## **UNITED STATES**

## **SECURITIES AND EXCHANGE COMMISSION**

# **Washington,D.C.  20549**

 

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### **FORM 10-K**

| **(Mark  One)** |                                                                                      |   |
|-----------------|-------------------------------------------------------------------------------------------|--------|
|            |                                                                                      |   |
| **ý**      | **ANNUAL REPORT PURSUANT TO SECTION 13 OR  15(d) OF THE SECURITIES EXCHANGE ACT OF 1934** |

 

**Forthe fiscal year ended December 31, 2001**

 

**OR**

 

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

 

**Commissionfile number**

 

**333-45235**

 

**PerryJudd’s Holdings, Inc.**

(Exact name ofregistrant as specified in its charter)

 

| **Delaware**                                             |   | **51-0365965**                        |
|----------------------------------------------------------|--------|---------------------------------------|
| (State of  Incorporation)                                |   | (IRS Employer  Identification Number) |
|                                                     |   |                                  |
| **575  West Madison Street, Waterloo, Wisconsin**        |   | **53594**                             |
| (Address of principal  executive offices)                |   | (Zip Code)                            |
|                                                     |   |                                  |
| **920-478-3551**                                         |
| Registrant’s telephone  number, including area code |

 

Securities registeredpursuant 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 (1) hasfiled all reports required to be filed by Section 13 or 15(d) of the SecuritiesExchange Act of 1934 during the preceding 12 months (or for such shorter periodthat the registrant was required to file such reports), and (2) has beensubject to such filing requirements for the past 90 days. Yes ý  No o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not contained herein, and willnot be contained, to the best of Registrant’s knowledge, in definitive proxy orinformation statements incorporated by reference in Part III of this Form 10-Kor any amendment to this Form 10-K. ý

 

As of March 29, 2002 there were 901,317 shares ofRegistrant’s Common Stock, par value $.001 per share outstanding.  There is no established public tradingmarket for the Registrant’s Common Stock.

 

DocumentsIncorporated by Reference

 

None

 

####  

#### **INDEX**

 
| **PART 1**                |                                                                                        |
|---------------------------|---------------------------------------------------------------------------------------------|
|                      |                                                                                        |
| **Item 1.**               | Business                                                                                    |
| **Item 2.**               | Properties                                                                                  |
| **Item 3.**               | Legal Proceedings                                                                           |
| **Item  4.**              | Submission  of Matters to a Vote of Security Holders                                        |
|                      |                                                                                        |
| **PART II**               |                                                                                        |
|                      |                                                                                        |
| **Item  5.**              | Market  for Registrant’s Common Equity and Related Stockholder Matters                 |
| **Item 6.**               | Selected Financial  Data                                                                    |
| **Item  7.**              | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |
| **Item  7A.**             | Quantitative  and Qualitative Disclosures about Market Risk                                 |
| **Item  8.**              | Financial  Statements and Supplementary Data                                                |
| **Item  9.**              | Changes  in and Disagreements With Accountants on Accounting and Financial Disclosure       |
|                      |                                                                                        |
| **PART III**              |                                                                                        |
|                      |                                                                                        |
| **Item 10.**              | Directors  and Executive Officers of the Registrant                                         |
| **Item 11.**              | Executive  Compensation                                                                     |
| **Item 12.**              | Security  Ownership of Certain Beneficial Owners and Management                             |
| **Item 13.**              | Certain  Relationships and Related Party Transactions                                       |
|                      |                                                                                        |
| **PART IV**               |                                                                                        |
|                      |                                                                                        |
| **Item 14.**              | Exhibits,  Financial Statement Schedules and Reports on Form 8-K                            |
|                      |
| **EXHIBIT INDEX**         |
|                      |
| **SIGNATURES**            |
|                      |
| **FINANCIAL  STATEMENTS** |

 

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This Annual Report onForm 10-K includes forward-looking statements within the meaning of the PrivateSecurities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use offorward-looking terminology such as “may”, “will”, “expect”, “intend”,“estimate”, “anticipate”, “believe”, or “continue” or the negative thereof orvariations thereon or similar terminology. Such forward-looking statements are based upon information currentlyavailable in which the Company’s management shares its knowledge and judgementabout factors that they believe may materially affect the Company’sperformance.  The Company makes theforward-looking statements in good faith and believes them to have a reasonablebasis.  However, such statements arespeculative, speak only as of the date made and are subject to certain risks,uncertainties and assumptions.  Shouldone or more of these risks or uncertainties materialize, or should underlyingassumptions prove incorrect, actual results could vary materially from thoseanticipated, estimated or expected. Factors that might cause actual results to differ materially from thosein such forward-looking statements include, but are not limited to, thosediscussed in Item 1. “Business—Risk Factors” and Item 7. “Management’sDiscussion and Analysis of Financial Condition and Results of Operations”.  All subsequent written and oral statementsthat the Company makes are qualified in their entirety by these Risk Factors.

 

Readers are urged tocarefully review and consider disclosures made in this and other reports thatthe Company files with the Securities and Exchange Commission that discussfactors germane to the Company’s business.

 

**PART I**

 

###### **Item 1.            Business**.

 

**General**

 

Unless the contextotherwise provides, all references in this Annual Report to the “Company”includes Perry Judd’s Holdings, Inc., (“Perry Judd’s Holdings”) itswholly-owned subsidiary, Perry Judd’s Incorporated (“Perry Judd’s”) and Judd’sOnline, Inc., (“Judd’s Online”) a wholly-owned subsidiary of Perry Judd’s whichwas sold in October 2000.  Allreferences to Perry Judd’s shall include its former consolidated subsidiaries:Judd’s Incorporated (“Judd’s”), Judd & Detweiler, Inc., Mount JacksonPress, Inc., Shenandoah Valley Press, Inc. (“Shenandoah Valley”), and Port CityPress, Inc. (“Port City”).

 

The Company is a leadingmulti-regional printer of magazines, catalogs, and other commercialproducts.  Its printing facilities arestrategically located in the Midwest and Mid-Atlantic regions, with each planthaving state-of-the-art, integrated prepress, press, binding and distributioncapabilities.  The Company servicesregional and national customers through sales offices in 13 citiesnationwide.  Management believes theCompany has established a reputation for high quality products and superior customerservice, which have resulted in long-standing customer and supplierrelationships.  The Company manages thetotal prepress, print, and distribution process to provide value-addedsolutions that reduce customer costs or assist customers in increasingrevenues.

 

Effective April 28, 1995,the Company acquired certain net assets of Perry Printing Corporation (“PerryPrinting”).  Prior to April 28, 1995,the Company had no operating activities.

 

On December 16, 1997, theCompany completed the acquisition of Judd’s, which was a short-to-medium runprinter servicing the magazine, commercial and technical books sectors.  The financial and other information includedin this Annual Report includes the operations of Judd’s since the date of theacquisition.

 

On February 1, 1999, theCompany completed the acquisition of Heartland Press, Inc. (“Heartland”) whichwas a short-run printer servicing the magazine sector.  The financial and other information includedin this Annual Report includes the operations of Heartland since the date ofthe acquisition.

 

On October 19, 2000, theCompany sold substantially all the net assets of its new media servicessubsidary, Judd’s Online, to a subsidiary of Susquehanna Media Corporation.

 

The Company operatesprimarily in one business segment - printing services.  The following table presents the percentageof net sales contributed by each market sector during the past three fiscalyears.

 
|      |   | **2001** |   | **2000** |   | **1999** |   |
|-----------|--------|----------|--------|----------|--------|----------|--------|
| Magazines |   | 63       | %      | 61       | %      | 59       | %      |
| Catalogs  |   | 32       | %      | 31       | %      | 32       | %      |
| Other     |   | 5        | %      | 8        | %      | 9        | %      |
| TOTAL:    |   | 100      | %      | 100      | %      | 100      | %      |

 

Substantially all of theCompany’s sales are based upon customer specifications.  A significant amount of the Company’s salesare made pursuant to term contracts with its customers, with the remainder madeon an order-by-order basis.  One of theCompany’s customers, Time, Inc., accounted for approximately 14%, 15% and 16%of the Company’s consolidated net sales during 2001, 2000 

and 1999,respectively.  In June 2001, Time, Inc.,notified the Company that it would not renew its printing contract for theproduction of three weekly publications at its expiration on December 31, 2003.The production that is the subject of the contract amounted to approximately7.8% of the Company’s consolidated net sales for 2001. If this loss of businessis not replaced, the Company would experience a material adverse effect on itsfinancial condition and results of operations. However, the Company believesthat this lost business will be replaced and, therefore, does not expect amaterial adverse effect on its financial condition and results of operations.No other customer accounted for more than 10% of the Company’s consolidated netsales for 2001, 2000 and 1999.

 

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**MarketSectors**

 

***Magazines.*** The Company believes that it is the sixth largest printer of magazinesin the United States.  The Company’sprincipal competitors in magazines consist of four diversified printingcompanies.  The Company’s magazinecustomers include some of the largest and most established publishers in adiverse range of market categories.  TheCompany believes that established publishers and their publications are themost likely to have a continuing and improving market presence.  Additionally, the popularity of these magazinesmakes them less susceptible to cyclical downturns in advertising spending,which the Company believes provides it with an advantage over competitors whosecustomers may be more susceptible to such downturns.

 

Substantially all of the Company’s magazine printing is performed undercontracts, the majority of which have remaining terms ranging from one to fouryears.  The Company’s strongrelationships with its magazine customers have historically enabled it to extendmost of its magazine contracts beyond their initial expiration dates.  The Company’s relationships with its top tenmagazine customers average more than 18 years.

 

***Catalogs.*** The Company believes that it is the sixth largest printer of catalogs inthe United States.  The Company’s keycompetitors in the catalog market consist of four diversified commercialprinters whose facilities enable them to compete in the national market andsmaller local and regional printers who compete for regional business.  In addition, the Company’s business-to-businesscatalog printing work spans a broad range of industries including the computer,home and office furniture, office products and industrial safety productsindustries.  Consistent with industrypractice, the Company performs most of its catalog printing under short-term (1to 3 years) agreements with its customers.

 

***Other Commercial Printing.*** The Company also produces a variety of specialty commercial productssuch as magazine inserts, calendars, and general advertising products.  These commercial products enable the Companyto optimize capacity utilization by supplementing its magazine and catalogbusiness.

 

***New Media Services.*** From December 1997 through October 2000, the Company developed a varietyof multimedia, on-line and content repurposing products and services(collectively, the “New Media Services”), which began as the Company becameinvolved in the development and management of Internet websites to enhance itstraditional printing capabilities and as a natural extension and expansion ofits customer relationships.  Judd’sOnline provided interactive web-site development, tracking, analysis andreporting services to publishers and direct-marketers desiring to complementink-on-paper magazine products with on-line, brand-based products and servicesand to take advantage of marketing and sales opportunities in electroniccommerce.  On October 19, 2000, theCompany sold substantially all the net assets of Judd’s Online to a subsidiaryof Susquehanna Media Corporation.  See“Management’s Discussion and Analysis of Financial Condition and Results ofOperations — Liquidity and Capital Resources.”

 

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**Prepress**

 

The Company provides a full range of prepress services and equipmentutilizing the latest technology, answering the demand for high quality, 24-hourpreparatory services.  The Company’sprepress services include conventional preparatory services, (such as colorseparation, digital page assembly, “preflighting” of digital files,computerized imposition, and laser platemaking) as well as state-of-the-artcomputer-to-plate technology.  TheCompany has made significant investments in transforming its prepressoperations from labor-intensive to equipment- and system-intensive processes,including the introduction of electronic prepress capabilities enabling theCompany to receive, create and process pages electronically and to utilizeautomated platemaking equipment.

 

**Press Room**

 

The Company offers its customers state-of-the-art heatset web offsetpress capabilities at each of its printing facilities.  The Company has invested in wide web presstechnology which represents a substantial capital commitment matched by only asmall number of well-capitalized printers. Wide web presses generate a significant cost savings on longer pressruns.  Other specialized presscapabilities include short cut-off and gapless presses, which reduce paperwaste.  The Company’s presses can printon lower-cost paper stocks and certain presses incorporate folders to producetabloid- and digest-size products.  TheCompany has both high-speed presses best suited for longer runs and otherpresses with shorter makeready times which are better suited for short runs.Management believes its printing operations have the consistent high qualityreproduction, low paper waste, flexibility, and dependability that is requiredby the Company’s customers.

 

**Binding and Finishing**

 

The Company has invested significant capital to install high-speed,automated binding and finishing equipment. Printed products requiring finishing are either saddle bound (stapled)or perfect bound (square back with adhesive). The Company’s finishing services include blow-in-cards, polybagging,tipping, and tabbing.

 

The Company employstechnological advances in ink-jet addressing and geo-demographic selectivebinding (on both a regional and specific carrier route basis).  All of the Company’s magazine and catalogbinding equipment has ink-jet capabilities and partial or fully selectivesystems.  During the binding process, aproduct’s content can be modified to include or to exclude certain materialsusing technologies that enable a magazine publisher or catalog merchant tocustomize and personalize its market by sending the same basic magazine orcatalog to all consumers while inserting different advertisements, messages,prices or product offerings, depending upon the geographic and demographiccharacteristics of the individual customer or subscriber.

 

Ink-jet personalizing isincreasingly being used by many publishers and catalogers.  Ink-jet addressing eliminates the additionalprinting of paper labels and improves mailing addressing efficiency, and allowsboth the cover and the order form to be labeled and to contain customer codinginformation.  Furthermore, as magazineand catalog publishers continue to look for methods to increase the level ofpersonalization, the ink-jet process is being used more frequently to addpersonal messages, specific inserts to frequent buyers, or unique codinginformation for order entry.

 

**Distribution**

 

Distribution is a key element in the production process to effectivelymanage delivery costs, and the Company provides its customers withstate-of-the-art distribution and mail list services.  The distribution services provided by the Company includemultiple entry point analysis, consolidation, pool shipping, drop shipping,load planning, over-the-road and rail services, mailing/distributionconsultation, freight tracking, co-mailing analysis, mail tracking, ink-jetformatting and ink-jet tape processing.

 

The Company provides a number of mail list services which are designedto improve deliverability and minimize shipping costs.  Many mail list services are integrated intothe finishing operation, reducing the need for redundant handling.  These services include merging multiple listsand purging duplication, formatting the tapes or optical disks which run thefinishing controller, isolating undeliverable addresses due to faulty zipcodes, correcting zip codes, creating postnet barcoding, and sorting files tosupport customers’ mailing strategies. Additionally, the mail list services can be used to select names totarget a specific audience for a particular publication or catalog.  The Company is also able to merge lists ofnames for the same customer or to co-mail catalogs and magazines of differentcustomers to achieve increased postal presort discounts.  Management believes smaller competitorseither cannot offer these services or can only offer them in a more limitedway.

 

By integrating the mail list services with its consolidation anddistribution services, the Company maximizes postal discounts for its customersthrough achieving optimum presort savings and automation discounts, as well asensuring on-time delivery.  Due to itslarge shipping volume, the Company’s plants are designated postal distributioncenters, each with full-time postal employees. The Company’s volume and strategic locations enable it to ship directlyto U.S. Postal Service sectional center facilities, thus providing postaldiscounts and more timely delivery for its customers.  The Company believes its distribution capabilities and favorabledistribution locations provide a competitive advantage, especially as postalrates continue to rise.

 

5

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**Competition**

 

The Company competes in each of its market segments on the basis ofprice, quality, range of services offered, distribution capabilities, abilityto service the specialized needs of customers, availability of printing time onappropriate equipment and use of state-of-the-art technology.

 

The Company’s competitors in the magazine and catalog printing marketconsist of diversified printing companies who have facilities sufficient tocompete in the national market, along with various local or regional printerswith less extensive facilities who compete for local or regional business.  The Company’s key competitors in thesemarkets include Quebecor/World, R.R. Donnelley & Sons, Quad/Graphics, BantaCorporation and Brown Printing.

 

**Raw Materials**

 

Paper and ink are theprimary direct materials used by the Company. Generally, direct material costs are passed on to the customer.

 

The primary raw material used by the Company in itsoperation is paper.  In 2001, theCompany’s customers supplied approximately two-thirds of the paper used in theprinting process, and the Company supplied approximately one-third.  The cost of paper is a principal factor inthe Company’s manufacturing costs and pricing to certain customers and consequentlythe cost of paper and the proportion of paper supplied by customerssignificantly affects the Company’s net sales and cost of sales.  The Company is generally able to passincreases in the cost of paper to its customers, while declines in paper costsgenerally result in lower prices to customers. Fluctuations in paper costs result in corresponding fluctuations in theCompany’s net sales, but typical fluctuations generally have not affectedvolume or profits to any significant extent. However, sharp increases in paper prices and related reduction in printadvertising programs are more likely to adversely affect volumes andprofits.  The Company believes that itsrelationships with its paper suppliers are strong, and that it has adequateallocations with its suppliers for its customers’ needs.

 

The Company supplies allof the ink used by its customers and has strong relationships with itssuppliers.  The Company believes thatthere are adequate sources of supply for ink and that its relationships withits suppliers yield improved quality, pricing and overall services to itscustomers.  See “Certain Relationshipsand Related Party Transactions”.

 

**Seasonality**

 

The Company experiences seasonal fluctuations, withgenerally higher sales and working capital in the second half of the fiscalyear.  The Revolving Credit Facility hasan aggregate commitment of $45.0 million, $41.4 million of which was availablefor future working capital and other general corporate purposes as of December31, 2001.

 

**Regulatory Compliance**

 

The Company is subject to regulation under various federal, state, andlocal laws relating to the environment and to employee health and safety.  These environmental regulations relate tothe generation, storage, transportation, handling, disposal, and emission intothe environment of various substances. Permits are required for operation of the Company’s business and thesepermits are subject to renewal, modification and, in certain circumstances,revocation.  The Company is also subjectto regulation under various federal, state and local laws which allowregulatory authorities to compel (or seek reimbursement for) cleanup ofenvironmental contamination, if any, at the Company’s own sites and atfacilities where its waste is or has been disposed.  The Company has internal controls and personnel dedicated tocompliance with all applicable environmental and employee health and safetylaws.  The Company expects to incur ongoingcapital and operating costs and administrative expenses to maintain compliancewith applicable environmental laws.  TheCompany cannot predict the environmental or employee health and safetylegislation or regulations that may be enacted in the future or how existing orfuture laws or regulations will be administered or interpreted.  Compliance with new laws or regulations, aswell as more vigorous enforcement policies of the regulatory agencies orstricter interpretation of existing laws, may require additional expendituresby the Company, some or all of which may be material, however the Company isnot currently aware of any environmental or employee health or safety matterwhich could have a material adverse effect upon the Company’s competitive orconsolidated financial statements.

 

**Trade Names and Trademarks**

 

The Company owns certain trade names and trademarks used in itsbusiness, none of which it believes are material.

 

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**Research and Development**

 

Suppliers of equipment and materials used by the Company perform mostof the research and development related to the printing industry.  Accordingly, the Company has not spent amaterial amount of resources for such purposes.  The Company does, however, dedicate significant resources toimproving its operating efficiencies and the services it provides to itscustomers.  In an effort to realizeincreased efficiencies in its printing processes, the Company has madesignificant investments in state-of-the-art equipment, including new press andbinding technology, computer-to-plate and digital processing technology, andreal-time product quality monitoring systems.

 

**Employees**

 

As of December 31, 2001,the Company had approximately 2,389 employees, of which approximately 572 or24% are represented by unions.  All ofthe union employees are employed at the Company’s Waterloo plant. Approximately209 of such union employees are covered under a labor contract which expires inJune 2007, and approximately 363 of such union employees are covered under alabor contract which expires in April 2002. The Company is currently engaged in contract negotiations with thisunion and believes that it has satisfactory employee and labor relations.

 

**RiskFactors**

 

In addition to other information in this Annual Reporton Form 10-K, the following risk factors for the Company should be carefullyconsidered.  These risks may impair theCompany’s results of operations and business prospects.  The risks set forth below and elsewhere inthis Annual Report could cause actual results to differ materially from those thatthe Company projects.

 

*HighLevel of Indebtedness*

 

In connection withprior transactions, the Company has incurred a significant amount ofindebtedness and is highly leveraged. In addition, subject to the restrictions in the Company’s Amended andRestated Credit Agreement with its banks (the “Credit Agreement”) and theIndenture (the “Indenture”) related to the outstanding 10-5/8% SeniorSubordinated Notes (the “Senior Notes”), the Company may incur additionalsenior indebtedness to finance acquisitions and capital expenditures for othergeneral corporate purposes.

 

The level of theCompany’s indebtedness could have important consequences to holders of theSenior Notes, including: (i) a substantial portion of the Company’s cash flowfrom operations must be dedicated to debt service and will not be available forother purposes; (ii) the Company’s future ability to obtain additional debtfinancing for working capital, capital expenditures or acquisitions may belimited; (iii) the Company’s level of indebtedness could limit its flexibilityin reacting to changes in the printing industry and economic conditionsgenerally, which could limit its ability to withstand competitive pressures ortake advantage of business opportunities; (iv) the Company’s borrowing underthe Credit Agreement will be at variable rates of interest, which could causethe Company to be vulnerable to increases in interest rates; and (v) all of theindebtedness incurred in connection with the Credit Agreement will become dueprior to the time the principal payments on the Senior Notes will becomedue.  Certain of the Company’scompetitors currently operate on a less leveraged basis and are likely to havesignificantly greater operating and financing flexibility than the Company.

 

*Abilityto Service Debt*

 

The Company’s ability to pay interest on the SeniorNotes and to satisfy its other debt obligations will depend upon its futureoperating performance, which will be affected by prevailing economic conditionsand financial, business and other factors, certain of which are beyond itscontrol.  The Company anticipates thatits operating cash flow, together with available borrowings under the CreditAgreement, will be sufficient to meet its operating expenses, capitalexpenditure requirements and working capital needs and to service its debtrequirements as they become due. However, if the Company is unable to service its indebtedness, it willbe forced to adopt an alternative strategy that may include actions such asreducing or delaying capital expenditures, selling assets, restructuring orrefinancing its indebtedness or seeking additional equity capital.  There can be no assurance that any of thesestrategies could be effected on satisfactory terms, if at all, or that theywould enable the Company to continue to meet its debt service obligations orthat they would be permitted under the terms of the Credit Agreement orIndenture.

 

7

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*Subordinationof the Senior Notes and Guarantees*

 

The Senior Notes are fully and unconditionallyguaranteed, on a senior subordinated basis, jointly and severally, by allsubsidiaries of the Company (the “Subsidiary Guarantors”) pursuant toguarantees (the “Guarantees”).  The Guaranteeswill be subordinated in right of payment to all senior indebtedness of theCompany and the Subsidiary Guarantors. In the event of bankruptcy, liquidation or reorganization of theCompany, the assets of the Company or the Subsidiary Guarantors will beavailable to pay obligations on the Senior Notes only after all seniorindebtedness of the Company or the Subsidiary Guarantors, as the case may be,has been paid in full, and there may not be sufficient assets remaining to payamounts due on any or all of the Senior Notes then outstanding.  Additional senior indebtedness may beincurred by the Company and the Subsidiary Guarantors from time to time,subject to certain restrictions.  TheIndenture generally provides that a Restricted Subsidiary (as defined in theIndenture) may incur indebtedness only if such Subsidiary agrees to guaranteethe Senior Notes on a senior subordinated basis.  The holders of the Senior Notes have no direct claim against theSubsidiary Guarantors other than claims created by the Guarantees, which maythemselves be subject to legal challenge in the event of the bankruptcy orinsolvency of a Subsidiary Guarantor. If such a challenge were upheld, the Guarantees would be invalidated andunenforceable.  To the extent that theGuarantees are held to be unenforceable or have been released pursuant to theterms of the Indenture, the rights of holders of the Senior Notes toparticipate in any distribution of assets of any Subsidiary Guarantor uponliquidation, bankruptcy or reorganization may, as in the case with other unsecuredcreditors of the Company, be subject to prior claims against such SubsidiaryGuarantor.

 

*HoldingCompany Structure*

 

The Company is a holding company, the principal assetsof which consist of equity interests in its subsidiaries.  The Senior Notes are a direct obligation ofthe Company, which derives all of its revenues from the operations of itssubsidiaries.  As a result, the Companywill be dependent on the earnings and cash flow of, and dividends and distributionsor advances from, its subsidiaries to provide the funds necessary to meet itsdebt service obligations, including the payment of principal and interest onthe Senior Notes.  Accordingly, theCompany’s ability to pay interest on the Senior Notes and otherwise to meet itsliquidity requirements may be limited as a result of its dependence upon thedistribution of earnings and advances of funds by its subsidiaries.  The payment of dividends from thesubsidiaries to the Company and the payment of any interest on or the repaymentof any principal of any loans or advances made by the Company to any of itssubsidiaries may be subject to statutory restrictions under corporate lawlimiting the payment of dividends and are contingent upon the earnings of suchsubsidiaries.  The Company’ssubsidiaries are guarantors of the indebtedness incurred under the CreditAgreement.  The Senior Notes are notsecured by liens against any of the Company’s or its subsidiaries’ assets,while the indebtedness incurred under the Credit Agreement is secured by liensagainst substantially all the Company’s and its subsidiaries’ assets.

 

*RestrictionsImposed by Terms of the Company’s Indebtedness*

 

The Indenture restricts, among other things, theCompany’s and its subsidiaries’ ability to incur additional indebtedness, paydividends or make certain other restricted payments, consummate certain assetsales, enter into certain transactions with affiliates, incur liens, incurindebtedness that is subordinate to Senior Indebtedness (as defined in theIndenture) but senior in right of payment to the Senior Notes, imposerestrictions on the ability of a subsidiary to pay dividends or make certainpayments to the Company and its subsidiaries, merge or consolidate with anyother persons or sell, assign, transfer, lease, convey or otherwise dispose ofall or substantially all of the assets of the Company.  In addition, the Credit Agreement containsother and more restrictive covenants and prohibits the Company and itssubsidiaries from prepaying other indebtedness (including the Senior Notes).  The Credit Agreement also requires theCompany to maintain specified financial ratios and satisfy certain financialcondition tests.  The Company’s abilityto meet those tests and ratios can be affected by events beyond its control,and there can be no assurance that it will meet those ratios and tests.  A breach of any of these covenants couldresult in a default under the Credit Agreement and/or the Indenture.  Upon the occurrence of an event of defaultunder the Credit Agreement, the lenders could elect to declare all amountsoutstanding under the Credit Agreement, together with accrued interest, to beimmediately due and payable.  If theCompany were unable to repay those amounts, the lenders could proceed againstthe collateral granted to them to secure that indebtedness.  If the Senior Indebtedness under the CreditAgreement were to be accelerated, there can be no assurances that the assets ofthe Company would be sufficient to repay in full the indebtedness and the otherindebtedness of the Company, including the Senior Notes.  The Company’s obligations under the CreditAgreement are secured by a security interest in substantially all the assets ofthe Company and its subsidiaries, including all of their cash and othertangible and intangible assets, and all real property.  In addition, the Company and Perry Judd’spledged as collateral all of their shares of capital stock in each of theirsubsidiaries.

 

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*Competition*

 

The commercial printing industry in the U.S. is highlycompetitive in most product categories and geographic regions.  Competition is largely based on price,quality, range of services offered, distribution capabilities, ability toservice the specialized needs of customers, availability of printing time onappropriate equipment and use of state-of-the-art technology.  The Company competes for commercial businessnot only with large international and national printers, but also with smallerregional printers.  In certaincircumstances, due primarily to factors such as freight rates and customerpreference for local services, printers with better access to certain regionsof the country may have a competitive advantage in such regions.  In addition, many of the Company’scompetitors have substantially greater financial, marketing, distribution,management and other resources than the Company, and as the industryexperiences continued consolidation, the Company’s competitors may furtherenhance such resources.  The Companyalso believes that excess capacity in the industry, especially during periodsof economic downturn, would result in downward pricing pressure and intensifiedcompetition in the printing industry. Given these factors, there can be no assurance that the Company will beable to continue to compete successfully against existing or new competitors,and the failure to do so may have a material adverse effect on the Company’sfinancial condition and results of operations. See “Business—Competition”.

 

*TechnologicalChanges*

 

Technology in the printing industry has evolved andcontinues to evolve.  Since 1997, over$115.0 million of purchased and leased capital expenditures have been investedfor printing facilities and production equipment.  As technology continues to evolve and as its customers’ needsbecome more specialized and sophisticated in the future, the Company willlikely be required to invest significant additional capital in new and improvedtechnology in order to maintain and enhance the quality and competitiveness of,and to expand, its products and services. If the Company is unable to acquire new and improved technology,facilities and equipment or to develop and introduce enhanced or new productsand services, the Company’s financial condition, results of operations and cashflows could be materially adversely affected.

 

*RawMaterials - Paper*

 

The cost of paper is a principal factor in theCompany’s manufacturing costs and pricing to certain customers and consequentlythe cost of paper significantly affects the Company’s net sales.  The Company is generally able to passincreases in the cost of paper to its customers, while declines in paper costsgenerally result in lower prices to customers. Typical fluctuations in paper costs result in corresponding fluctuationsin the Company’s net sales, but typical fluctuations generally have notaffected volume or profits to any significant extent.  However, sharp increases in paper prices and related reduction inprint advertising programs are more likely to adversely affect volumes andprofits.  To the extent that there arefuture paper costs increases and the Company is not able to pass such increasesto its customers or its customers reduce their demand for the Company’sproducts and services, the Company’s financial condition and results ofoperations could be materially adversely affected.

 

Capacity in the paper industry has remained relativelystable in recent years.  Increases ordecreases in demand for paper have led to corresponding pricing changes and, inperiods of high demand, to limitations on the availability of certain grades ofpaper, including grades utilized by the Company.  Any loss of the sources for paper supply or any disruption insuch sources’ business or failure to meet the Company’s product needs on a timelybasis could cause, at a minimum, temporary shortages in needed materials whichcould have a material adverse affect on the Company’s results ofoperations.  Although the Companyactively manages its paper supply and believes it has established strongrelationships with its suppliers, there can be no assurance that the Company’ssources of supply for its paper will be adequate or, in the event that suchsources are not adequate, that alternative sources can be developed in a timelymanner.  If the Company is unable tosecure sufficient supplies of paper of appropriate quality, its financialcondition, results of operations and cash flows could be materially adverselyaffected.  See “Business—Raw Materials”.

 

*CertainCustomer Relationships*

 

The Company currently provides products and servicesto certain customers without a written contractual arrangement.  While the Company believes that itsrelationship with each of these customers is good, there can be no assurancethat such customers will continue to do business with the Company at currentlevels, if at all.

 

*ASignificant Portion of the Company’s Revenue depends on a Single Customer*

 

For the years ended December 31, 2001, 2000 and 1999,Time, Inc. comprised 14%, 15% and 16% of consolidated net revenue,respectively. Time, Inc. has notified the Company that it will not renew itsprinting contract at its expiration on December 31, 2003. If this loss ofbusiness is not replaced after 2003, the Company’s financial condition andresults of operations would be materially effected. However, the Companybelieves that this lost business will be replaced and therefore, does notexpect a material adverse effect on its financial condition and results ofoperations. No other customer accounted for more than 10% of the business.

 

9

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*Environmentaland other Governmental Regulation*

 

The Company is subject to regulation under variousfederal, state and local laws relating to the environment and to employeehealth and safety.  These environmentalregulations relate to the generation, storage, transportation, handling,disposal and emission into the environment of various substances.  Permits are required for operation of theCompany’s business, and these permits are subject to renewal, modification and,in certain circumstances, revocation. The Company is also subject to regulation under various federal, stateand local laws which allow regulatory authority to compel (or seek reimbursementfor) cleanup of environmental contamination at the Company’s own sites and atfacilities where its waste is or has been disposed.  The Company has internal controls and personnel dedicated tocompliance with all applicable environmental and employee health and safetylaws.  The Company expects to incurongoing capital and operating costs and administrative expenses to maintaincompliance with applicable environmental laws. The Company cannot predict the environmental or employee health andsafety legislation or regulations that may be enacted in the future or howexisting or future laws or regulations will be administered orinterpreted.  Compliance with new lawsor regulations, as well as more vigorous enforcement policies of the regulatoryagencies or stricter interpretation of existing laws, may require additionalexpenditures by the Company, some or all of which may be material.  See “Business—Regulatory Compliance”.

 

*Relianceon Key Personnel*

 

The Company’s success will continue to depend to asignificant extent on its executive officers and other key managementpersonnel.  There can be no assurancethat the Company will be able to retain its executive officers and keypersonnel or attract additional qualified management in the future.  In addition, the success of any acquisitionby the Company may depend, in part, on the Company’s ability to retainmanagement personnel on the acquired companies.  There can be no assurance that the Company will be able to retainsuch management personnel.

 

*Controlby Principal Stockholders*

 

Robert E. Milhous and Paul B. Milhous, the Chairmanand Vice Chairman, respectively, of the Company own together beneficially over86% of the outstanding capital stock of the Company.  Accordingly, these stockholders have the ability, actingtogether, to control fundamental corporate transactions requiring stockholderapproval, including without limitation approval of merger transactionsinvolving the Company and sales of all or substantially all of the Company’sassets.  See Item 12 “Security Ownershipof Certain Beneficial Owners and Management”.

 

*Purchaseof Notes Upon Change of Control*

 

Upon a Change of Control (as defined in the Indenture)the Company will be required to offer to purchase all outstanding Senior Notesat 101% of the principal amount thereof plus accrued and unpaid interest to therepurchase date.  A Change of Controlwill likely trigger an event of default under the Credit Agreement which willpermit the lenders thereunder to accelerate the debt under the Credit Agreement.  However, there can be no assurance thatsufficient funds will be available at the time of any Change of Control to makeany required repurchases of Senior Notes tendered, or that, if applicable,restrictions in the Credit Agreement will allow the Company to make suchrequired repurchases.

 

10

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**Item 2.            Properties**

 

Each of the Company’s printing plants has a primary product expertisewhich allows it to maximize the efficiency and responsiveness of itsoperations.  Information about the Company’sfacilities are set forth below:

 
| **Location**              |   | **Use**                         |   | **Owned/Leased** |   | **Square  Feet** |   |
|---------------------------|--------|---------------------------------|--------|------------------|--------|------------------|--------|
| Corporate  Headquarters   |   |                            |   |             |   |             |   |
| Waterloo, WI              |   | Executive Offices and           |   |             |   |             |   |
|                      |   | Corporate Support Functions     |   | Lease            |   | 50,200           |   |
| Preproduction  Facilities |   |                            |   |             |   |             |   |
| Madison, WI               |   | Digital Prepress Production     |   | Lease            |   | 7,100            |   |
|                      |   |                            |   |             |   |             |   |
| Printing Plants           |   |                            |   |             |   |             |   |
| Waterloo, WI              |   | Long- and medium-run magazines  |   | Lease            |   | 298,800          |   |
| Strasburg, VA             |   | Medium- and short-run magazines |   | Lease            |   | 353,400          |   |
| Baraboo, WI               |   | Consumer and business catalogs  |   | Lease            |   | 614,000          |   |
| Spencer, IA               |   | Short-run magazines             |   | Own              |   | 127,000          |   |
|                      |   |                            |   |             |   |             |   |
| Warehouses                |   |                            |   |             |   |             |   |
| Waterloo, WI (3  sites)   |   | Paper storage                   |   | Lease            |   | 112,800          |   |
| Mt. Jackson, VA           |   | Customer supplied inserts       |   | Lease            |   | 61,700           |   |

 

In addition, theCompany leases several sales offices located throughout the United States.  The Company believes that none of its leasesare material to its operations and that such leases were entered into on marketterms.

 

**Item3.            Legal Proceedings**

 

On November 24, 1999, Journal Communications, Inc. and Northstar PrintGroup, Inc. filed suit against the Company in the State of Wisconsin CircuitCourt for Jefferson County, Case No. 99CV373, arising out of the Company’sredemption of its Series A redeemable preferred stock held by the plaintiffsdue to the Company’s outstanding indemnity claims involving breaches ofwarranties and representations made by the plaintiffs on certain assetspurchased from the plaintiffs in connection with the acquisition of PerryPrinting Corporation in 1995. Redemption features of the Series A redeemable preferred stock providethe Company with the option to offset such claims as immediate redemption ofthe Series A redeemable preferred stock up to a maximum redemption value of $5million.  The complaint alleged that theCompany wrongfully redeemed the preferred stock, refused to pay dividends onother stock, and refused to pay for certain services allegedly rendered by theplaintiff to the Company.  On August 31,2000, the Company reached a settlement agreement, effective June 30, 2000, withthe former owner of Perry Printing concerning the two indemnity claims and theemployee benefit obligation claim. Pursuant to this agreement, the Company paid the former owner of PerryPrinting the redemption value of Series B and D redeemable preferred stockincluding unpaid dividends of $2,545,000 through June 30, 2000, and dividendsof $1,452,000 relating to Series A redeemable preferred stock which waspartially reinstated in the amount of 43,940.68 shares.  These Series A shares were recorded in theconsolidated financial statements at their estimated fair value as of the April28, 1995 acquisition date of $2,197,000, plus an adjustment for accretionthrough June 30, 2000 of $946,000.

 

Other claims,suits, and complaints may arise in the ordinary course of the Company’sbusiness.  The Company believes that anysuch pending matters are adequately reserved for, are covered by insurance, orwould not have a material adverse effect on the consolidated financialstatements of the Company, taken as a whole, if determined adversely againstthe Company.

 

**Item4.            Submission of Matters to aVote of Security Holders**

 

None.

 

11

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**PART II**

 

**Item 5.            Market for Registrant’s CommonEquity and Related Stockholder Matters**

 

###### **Market Information**

 

There is no established public trading market for the Company’s commonstock or other equity securities. As of December 31, 2001, there were 15holders of the common stock.

 

**Dividends**

 

The Company has never paid and has no presentintention of paying cash dividends on its common stock.  Any determination in the future to paydividends will depend on the Company’s financial condition, capital requirements,results of operations, contractual limitations and any other factors deemedrelevant by the Company’s Board of Directors. In addition, the Indenture governing the Company’s Senior Notes due in2007 imposes certain restrictions on the Company’s ability to make certaindistributions and restricts the payment of dividends by the Company in certaincircumstances.

 

**Item 6.            SelectedFinancial Data**

 

The following table setsforth selected consolidated financial data for each of the last five fiscalyears.  This information is qualified byreference to, and should be read together with, the Consolidated FinancialStatements and Notes thereto and “Management’s Discussion and Analysis ofFinancial Condition and Results of Operations” included elsewhere in thisAnnual Report on Form 10-K.  The statementof operations data for the years ended December 31, 2001, 2000 and 1999 and thebalance sheet data as of December 31, 2001 and 2000 are derived from theConsolidated Financial Statements of the Company included elsewhere in thisAnnual Report on Form 10-K.  Informationrelated to 1998 and 1997 is derived from financial statements not includedherein.

 
|                                                 |   | **Perry Judd’s Holdings, Inc.** |    |
|------------------------------------------------------|--------|--------------------------------------|---------|
|                                                 |   | **(dollars in thousands)**           |    |
|                                                 |   |                                 |    |
|                                                 |   | **Year Ended  December 31, 2001**    |    | **Year Ended  December 31, 2000 (6)** |   | **Year Ended  December 31, 1999(5)** |   | **Year Ended  December 31, 1998(4)** |   | **Year Ended  December 31, 1997(3)** |   |
| Statement of Operations  Data:                       |   |                                 |    |   |   |   |   |   |   |   |   |
| Net Sales                                            |   | $                                    | 321,111 |   | $ | 342,869 |   | $ | 315,998 |   | $ | 309,367 |   | $ | 161,290 |   |
| Operating Expenses                                   |   | 300,612                              |    | 321,408 |   | 305,679 |   | 295,981 |   | 155,376 |   |
| Income from Operations                               |   | 20,499                               |    | 21,461 |   | 10,319 |   | 13,386 |   | 5,914 |   |
| Net Income (Loss)                                    |   | 2,792                                |    | 60 |   | (4,464 | ) | (2,539 | ) | (2,658 | ) |
| Balance Sheet Data (end of  period):                 |   |                                 |    |   |   |   |   |   |   |   |   |
| Working Capital                                      |   | $                                    | 36,386  |   | $ | 33,737 |   | $ | 31,085 |   | $ | 73,579 |   | $ | 32,890 |   |
| Total Assets                                         |   | 212,526                              |    | 228,269 |   | 234,251 |   | 231,320 |   | 233,354 |   |
| Long Term Debt                                       |   | 115,000                              |    | 122,800 |   | 128,818 |   | 139,101 |   | 143,186 |   |
| Minority Interests (1)                               |   | 3,488                                |    | 3,254 |   | 9,340 |   | 8,267 |   | 7,217 |   |
| Stockholders’ Equity                            |   | 23,002                               |    | 20,079 |   | 19,371 |   | 23,835 |   | 26,374 |   |
| Other Financial Data:                                |   |                                 |    |   |   |   |   |   |   |   |   |
| EBITDA (2)                                           |   | $                                    | 35,396  |   | $ | 32,215 |   | $ | 23,920 |   | $ | 26,020 |   | $ | 13,866 |   |
| Statement of Cash Flows Data:                        |   |                                 |    |   |   |   |   |   |   |   |   |
| Net Cash Provided By (Used In)  Operating Activities |   | $                                    | 15,327  |   | $ | 20,869 |   | $ | 8,355 |   | $ | (5,336 | ) | $ | (1,288 | ) |
| Net Cash Provided By (Used In)  Investing Activities |   | (10,110                              | )       | (6,453 | ) | (38,583 | ) | 46,384 |   | (86,511 | ) |
| Net Cash Provided By (Used In)  Financing Activities |   | (6,018                               | )       | (13,424 | ) | (8,284 | ) | (2,383 | ) | 89,395 |   |

 

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(1)   Includes unpaid dividends in the three yearsended December 31, 1999.

 

(2)   “EBITDA” represents earnings before interest,income taxes, depreciation, amortization, noncash compensation related tocommon stock options, and gains and losses on dispositions of assets.  While EBITDA should not be construed as asubstitute for operating income or loss or a better indicator of liquidity thancash flow from operating activities, which are determined in accordance withgenerally accepted accounting principles, it is included herein to provideadditional information with respect to the ability of the Company to meet itsfuture debt service, capital expenditure and working capital requirements.  EBITDA is not necessarily a measure of theCompany’s ability to fund its cash needs, and items excluded from EBITDA (suchas depreciation and amortization) are significant to an understanding of theCompany’s financial results.  Inaddition, EBITDA as presented by the Company may not be directly comparable tosimilarly-titled measures presented by other companies.  See the Company’s Consolidated Statements ofCash Flows and the related notes thereto included in this Form 10K.

 

(3)   On December 16, 1997, the Company acquiredthe assets of Judd’s Incorporated for $102.0 million less outstandingindebtedness.

 

(4)   On September 2, 1998, the Company sold allthe outstanding shares of capital stock of its subsidiary, Port City for $29.4million.

 

(5)   On February 1, 1999, the Company acquired allof the issued and outstanding capital stock of Heartland for $17.5 million.

 

(6)   On October 19, 2000, the Company soldsubstantially all of the net assets of its subsidiary Judd’s Online, for $6.3million.

 

12

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**Item 7.            Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

The followingdiscussion of our financial condition and results of operations should be readin conjunction with our financial statements and the related notes to suchfinancial statements included elsewhere in this Report beginning on page F-1.  The following discussion containsforward-looking statements that involve risks and uncertainties.  The statements are based on currentexpectations, and actual results could differ materially from those discussedherein.  Factors that could cause or contributeto the differences are discussed in “Business — Risk Factors” and elsewhere inthis Annual Report.

 

**Results of Operations**

 

**Comparison of the year ended December31, 2001 with the year ended December 31, 2000**

 

Net salesdecreased $21.8 million or 6.4% to $321.1 million for the year ended December31, 2001 from $342.9 million for the year ended December 31, 2000. The decreaseresulted primarily from a lower volume of production units from new andexisting customers and from the sale of Judd’s Online on October 19, 2000,whose net sales of $4.4 million are included in the 2000 results.

 

Costs ofproduction and distribution decreased $22.8 million or 8.3% to $253.1 millionfor the year ended December 31, 2001 from $275.9 million for the year ended December31, 2000, principally due to lower operating expenses resulting from reducedproduction levels, the sale of Judd’s Online, and the termination of a definedbenefit pension plan. Costs of production and distribution as a percentage ofnet sales were 78.8% for the year ended December 31, 2001 as compared to 80.5%for the year ended December 31, 2000. Paper costs were 23.6% of net sales forthe year ended December 31, 2001 versus 23.5% for the year ended December 31,2000.

 

Selling, generaland administrative expenses decreased $2.6 million or 7.4% to $32.3 million forthe year ended December 31, 2001 compared to $34.9 million for the year endedDecember 31, 2000 principally related to the sale of Judd’s Online. Selling,general and administrative expenses decreased as a percent of net sales to10.1% in the 2001 period compared to 10.2% in the 2000 period.

 

Depreciationexpense increased $1.1 million or 8.1% to $14.6 million for the year endedDecember 31, 2001 from $13.5 million for the year ended December 31, 2000 dueprimarily from the full year effect of purchased assets placed in service from2000.

 

Gains or losses ondisposals of business and equipment decreased $3.8 million for the year endedDecember 31, 2001 compared to the year ended December 31, 2000 relatedprincipally to the gain recognized on the sale of substantially all of the netassets of Judd’s Online on October 19, 2000.

 

Income fromoperations decreased $1.0 million or 4.7% to $20.5 million for the year endedDecember 31, 2001 from $21.5 million for the year ended December 31, 2000, dueto the factors discussed in the preceding paragraphs.

 

EBITDA (as definedin Item 6. “Selected Financial Data” above) increased $3.2 million or 9.9% to$35.4 million for the year ended December 31, 2001 from $32.2 million for theyear ended December 31, 2000 principally due to the factors discussed in thefirst two paragraphs of this section. EBITDA increased as a percent of netsales from 9.4% to 11.0%.

 

Interest expensedecreased $1.0 million to $12.8 million for the year ended December 31, 2001from $13.8 million for the year ended December 31, 2000 as a result of reduceddebt levels and lower borrowing rates.

 

13

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**Comparison of the year ended December31, 2000 with the year ended December 31, 1999**

 

Net salesincreased $26.9 million or 8.5% to $342.9 million for the year ended December31, 2000 from $316.0 million for the year ended December 31, 1999.  The increase resulted primarily from thereturn of work at the Waterloo Plant which was temporarily displaced during thesecond quarter of 1999 due to labor negotiations which were unresolved at thetime, an additional month of activity related to Heartland which was acquiredon February 1, 1999 and an overall increase in volume from new and existingcustomers.

 

Costs ofproduction and distribution increased $16.6 million or 6.4% to $275.9 millionfor the year ended December 31, 2000 from $259.3 million for the year endedDecember 31, 1999, principally due to increases in production related to thefactors mentioned in the preceding paragraph. Costs of production and distribution as a percentage of net sales were80.5% for the year ended December 31, 2000 as compared to 82.1% for the yearended December 31, 1999, principally from improved operating efficiencies andlower net material costs incurred during the 2000 year. Paper costs were 23.5%of net sales for the year ended December 31, 2000 versus 24.1% for the yearended December 31, 1999.

 

Selling, generaland administrative expenses increased $2.5 million or 7.7% to $34.9 million forthe year ended December 31, 2000 compared to $32.4 million for the year endedDecember 31, 1999 principally as a result of increased sales.  Selling, general and administrative expensesdecreased as a percent of net sales to 10.2% in the 2000 period compared to10.3% in the 1999 period.

 

Depreciationexpense increased $1.6 million or 13.4% to $13.5 million for the year endedDecember 31, 2000 from $11.9 million for the year ended December 31, 1999 dueprimarily from the full year effect of purchased assets placed in service from1999.

 

Gains or losses ondisposals of business and equipment increased $4.6 million for the year endedDecember 31, 2000 compared to the year ended December 31, 1999 relatedprincipally to the gain recognized on the sale of substantially all of the netassets of Judd’s Online on October 19, 2000.

 

Income fromoperations increased $11.2 million or 108.7% to $21.5 million for the yearended December 31, 2000 from $10.3 million for the year ended December 31,1999, due to the factors discussed in the preceding paragraphs.

 

EBITDA (as definedin Item 6.  “Selected Financial Data”above) increased $8.3 million or 34.7% to $32.2 million for the year endedDecember 31, 2000 from $23.9 million for the year ended December 31, 1999principally due to the factors discussed in the first two paragraphs of thissection.  EBITDA increased as a percentof net sales from 7.6% to 9.4%.

 

Interest expensedecreased $0.5 million to $13.8 million for the year ended December 31, 2000from $14.3 million for the year ended December 31, 1999 as a result of reduceddebt levels during the 2000 period compared to the 1999 period.

 

14

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**Liquidity and Capital Resources**

 

Historically, the Companyhas funded its capital and operating requirements with a combination of cashflow from operations, borrowings, and external operating leases.  Earnings before interest, income taxes,depreciation, amortization, noncash compensation related to common stockoptions and gains and losses on dispositions of assets (“EBITDA”) was $35.4million, $32.2 million and $23.9 million for the years ended December 31, 2001,2000 and 1999, respectively.

 

Working capital was $36.4 million, $33.7 million and $31.1 million atDecember 31, 2001, 2000 and 1999, respectively. The $2.7 million increase in working capital at December 31, 2001 versusDecember 31, 2000 was primarily attributable to a reduced level of accruedliabilities relating to capital projects in progress. The $2.6 million increasein working capital at December 31, 2000 versus December 31, 1999 was primarilyattributable to the redemption of preferred stock held by the former owner ofPerry Printing (see legal proceedings) and the sale of Judd’s Online resultingin net proceeds of $6.3 million.

 

Capital expenditures forpurchased assets and asset acquisitions funded under operating leases were asfollows for the periods indicated (dollars in millions):

 
| **Capital Expenditures**       |   | **Year Ended  December 31,  2001** |   | **Year Ended  December 31,  2000** |   | **Year Ended  December 31,  1999** |   |
|--------------------------------|--------|------------------------------------|--------|------------------------------------|--------|------------------------------------|--------|
| Purchased                      |   | $                                  | 11.0   |                               | $      | 12.8                               |   | $ | 14.5 |   |
| Funded under  operating leases |   | 15.5                               |   | 1.0                                |   | 8.6                                |   |
| Total                          |   | $                                  | 26.5   |                               | $      | 13.8                               |   | $ | 23.1 |   |

 

These capital expenditures reflect the purchase andlease of additional prepress, press and bindery equipment.  The purchased capital investments have beenfunded by internally generated funds and by borrowings under the CreditAgreement.  Generally, these capitalexpenditures have increased or will increase the Company’s production capacityand are part of the Company’s objective to maintain modern, efficient plantsand technologically advanced equipment. At December 31, 2001, the Company had commitments to purchase or leaseapproximately $14.1 million of operating assets.

 

During 1997 and1998, the Company entered into sale and leaseback transactions for the majorityof its real property located in Wisconsin and Virginia. Each of the sale andleaseback transactions has a 20-year term. The following table summarizes theinitial annual lease expense and future escalations resulting from the sale andleaseback transactions.

 
|      |   | **Initial  Annual Lease Expense** |        | **Escalations  Commencing at the Start of Year** |   |
|-----------|--------|-----------------------------------|-------------|--------------------------------------------------|--------|
|      |   |                              |        | **6**                                            |   | **11** |   | **16** |   |
| Wisconsin |   | $                                 | 1.9 million |                                             | 10.0   | % | 10.0 | % | 10.0 | % |
| Virginia  |   | $                                 | 1.3 million |                                             | 14.5   | % | 14.5 | % | 14.5 | % |

 

On December 16, 1997, concurrent with the consummationof the Judd’s acquisition and the issuance of the 10-5/8% senior subordinateddebt, the Company amended and restated its existing term loan and revolvingcredit facility to provide a $45 million Revolving Credit Facility (based upona borrowing base) and a $30 million Term Loan Facility.  The scheduled amortization of the Term Loan Facilityis payable in monthly installments.  Inaddition to the scheduled amortization under the Term Loan Facility, additionalpayments are required equal to 75% of the annual excess cash flow, as defined,with payments to be applied in inverse order for amortization purposes. Theinitial five-year term of the Amended and Restated Credit Agreement expires onDecember 15, 2002 and Company management intends to negotiate a new creditagreement.

 

On February 1,1999, the Company acquired all of the issued and outstanding capital stock ofHeartland for $17.5 million in cash, including acquisition costs.  In addition, the Company assumed $6.6million of Heartland’s indebtedness, all of which was paid in full uponconsummation of the acquisition.

 

On October 19, 2000, the Company sold substantiallyall of the net assets of its subsidiary, Judd’s Online, to a subsidiary ofSusquehanna Media Corporation for approximately $6.3 million, net of closingcosts.  Net sales and loss fromoperations for this subsidiary which are included in the consolidated resultsof operations are as follows:

 

|                 |   | **January 1,  1999  through  December 31, 1999** |         | **January 1,  2000   through   October 18, 2000** |   |
|----------------------|--------|--------------------------------------------------|--------------|---------------------------------------------------|--------|
| Net sales            |   | $                                                | 3.4 million  |                                              | $      | 4.4 million |   |
| Loss from operations |   | $                                                | (0.1 million | )                                                 | $      | (0.4 million | ) |

 

Rents and operating lease expense were $17.2 million,$17.8 million and $16.5 million for the years ended December 31, 2001, 2000 and1999, respectively.

 

At December 31, 2001, the Company has approximately$2.8 million of net operating loss carryforwards for state income tax purposes.  The Company has alternative minimum taxcredits of approximately $2.3 million as of December 31, 2001, which do notexpire and may be applied against regular tax in the future, in the eventregular tax expense exceeds alternative minimum tax.

 

The Company plans to fund the majority of its majornew capital expenditures through operating leases for the foreseeablefuture.  The Company believes that cashgenerated from operations and available borrowings under the Amended andRestated Credit Agreement will be sufficient to fund planned capitalexpenditures, working capital requirements, operating leases and interest andprincipal payments for the foreseeable future. The Revolving Credit Facility has an aggregate commitment of $45.0million, $41.4 million of which was available for future working capital andother general corporate purposes as of December 31, 2001.

 

For informationrelated to future commitments of the Company, see Notes 4, 7 and 11 of theNotes to Consolidated Financial Statements.

 

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**Item 7A.         Quantitative and Qualitative Disclosures about Market Risk**

 

The Companygenerally does not enter into any material futures, forwards, swaps, options orother derivative financial instruments for trading or other purposes.  The primary exposure to market risk relatesto fluctuations in interest rates and the effects those changes may have onoperating results due to long-term financing arrangements.  The Company manages its exposure to thismarket risk by monitoring interest rates and possible alternative means offinancing.  Operating results may beaffected by changes in short-term interest rates under the revolving credit andterm loan facilities, pursuant to which borrowings bear interest at a variable rate.  Based on our debt outstanding under therevolving credit and term loan facilities as of December 31, 2001, an increaseof 1.0% in interest rates would increase interest expense and decrease incomebefore income taxes by approximately $78,000. See Note 4 of the Notes toConsolidated Financial Statements.

 

**Item 8:           Financial Statements and Supplementary Data**

 

The financialstatements and schedules listed in the accompanying Index to consolidatedfinancial statements and schedules on page F-1 are filed as a part of thisreport.

 

**Item 9:           Changesin and Disagreements with Accountants on Accounting and Financial Disclosure**

 

Deloitte &Touche LLP was previously the independent auditors for Perry Judd’s Holdings,Inc. On August 27, 2001, that firm’s appointment as independent auditors wasterminated and Ernst & Young LLP was engaged as independent auditors. Thedecision to change accountants was recommended by management and approved bythe Board of Directors.

 

During the twofiscal years ended December 31, 2000, and the subsequent interim period throughAugust 27, 2001, there were no disagreements with Deloitte & Touche LLP onany matter of accounting principles or practices, financial statementdisclosure, or auditing scope or procedure, which disagreements if not resolvedto their satisfaction would have caused them to make reference in connectionwith their opinions to the subject matter of the disagreement.

 

The IndependentAuditors’ Reports of Deloitte & Touche LLP on the consolidated financialstatements of Perry Judd’s Holdings, Inc. and subsidiaries as of and for theyears ended December 31, 2000 and 1999 did not contain any adverse opinion ordisclaimer of opinion, nor were they qualified or modified as to uncertainty,audit scope, or accounting principles.

 

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**PART III**

 

**Item10****.         Directors,Executive Officers and Key Management Employees**

 

The table belowsets forth certain information regarding the directors, senior executiveofficers, and certain other executive officers and key management employees ofthe Company and its subsidiaries as of March 1, 2002.  All of the persons listed below are U.S. citizens.

 

**Directors and Senior**

**Executive Officers**

 
| **Name**           |   | **Age** |   | **Position**                                                            |
|--------------------|--------|---------|--------|-------------------------------------------------------------------------|
| Robert E. Milhous  |   | 65      |   | Chairman of the Board  of Directors                                     |
| Paul B. Milhous    |   | 63      |   | Vice-Chairman of the  Board of Directors                                |
| Craig A. Hutchison |   | 49      |   | Director, President and  Chief Executive Officer                        |
| David E. Glick     |   | 55      |   | Director and Executive  Vice President, Operations                      |
| Verne F. Schmidt   |   | 61      |   | Director, Secretary,  Senior Vice President and Chief Financial Officer |
| Beth A. Lindsay    |   | 47      |   | Senior Vice President,  Human Resources                                 |

 

**Executive Officers andKey Management Employees**

 
| **Name**              |   | **Age** |   | **Position**                                        |
|-----------------------|--------|---------|--------|-----------------------------------------------------|
| Howard D. Sullivan    |   | 65      |   | Senior Vice President,  Publication Sales           |
| Timothy M. Smith      |   | 44      |   | Vice President,  Publication Sales                  |
| Stephen M. Sanfelippo |   | 44      |   | Vice President,  Commercial and Catalog Sales       |
| Bradley J. Hoffman    |   | 40      |   | Vice President,  Corporate Controller               |
| Walter A. Edwards     |   | 51      |   | Vice President,  Division Manager - Baraboo Plant   |
| Larry C. Cole         |   | 58      |   | Vice President,  Division Manager - Waterloo Plant  |
| Allen C. Briggs       |   | 53      |   | Vice President,  Division Manager - Strasburg Plant |
| Daniel L. Leever      |   | 53      |   | Vice President,  Division Manager - Heartland Plant |

 

*Robert E. Milhous* has been Chairman of the Board of Perry Judd’sHoldings, Inc. and Perry Judd’s since December 1994.  Mr. Milhous was Chairman of the Board of Treasure Chest and itspredecessor corporation from 1967 until the sale of Treasure Chest in1993.  Mr. Milhous is also the Chairmanof the Board of Directors of Novamil Corporation (“Novamil”), which managesvarious companies owned by affiliates controlled by himself and Paul B.Milhous.  Robert E. Milhous is thebrother of Paul B. Milhous.

 

*Paul B. Milhous* has been Vice Chairman of the Board of Perry Judd’sHoldings, Inc. and Perry Judd’s since December 1994.  Mr. Milhous was Vice Chairman of the Board of Treasure Chest andits predecessor corporation from 1967 until the sale of Treasure Chest in1993.  Mr. Milhous is also theVice-Chairman of the Board of Directors of Novamil, which manages variouscompanies owned by affiliates controlled by himself and Robert E. Milhous.  Paul B. Milhous is the brother of Robert E.Milhous.

 

*Craig A. Hutchison* has been the President and CEO of Perry Judd’s sinceApril 1995.  Prior to that, Mr.Hutchison was President and CEO of Perry Printing Corporation (“PerryPrinting”), the predecessor of Perry Judd’s, since 1990.  Mr. Hutchison has been a member of the Boardof Directors of Perry Judd’s Holdings, Inc. and Perry Judd’s since April 1995.

 

*David E. Glick* joined Perry Judd’s as Executive Vice President ofOperations in February 1998 and has been a member of the Board of Directors ofPerry Judd’s Holdings, Inc. and Perry Judd’s since that time.  From 1993 to January 1998, Mr. Glick servedin various capacities at Treasure Chest Advertising, a subsidiary of Big FlowerPress Holdings, Inc., including Senior Vice President of Operations, SeniorVice President and General Manager of Operations and Sales and Senior VicePresident of Operations and Technology.

 

17

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*Verne F. Schmidt* has been Senior Vice President and Chief FinancialOfficer since he joined Perry Judd’s in January 1997 and was elected to theBoard of Directors of Perry Judd’s Holdings, Inc. and Perry Judd’s in February1998.  In July 2001, Mr. Schmidt wasappointed as Secretary of the Company. From 1974 through 1996, Mr. Schmidt heldvarious financial and accounting positions including Senior Vice President andChief Financial Officer of Ringier America and its predecessor companies.

* *

*Beth A. Lindsay* has been Senior Vice President of Human Resourcessince joining Perry Judd’s in March 1996. From 1982 to 1996, Ms. Lindsay was employed with World Color Press invarious positions, including Human Resources Director, Vice President HumanResources, Commercial Division, and Regional Vice President, Human Resources.

 

*Howard D. Sullivan* has been Senior Vice President, Publication Salessince December 1997.  Prior to thisdate, Mr. Sullivan served as Vice President of Sales and Customer Service,Shenandoah Valley.  Mr. Sullivan joinedJudd & Detweiler in 1958 and rose to the position of Executive VicePresident by 1979.  He left Judd’s in1988 to serve as President and CEO of Holliday-Tyler Printing Corporation.  He returned to Shenandoah Valley as VicePresident and Regional Sales Manager in 1992.

 

*Timothy M. Smith* has been Vice President of Publication Sales of PerryJudd’s since January 1997.  Prior toassuming his current responsibilities, Mr. Smith was Vice President of NationalAccounts from 1994 to 1997.  Mr. Smithserved as Vice President of Eastern Sales from May 1993 to 1994 and, beforethat, he was Director of Sales from 1990 to 1993.

 

*Stephen M. Sanfelippo* has been Vice President, Commercial and Catalog Salessince January 2000.  Prior to assuminghis current responsibilities, Mr. Sanfelippo served as Vice President CentralRegion Commercial Sales of Perry Judd’s since October 1997.  Prior to that, he was Director of CentralRegion Sales from 1994 to October 1997.

 

*Bradley J. Hoffman* has been Vice President, Corporate Controller ofPerry Judd’s since May 1998 and previously was Vice President, Finance of PerryPrinting from July 1994.  From December1992 to July 1994, Mr. Hoffman served as Controller Web Division/WaterlooPlant.  From September 1989 to December1992, Mr. Hoffman was Chief Financial Officer and Director of Operations atPutman Publishing Company.

 

*Walter A. Edwards* has been Vice President, Division Manager of theBaraboo Plant since joining Perry Judd’s in January 1996.  From 1991 to 1995, Mr. Edwards was employedby World Color Press as Vice President and Regional Manager.  From 1974 to 1991, Mr. Edwards held avariety of positions at R.R. Donnelley & Sons/Meredith-Burda, includingVice President, Manufacturing and Group Manufacturing Manager.

 

*Larry C. Cole* has been Vice President, Division Manager of theWaterloo Plant since March 1991.  FromJanuary 1990 to March 1991, Mr. Cole served as Vice President of Operations ofPerry Printing.  Mr. Cole joined PerryPrinting in 1988 as Director of Material Management.

 

*Allen C. Briggs* has been Vice President, Division Manager of theStrasburg Plant since May 1998.  FromFebruary 1994 until May 1998, he was employed at Treasure Chest Advertising asVice President, Division Manager.  FromJanuary 1993 until February 1994, he held various positions at Ringier America,including Vice President, Division Manager. From October 1988 to January 1993, Mr. Briggs was employed as VicePresident of Manufacturing at Shenandoah Valley.

 

*Daniel L. Leever* has been Vice President, Division Manager of theHeartland Plant since February 1999. From January 1998 until February 1999 he was Manufacturing Manager ofthe Strasburg Division.  Prior to thathe was Plant Manager at Wilcox Press from 1996 to 1998.

 

18

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**Item11****.         ExecutiveCompensation**

 

**Director Compensation**

 

Non-employeedirectors are reimbursed for their out-of-pocket expenses incurred in attendingmeetings of the Board of Directors of the Company.  In addition, Robert E. Milhous and Paul B. Milhous currentlyreceive $33,275 each in annual compensation for their services as Chairman andVice Chairman, respectively, of the Board of Directors of the Company.

 

**Executive Compensation**

 

The followingSummary Compensation Table sets forth certain information with respect to thecompensation paid or accrued by the Company for services rendered during theyears ended December 31, 2001, 2000 and 1999 by the Company’s Chief ExecutiveOfficer and each of the four other most highly compensated executive officerswhose annual salary and bonus exceeded $100,000 (collectively, the “NamedExecutive Officers”):

 

**Summary Compensation Table**

 
|                            |   | **Annual  Compensation (1)** |   | **Long-Term  Compensation (2)** |          |      |   |
|---------------------------------|--------|------------------------------|--------|---------------------------------|---------------|-----------|--------|
| **Name and Principal Position** |   | **Year**                     |   | **Salary**                      |          | **Bonus** |   | **Other  Annual Compensation** |   | **Securities  Underlying Options (# of Shares)** |   | **All Other  Compensation (1)** |   |
| Craig A. Hutchison,             |   | 2001                         |   | $                               |  325,805 |      | $      |  156,386 |   | — |   | — |   |   |   |
| *President  and CEO*            |   | 2000                         |   | $                               |  316,486 |      | $      |  126,594 |   | — |   | — |   | — |   |
|                            |   | 1999                         |   | $                               |  307,275 |      | $      |  122,910 |   | — |   | — |   | — |   |
|                            |   |                         |   |                            |          |      |   |   |   |   |   |   |   |
| David E. Glick,                 |   | 2001                         |   | $                               |  294,946 |      | $      |  123,877 |   |   |   | — |   |   |   |
| *Executive  Vice President,*    |   | 2000                         |   | $                               |  285,214 |      | $      |  99,825 |   | — |   | — |   | — |   |
| *Operations*                    |   | 1999                         |   | $                               |  277,070 |      | $      |  96,975 |   | — |   | — |   | $ | 265,343 | (3) |
|                            |   |                         |   |                            |          |      |   |   |   |   |   |   |   |
| Howard D. Sullivan,             |   | 2001                         |   | $                               |  269,426 |      | $      |  82,795 |   | $ | 12,300 | (4) | — |   | $ | 100,000 | (5) |
| *Senior  Vice President,*       |   | 2000                         |   | $                               |  259,500 |      | $      |  68,302 |   | $ | 12,300 | (4) | — |   | $ | 75,000 | (5) |
| *Publication  Sales*            |   | 1999                         |   | $                               |  242,573 |      | $      |  74,779 |   | $ | 339 | (4) | — |   | — |   |
|                            |   |                         |   |                            |          |      |   |   |   |   |   |   |   |
| Verne F. Schmidt,               |   | 2001                         |   | $                               |  254,818 |      | $      |  107,024 |   | — |   |   |   |   |   |
| *Senior  Vice President and*    |   | 2000                         |   | $                               |  246,462 |      | $      |  86,262 |   | — |   | — |   | $ | 1,008 | (3) |
| *Chief  Financial Officer*      |   | 1999                         |   | $                               |  233,362 |      | $      |  82,062 |   | — |   | — |   | $ | 12,595 | (3) |
|                            |   |                         |   |                            |          |      |   |   |   |   |   |   |   |
| Beth A. Lindsay                 |   | 2001                         |   | $                               |  189,458 |      | $      |  79,572 |   | — |   | — |   | — |   |
| *Senior  Vice President,*       |   | 2000                         |   | $                               |  182,846 |      | $      |  63,996 |   | — |   | — |   | — |   |
| *Human  Resources*              |   | 1999                         |   | $                               |  177,846 |      | $      |  58,511 |   | — |   | — |   | — |   |

 

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(1)     Thecompensation described in this table does not include medical, group lifeinsurance or other benefits received by the Named Executive Officers which areavailable generally to all salaried employees of the Company and certainperquisites and other personal benefits, securities or property received by theNamed Executive Officers which do not exceed the lesser of $50,000 or 10% ofany such officer’s salary and bonus disclosed in this table.

 

(2)     The Company didnot grant any restricted stock awards or stock appreciation rights or make anylong-term incentive plan payouts to the Named Executive Officers during 2001.

 

(3)     Consists ofrelocation expenses paid by the Company.

 

(4)     Consists ofauto lease payments paid by the Company.

 

(5)     Consists ofamounts accrued under a severance agreement.

 

19

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**Option Grants**

 

No stock optionswere granted to the Named Executive Officers during 2001.

 

**Year-End Option Table**

 

All stock optionsheld by Named Executive Officers were exercised in 2000.

 

**Employment Agreement**

 

On April 28, 1995,Craig Hutchison entered into a three-year employment agreement with PerryJudd’s (the “Employment Agreement”) to serve as President and Chief ExecutiveOfficer of Perry Judd’s.  The employmentagreement was extended for three one-year periods commencing April 1998 andunless terminated by written notice of either party, the Employment Agreementrenews automatically for up to two additional one-year periods.  The Employment Agreement provides for a basesalary of $235,000, subject to adjustment upward at the discretion of the Boardof Directors.  Mr. Hutchison’s currentannual base salary is $327,600.  Underthe Employment Agreement, Mr. Hutchison is entitled to participate in theIncentive Compensation Plan (as defined below), the Stock Option Plan (asdefined below) and in all other life, welfare and health plans and benefitprograms made available by the Company to the senior executive officers of theCompany.  The Employment Agreementprovides for severance pay in case of termination by Mr. Hutchison for goodcause, the expiration of the fifth term extension, or for termination otherthan for cause, death or permanent disability. The severance pay shall equal the aggregate salary which would bepayable to Mr. Hutchison during the period commencing on the effective date oftermination and ending one year thereafter. However, if such effective date shall be subsequent to the expiration ofa fourth term extension it shall be assumed that Mr. Hutchison would have beenentitled to salary at the rate in effect on the effective date of terminationduring such one year period after such date notwithstanding the expiration ofthe fifth term extension.

 

**Change in Control Severance Program**

 

Under theseverance arrangement with Mr. Hutchison, dated April 28, 1995, (i) if there isa change in control (ii) if the aggregate value of stock and stock options heldby Mr. Hutchison (“equity value”) is less than $2,000,000 and (iii) if (a) Mr.Hutchison’s employment is terminated as a result of the change of control, (b)Mr. Hutchison is asked to accept lesser responsibility but instead elects toleave the Company, or (c) Mr. Hutchison is asked to relocate and instead leavesthe Company, Mr. Hutchison’s salary will be continued at a rate of $333,000 peryear for up to three years or until new employment is commenced, whicheveroccurs first.  Furthermore, upon deathor if there is a change in control, and the equity value realized by Mr.Hutchison is less than $1,000,000, the Company will be obligated to pay Mr.Hutchison the amount of such difference.

 

The Companyentered into three severance arrangements with three of its executive officers,Verne F. Schmidt, David E. Glick and Howard D. Sullivan in December 1996,January 1998, and March 2000, respectively, under which each officer isentitled to certain benefits in the event of a change in control of theCompany.

 

Under theseverance arrangement with Verne F. Schmidt, (i) if there is a change incontrol and (ii) if (a) Mr. Schmidt’s employment is terminated or (b) Mr.Schmidt does not have the opportunity to accept a comparable position with asuccessor entity after a change of control, Mr. Schmidt will receive hiscurrent salary and benefits for up to one year or until he accepts anotherposition, whichever occurs first.

 

Under theseverance arrangement with David E. Glick, (i) if there is a change in control(ii) if the aggregate value of stock and stock options held by Mr. Glick(“equity value”) is less than $2,000,000 and (iii) if (a) Mr. Glick’semployment is terminated as a result of the change of control, (b) Mr. Glick isasked to accept lesser responsibility but instead elects to leave the Company,or (c) Mr. Glick is asked to relocate and instead leaves the Company, Mr.Glick’s salary will be continued at a rate of $333,000 per year for up to threeyears or until new employment is commenced, whichever occurs first.  Furthermore, upon death or if there is achange in control, and the equity value realized by Mr. Glick is less than$1,000,000, the Company will be obligated to pay Mr. Glick the amount of suchdifference.

 

Under theseverance arrangement with Howard D. Sullivan, Mr. Sullivan is entitled to apayment of $200,000 if (i) there is a change of control or (ii) if Mr. Sullivanremains active and effective in his current capacity as Senior Vice Presidentof Publication Sales through March 31, 2002. If Mr. Sullivan leaves the employ of the Company before March 31, 2002for any reason other than a good cause termination, Mr. Sullivan will beentitled to a pro rata payment through the last day of his employment.

 

20

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**Stockholder Agreements**

 

Certain agreementsamong the stockholders of the Company, to which the Company is also a party,provide majority stockholders proposing to sell shares in a change of controltransaction with the right to require the other stockholders to include theirshares in such sale.  Conversely,minority stockholders have the right to sell shares on a sale by majoritystockholders on a pro rata basis.  Inaddition, the agreements provide the Company with rights of first refusal onproposed transfers of shares by certain other stockholders.

 

At December 31,2001, 42,905 shares of common stock held by management are subject to put andcall arrangements similar to the shares purchased under the Stock Option Plan(see below) at the employee’s termination, retirement after attaining age 62,permanent disability or death.

 

**Management Incentive CompensationPlan**

 

The Company’smanagement employees, including the Named Executive Officers, are eligible toparticipate in the Company’s Management Incentive Compensation Program (the“Management Incentive Program”).  Underthe Management Incentive Program, management employees are eligible to receivean annual cash bonus based on the Company’s achievement of financialperformance targets that are based on the Company’s annual budget as approvedby the Board of Directors.  During 2001,the Company achieved certain financial performance targets and bonus paymentsof approximately $1.5 million have been accrued under the Management IncentiveProgram to be paid in 2002.

 

**1995 Stock Option Plan**

 

On May 6, 1995,the Board of Directors adopted and the stockholders approved the 1995 StockOption Plan (the “Stock Option Plan”), which provides for the grant ofnon-statutory stock options (“Options”) for the purchase of common stock of theCompany to officers and employees of the Company.  The Stock Option Plan was subsequently amended by the Board ofDirectors in 1995 and 2000.  The maximumnumber of shares of common stock issuable under the Stock Option Plan is41,307, all of which have been granted and exercised.  The Stock Option Plan is currently administered by the Board ofDirectors of the Company, but can be delegated to an authorized committeethereof.

 

Options grantedunder the Stock Option Plan are “hybrid” performance options.  Options are immediately exercisable, butoption shares issuable are subject to repurchase by the Company on terminationof employment at the $0.01 original exercise price until vested.  Options vest as follows: 10% on December 31of each of the first five calendar years of service commencing with December 31of the calendar year of the option grant; 15% on December 31 of the next twocalendar years; and the remaining 20% on December 31 of the eighth calendaryear from the issuance date. Accelerated vesting of Options can occur during the first five calendaryears after issuance upon the Company’s attainment of performance milestones,determined annually by the Board of Directors. For each year in which performance milestones are attained, 10% of theshares under the Options shall vest on an accelerated basis, with theinstallments that would vest latest under the Options being acceleratedfirst.  Outstanding Options alsoaccelerate upon the occurrence of a change of control of the Company.  During 2001, 2000 and 1999, the Companyachieved certain financial performance targets accelerating the vesting of 10%each year of certain shares under the Options. The exercise price of Options under the Stock Option Plan is set at$0.01 per share, and each Option has an 18-year term.  During 2000, all outstanding options were exercised.

 

In addition to theright to repurchase unvested option shares described above, under the StockOption Plan, vested option shares are subject to a call by the Company and aput by the employee in the event the option shareholder retires after attainingage 62, becomes permanently disabled or dies. The put and call options are at fair value. Upon termination of servicefor reasons other than retirement, disability or death, vested option sharesare subject to a call by the Company, at fair value.   In addition, the Company has a right to call and the optionshareholder has a right to put any vested option shares issued or issuableunder outstanding Options at the end of their 18-year term at fair value.  The Stock Option Plan also provides that theCompany has a right of first refusal on any proposed disposition of sharesacquired under an Option by sale, transfer or in connection with a marital dissolution,which right shall lapse upon the initial public offering of the Company’scommon stock.

 

21

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**401(k) Plan**

 

The Company’soperating subsidiary, Perry Judd’s, implemented a 401(k) Retirement SavingsPlan effective April 28, 1995 (the “401(k) Plan”).  All employees 21 years of age or older employed by Perry Judd’sand any affiliated company who adopts the plan are or will be eligible toparticipate in the 401(k) Plan. Participants in the 401(k) Plan may not contribute more than certainspecified amounts depending upon the employee’s level of compensation.  Each company participating in the 401(k)Plan makes contributions to the 401(k) Plan equal to 3% of eligible earnings ofall qualified participating employees, as determined under the 401(k)Plan.  Participating employees are 100%vested in all contributions.

 

**Compensation Committee Interlocks andInsider Participation**

 

The Company doesnot have a compensation committee.  Thefollowing officers and employees participated in deliberations concerningexecutive compensation: Robert E. Milhous, Paul B. Milhous, Craig A. Hutchisonand Beth A. Lindsay. Mr. Hutchison is an executive officer of Perry Judd’s anda member of the Board of Directors of Perry Judd’s Holdings, Inc.

 

**Item12.****         SecurityOwnership of Certain Beneficial Owners and Management.**

 

The following table setsforth certain information regarding beneficial ownership of the Company’scommon stock as of March 1, 2002 (i) by each person known by the Company to ownbeneficially more than 5% of the outstanding shares of Common Stock, (ii) byeach director and Named Executive Officer and (iii) by all directors andexecutive officers of the Company as a group. Except as otherwise listed below, the address of each person listed isc/o Perry Judd’s Incorporated, 575 West Madison Street, Waterloo, Wisconsin53594.

 
|                                                          |   | **Shares  Beneficially  Owned at  March 1, 2002** |   |
|---------------------------------------------------------------|--------|---------------------------------------------------|--------|
| **Name**                                                      |   | **Number**                                        |   | **Percent** |   |
| Ropamil Limited Partnership(1)                                |   | 782,775                                           |   | 86.8 |   |
| 791 Park of  Commerce Drive  Boca Raton, Florida 33487        |   |                                              |   |   |   |
|                                                          |   |                                              |   |   |   |
| Craig A. Hutchison                                            |   | 27,193                                            |   | 3.0 |   |
|                                                          |   |                                              |   |   |   |
| David E. Glick                                                |   | 20,392                                            |   | 2.3 |   |
|                                                          |   |                                              |   |   |   |
| Verne F. Schmidt                                              |   | 5,718                                             |   | * |   |
|                                                          |   |                                              |   |   |   |
| Beth A. Lindsay                                               |   | 5,718                                             |   | * |   |
|                                                          |   |                                              |   |   |   |
| All directors and executive officers as a group (13  persons) |   | 866,987                                           |   | 96.2 |   |

 

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*       *Less than 1%*

 

(1)     Robert E. Milhous, adirector, and the Chairman of the Board of Directors of the Company and Paul B.Milhous, a director and the Vice-Chairman of the Board of Directors of theCompany and certain affiliated entities beneficially own the partnershipinterests in this partnership.

 

22

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**Item13.****         CertainRelationships and Related Party Transactions.**

 

Perry Judd’s andNovamil Corporation (“Novamil”), a California corporation owned beneficially byRobert E. Milhous, Chairman of the Company and Paul B. Milhous, Vice Chairmanof the Company, were parties to a Management Agreement dated as of April 28,1995 which was subsequently assigned by Perry Judd’s to Perry Judd’s Holdingsand amended by Perry Judd’s and Novamil as of December 16, 1997 (the “AmendedManagement Agreement”).  Pursuant to theAmended Management Agreement, Novamil provides Perry Judd’s Holdings certainmanagement services by agents and employees of Novamil other than Robert E.Milhous and Paul B. Milhous in connection with business strategy, operationsand finance.  Under the AmendedManagement Agreement, as amended, Perry Judd’s Holdings pays to Novamil anannual management fee of $750,000 payable in equal monthly installments and subjectto annual adjustment for increases in costs of living.  The Amended Management Agreement has a termof five years from December 16, 1997, subject to one-year extensionsthereafter, unless earlier terminated upon the liquidation or dissolution ofPerry Judd’s Holdings, or ten days after a party has received written notice ofa material breach where such breach remains uncured after such ten-day period.

 

Pursuant to aconsulting agreement dated April 28, 1995 (the “Consulting Agreement”), RobertE. Milhous and Paul B. Milhous provide consulting services to Perry Judd’s asprincipals of New House Capital Management Corp., (“New House”) a Delawarecorporation, for which Perry Judd’s pays an annual consulting fee of $450,000(subject to annual increases not to exceed 10%), payable in equal monthlyinstallments.  The Consulting Agreementhas an initial term of five years, subject to one-year extensions thereafter,unless earlier terminated upon the liquidation or dissolution of the Company orten days after a party has received written notice of a material breach wheresuch breach remains uncured after such ten-day period.  On December 16, 1997, the ConsultingAgreement was assigned by Perry Judd’s to the Company. During 2001, the Companyapproved an additional bonus of $500,000 payable to New House which has beenaccrued as of December 31, 2001.

 

Pursuant to apromissory note dated November 15, 1996, PPC Holdings loaned to Thomas V.Bressan, a former Director of the Company, the principal amount of $175,000 at aninterest rate of 7% per annum. Principal and interest was payable in four annual installments of$26,100 with final payment of all principal and interest outstanding thereafterdue and payable on November 15, 2001. On November 15, 2001, the Company extendedand replaced the initial promissory note with an amended promissory note whichis due on November 15, 2008. Under the amended promissory note of $122,154, aninitial payment of $26,100 was due on February 15, 2002. On November 15, 2002and on each November 15 thereafter, all accrued and unpaid interest is due andpayable. On November 15, 2008, the principal balance and accrued and unpaidinterest is due and payable in full.

 

Pursuant to aconsulting agreement dated as of January 10, 1997, Thomas V. Bressan, a formerDirector of the Company, provided consulting services to Perry Judd’s regardingstrategic planning, acquisition analysis and structuring, financing and othersignificant corporate transactions, and other business strategies.  The agreement had a term of five years, witha  total consulting fee payable underthe agreement of $225,000, payable in five equal annual installments of$45,000. On November 15, 2001, the Company extended and modified the consultingagreement through November 15, 2003 with an additional consulting fee payableunder the agreement of $13,450 payable in two annual installments of $6,725.The agreement may be extended on annual basis without notification by mutualconsent provided that the services performed comply with the agreement.

 

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**PART IV**

 

**Item14.****         Exhibits,Financial Statement Schedules, and Reports on Form 8-K.**

 

(a)          The following documents are included in this report atthe page numbers indicated.

 
|   | Financial Statements: |
|--------|-----------------------|
|   |                  |   |
|   |                  | Report of Ernst & Young LLP,  Independent Auditors |
|   |                  |   |
|   |                  | Independent Auditors’ Report |
|   |                  |   |
|   |                  | Consolidated Balance Sheets  as of December 31, 2001 and 2000 |
|   |                  |   |
|   |                  | Consolidated  Statements of Operations for the years ended December 31, 2001, 2000 and 1999 |
|   |                  |   |
|   |                  | Consolidated  Statements of Minority Interests, Preferred Stock and Stockholders’ Equity  for the years ended December 31, 2001, 2000 and 1999 |
|   |                  |   |
|   |                  | Consolidated  Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999 |
|   |                  |   |
|   |                  | Notes to  Consolidated Financial Statements |
|   |                  |   |
|   | Schedules:            |
|   |                  |   |
|   |                  | Schedule II -  Valuation and Qualifying Accounts |

 

(b)   Reports on Form 8-K

 

The Company didnot file any reports on Form 8-K in the fourth quarter ended December 31, 2001.

 

(c)   Exhibits

 

Included at theend of this Annual Report on Form 10-K.

 

24

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**EXHIBITINDEX**

 

The following exhibits are filed as a part of this report or incorporatedby reference and will be furnished to any security holder upon request for suchexhibit and payment of any reasonable expenses incurred by the Company.  Send any such request to the Company at 575West Madison Street, Waterloo, WI 53594.

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                                                                         |
|---------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.2                 |   | Stock Purchase Agreement dated as of July 31, 1998  by and among Mack Printing Company, Port City Press, Inc. and Perry Judd’s  Incorporated. Incorporated by reference to Exhibit 2.2 to the 8-K dated as of  September 17, 1998.                                                                                 |
| 3.1 *               |   | Amended and Restated Certificate of Incorporation of  the Company.                                                                                                                                                                                                                                                      |
| 3.2                 |   | Amended and Restated By-laws of the Company.  Incorporated by reference to Exhibit 3.2  to the Registration Statement.                                                                                                                                                                                             |
| 4.1                 |   | Indenture dated as of December 16, 1997 between the  Company and U.S. Trust Company of California, N.A., as Trustee, including  forms of Senior Notes. Incorporated by reference to Exhibit 4.1 to the  Registration Statement.                                                                                         |
| 4.1(a)              |   | First Supplemental  Indenture dated as of June 10, 1998 among the Company, the Subsidiary Guarantors  named therein, the Additional Subsidiary Guarantor named therein and U.S.  Trust Company of California N.A. as Trustee.   Incorporated by reference to Exhibit 4.1(a) to the Registration  Statement.        |
| 4.2                 |   | Registration Rights Agreement dated as of December  16, 1997 between the Company and BT Alex. Brown as Initial Purchaser.  Incorporated by reference to Perry Judd’s  Incorporated by reference to Exhibit 4.2 to the Registration Statement.                                                                 |
| 10.2                |   | Amended and Restated  Credit Agreement dated as of December 16, 1997, among Perry Graphic  Communications, Inc., Shenandoah Valley Press, Inc., and Port City Press,  Inc., as Borrowers, the Lenders (as defined therein) and BT Commercial.  Incorporated by reference to Exhibit 10.2 to the Registration Statement. |
| 10.3                |   | 1995 Stock Option Plan, as amended. Incorporated by  reference to Exhibit 10.3 to the Registration Statement.                                                                                                                                                                                                           |
| 10.4 + †       |   | Employment Agreement by and between the Company and  Craig A. Hutchison dated April 28, 1995.   Incorporated by reference to Exhibit 10.4 to the Registration  Statement.                                                                                                                                          |
| 10.4(a) †      |   | Employment Offer Letter from the Company to David E.  Glick dated January 16, 1998.                                                                                                                                                                                                                                     |
| 10.4(b) †      |   | Employment Offer Letter from the Company to Verne F.  Schmidt dated December 26, 1996.                                                                                                                                                                                                                                  |
| 10.4(c) †      |   | Severance Agreement Letter from the Company to  Howard D. Sullivan dated March 24, 2000.                                                                                                                                                                                                                                |
| 10.5                |   | Stockholders Agreement by and among the stockholders  of the Company named therein dated as of July 1, 1996.  Incorporated by reference to Exhibit 10.5  to the Registration Statement.                                                                                                                            |
| 10.6                |   | Amended and Restated Co-Sale Agreement by and among  the stockholders of the Company named therein dated as of December 30,  1996.  Incorporated by reference to  Exhibit 10.6 to the Registration Statement.                                                                                                      |
| 16.0                |   | Letter regarding change in certifying accountant.                                                                                                                                                                                                                                                                       |
| 21.0 *              |   | Subsidiary Listing                                                                                                                                                                                                                                                                                                      |

 

----

*      Filed herewith

+      Confidential treatment has been requested and received as toportions of this agreement.

†      Indicates a management contract or compensatory arrangement.

 

25

----

 

**SIGNATURES**

** **

Pursuant to therequirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this report to be signed on its behalf by theundersigned, thereunto duly authorized, on the 29th day of March,2002.

 
|   | **PERRY JUDD’S HOLDINGS, INC.** |
|--------|--------------------------------------|
|   |                                 |
|   | By:                                  | /s/ | Craig A. Hutchison |
|   |                                 |   | Craig A. Hutchison |
|   |                                 |   | President and Chief  Executive Officer |

** **

**POWER OFATTORNEY**

 

KNOW ALL MEN BY THESE PRESENTS, the undersigned hereby constitute andappoint Craig A. Hutchison and Verne F. Schmidt, and each of them, as his trueand lawful attorney-in-fact and agent, with full power of substitution andresubstitution, for him and in his name, place and stead, in any and allcapacities, to sign any and all amendments to this Report, and to file thesame, with exhibits thereto, and other documents in connection therewith, withthe Securities and Exchange Commission, granting unto said attorney-in-fact andagent, full power and authority to do and perform each and every act and thingrequisite or necessary to be done in connection therewith, as fully to allintents and purposes as he might or could do in person, hereby ratifying andconfirming all that said attorney-in-fact and agent, or his substitute orsubstitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934,this report has been signed by the following persons on behalf of theRegistrant in the capacities and on the dates indicated.

 
| **SIGNATURE**          | **TITLE**                              | **DATE**                                        |
|------------------------|----------------------------------------|-------------------------------------------------|
|                   |                                   |                                            |
| /s/ Craig A. Hutchison |                                   | President, Chief Executive Officer, and         | March 29, 2002 |
| Craig A. Hutchison     | Director (Principal Executive Officer) |                                            |
|                   |                                   |                                            |
| /s/ David E. Glick     |                                   | Executive Vice President,                       | March 29, 2002 |
| David E. Glick         | Operations, and Director               |                                            |
|                   |                                   |                                            |
| /s/ Verne F. Schmidt   |                                   | Senior Vice President, Chief Financial Officer, | March 29, 2002 |
| Verne F. Schmidt       | Secretary and Director                 |                                            |
|                   | (Principal Financial Officer)          |                                            |
|                   |                                   |                                            |
| /s/ Robert E. Milhous  |                                   | Director                                        | March 29, 2002 |
| Robert E. Milhous      |                                   |                                            |
|                   |                                   |                                            |
| /s/ Paul B. Milhous    |                                   | Director                                        | March 29, 2002 |
| Paul B. Milhous        |                                   |                                            |

 

26

----

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**INDEXTO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES**

 
| Financial Statements:                                                                                                                               |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                |
| Report of Ernst & Young LLP,  Independent Auditors                                                                                              |
|                                                                                                                                                |
| Independent Auditors’ Report                                                                                                                   |
|                                                                                                                                                |
| Consolidated Balance  Sheets as of December 31, 2001 and 2000                                                                                       |
|                                                                                                                                                |
| Consolidated  Statements of Operations for the years ended December 31, 2001, 2000 and 1999                                                         |
|                                                                                                                                                |
| Consolidated  Statements of Minority Interests, Preferred Stock and Stockholders’ Equity  for the years ended December 31, 2001, 2000 and 1999 |
|                                                                                                                                                |
| Consolidated  Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999                                                         |
|                                                                                                                                                |
| Notes to  Consolidated Financial Statements                                                                                                         |
|                                                                                                                                                |
| Schedules:                                                                                                                                          |
|                                                                                                                                                |
| For the years ended December 31, 2001, 2000 and  1999:                                                                                              |
|                                                                                                                                                |
| II                                                                                                                                                  | Valuation and Qualifying  Accounts |

 

All other schedules are omitted because they are not applicable or therequired information is shown in the consolidated financial statements or notesthereto.

 

 

F-1

----

 

 

**Report of Ernst****& Young LLP, Independent Auditors**

 

The Board of Directors and Stockholders

Perry Judd’s Holdings, Inc.

 

We have audited the accompanying consolidated balance sheet of PerryJudd’s Holdings, Inc. (the Company) as of December 31, 2001, and the relatedconsolidated statements of operations, minority interests, preferred stock andstockholders’ equity, and cash flows for the year then ended.  Our audit also included the financialstatement schedule for the year ended December 31, 2001. These financialstatements and schedule are the responsibility of the Company’smanagement.  Our responsibility is toexpress an opinion on these financial statements and schedule based on ouraudit.

 

We conducted our audit in accordance with auditing standards generallyaccepted in the United States. Those standards require that we plan and performthe audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overallfinancial statement presentation. We believe that our audit provides areasonable basis for our opinion.

 

In our opinion, the consolidated financial statements referred to abovepresent fairly, in all material respects, the consolidated financial positionof the Company as of December 31, 2001, and the consolidated results of itsoperations and its cash flows for the year then ended, in conformity withaccounting principles generally accepted in the United States.  Also, in our opinion, the related financialstatement schedule for the year ended December 31, 2001, when considered inrelation to the basic financial statements taken as a whole, presents fairly,in all material respects, the information set forth therein.

 

# **ERNST& YOUNG LLP**

 

Milwaukee, Wisconsin

February 22, 2002

 

 

F-2

----

 

**Independent Auditors’****Report**

 

To the Board ofDirectors and Stockholders of

Perry Judd’sHoldings, Inc.:

 

We have auditedthe accompanying consolidated balance sheet of Perry Judd’s Holdings, Inc. andsubsidiaries as of December 31, 2000, and the related consolidated statementsof operations, minority interests, preferred stock and stockholders’ equity,and cash flows for each of the two years in the period ended December 31,2000.  Our audits also included theconsolidated financial statement schedule for each of the two years in theperiod ended December 31, 2000 listed in the Index at Item 14.  These financial statements and financialstatement schedule are the responsibility of the Company’s management.  Our responsibility is to express an opinionon the 2000 and 1999 financial statements and financial statement schedulebased on our audits.

 

We conducted ouraudits in accordance with auditing standards generally accepted in the UnitedStates of America.  Those standardsrequire that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement.  An audit includes examining, on a testbasis, evidence supporting the amounts and disclosures in the financialstatements.  An audit also includes assessingthe accounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation.  We believe that our audits provide areasonable basis for our opinion.

 

In our opinion,such consolidated financial statements present fairly, in all materialrespects, the financial position of Perry Judd’s Holdings, Inc. andsubsidiaries as of December 31, 2000, and the results of their operations andtheir cash flows for each of the two years in the period ended December 31,2000, in conformity with accounting principles generally accepted in the UnitedStates of America.  Also, in ouropinion, such consolidated financial statement schedule for each of the twoyears in the period ended December 31, 2000, when considered in relation to thebasic 2000 and 1999 consolidated financial statements taken as a whole,presents fairly in all material respects the information set forth therein.

 

DELOITTE &TOUCHE LLP

 

Milwaukee,Wisconsin

March 16, 2001

 

 

F-3

----

 

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**CONSOLIDATED BALANCE SHEETS**

**(Dollars in thousands, except pershare)**

 

**ASSETS**

 
|                                            |   | **December  31,** |    |
|-------------------------------------------------|--------|-------------------|---------|
|                                            |   | **2001**          |    | **2000** |   |
| CURRENT ASSETS:                                 |   |              |    |   |   |
| Cash and cash  equivalents                      |   | $                 | 4,123   |   | $ | 4,924 |   |
| Accounts  receivable, net                       |   | 59,353            |    | 63,123 |   |
| Inventories                                     |   | 14,624            |    | 19,374 |   |
| Prepaid expenses                                |   | 1,801             |    | 1,645 |   |
| Deferred income  taxes                          |   | 1,079             |    | 1,145 |   |
| Total current  assets                           |   | 80,980            |    | 90,211 |   |
|                                            |   |              |    |   |   |
| PROPERTY, PLANT  AND EQUIPMENT:                 |   |              |    |   |   |
| Machinery and equipment                         |   | 127,498           |    | 114,854 |   |
| Office  furniture, equipment and vehicles       |   | 10,197            |    | 9,933 |   |
| Buildings and  improvements                     |   | 3,166             |    | 3,165 |   |
| Leasehold  improvements                         |   | 4,504             |    | 4,127 |   |
| Land and land  improvements                     |   | 607               |    | 607 |   |
| Projects in  progress                           |   | 2,722             |    | 8,509 |   |
|                                            |   | 148,694           |    | 141,195 |   |
| Less accumulated  depreciation and amortization |   | 51,219            |    | 39,667 |   |
| Property, plant  and equipment, net             |   | 97,475            |    | 101,528 |   |
|                                            |   |              |    |   |   |
| INTANGIBLE  ASSETS:                             |   |              |    |   |   |
| Goodwill, net                                   |   | 29,431            |    | 30,380 |   |
| Deferred  financing costs, net                  |   | 3,673             |    | 4,881 |   |
| Acquisition  costs, net                         |   | 967               |    | 1,269 |   |
| Intangible  assets, net                         |   | 34,071            |    | 36,530 |   |
| TOTAL                                           |   | $                 | 212,526 |   | $ | 228,269 |   |

 

See notes to consolidatedfinancial statements.

 

 

 

F-4

----

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**CONSOLIDATED BALANCE SHEETS**

**(Dollars in thousands, except per share)**

 

**LIABILITIES, MINORITY INTERESTS AND STOCKHOLDERS’ EQUITY**

 
|                                                                                                                                                                          |   | **December  31,** |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|---------|
|                                                                                                                                                                          |   | **2001**          |    | **2000** |   |
| CURRENT  LIABILITIES:                                                                                                                                                         |   |              |    |   |   |
| Accounts payable                                                                                                                                                              |   | $                 | 18,323  |   | $ | 22,755 |   |
| Accrued expenses                                                                                                                                                              |   | 17,502            |    | 26,941 |   |
| Accrued interest  and dividends                                                                                                                                               |   | 663               |    | 649 |   |
| Income taxes  payable                                                                                                                                                         |   | 306               |    | 111 |   |
| Current portion  of long-term debt                                                                                                                                            |   | 7,800             |    | 6,018 |   |
| Total current  liabilities                                                                                                                                                    |   | 44,594            |    | 56,474 |   |
|                                                                                                                                                                          |   |              |    |   |   |
| LONG-TERM DEBT  (less current portion)                                                                                                                                        |   | 115,000           |    | 122,800 |   |
|                                                                                                                                                                          |   |              |    |   |   |
| DEFERRED INCOME  TAXES                                                                                                                                                        |   | 17,014            |    | 15,816 |   |
|                                                                                                                                                                          |   |              |    |   |   |
| OTHER NONCURRENT  OBLIGATIONS                                                                                                                                                 |   | 9,428             |    | 9,846 |   |
|                                                                                                                                                                          |   |              |    |   |   |
| MINORITY  INTERESTS, Series A redeemable preferred stock, 43,941 shares outstanding  with a stated redemption value of $100 per share, aggregate liquidation value  of $4,394 |   | 3,488             |    | 3,254 |   |
|                                                                                                                                                                          |   |              |    |   |   |
| STOCKHOLDERS’  EQUITY:                                                                                                                                                   |   |              |    |   |   |
| Preferred stock  (Series A)—par value $0.001 per share, 775,000 shares authorized, 172,328 and  148,731 shares issued and outstanding, respectively                      |   | 17,233            |    | 14,873 |   |
| Common stock-par  value $0.001 per share, 1,000,000 shares authorized, 901,317 shares issued  and outstanding, respectively                                                   |   | 1                 |    | 1 |   |
| Additional  paid-in capital                                                                                                                                                   |   | 22,279            |    | 22,148 |   |
| Accumulated  deficit                                                                                                                                                          |   | (16,511           | )       | (16,943 | ) |
| Total  stockholders’ equity                                                                                                                                              |   | 23,002            |    | 20,079 |   |
| TOTAL                                                                                                                                                                         |   | $                 | 212,526 |   | $ | 228,269 |   |

 

See notes to consolidatedfinancial statements.

 

 

F-5

----

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**CONSOLIDATED STATEMENTS OF OPERATIONS**

**(Dollars in thousands)**

 
|                                                                       |   | **Year Ended  December 31,** |       |
|----------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                       |   | **2001**                     |       | **2000** |   | **1999** |   |
| NET SALES                                                                  |   | $                            | 321,111    |   | $ | 342,869 |   | $ | 315,998 |   |
|                                                                       |   |                         | ** ** |   | ** ** |   | ** ** |
| OPERATING  EXPENSES:                                                       |   |                         |       |   |   |   |   |
| Costs of  production and distribution                                      |   | 253,074                      |       | 275,931 |   | 259,312 |   |
| Selling, general  and administrative                                       |   | 32,338                       |       | 34,945 |   | 32,385 |   |
| Depreciation                                                               |   | 14,582                       |       | 13,511 |   | 11,863 |   |
| Amortization of  intangibles                                               |   | 1,251                        |       | 1,441 |   | 1,983 |   |
| (Gain) loss on  disposals of business and equipment                        |   | (633                         | )          | (4,420 | ) | 136 |   |
|                                                                       |   | 300,612                      |       | 321,408 |   | 305,679 |   |
|                                                                       |   |                         |       |   |   |   |   |
| INCOME FROM  OPERATIONS                                                    |   | 20,499                       |       | 21,461 |   | 10,319 |   |
|                                                                       |   |                         |       |   |   |   |   |
| OTHER (INCOME)  EXPENSES:                                                  |   |                         |       |   |   |   |   |
| Interest expense                                                           |   | 12,784                       |       | 13,831 |   | 14,293 |   |
| Interest income                                                            |   | (127                         | )          | (621 | ) | (980 | ) |
| Amortization of  deferred financing costs                                  |   | 1,200                        |       | 1,200 |   | 1,241 |   |
| Other expenses                                                             |   | 434                          |       | 426 |   | 381 |   |
|                                                                       |   | 14,291                       |       | 14,836 |   | 14,935 |   |
|                                                                       |   |                         |       |   |   |   |   |
| INCOME (LOSS)  BEFORE INCOME TAXES                                         |   | 6,208                        |       | 6,625 |   | (4,616 | ) |
|                                                                       |   |                         |       |   |   |   |   |
| PROVISION  (BENEFIT) FOR INCOME TAXES                                      |   | 2,909                        |       | 3,320 |   | (1,226 | ) |
|                                                                       |   |                         |       |   |   |   |   |
| INCOME (LOSS) BEFORE DIVIDENDS AND ACCRETION ON REDEEMABLE PREFERRED STOCK |   | 3,299                        |       | 3,305 |   | (3,390 | ) |
|                                                                       |   |                         |       |   |   |   |   |
| DIVIDENDS AND  ACCRETION ON REDEEMABLE PREFERRED STOCK                     |   | 507                          |       | 3,245 |   | 1,074 |   |
|                                                                       |   |                         |       |   |   |   |   |
| NET INCOME  (LOSS)                                                         |   | $                            | 2,792      |   | $ | 60 |   | $ | (4,464 | ) |

 

See notes to consolidatedfinancial statements.

 

 

F-6

----

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**CONSOLIDATED STATEMENTS OF MINORITY INTERESTS,**

**PREFERRED STOCK AND STOCKHOLDERS’ EQUITY**

**(Dollars in thousands)**

 
|                                                                |   | **Minority  Interests** |   | **Preferred  Stock** |   | **Common  Stock And Additional Paid-in Capital** |    |                |   |
|---------------------------------------------------------------------|--------|-------------------------|--------|----------------------|--------|--------------------------------------------------|---------|---------------------|--------|
|                                                                |   | **Shares**              |   | **Carrying  Value**  |   | **Shares**                                       |    | **Carrying  Value** |   | **Shares** |   | **Carrying  Value** |   | **Accumulated  Deficit** |   |
| December 31, 1998                                                   |   | 70,973                  |   | $                    | 7,097  |                                             | 110,790 |                | $      | 11,079 |   | 860,010 |   | $ | 21,501 |   | $ | (8,745 | ) |
| Net loss                                                            |   | —                  |   | —               |   | —                                           |    | —              |   | — |   | — |   | (4,464 | ) |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Stock dividends                                                     |   | 1,625                   |   | 163                  |   | 17,576                                           |    | 1,758               |   | — |   | — |   | (1,758 | ) |
| December 31,  1999                                                  |   | 72,598                  |   | 7,260                |   | 128,366                                          |    | 12,837              |   | 860,010 |   | 21,501 |   | (14,967 | ) |
| Net income                                                          |   | —                  |   | —               |   | —                                           |    | —              |   | — |   | — |   | 60 |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Stock dividends                                                     |   | 813                     |   | 81                   |   | 20,365                                           |    | 2,036               |   | — |   | — |   | (2,036 | ) |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Redemption of  Series B and D redeemable preferred stock            |   | (73,411                 | )      | (7,341               | )      | —                                           |    | —              |   | — |   | — |   | — |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Reinstatement of  Series A redeemable preferred stock               |   | 43,941                  |   | 3,143                |   | —                                           |    | —              |   | — |   | — |   | — |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Accretion  on  Series A redeemable preferred  stock            |   | —                  |   | 111                  |   | —                                           |    | —              |   | — |   | — |   | — |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Stock options  exercised at $0.01 per share                         |   | —                  |   | —               |   | —                                           |    | —              |   | 41,307 |   | — |   | — |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Provision for  noncash compensation related to common stock options |   | —                  |   | —               |   | —                                           |    | —              |   | — |   | 648 |   | — |   |
| December 31, 2000                                                   |   | 43,941                  |   | 3,254                |   | 148,731                                          |    | 14,873              |   | 901,317 |   | 22,149 |   | (16,943 | ) |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Net income                                                          |   | —                  |   | —               |   | —                                           |    | —              |   | — |   | — |   | 2,792 |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Stock dividends                                                     |   | —                  |   | —               |   | 23,597                                           |    | 2,360               |   | — |   | — |   | (2,360 | ) |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Accretion on  Series A redeemable preferred stock                   |   | —                  |   | 234                  |   | —                                           |    | —              |   | — |   | — |   | — |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| Provision for  noncash compensation related to common stock options |   | —                  |   | —               |   | —                                           |    | —              |   | — |   | 131 |   | — |   |
|                                                                |   |                    |   |                 |   |                                             |    |                |   |   |   |   |   |   |   |
| December 31,  2001                                                  |   | 43,941                  |   | $                    | 3,488  |                                             | 172,328 |                | $      | 17,233 |   | 901,317 |   | $ | 22,280 |   | $ | (16,511 | ) |

 

See notes to consolidatedfinancial statements.

 

 

F-7

----

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(Dollars in thousands)**

** **
|                                                                                             |   | **Year Ended  December 31,** |       |
|--------------------------------------------------------------------------------------------------|--------|------------------------------|------------|
|                                                                                             |   | **2001**                     |       | **2000** |   | **1999** |   |
| CASH FLOWS FROM  OPERATING ACTIVITIES:                                                           |   |                         | ** ** |   | ** ** |   | ** ** |
| Net income  (loss)                                                                               |   | $                            | 2,792      |   | $ | 60 |   | $ | (4,464 | ) |
|                                                                                             |   |                         | ** ** |   | ** ** |   | ** ** |
| Adjustments to  reconcile net income (loss) to net cash   provided by operating activities: |   |                         | ** ** |   | ** ** |   | ** ** |
| Depreciation and  amortization                                                                   |   | 15,833                       |       | 14,952 |   | 13,846 |   |
| Amortization of  deferred financing costs                                                        |   | 1,200                        |       | 1,200 |   | 1,241 |   |
| Reinstatement  and accretion on redeemable preferred stock                                       |   | 234                          |       | 3,254 |   | — |   |
| Compensation  related to common stock options                                                    |   | 131                          |       | 648 |   | — |   |
| Deferred income  taxes                                                                           |   | 1,176                        |       | 1,531 |   | (1,226 | ) |
| (Gain) loss on  disposals of business and equipment                                              |   | (633                         | )          | (4,420 | ) | 136 |   |
| Changes in  assets and liabilities excluding effect of businesses acquired or disposed:          |   |                         |       |   |   |   |   |
| Receivables                                                                                      |   | 3,770                        |       | 2,062 |   | (9,383 | ) |
| Inventories                                                                                      |   | 4,750                        |       | (568 | ) | (3,127 | ) |
| Prepaid expenses                                                                                 |   | (156                         | )          | 158 |   | (177 | ) |
| Accounts payable                                                                                 |   | (4,432                       | )          | (4,696 | ) | 8,789 |   |
| Accrued expenses                                                                                 |   | (9,439                       | )          | 9,826 |   | 1,196 |   |
| Accrued interest  and dividends                                                                  |   | 14                           |       | (3,020 | ) | 1,010 |   |
| Income taxes,  net                                                                               |   | 283                          |       | (77 | ) | (800 | ) |
| Other  liabilities                                                                               |   | (196                         | )          | (41 | ) | 1,314 |   |
| Net cash  provided by operating activities                                                       |   | 15,327                       |       | 20,869 |   | 8,355 |   |
|                                                                                             |   |                         |       |   |   |   |   |
| CASH FLOWS FROM  INVESTING ACTIVITIES:                                                           |   |                         |       |   |   |   |   |
| Acquisition of  businesses, net of cash acquired                                                 |   | —                       |       | — |   | (24,118 | ) |
| Proceeds from  sale of businesses                                                                |   | —                       |       | 6,268 |   | — |   |
| Expenditures for  property, plant and equipment                                                  |   | (26,531                      | )          | (13,788 | ) | (23,117 | ) |
| Capital projects  converted to operating leases                                                  |   | 15,533                       |       | 1,038 |   | 8,649 |   |
| Proceeds from  sale of property, plant and equipment                                             |   | 888                          |       | 29 |   | 3 |   |
| Net cash used in  investing activities                                                           |   | (10,110                      | )          | (6,453 | ) | (38,583 | ) |
|                                                                                             |   |                         |       |   |   |   |   |
| CASH FLOWS FROM  FINANCING ACTIVITIES:                                                           |   |                         |       |   |   |   |   |
| Redemption of  Series B and D redeemable preferred stock                                         |   | —                       |       | (7,341 | ) | — |   |
| Repayment of  term debt                                                                          |   | (6,018                       | )          | (6,083 | ) | (8,284 | ) |
| Net cash used in  financing activities                                                           |   | (6,018                       | )          | (13,424 | ) | (8,284 | ) |
|                                                                                             |   |                         |       |   |   |   |   |
| NET (DECREASE)  INCREASE IN CASH AND CASH EQUIVALENTS                                            |   | (801                         | )          | 992 |   | (38,512 | ) |
| BALANCE AT  BEGINNING OF YEAR                                                                    |   | 4,924                        |       | 3,932 |   | 42,444 |   |
| BALANCE AT END  OF YEAR                                                                          |   | $                            | 4,123      |   | $ | 4,924 |   | $ | 3,932 |   |

 

**SUPPLEMENTALCASH FLOW INFORMATION:**

 

Cash paid during the year(in thousands):

 
|         |   | **Year Ended  December 31,** |   |
|--------------|--------|------------------------------|--------|
|         |   | **2001**                     |   | **2000** |   | **1999** |   |
| Interest     |   | $                            | 12,769 |   | $ | 13,869 |   | $ | 14,642 |   |
|         |   |                         |   |   |   |   |   |
| Income taxes |   | $                            | 1,450  |   | $ | 1,830 |   | $ | 768 |   |

 

**NON-CASHTRANSACTIONS:**

 

Stock dividends issued to minority interestsapproximated $81,000 and $163,000 based on their estimated value at the time ofissuance for the years ended December 31, 2000 and 1999, respectively.  Such amounts were paid effective June 30,2000.

 

On December 16, 1997, the Company issued 95,000 sharesof Series A preferred stock to the majority stockholders in exchange for a notepayable plus accrued and unpaid interest. Stock dividends issued on this stock approximated $2,360,000, $2,036,000and $1,758,000 for the years ended December 31, 2001, 2000 and 1999,respectively.  See Note 9.

 

See notes to consolidatedfinancial statements.

 

 

F-8

----

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

 

**1.     GENERALINFORMATION**

 

*Nature of Business -*The Company is a full service heatset web offsetprinter of magazines, catalogs, and other commercial products.  The Company serves a national domesticmarket in the printing of weekly and monthly consumer, special interest andtrade magazines, business-to-business and consumer catalogs, and a variety ofother direct advertising products.  TheCompany operates principally in one business segment, printing services.

 

*Principles of Consolidation* - The consolidated financial statements include theaccounts of Perry Judd’s Holdings, Inc., its wholly-owned subsidiary, PerryJudd’s Incorporated, (Perry Judd’s) and Judd’s Online, Inc. (Judd’s Online), awholly-owned subsidiary of Perry Judd’s (collectively hereafter referred to asthe “Company”).  All significantintercompany balances and transactions have been eliminated.

 

Effective April 28, 1995, the Company acquired certainnet assets of Perry Printing Corporation (“Perry Printing”).  Prior to April 28, 1995, the Company had nooperating activities.  On December 16,1997 the Company acquired all of the outstanding capital stock of Judd’sIncorporated (Judd’s).  Judd’s wassubsequently merged into Perry Judd’s.

 

Effective February 1, 1999, the Company acquired allof the outstanding capital stock of Heartland Press, Inc. (“Heartland”) for$17.5 million, including acquisition costs. Heartland was subsequently merged with and into Perry Judd’s.  In addition, the Company assumed $6.6million of Heartland’s indebtedness, all of which was paid in full uponconsummation of the acquisition.  Theacquisition was accounted for under the purchase method of accounting and, accordingly,the results of operations are included in the accompanying financial statementssince the acquisition date.  The finalallocation of the purchase price was based upon the estimated fair value of theassets acquired and liabilities assumed as follows (in thousands):

 
| Fair value of assets acquired      |   | $       | 21,420 |   |
|------------------------------------|--------|---------|--------|--------|
| Goodwill                           |   | 8,697   |   |
| Fair value of  liabilities assumed |   | (12,642 | )      |
| Amounts paid to  creditors         |   | 6,643   |   |
| Cash paid for  net assets acquired |   | $       | 24,118 |   |

 

***AssetDispositions***

 

On October 19,2000, the Company sold substantially all of the net assets of its subsidiary,Judd’s Online, to a subsidiary of Susquehanna Media Corporation for $6.3million, net of closing costs.  Theafter-tax gain resulting from this sale approximated $2.6 million (approximately$4.2 million on a pre-tax basis).  Netsales of Judd’s Online were $4.4 million for the period from January 1, 2000through October 18, 2000, and $3.4 million for the year ended December 31,1999.  The business incurred a loss fromoperations of $0.4 million for the period from January 1, 2000 through October18, 2000, and $0.1 million for the year ended December 31, 1999.  Concurrent with the sale of Judd’s Online, aone-time fee of $300,000 was paid to a company owned beneficially by themajority stockholders of the Company for services related to the disposition.

 

 

F-9

----

 

**2.     SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES**

 

*Cashand Cash Equivalents -*The Company considers all highly liquid debt instruments purchased witha maturity of three months or less to be cash equivalents.

 

*CreditRisk Considerations*- The Company has one customer which consists of six publication titlescomprising approximately 14%, 15% and 16% of total net sales volume for theyears ended December 31, 2001, 2000 and 1999, respectively.  The various titles for this customer areunder contracts expiring between December 31, 2002 and December 31, 2003.

 

The Company has recorded an allowance for doubtful accounts to estimatethe difference between recorded receivables and ultimate collections.  The allowance and provision for bad debtsare adjusted periodically based upon the Company’s evaluation of historicalcollection experience, industry trends and other relevant factors.  The allowance for doubtful accounts was$1,236,000 and $1,239,000 at December 31, 2001 and 2000, respectively.

 

*InventoryValuation* -Inventories are stated at the lower of cost (first-in, first-out method) ormarket and are summarized as follows (in thousands):

 
|                          |   | **December 31,** |   |
|-------------------------------|--------|------------------|--------|
|                          |   | **2001**         |   | **2000** |   |
| Raw materials                 |   | $                | 6,803  |   | $ | 9,544 |   |
| Work in process               |   | 4,161            |   | 6,238 |   |
| Production  supplies          |   | 881              |   | 965 |   |
| Repair and  maintenance parts |   | 2,779            |   | 2,627 |   |
|                          |   | $                | 14,624 |   | $ | 19,374 |   |

 

*Property,Plant and Equipment*- Property, plant and equipment are stated at cost.  Assets are depreciated on the straight-line basis over estimateduseful lives which range from three to forty years.

 
|                                      |   | **Estimated  useful life**                               |   |
|-------------------------------------------|--------|----------------------------------------------------------|--------|
|                                      |   | **(In years)**                                           |   |
| Machinery and equipment                   |   | 3-15                                                     |   |
| Office  furniture, equipment and vehicles |   | 3-10                                                     |   |
| Buildings and  improvements               |   | 7-40                                                     |   |
| Land  improvements                        |   | 25-40                                                    |   |
| Leasehold  improvements                   |   | Lesser of estimated useful life or remaining lease  term |   |

 

Capitalized interest onborrowed funds during construction was $310,000, $0 and $238,000 for the yearsended December 31, 2001, 2000, and 1999, respectively.

 

 

F-10

----

 

*Long-livedAssets -*InAugust 2001, the Financial Accounting Standards Board (FASB) issued Statementof Financial Accounting Standards (SFAS) No. 144, “Accounting for theImpairment or Disposal of Long-Lived Assets”, which supersedes SFAS No. 121,“Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assetsto be Disposed Of,” and certain provisions of APB Opinion No. 30, “Reportingthe Results of Operations,” relating to a disposal of a segment of a business.The Company adopted the provisions of SFAS No. 144 as of January 1, 2001.Similar to SFAS No. 121, SFAS No. 144 establishes procedures for review ofrecoverability, and measurement of impairment whenever events or changes incircumstances indicate that the carrying amount of an asset may not berecoverable. SFAS No. 144 also requires that long-lived assets to be disposedof other than by sale (for example, abandonments, exchanges for similarproductive assets or in a distribution to owners in a spinoff) shall continueto be classified as held and used until disposal. Further, SFAS No. 144specifies the criteria for classifying long-lived assets as “held for sale” andrequires that long-lived assets to be disposed of by sale be reported as thelower of carrying amount or fair value less estimated selling costs. As ofDecember 31, 2001, management believes that there has not been any impairmentof the Company’s long-lived assets.

 

*Goodwilland Other Intangible Assets* - Cost in excess of net assets of businesses acquired(“goodwill”) is amortized and charged against operations on a straight-linemethod over 35 years.  Accumulatedamortization on these costs was $3,526,000 and $2,577,000 at December 31, 2001and 2000, respectively.  Deferredfinancing costs are being amortized over the lives of the applicable debtagreements. Accumulated amortization on these costs was $6,290,000 and $5,082,000at December 31, 2001 and 2000, respectively. Other intangible assets identified in connection with certainacquisitions are being amortized over the estimated useful lives of the assetswhich range from five to fifteen years. Accumulated amortization on these costs was $3,221,000 and $2,919,000 atDecember 31, 2001 and 2000, respectively.

 

*RevenueRecognition* -Revenue is recognized when complete orders are shipped.

 

*Shippingand Handling -* Amounts billed to a customer in a saletransaction related to shipping and handling are reported as net sales, and therelated costs incurred for shipping and handling are reported as costs ofproduction and distribution.

 

*IncomeTaxes* - Deferredincome taxes are determined utilizing an asset and liability approach. Thismethod gives consideration to the future tax consequences associated withdifferences between financial accounting and tax bases of assets andliabilities.  This method givesimmediate effect to changes in income tax laws upon enactment.

 

*Estimates-*The preparationof the Company’s consolidated financial statements in conformity with generallyaccepted accounting principles requires management to make certain estimatesand assumptions that affect the reported amounts of assets and liabilities andthe disclosure of contingent assets and liabilities as of the balance sheetdate and the reported amounts of revenues and expenses during the reportingperiod.  Actual results could differfrom those estimates.

 

*FairValues -*TheCompany believes that the carrying amount of its cash and cash equivalents,accounts receivable, accounts payable, accrued liabilities and borrowings underits term loan facility approximate fair value due to the short maturity ofthese instruments.  The estimated fairvalue of the Company’s publicly traded debt (senior subordinated notes), basedon quoted market prices, was approximately $108.8 million and $96.6 million asof December 31, 2001 and 2000, respectively.

 

*NewAccounting Standards -*In June 2001, the FASB issued SFAS No. 142, “Goodwill and OtherIntangible Assets.” SFAS No. 142 is effective for the Company beginning January1, 2002, and applies to goodwill and other intangible assets recognized in theCompany’s consolidated balance sheet at that date. The Company will implementthe provisions of SFAS No. 142 beginning January 1, 2002 and anticipates thatall goodwill amortization will be eliminated as a charge to operating expensesin 2002. In connection with the adoption of SFAS No. 142, the Company will berequired to perform a transitional impairment test for recorded goodwill as ofJanuary 1, 2002. The Company does not expect that the transitional impairmenttest will result in any significant impairment losses.

 

 

F-11

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**3.     BALANCESHEET INFORMATION**

 

Accounts receivable, net,consists of the following (in thousands):

 
|                             |   | **December  31,** |   |
|----------------------------------|--------|-------------------|--------|
|                             |   | **2001**          |   | **2000** |   |
| Trade  receivables               |   | $                 | 48,978 |   | $ | 62,366 |   |
| Receivable from  lessor          |   | 7,913             |   | — |   |
| Other  receivables               |   | 3,698             |   | 1,996 |   |
| Allowance for  doubtful accounts |   | (1,236            | )      | (1,239 | ) |
|                             |   | $                 | 59,353 |   | $ | 63,123 |   |

 

Accrued expenses consistof the following (in thousands):

 
|                       |   | **December  31,** |   |
|----------------------------|--------|-------------------|--------|
|                       |   | **2001**          |   | **2000** |   |
| Employee related  expenses |   | $                 | 9,586  |   | $ | 9,309 |   |
| Accrued paper  costs       |   | 2,226             |   | 5,371 |   |
| Taxes other than  income   |   | 1,504             |   | 1,340 |   |
| Other accrued  expenses    |   | 4,186             |   | 10,921 |   |
|                       |   | $                 | 17,502 |   | $ | 26,941 |   |

 

**4.     LONG-TERMDEBT**

 

Long-term debt consistsof the following (in thousands):

 
|                       |   | **December  31,** |    |
|----------------------------|--------|-------------------|---------|
|                       |   | **2001**          |    | **2000** |   |
| Revolving credit  facility |   | $                 | —  |   | $ | — |   |
| Term loan  facility        |   | 7,800             |    | 13,800 |   |
| Capital lease  obligations |   | —            |    | 18 |   |
| Senior  subordinated notes |   | 115,000           |    | 115,000 |   |
| Total debt                 |   | 122,800           |    | 128,818 |   |
| Less current  portion      |   | (7,800            | )       | (6,018 | ) |
| Long-term debt             |   | $                 | 115,000 |   | $ | 122,800 |   |

 

On April 28, 1995, theCompany entered into a five year Credit Agreement with a commercial bankconsortium that provides a revolving credit and term loan facility.  These loans are collateralized bysubstantially all assets of the Company. Concurrent with the acquisition of Judd’s, the Company entered into anAmended and Restated Credit Agreement extending the maturity to December 15,2002.  The Credit Agreement requires theCompany to maintain and meet certain minimum operating ratios and limitsexpenditures for property and equipment, investments, other indebtedness,commitments, guarantees and contingent liabilities.  Additionally, the credit agreement restricts payments ofdividends on the Company’s common stock. At December 31, 2001, the Company was in compliance with theserequirements.

 

*Revolving*Credit**Facility - The Company has the ability toborrow, subject to certain terms and conditions, up to $45.0 million untilDecember 15, 2002, at which time any outstanding borrowings become due andpayable unless otherwise extended based upon mutual agreement of the Companyand lenders.  Borrowings against theline are either at a Eurodollar rate plus 2.00%, (3.94% at December 31, 2001)fixed for periods up to 180 days, or at the prime rate plus 0.50% (5.25% atDecember 31, 2001). At December 31, 2001, $41.4 million of the revolving creditfacility was available for future working capital and other general corporatepurposes.

 

*Term Loan Facility*- The term loan facility is due ininstallment amounts at the last day of each month until December 15, 2002, atwhich time any outstanding borrowings become due and payable.  Repayments may not be reborrowed.  Borrowings are either at a Eurodollar rateplus 2.25%, (4.19% at December 31, 2001) fixed for periods of up to 180 days,or at the prime rate plus 0.75% (5.50% at December 31, 2001).  The term loan facility ranks equally inright of payment with other existing and future senior indebtedness of theCompany and senior in right of payment to the senior subordinated notes.

 

*Senior Subordinated Notes *- The Company issued $115,000,000 aggregate principalamount of its 10 5/8% senior subordinated notes due December 15, 2007 inconnection with its acquisition of Judd’s. Interest on the notes accrues from the date of original issuance and ispayable semi-annually in arrears on June 15 and December 15 of each year.  The notes are redeemable, in whole or inpart, at the option of the Company on or after December 15, 2002 at specifiedredemption prices plus accrued interest to the date of redemption.  The notes impose certain restrictions on theCompany’s ability to make certain distributions and restricts the payments ofdividends by the Company in certain circumstances.

 

F-12

----

 

**5.     MINORITYINTERESTS**

 

In connection with theacquisition of certain net assets of Perry Printing, a subsidiary of thecompany (Perry Judd’s) issued the following redeemable preferred stock:

 

*Series A Redeemable Preferred Stock -* At April 28, 1995, Series A redeemablepreferred stock issued in the amount of $5.0 million reflected an originalissue discount of $2.5 million which was the difference between the fair valueat the time of issuance and the April 28, 2005 redemption value.  The difference is being accreted by chargingoperations until redemption.  Each shareof redeemable Series A, $0.001 par value, $100 redemption value,nonconvertible, non-voting preferred stock entitles its holder to receive anannual cash dividend equivalent to redemption value times 90% of the primeinterest rate.  At December 31, 1995,50,000 shares were authorized and 47,350 shares were issued andoutstanding.  During 1996, the carryingvalue of the Series A redeemable preferred stock was written down to $-0- tooffset certain purchase accounting adjustments and no accretion was recorded.  During the third quarter ended September 30,2000, the Company reached a settlement with the former owner of Perry Printingresulting in a partial reinstatement of Series A redeemable preferred stock.  Pursuant to the settlement agreement datedAugust 31, 2000, effective June 30, 2000, 43,940.68 shares of Series Aredeemable preferred stock were reinstated at an accreted value of $3,143,000and $1,452,000 of accumulated dividends were paid.  Additional dividends of approximately $189,000 were paid duringthe year ended December 31, 2000.  (SeeNote 11.) Dividends of $273,000 were paid during the year ended December 31,2001.

 

*Series B Redeemable Preferred Stock -*Effective June 30, 2000, the outstandingshares of Series B redeemable preferred stock were redeemed on September 6,2000.  Each share of Series B, $0.001par value, $100 redemption value, nonconvertible, non-voting preferred stockentitled its holder to receive cash dividends of 12.5% of redemption value andstock dividends of 2.5% of redemption value (issued in Series D redeemablepreferred shares).  At June 30, 2000 andDecember 31, 1999, 65,000 shares were authorized, issued and outstanding andwere mandatorily redeemable on November 1, 2000.  Accrued and unpaid dividends were approximately $2.2 million and$1.8 million at June 30, 2000 and December 31, 1999, respectively. (See Note11.)

 

*Series D Redeemable Preferred Stock -*Effective June 30, 2000, the outstandingshares of Series D redeemable preferred stock were redeemed on September 6, 2000.  Each share of Series D, $0.001 par value,$100 redemption value, nonconvertible, non-voting preferred stock entitled itsholder to receive cash dividends equivalent to 15% of carrying value.  At June 30, 2000 and December 31, 1999,100,000 shares were authorized with 8,411 and 7,598 shares issued andoutstanding, respectively.  Series Dpreferred shares were mandatorily redeemable on November 1, 2000.  Accrued and unpaid dividends wereapproximately $0.3 million at June 30, 2000 and December 31, 1999,respectively. (See Note 11.)

 

 

F-13

----

 

**6.     STOCKHOLDERS’EQUITY AND STOCK OPTION PLAN**

 

*Preferred Stock (Series A)* — Holders of the non-voting preferred stock areentitled to a 15% stock dividend, payable in preferred shares on a quarterlybasis.  A California corporation ownedbeneficially by the Company’s majority common stockholders owns the majority ofthe preferred stock.  The preferredstock has a liquidation preference above the common stock. The Company amendedits Certificate of Incorporation eliminating the requirement to redeem thepreferred stock for $100 per share in the event of a sale or exchange of allthe common stock of the Company.

 

*Common Stock*— In 1995, stockholders of the Companyapproved the adoption of a stock option plan (the “Stock Option Plan”).  The Stock Option Plan was subsequentlyamended in 1995 and 2000.  Under theterms of the Stock Option Plan, options may be granted to officers and keyemployees.  Options have terms ofeighteen years and an exercise price of $.01 per share.  Options are immediately exercisable, butoption shares issuable are subject to repurchase by the Company on terminationof employment at the original exercise price until vested.  Option shares vest in gradual incrementsover an eight year period.  As ofDecember 31, 2001, 8,192 option shares were unvested.  The vested option shares are subject to a call by the Company anda put by the employee in the event the option shareholder retires afterattaining age 62, becomes permanently disabled or dies.  Upon termination of service for reasonsother than retirement, disability or death, vested option shares are subject toa call by the Company.  The put and calloptions are at fair value.

 

A summary of option activityunder the Stock Option Plan is as follows:

 
|                              |   | **Number of  Shares** |   |
|-----------------------------------|--------|-----------------------|--------|
| Outstanding at  December 31, 1998 |   | 39,059                |   |
| Granted                           |   | 2,248                 |   |
| Outstanding at  December 31, 1999 |   | 41,307                |   |
| Granted                           |   | —                |   |
| Exercised                         |   | (41,307               | )      |
| Outstanding at  December 31, 2000 |   | —                |   |
| Granted                           |   | —                |   |
| Outstanding at  December 31, 2001 |   | —                |   |

 

The Company appliesAccounting Principles Board Opinion No. 25, “Accounting for Stock Issued toEmployees”, and related interpretation in accounting for its employee stockoption plan.  Accordingly, compensationexpense has been recorded for the difference between the estimated fair valueof the common stock and the exercise price of the option at the date of grantas the shares vest.  Compensationexpense of $131,000 and $648,000 was recognized during the years ended December31, 2001 and 2000, respectively. The pro forma effect on reported net income(loss) for the years ended December 31, 2001, 2000 and 1999 of using the fairvalue method under SFAS No. 123, “Accounting for Stock-Based Compensation”, isnot significant.

 

*Stockholder Agreements* — At December 31, 2001, 42,905 shares ofcommon stock held by management are subject to put and call arrangements similar to the shares purchased under theStock Option Plan at the employee’s termination, retirement after attaining age62, permanent disability or death.

 

 

F-14

----

 

**7.     OPERATINGLEASES**

 

The Company leasescertain equipment and office space under non-cancelable operating leaseagreements.  Lease expense under suchagreements was $17.2 million, $17.8 million, and $16.5 million for the yearsended December 31, 2001, 2000 and 1999 respectively.

 

Concurrent with theacquisition of Judd’s, the Company entered into a sale and leasebacktransaction whereby the Wisconsin printing plants and warehouse facilities, andthe Company’s corporate headquarters were sold to a third party for theaggregate purchase price (exclusive of fees and costs) of $18.25 million andimmediately leased back to the Company. The sale and leaseback of the real property resulted in a deferred gainof $2.8 million net of taxes and is being amortized over the initial term ofthe lease.  The lease has an initialterm of 20 years, with an economic abandonment buyout for one property selectedby the Company after five years, and may be extended for three additionalfive-year terms at the Company’s option. Initial annual rent under the lease is approximately $1.9 millionpayable quarterly in advance with 10% escalations scheduled at the start of thesixth, eleventh and sixteenth years of the 20 year term (and a corresponding10% increase at the beginning of any option term).  For the first ten years of the lease, the Company has a right offirst refusal on any proposed sale of all of the leased properties by thelessor to a third party, exercisable within 30 days of receipt of the proposedsale contract.

 

On August 17, 1998, theCompany entered into a sale and leaseback transaction for the majority of theJudd’s real property located in Virginia. The initial annual lease expenseincurred under the operating lease was $1.3 million with 14.5% escalationsscheduled at the start of the sixth, eleventh and sixteenth years of the 20year term.

 

Future minimum annuallease payments required under the operating lease agreements are as follows (inthousands):

 

 
| **Year  Ending**

**December  31,** |   |   |    |
|-------------------------------------|--------|--------|---------|
| 2002                                |   | $      | 15,736  |   |
| 2003                                |   | 15,167 |    |
| 2004                                |   | 14,453 |    |
| 2005                                |   | 12,525 |    |
| 2006                                |   | 9,791  |    |
| Thereafter                          |   | 49,477 |    |
| Total minimum  lease payments       |   | $      | 117,149 |   |

** **

 

F-15

----

 

**8.     INCOMETAXES**

 

The provision (benefit)for income taxes consists of the following components (in thousands):

 
|                                  |   | **Year Ended  December 31,** |   |
|---------------------------------------|--------|------------------------------|--------|
|                                  |   | **2001**                     |   | **2000** |   | **1999** |   |
| Current                               |   |                         |   |   |   |   |   |
| Federal                               |   | $                            | 1,612  |   | $ | 1,542 |   | $ | — |   |
| State                                 |   | 121                          |   | 247 |   | — |   |
|                                  |   | 1,733                        |   | 1,789 |   | — |   |
| Deferred                              |   |                         |   |   |   |   |   |
| Federal                               |   | 848                          |   | 1,259 |   | (1,034 | ) |
| State                                 |   | 328                          |   | 272 |   | (192 | ) |
|                                  |   | 1,176                        |   | 1,531 |   | (1,226 | ) |
| Provision  (benefit) for income taxes |   | $                            | 2,909  |   | $ | 3,320 |   | $ | (1,226 | ) |

 

Following is a reconciliation of the U.S. statutoryfederal income tax rate to the effective rate (in thousands):

** **
|                                                            |   | **Year Ended  December 31,** |   |
|-----------------------------------------------------------------|--------|------------------------------|--------|
|                                                            |   | **2001**                     |   | **2000** |   | **1999** |   |
| Tax provision  (benefit) at federal statutory rate (35%)        |   | $                            | 2,173  |   | $ | 2,319 |   | $ | (1,616 | ) |
| State income  taxes (benefit) net of federal income tax benefit |   | 291                          |   | 337 |   | (124 | ) |
| Goodwill  amortization                                          |   | 332                          |   | 286 |   | 357 |   |
| Other permanent  differences                                    |   | 113                          |   | 378 |   | 157 |   |
| Provision  (benefit) for income taxes                           |   | $                            | 2,909  |   | $ | 3,320 |   | $ | (1,226 | ) |

 

Significant components of deferred tax assets anddeferred tax liabilities are as follows (in thousands):

 
|                       |   | **December  31,** |    |
|----------------------------|--------|-------------------|---------|
|                       |   | **2001**          |    | **2000** |   |
| Deferred Tax  Assets:      |   |              |    |   |   |
| Accounts  receivable items |   | $                 | 495     |   | $ | 495 |   |
| Inventory items            |   | 234               |    | 241 |   |
| Employee benefit  accruals |   | 862               |    | 839 |   |
| Accrued pension  benefits  |   | —            |    | 123 |   |
| Other accrued  expenses    |   | 551               |    | 677 |   |
| Sale and  leaseback        |   | 2,387             |    | 2,237 |   |
| Tax loss  carryforwards    |   | 172               |    | 582 |   |
| Tax credit  carryforwards  |   | 3,031             |    | 3,682 |   |
| Other items                |   | 79                |    | 83 |   |
|                       |   | 7,811             |    | 8,959 |   |
| Deferred Tax  Liabilities: |   |              |    |   |   |
| Prepaid items              |   | (512              | )       | (430 | ) |
| Non current  assets        |   | (23,175           | )       | (23,080 | ) |
| Other                      |   | (59               | )       | (120 | ) |
|                       |   | (23,746           | )       | (23,630 | ) |
| Net deferred  income taxes |   | $                 | (15,935 | ) | $ | (14,671 | ) |

 

The net deferred income tax liability is classified inthe balance sheets as follows (in thousands):

 
|                               |   | **December  31,** |    |
|------------------------------------|--------|-------------------|---------|
|                               |   | **2001**          |    | **2000** |   |
| Current deferred  income taxes     |   | $                 | 1,079   |   | $ | 1,145 |   |
| Non-current  deferred income taxes |   | (17,014           | )       | (15,816 | ) |
| Net deferred  income taxes         |   | $                 | (15,935 | ) | $ | (14,671 | ) |

 

Included in tax assets at December 31, 2001 are netoperating loss carryforwards of approximately $2.8 million for state income taxpurposes, which begin to expire in 2010, alternative minimum tax credits ofapproximately $2.3 million and state tax credits of $1.1 million which can beused to offset future regular tax and have no expiration date.

 

F-16

----

 

**9.     RELATEDPARTY TRANSACTIONS**

 

On April 28, 1995, theCompany entered into management agreements (the “Agreements”) with twocompanies owned beneficially by the majority stockholders of the Company.  The Agreements, as well as subsequentrevisions, provide for certain management and consulting services in connectionwith business strategy, operations and finance.  The Agreements have initial terms of five years, subject toone-year extensions thereafter and require the Company to currently pay annualmanagement fees totaling $1,200,000 per year plus reimbursement of certainexpenses. Additionally, the Company approved a $500,000 bonus which has beenaccrued at December 31, 2001. Management fees and reimbursements expensed inconjunction with the Agreements totaled $2,316,000, $1,446,000 and $1,469,000for the years ended December 31, 2001, 2000 and 1999, respectively.

 

The Company previouslypurchased a substantial portion of its total ink requirements from a companyaffiliated with the majority stockholders. During 1999, the majority stockholders sold their interests in thiscompany.  Net purchases for year endedDecember 31, 1999, amounted to $13.9 million.

 

Concurrent with the saleof Judd’s Online on October 19, 2000, a one-time fee of $300,000 was paid to acompany owned beneficially by the majority stockholders of the company fordivestiture services related to the disposition.

 

**10.  RETIREMENTPLANS**

 

The Company has a definedcontribution plan referred to as the Perry Graphic Communications RetirementSavings Plan (the “Plan”).  The Plancovers substantially all employees who have attained 21 years of age and arecredited with twelve months of service on their enrollment date.  The Company contributed approximately$1,662,000 $1,775,000, and $1,659,000 for the years ended December 31, 2001,2000 and 1999, respectively, to the Plan representing 3% of eligible employeewages.

 

Effective December 31,1997, benefits payable under a Judd’s defined benefit pension plan existing atthe time of the Company’s December 16, 1997 acquisition of Judd’s werefrozen.  In June 2001, the Companyreceived a favorable advance termination letter from the Internal RevenueService and has completed the termination of the plan through lump sum paymentsand the purchase of annuity contracts. During the year ended December 31, 2001,the Company recorded a gain on the termination of the pension plan ofapproximately $1,633,000.

 

**11.  COMMITMENTSAND CONTINGENCIES**

 

*Purchase Commitments -*At December 31, 2001, the Company hadcommitments to purchase or lease approximately $14.1 million of operatingassets.

 

*Indemnification -*In connection with the acquisition ofcertain net assets of Perry Printing, a subsidiary of the Company issued 50,000and 65,000 shares of Series A and B redeemable preferred stock, respectively,to the former owner of Perry Printing. During 1996, the Company made two indemnity claims against the formerowner of Perry Printing, principally involving breaches of warranties andrepresentations made on certain assets under its Asset Purchase Agreement.  Redemption features of the Series Aredeemable preferred stock provided the Company with the option to offset suchclaims as immediate redemption of the Series A redeemable preferred stock up tothe maximum redemption value of $5 million. Accordingly, the carrying value of the Series A redeemable preferredstock was reduced to $-0- in the financial statements at December 31,1996.  The former owner of PerryPrinting objected to these claims. Additionally, the Company asserted a claim against the former owner ofPerry Printing for an approximate $1.8 million employee benefit obligationincurred prior to April 28, 1995, which is now an obligation of the Company toits employees covered by collective bargaining agreements.

 

On November 24, 1999, theformer owner of Perry Printing filed a complaint against the Company seekingdamages of approximately $3,000,000 and the payment of certain preferred stockdividends.  On January 6, 2000, theCompany

answered by denying theformer owner’s allegations and asserted counter claims in an aggregate amountof approximately $7,000,000.

 

On August 31, 2000, theCompany reached a settlement agreement, effective June 30, 2000, with theformer owner of Perry Printing concerning the two indemnity claims and theemployee benefit obligation claim. Pursuant to this agreement, the Company paid the former owner of PerryPrinting the redemption value of Series B and D redeemable preferred stockincluding unpaid dividends of $2,545,000 through June 30, 2000, and dividendsof $1,452,000 relating to Series A redeemable preferred stock which waspartially reinstated in the amount of 43,940.68 shares.  These Series A shares were recorded in theconsolidated financial statements at their estimated fair value as of the April28, 1995 acquisition date of $2,197,000 plus an adjustment for accretionthrough June 30, 2000 of $946,000.

 

*Other Contingencies* - The Company is involved in variousclaims and litigation incidental to its operations.  In the opinion of management, the ultimate resolution of theseactions will not have a material effect on the Company’s consolidated financialstatements.

 

 

F-17

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**Schedule II**

 

**PERRY JUDD’S HOLDINGS, INC.**

 

**Valuationand Qualifying Accounts**

**(In Thousands)**

 
| **ALLOWANCE FOR UNCOLLECTIBLE  ACCOUNTS RECEIVABLE** |   | **Balance   Beginning Of  Year** |   | **Additions  Charged to  Costs and  Expenses** |   | **Deductions  —  Describe** |   | **Other  Additions  (Deductions)   Describe** |   | **Balance  End of Year** |   |
|------------------------------------------------------|--------|----------------------------------|--------|------------------------------------------------|--------|----------------------------------|--------|-----------------------------------------------|--------|--------------------------|--------|
| Year Ended December 31                               |   |                             |   |                                           |   |                             |   |                                          |   |                     |   |
| 2001                                                 |   | $                                | 1,239  |                                           | $      | 1,089                            |   | $                                             | 1,092  | (1)                      | — |   | $ | 1,236 |   |
|                                                 |   |                             |   |                                           |   |                             |   |                                          |   |                     |   |
| 2000                                                 |   | $                                | 1,020  |                                           | $      | 1,076                            |   | $                                             | 839    | (1)                      | $      | (18 | )(2) | $ | 1,239 |   |
|                                                 |   |                             |   |                                           |   |                             |   |                                          |   |                     |   |
| 1999                                                 |   | $                                | 799    |                                           | $      | 440                              |   | $                                             | 419    | (1)                      | $      | 200 |  (3) | $ | 1,020 |   |

 

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(1) Write-offs ofreceivables, net of recoveries.

(2) Balance ofbusiness sold at disposition date.

(3) Balance ofacquired business at acquisition date.

 

 

F-18

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**EXHIBIT INDEX**

 

The following exhibits are filed as a part of this report orincorporated by reference and will be furnished to any security holder uponrequest for such exhibit and payment of any reasonable expenses incurred by theCompany.  Send any such request to theCompany at 575 West Madison Street, Waterloo, WI 53594.

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                                                                         |
|---------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| 2.2                 |   | Stock Purchase Agreement dated as of July 31, 1998  by and among Mack Printing Company, Port City Press, Inc. and Perry Judd’s  Incorporated. Incorporated by reference to Exhibit 2.2 to the 8-K dated as of  September 17, 1998.                                                                                 |
| 3.1 *               |   | Amended and Restated Certificate of Incorporation of  the Company.                                                                                                                                                                                                                                                      |
| 3.2                 |   | Amended and Restated By-laws of the Company.  Incorporated by reference to Exhibit 3.2  to the Registration Statement.                                                                                                                                                                                             |
| 4.1                 |   | Indenture dated as of December 16, 1997 between the  Company and U.S. Trust Company of California, N.A., as Trustee, including  forms of Senior Notes. Incorporated by reference to Exhibit 4.1 to the  Registration Statement.                                                                                         |
| 4.1(a)              |   | First Supplemental  Indenture dated as of June 10, 1998 among the Company, the Subsidiary  Guarantors named therein, the Additional Subsidiary Guarantor named therein  and U.S. Trust Company of California N.A. as Trustee.  Incorporated by reference to Exhibit  4.1(a) to the Registration Statement.         |
| 4.2                 |   | Registration Rights Agreement dated as of December  16, 1997 between the Company and BT Alex. Brown as Initial Purchaser.  Incorporated by reference to Perry Judd’s  Incorporated by reference to Exhibit 4.2 to the Registration Statement.                                                                 |
| 10.2                |   | Amended and Restated  Credit Agreement dated as of December 16, 1997, among Perry Graphic  Communications, Inc., Shenandoah Valley Press, Inc., and Port City Press,  Inc., as Borrowers, the Lenders (as defined therein) and BT Commercial.  Incorporated by reference to Exhibit 10.2 to the Registration Statement. |
| 10.3                |   | 1995 Stock Option Plan, as amended. Incorporated by  reference to Exhibit 10.3 to the Registration Statement.                                                                                                                                                                                                           |
| 10.4 + †       |   | Employment Agreement by and between the Company and  Craig A. Hutchison dated April 28, 1995.   Incorporated by reference to Exhibit 10.4 to the Registration  Statement.                                                                                                                                          |
| 10.4(a) †      |   | Employment Offer Letter from the Company to David E.  Glick dated January 16, 1998.                                                                                                                                                                                                                                     |
| 10.4(b) †      |   | Employment Offer Letter from the Company to Verne F.  Schmidt dated December 26, 1996.                                                                                                                                                                                                                                  |
| 10.4(c) †      |   | Severance Agreement Letter from the Company to  Howard D. Sullivan dated March 24, 2000.                                                                                                                                                                                                                                |
| 10.5                |   | Stockholders Agreement by and among the stockholders  of the Company named therein dated as of July 1, 1996.  Incorporated by reference to Exhibit 10.5  to the Registration Statement.                                                                                                                            |
| 10.6                |   | Amended and Restated Co-Sale Agreement by and among  the stockholders of the Company named therein dated as of December 30,  1996.  Incorporated by reference to  Exhibit 10.6 to the Registration Statement.                                                                                                      |
| 16.0                |   | Letter regarding change in certifying accountant.                                                                                                                                                                                                                                                                       |
| 21.0 *              |   | Subsidiary Listing                                                                                                                                                                                                                                                                                                      |

 

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*    Filed herewith

+    Confidential treatment has been requested and received as toportions of this agreement.

†    Indicates a management contract or compensatory arrangement.

 

 

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