      Executive Officers and Directors:John
      A. Saxton (4)(6)(7)
                                                    
                                                    
                                                    1,340
                                                    
                                                    
                                                    
                                                    3.0
                                                    %
                                                    
                                                    
                                                    125
                                                    
                                                    
                                                    
                                                    3.0
                                                    %
                                                    
                                                    
                                                    20,902
                                                    
                                                    
                                                    
                                                    3.5
                                                    %Robert
      M. Jakobe (4)(8)(9)
                                                    
                                                    
                                                    108
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    10
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    4,721
                                                    
                                                    
                                                    
                                                    *Joan
      B. Davidson (4)(10)
                                                    
                                                    
                                                    67
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    6
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    2,980
                                                    
                                                    
                                                    
                                                    *Christopher
      A. Pierce (4)(11)
                                                    
                                                    
                                                    3,096
                                                    
                                                    
                                                    
                                                    6.8
                                                    %
                                                    
                                                    
                                                    289
                                                    
                                                    
                                                    
                                                    6.8
                                                    %
                                                    
                                                    
                                                    42,577
                                                    
                                                    
                                                    
                                                    7.1
                                                    %Patricia
      A. Stricker (4)(12)
                                                    
                                                    
                                                    91
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    2,700
                                                    
                                                    
                                                    
                                                    *Thomas
      J. Baldwin (13)(14)
                                                    
                                                    
                                                    19,210
                                                    
                                                    
                                                    
                                                    42.4
                                                    %
                                                    
                                                    
                                                    1,833
                                                    
                                                    
                                                    
                                                    43.3
                                                    %
                                                    
                                                    
                                                    252,756
                                                    
                                                    
                                                    
                                                    42.3
                                                    %Nicholas
      Daraviras (15)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -Craig
      H. Deery (4)
                                                    
                                                    
                                                    245
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    23
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    3,212
                                                    
                                                    
                                                    
                                                    *Gary
      T. DiCamillo (4)
                                                    
                                                    
                                                    268
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    25
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    3,520
                                                    
                                                    
                                                    
                                                    *James
      L. Luikart (15)(16)
                                                    
                                                    
                                                    19,210
                                                    
                                                    
                                                    
                                                    42.4
                                                    %
                                                    
                                                    
                                                    1,833
                                                    
                                                    
                                                    
                                                    43.3
                                                    %
                                                    
                                                    
                                                    252,756
                                                    
                                                    
                                                    
                                                    42.3
                                                    %Nicholas
      R. Sheppard (13)
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -
                                                    
                                                    
                                                    
                                                    -George
      A. Whaling (4)
                                                    
                                                    
                                                    272
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    25
                                                    
                                                    
                                                    
                                                    *
                                                    
                                                    
                                                    
                                                    3,572
                                                    
                                                    
                                                    
                                                    *All
      executive officers and directors as a group(16
      persons)(17)
                                                    
                                                    
                                                    44,316
                                                    
                                                    
                                                    
                                                    97.8
                                                    %
                                                    
                                                    
                                                    4,208
                                                    
                                                    
                                                    
                                                    99.4
                                                    %
                                                    
                                                    
                                                    602,012
                                                    
                                                    
                                                    
                                                    97.6
                                                    %
 _____________________





*
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. Whaling is c/o The Sheridan Group, Inc., 11311 McCormick Road,
      Suite 260, Hunt Valley,
Maryland 21031.





(5)
            Includes
      options to purchase 1,920 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 3,300 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 3,300 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.





(10)
            Includes
      options to purchase 2,100 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.





(11)
            Includes
      options to purchase 1,920 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.





(12)
            Includes
      options to purchase 1,620 shares of TSG Holdings Corp. common stock
      exercisable within 60 days.





(13)
            The
      address of each of Mr. Baldwin and Mr. Sheppard is c/o
      Bruckmann, Rosser, Sherrill & Co., Inc., 126 East 56th Street, New
      York, New York 10022.





(14)
            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.





(15)
            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.





(16)
            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.





(17)
            Includes
      options to purchase 19,190 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 30, 2009, there are
issued and outstanding about 45,326 and 4,234 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.





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
597,433 shares of TSG Holdings Corp. common stock are issued and outstanding as
of March 30, 2009. 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, 2008 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
      tobe issued upon
      exerciseof outstanding
      options,warrants and
      rights
                        
                        Weighted-averageexercise price ofoutstanding
      options,warrants and
      rights(1)
                        
                        
                        Number ofSecuritiesremainingavailable forfutureissuanceunderequity compensationplans(excludingsecuritiesreflectedin 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
                        
                        
                        48,200
                        
                        
                        $
                        12.55
                        
                        
                        
                        5,060Total
                        
                        
                        48,200
                        
                        
                        $
                        12.55
                        
                        
                        
                        5,060


______________________


(1)
            As
      of December 31, 2008.





ITEM
      13.
            CERTAIN
      RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
      INDEPENDENCE




Dividend and Loan
 On
January 5, 2009, we executed a waiver to our working capital facility. The
waiver allows us to pay a cash dividend and make a loan to our parent company,
TSG Holdings Corp., which is not a registrant with the Securities and Exchange
Commission, in the aggregate amount of up to $14.0 million, provided that
TSG Holdings Corp. uses the entire cash proceeds of such dividend and loan
solely to purchase capital stock issued by TSG Holdings Corp. (the “Stock
Purchase”)
from Participatiemaatschappij Giraffe B.V. and to pay related expenses in
connection therewith. On
January 5, 2009, we paid a dividend in the aggregate amount of
$8.0 million to TSG Holdings Corp. and made a loan in the principal amount
of $2.0 million to TSG Holdings Corp. The loan will mature on
January 4, 2012 and will accrue interest at the rate of 1.36% per year
payable in cash or in kind on February 15 and August 15 each
year. Subsequent to January 5, 2009, we paid an additional dividend in the
amount of $1.1 million to TSG Holdings Corp. to pay expenses and other
amounts in connection with the Stock Purchase.


Securities
Holders Agreement





The
second 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 eight members, including four designees
of BRS and four designees of JCP. Also pursuant to the securities holders
agreement, we may not take certain significant actions, such as incurrence 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.”





66
 Index





ITEM
      14.
            PRINCIPAL
      ACCOUNTING FEES AND SERVICES





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





Year ended
December 31,
                                
                                
                                Year ended
December 31,(Dollars in thousands)
                                
                                2008
                                
                                
                                2007Audit
      fees (include the review of interim consolidated financial statements,
      annual audit of the consolidated financial statements and assistance with
      SEC filings)
                                
                                $
                                741
                                
                                
                                $
                                737Audit-related
      fees (include the review of internal controls and due diligence related to
      acquisitions)
                                
                                
                                50
                                
                                
                                
                                9Tax
      fees (include tax compliance, transactional consulting and advice for
      state tax issues )
                                
                                
                                316
                                
                                
                                
                                136All
      other fees (include license fees for online financial reporting and
      assurance literature)
                                
                                
                                2
                                
                                
                                
                                16Total
                                
                                $
                                1,109
                                
                                
                                $
                                898





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





67
 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
                25Consolidated
      balance sheets as of December 31, 2008 and 2007
                26Consolidated
      statements of operations for the years-ended December 31, 2008, 2007 and
      2006
                27Consolidated
      statements of changes in stockholder’s equity for the years-ended December
      31, 2008, 2007 and 2006
                28Consolidated
      statements of cash flows for the years-ended December 31, 2008, 2007 and
      2006
                29Notes
      to consolidated financial statements
                30-46





(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.a
              Third
      Amended and Restated Certificate of Incorporation of TSG Holdings Corp.
      (filed as Exhibit 3.1 to the Registrant's Annual Report on Form 10-K for
      the year ended December 31, 2007, filed on March 28, 2008 and incorporated
      herein by reference).3.1.b
              Amendment
      to 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 10.25% Senior Secured Note Due 2011 (included in Exhibit
      4.1).†





68
 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.a
              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.†10.1.b
              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
      (filed as Exhibit 10.46 to the Registrant's Annual Report on Form 10-K for
      the year ended December 31, 2007, filed on March 28, 2008 and incorporated
      herein by reference).10.1.c
              Amendment
      No. 2 to Amended and Restated Revolving Credit Agreement, by and among The
      Sheridan Group, Inc. and Bank of America, dated as of May 12, 2008 (filed
      as Exhibit 10.47 to the Registrant's Annual Report on Form 10-K for the
      year ended December 31, 2007, filed on March 28, 2008 and incorporated
      herein by reference).10.1.d
              Waiver
      to Amended and Restated Revolving Credit Agreement, by and among The
      Sheridan Group, Inc. and Bank of America, dated as of January 9, 2009
      (filed as Exhibit 10.48 to the Registrant's Annual Report on Form 10-K for
      the year ended December 31, 2007, filed on March 28, 2008 and incorporated
      herein by reference).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
              Second
      Amendment and Restatement to the Securities Holders Agreement and the
      Registration Rights Agreement by and among TSG Holdings Corp., The
      Sheridan Group Holdings (BRS) LLC and The Sheridan Group Holdings
      (Jefferies) LLC, dated as of March 30, 2009.10.5
              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.†10.19
              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.^^





69
 Index




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.*#10.27
              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.*#10.35
              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.*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.





70
 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.





71
 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/JohnA.SaxtonName
              John
      A. Saxton:Title:
              President
      and Chief ExecutiveOfficer
      and DirectorDate:
              March
      31, 2009





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/JohnA.Saxton
              
              President
      and Chief Executive Officer and Director
              
              March
      31, 2009John
      A. Saxton
              
              (Principal
      Executive Officer)/s/RobertM.Jakobe
              
              Chief
      Financial Officer
              
              March
      31, 2009Robert
      M. Jakobe
              
              (Principal
      Financial and Accounting Officer)/s/ThomasJ.Baldwin
              
              Director
              
              March
      31, 2009Thomas
      J. Baldwin/s/NicholasDaraviras
              
              Director
              
              March
      31, 2009Nicholas
      Daraviras/s/CraigH.Deery
              
              Director
              
              March
      31, 2009Craig
      H. Deery/s/GaryT.DiCamillo
              
              Director
              
              March
      31, 2009Gary
      T. DiCamillo/s/JamesL.Luikart
              
              Director
              
              March
      31, 2009James
      L. Luikart/s/NicholasR.Sheppard
              
              Director
              
              March
      31, 2009Nicholas
      R. Sheppard/s/GeorgeA.Whaling
              
              Director
              
              March
      31, 2009George
      A. Whaling






72