SHERIDAN GROUP INC
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13               ITEM   4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   13               ITEM   5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND   ISSUER PURCHASES OF EQUITY SECURITIES   13               ITEM   6. SELECTED FINANCIAL DATA   14               ITEM   7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF   OPERATIONS   14               ITEM   7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   26               ITEM   8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   27
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67      2        SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS   This Annual Report on Form 10-K includes “forward-looking statements.” Forward-looking statements are those that do not relate solely to historical fact. They include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. They may contain words such as “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “likely,” “may,” “plan,” “predict,” “project,” “should,” “will,” “would” or words or phrases of similar meaning. They may relate to, among other things:   •                  our liquidity and capital resources;   •                  competitive pressures and trends in the printing industry;   •                  prevailing interest rates;   •                  legal proceedings and regulatory matters;   •                  general economic conditions;   •                  statements with respect to the Buyout Transactions and the Dingley Transactions (each as defined in this Annual Report on Form 10-K);   •                  predictions of net sales, expenses or other financial items;   •                  future operations, financial condition and prospects; and   •                  our plans, objectives, strategies and expectations for the future.   Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from the forward-looking statements, might cause us to modify our plans or objectives, may affect our ability to pay timely amounts due under our notes and/or may affect the value of our notes. These risks and uncertainties may include, but are not limited to, those discussed in Part I, Item 1A, “Risk Factors.” New risk factors can emerge from time to time. It is not possible for us to predict all of these risks, nor can we assess the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in forward-looking statements. Given these risks and uncertainties, we urge you to read this Annual Report on Form 10-K completely with the understanding that actual future results may be materially different from what we plan or expect. We caution you that any forward-looking statement reflects only our belief at the time the statement is made. We will not update these forward-looking statements even if our situation changes in the future.   PART I   ITEM 1.   BUSINESS   Overview   We are a leading specialty printer offering a full range of printing and value-added support services for the journal, catalog, magazine, book and article reprint markets. We believe that we enjoy strong and longstanding relationships with our customers, which include publishers, catalog merchants, associations and university presses.  We provide a wide range of printing services and value-added support services, such as electronic publishing support, digital proofing, preflight checking, offshore key stroking and copy editing, online peer review systems, manuscript tracking systems, subscriber database maintenance, mail sortation and distribution, customer audits and training classes, and back issue fulfillment.  We utilize a decentralized management structure, which provides our customers with access to the resources of a large company, while maintaining the high level of service and flexibility of a smaller company. We operate in three business segments:  short-run journals, specialty catalogs and other publications.  For the year ended December 31, 2005, we generated net sales of $348.0 million, operating income of $21.9 million and net income of $1.2 million.  As used in this Annual Report on Form 10-K, the terms “we,” “us,” “our” and other similar terms refer to the consolidated businesses of The Sheridan Group, Inc. and all of its subsidiaries.   3        History   We trace our roots back to The Sheridan Press, the predecessor of which was founded in 1915. We entered the short-run journal market in 1980, targeting the printing of scientific, technical, medical and scholarly journals for publishers. The Sheridan Group, Inc. was formed in 1988 to complete the acquisition of Braun-Brumfield, Inc., a short-run book printer located in Michigan. In 1994, we entered the specialty magazine market with the acquisition of United Litho, Inc., a printer of specialty magazines serving the Washington, D.C. metro area. In conjunction with our recapitalization in 1998, we acquired Dartmouth Printing Company, a specialty magazine printer in New Hampshire, and Capital City Press, a journal printer in Vermont. In 1999, we acquired BookCrafters, Inc., a short-run book printer in Chelsea, Michigan and Fredericksburg, Virginia, and consolidated it with Braun-Brumfield to form Sheridan Books, Inc. In 2004, we acquired The Dingley Press (the “Dingley Acquisition”), a specialty catalog printer in Maine. On January 3, 2006, we announced the shutdown of the operations of Capital City Press and the consolidation of the production of short-run journals at The Sheridan Press. The shutdown and consolidation were largely completed during the first quarter of 2006. Currently, we are comprised of six specialty printing companies operating in the domestic scientific, technical, medical and scholarly journal, specialty catalog, short-run book, specialty magazine and article reprints markets: The Sheridan Press in Pennsylvania; Sheridan Books in Michigan; Dartmouth Printing Company in New Hampshire; Dartmouth Journal Services in New Hampshire; United Litho in Virginia; and The Dingley Press in Maine.   Printing Services   Our printing services include transferring content onto printing plates in pre-press, printing the content on press, binding the printed pages into the finished product and distributing the finished product to either the customer or the ultimate end user.  Pre-press processes, which include digital and conventional techniques, as well as computer-to-plate technology, are critical front-end elements of our printing services which ready the content for printing on our presses.  Sheet-fed and web presses are used, depending on run length, to produce the printed product.  We also offer ultra-short-run printing services for article reprints, books and journals.  We utilize three types of binding techniques for the printed product:  perfect binding, saddle stitching and case binding.   The product is then labeled and packaged prior to mailing.   Journals, magazines and books are typically mailed to the publisher or directly to consumers. Roughly half of our journals, the majority of our magazines and all of our books are shipped in cases to the customer. The remaining journals and magazines are mailed directly to the subscriber. Catalogs are drop-shipped to various locations throughout the U.S. and placed into the mail stream close to the recipient.   Value-Added Support Services   In addition to providing printing services to our customers, we offer a full range of value-added support services.  While sales of these services constitute a relatively small percentage of total revenues, they are critical to meeting the customer’s needs.  These services are highly customized for each customer’s specifications and logistics requirements.  With fully digital pre-press capabilities and computer-to-plate technology, we have greatly increased the efficiency with which we provide these services. Examples of the value-added support services we provide are electronic publishing support, digital proofing, preflight checking, offshore key stroking and copy editing, online peer review systems, manuscript tracking systems, subscriber database maintenance, mail sortation and distribution, customer audits and training classes, and back issue fulfillment.   Printing Segments   As a leading publications printer, we offer a broad range of products and services, including scientific, technical, medical and scholarly journals, specialty catalogs, short-run books, specialty magazines, article reprints, and an extensive array of value-added support services.  Our products are sold to a diverse set of customers, including publishers, catalog merchants, university presses and associations.   Our printing operations are classified into three reportable segments.  The following table presents the percentage of net sales contributed by each segment during the past three fiscal years.       Net sales %       2005       2004       2003         Short-run journals       29       34       42         Specialty catalogs       32       22       —         Other publications       41       46       61         Intersegment eliminations       (2   )   (2   )   (3   )     Total       100       100       100           4        Short-Run Journals   The journal market includes journals for the scientific, technical, medical and scholarly communities. We compete in both the short-run and medium-run portions of the journal market.  We define short-run journals as journals produced on sheet-fed presses with typical production runs of less than 5,000 copies. Publishers, associations and university presses comprise the customers in this portion of the publications market.  In 2005, we printed over 2,200 journal titles.   Our journals are primarily black and white with a small amount of color for photographs, diagrams and advertisements.  They are printed on schedules that range from weekly to annually in run lengths that average 2,300 copies and range from 50 to 5,000 copies. Journal printing typically results in a high level of repeat business due to the periodic nature and complexity of these publications. The vast majority of journals are perfect bound, with the remainder saddle-stitched.  Our journal customers rely on our consistency and on-time reliability to meet the demands of their own customers.   The short-run journals segment also includes article reprints, which are produced on sheet-fed presses, and originally developed as an ancillary product from the base journal business.  Article reprints are produced for customers who require reprints of an individual article from a journal or magazine for marketing or other purposes. Historically, we have primarily reprinted journal and magazine articles for which we were the original printer. We recently have expanded our business by winning article reprint business on publications for which we were not the original printer.  We are a full-service reprint printer, producing black and white as well as color reprints for publishers, university presses and associations.   Specialty Catalogs   We entered the specialty catalog segment in 2004 with our purchase of The Dingley Press.  We characterize specialty catalogs as catalogs distributed by specialty catalog merchant companies, which are often smaller entrepreneurial firms with high service requirements. We produce catalogs with run lengths between 300,000 and 10,000,000 copies, most of which are printed in four-color and are bound using the saddle stitching technique. Multiple versions of each catalog are distributed during the year requiring high levels of customer service and extensive distribution services.  In 2005, we printed over 110 catalog titles.   Other Publications   The other publications segment provides products and services for specialty magazines, short-run books and medium-run journals to publishers, university presses and associations.   Specialty Magazines   We characterize specialty magazines as magazines having production runs of less than 100,000 copies. Our customers in this market are publishers and associations. Specialty magazines also have a high level of repeat business due to the periodic nature of the publications. This is largely a regional market defined by proximity to the customer. In 2005, we printed over 380 magazine titles.   We produce short-run magazines with average run lengths of 22,000 copies.  The majority of these magazines are printed in four-color.  The magazines are bound using the saddle-stitching and perfect binding techniques. The magazines are produced in frequencies that range from weekly to annually. These magazines are produced on web presses.  Although specialty magazine customers do not require composition services, they do demand high levels of customer service focused on distribution and mailing services, where managing the customer’s subscriber database is critical to customer satisfaction.   Short-Run Books   Short-run books, which we characterize as books having production runs of less than 5,000 copies, are printed for publishers, associations and university presses. Sales to this market include both the initial printing of titles and subsequent reprints.  In 2005, we printed more than 10,500 book titles.   We produce books in run lengths that average 2,000 copies and range from 100 to 5,000 copies.  The majority of these books are black and white.  Books are produced on both sheet-fed and web presses.  About 50% of our books have soft covers   5        (perfect bound) and about 50% have hard covers (case bound).   Medium-Run Journals   We consider medium-run journals to be journals with production runs between 5,000 and 100,000 copies.  Medium-run journals are typically produced on web presses due to economies of scale versus sheet-fed presses.  Similar to the short-run journal market, customers include publishers, associations and university presses, and there is a high level of repeat business due to the periodic nature and complexity of these publications.  Our consistency and on-time reliability are key attributes that our customers expect and demand.   Competition   The printing industry in the United States is fragmented and highly competitive in most product categories and geographic regions. We compete in subsegments of the overall printing market.  Competition is largely based on price, quality, range of services offered, distribution capabilities, ability to service the specialized needs of customers, availability of printing time on appropriate equipment and use of state-of-the-art technology.  Competitive price pressure continues to be strong in the product segments in which we compete.   Customers   We benefit from a highly diversified customer base. The majority of our business comes from publishers, followed by catalog merchants, associations and university presses.  The average length of our relationship with our top 50 customers is approximately 14 years. We print specialty catalogs for High Response Holdings, Inc. In 2005, High Response Holdings, Inc. accounted for about 13.6% of our net sales.   Sales and Marketing   We have developed a knowledgeable and experienced sales management team, which has successfully cultivated and maintained strong relationships with customers across the U.S. Our products are sold through internal direct sales professionals and a dedicated network of sales representatives. Across all of our companies, external representatives augment an internal sales staff, providing our customers with multiple touch points. Our sales representatives are paid a commission based on sales volume growth targets in a structure that minimizes the fixed costs we incur to support our sales force.   We traditionally market through industry trade shows and industry association conferences. In addition, in our article reprint business, we have strategic relationships with three marketing firms that specialize in obtaining reprint orders from customers, companies and individuals that were featured in a recent publication produced by us or other printers.  These marketing firms identify opportunities for these potential clients to utilize the identified publication reprints as marketing tools.   Raw Materials   The principal raw material used in our business is paper, which represents a significant portion of our cost of materials. Due to the significance of paper in our business, we are dependent upon the availability of paper. In periods of high demand, certain paper grades have been in short supply, including grades we use in our business. In addition, during periods of tight supply, many paper producers allocate shipments of paper based upon historical purchase levels of customers. Historically, however, we generally have not experienced significant difficulty in obtaining adequate quantities of paper. We do not have any long-term paper supply agreements. We also use a variety of other raw materials including ink, film, offset plates, chemicals and solvents, glue, wire and subcontracted components. In general, we have not experienced any significant difficulty in obtaining these raw materials.   Technology and Operations   Our capital investments have been focused on productivity improvement, more efficient material usage and incremental capacity.  Additionally, our investments in technology have been critical in helping achieve improved workflow and reduced cycle times.   Employees   We have about 2,085 employees as of December 31, 2005. We focus heavily on fostering enthusiastic and positive cultures at   6        each of our locations, evidenced by the fact that we have been recognized with numerous “Best Workplace in America” awards presented by Printing Industries of America. In addition, we closely monitor our employees’ level of job satisfaction with comprehensive surveys on a regular basis. Management believes our compensation and benefits packages are competitive within the industry and local markets.   We have a collective bargaining agreement between Capital City Press and Local Union No. One-L, Graphic Communications International Union, AFL-CIO, which expires on April 30, 2007. Prior to the announced closure of Capital City Press, this agreement covered about 103 of our production and maintenance employees at our Vermont facilities. As a result of the closure in the first quarter of 2006, we no longer have any employees covered by the collective bargaining agreement.   Regulatory Matters   We are subject to a broad range of federal, state and local laws and regulations relating to the pollution and protection of the environment, health and safety and labor. Based on currently available information, we do not anticipate any material adverse effect on our operations, financial condition or competitive position as a result of our efforts to comply with environmental, health and safety or labor requirements, and we do not anticipate needing to make any material capital expenditures to comply with such requirements.   ITEM 1A.   RISK FACTORS   Risk Factors   Substantial Leverage—Our substantial indebtedness could adversely affect our financial health and prevent us from meeting our obligations under our indebtedness.   We have a significant amount of indebtedness.  On December 31, 2005, we had total indebtedness of approximately $164.9 million.   Our substantial indebtedness could have important consequences.  For example, it could:   •                                         make it more difficult for us to meet our payment and other obligations under our indebtedness;   •                                         require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, capital expenditures and other general corporate purposes;   •                                         increase our vulnerability to general adverse economic and industry conditions;   •                                         limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;   •                                         place us at a competitive disadvantage compared to our competitors that have less debt or are less leveraged; and   •                                         limit our ability to borrow additional funds or raise additional financing.   In addition, agreements governing our indebtedness contain financial and other restrictive covenants that will limit our ability to engage in activities that may be in our long-term best interests.  Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debt.   Technological Change—The evolution of technology may decrease the demand for our products and services.   The technology we use in our operations is rapidly evolving. We could experience delays or difficulties in responding to changing technology, in addressing the increasingly sophisticated needs of our customers or in keeping pace with emerging industry standards. In addition, the cost required to respond to and integrate changing technologies may be greater than we anticipate. If we do not respond adequately to the need to integrate changing technologies in a timely manner, or if the investment required to so respond is greater than anticipated, our business, financial condition, results of operations, cash flow and ability to make payments on the notes may be adversely affected. We remain largely dependent on the distribution of scientific, technical, medical and other scholarly information in printed form. Usage of the Internet and other electronic media continues to grow. We cannot assure you that the acceleration of the trend toward such electronic media will not   7        decrease the demand for our products which could result in lower profits and reduced cash flows.   Changes in technology could also result in digital printing methods becoming more cost effective for printing short-run publications. If the use of digital printing were expanded in this manner, it could allow smaller printers to compete against us in our specialized market, which could cause a decrease in the demand for our services or could force us to lower our prices to remain competitive. Such a decrease in demand or price could result in decreased profitability and have a material adverse effect on our business, financial condition and results of operations.   Competition—The printing industry is competitive and rapidly evolving, and competition may adversely affect our business.   The printing industry is extremely competitive. We compete with numerous companies, some of which have greater financial resources than we do. We compete on the basis of ongoing customer service, quality of finished products, range of services offered, distribution capabilities, use of state of the art technology and price. We cannot assure you that we will be able to compete successfully with respect to any of these factors. In certain circumstances, due primarily to factors such as freight rates and customer preference for local services, printers with better access to certain regions of the country may have a competitive advantage in such regions. Our failure to compete successfully could cause us to lose existing business or opportunities to generate new business and could result in decreased profitability, adversely affecting our business.   Consolidation—Industry consolidation of customers and increased competition for those customers may result in increased expenses and reduced revenue and market position.   The continuing consolidation of publishing companies has shrunk the pool of available customers. Large publishing companies often have preferred provider arrangements with specific printing companies. As smaller publishing companies are consolidated into the larger companies, the smaller publishing companies are often required to use the printing company with which the acquiring company has established an arrangement. If our customers were to merge or consolidate with publishing companies utilizing other printing companies, we could lose our customers to competing printing companies. If we were to lose a significant portion of our current base of customers to competing printing companies, our business, financial condition, results of operations and cash flow could be materially adversely affected.   Customer Concentration—The increase in business from a top customer may make our net sales and profitability more sensitive to the loss of such a customer’s business.   We have a customer, High Response Holdings, Inc., that accounted for 13.6% of our net sales in 2005. In addition, we have another customer that accounted for 9.6% of our net sales in 2005. In 2006, these two customers are projected to account for similar percentages of our net sales. The loss of either of these customers would cause our net sales and profitability to decline. We cannot assure you that net sales to these and our other large customers will not continue to increase as a percentage of our total net sales or that these customers will continue to use our printing services. The loss of any such customer could adversely affect us.   Cost and Availability of Paper and Other Raw Materials—Increases in prices of paper and other raw materials and postal rates could cause disruptions in our services to customers.   The principal raw material used in our business is paper, which represents a significant portion of our cost of materials. Although we believe that we have been successful in negotiating favorable price relationships with our paper vendors, prices in the overall paper market are beyond our control. Historically, we have generally been able to pass increases in the cost of paper on to our customers. If we are unable to continue to pass any price increases on to our customers, future paper price increases could adversely affect our margins and profits.   Due to the significance of paper in our business, we are dependent upon the availability of paper. In periods of high demand, certain paper grades have been in short supply, including grades we use in our business. In addition, during periods of tight supply, many paper producers allocate shipments of paper based upon historical purchase levels of customers. Although we generally have not experienced significant difficulty in obtaining adequate quantities of paper, unforeseen developments in the overall paper markets could result in a decrease in the supply of paper and could cause either or both of our revenues or profits to decline.   We use a variety of other raw materials including ink, film, offset plates, chemicals and solvents, glue, wire and subcontracted components. In general, we have not experienced any significant difficulty in obtaining these raw materials. We cannot assure you, however, that a shortage of any of these raw materials will not occur in the future or will not potentially adversely affect the financial results of our business.   8        Our journals and magazines are often mailed, either by us or our customers, to subscribers. As a result, an increase in postal rates may cause our customers to decrease the size and number of their publications. Although we generally have not experienced significant decreases in mailings in the past due to postal rate increases, we cannot assure you that such a decrease will not occur in the future or will not potentially adversely affect the financial results of our business.   We require energy products, primarily natural gas and electricity, in our operating facilities.  We also depend on gasoline and diesel fuel for our delivery vehicles and the vehicles of the carriers we utilize to deliver our products.  Possible disruption of supplies or an increase in the prices of energy products could adversely affect the financial results of our business.   Key Employees—Our ability to attract, train and retain executives and other qualified employees is crucial to results of operations and future growth.   We rely to a significant extent on our executive officers and other key management personnel. There can be no assurance that we will be able to continue to retain our executive officers and key management personnel or attract additional qualified management in the future. In addition, the success of any acquisition by us may depend, in part, on our ability to retain management personnel of the acquired companies. There can be no assurance that we will be able to retain such management personnel.   In addition, to provide high-quality printed products in a timely fashion we must maintain an adequate staff of skilled technicians, including pre-press personnel, pressmen, bindery operators and fulfillment personnel. Accordingly, our ability to maintain and increase our productivity and profitability will depend, in part, on our ability to employ, train and retain the skilled technicians necessary to meet our commitments. From time-to-time:   •                                         the industry experiences shortages of qualified technicians, and we may not be able to maintain an adequate skilled labor force necessary to operate efficiently;   •                                         our labor expenses may increase as a result of shortages of skilled technicians; or   •                                         we may have to curtail our planned internal growth as a result of labor shortages.   If any of these events were to occur, it could adversely affect our business.   Business Interruption—Our printing facilities may suffer business interruptions which could increase our operating costs, decrease our sales or cause us to lose customers.   The reliability of our printing facilities is critical to the success of our business. Our facilities might be damaged or interrupted by fire, flood, power loss, telecommunications failure, break-ins, earthquakes, terrorist attacks, war or similar events. Equipment malfunctions, computer viruses, physical or electronic break-ins and similar disruptions might cause interruptions and delays in our printing services and could significantly diminish our reputation and brand name and prevent us from providing services. Although we believe we have taken adequate steps to address these risks, damage to, or unreliability of, our printing facilities could have a material adverse effect on our business, financial condition, results of operations and cash flow.   Research Funding—Decreases in the types and amount of research funding could decrease the demand for our journal printing services.   In our journal business, we provide printing services primarily to scientific, technical, medical and other scholarly journals. The supply of research papers published in these journals is related to the amount of research funding provided by the federal government and private companies. In the future, the federal government or private companies could decrease the type and amount of funding that they provide for scientific, technical, medical and other scholarly research. A significant decrease in research funding might decrease the number or length of journals that we print for our customers, which would decrease our cash flow.   Environmental Matters—Our printing and other facilities are subject to environmental laws and regulations, which may subject us to liability or require us to incur costs.   We use various materials in our operations which contain substances considered hazardous or toxic under environmental   9        laws. In addition, our operations are subject to federal, state and local environmental laws and regulations relating to, among other things, air emissions, waste generation, handling, management and disposal, waste water treatment and discharge and remediation of soil and groundwater contamination. Permits are required for the operation of certain of our businesses, and these permits are subject to renewal, modification and, in some circumstances, revocation. Our operations also generate wastes which are disposed of off-site. Under certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act, as amended (“CERCLA,” commonly referred to as “Superfund”) and similar state laws and regulations, we may be liable for costs and damages relating to soil and groundwater contamination at these off-site disposal locations, or at our own facilities. In the past, such matters have not had a material impact on our business or operations. We are not currently aware of any environmental matters that are likely to have a material adverse effect on our business, financial condition, results of operations and cash flow. However, we cannot assure you that such matters will not have such an impact on us. Furthermore, future changes to environmental laws and regulations may give rise to additional costs or liabilities that could have a material adverse impact on us.   Health and Safety Requirements—We could be adversely affected by health and safety requirements.   We are subject to requirements of federal, state and local occupational health and safety laws and regulations. These requirements are complex, constantly changing and have tended to become more stringent over time. It is possible that these requirements may change or liabilities may arise in the future in a manner that could have a material adverse effect on our business, financial condition, results of operations and cash flow. We cannot assure you that we have been or will be at all times in complete compliance with all those requirements or that we will not incur material costs or liabilities in connection with those requirements in the future.   Intellectual Property—We may not protect our technology effectively, which would allow competitors to duplicate our products and services, or our products and services may infringe on claims of intellectual property rights of third parties.   Our success and ability to compete depend, in part, upon our technology. Among our significant assets are our proprietary information and intellectual property rights. We rely on a combination of copyright, trademark and patent laws, trade secrets, confidentiality procedures and contractual provisions to protect these assets. Unauthorized use and misuse of our intellectual property could have a material adverse effect on our business, financial condition and results of operations, and there can be no assurance that our legal remedies would adequately compensate us for the damages caused by unauthorized use. In addition, licenses for a number of software products have been granted to us. Some of these licenses, individually and in the aggregate, are material to our business. Although we believe that the risk that we will lose any material license is remote, any loss could have a material adverse effect on our business, financial condition, results of operations and cash flow.   We do not believe that any of our products, services or activities infringe upon the intellectual property rights of third parties in any material respect. There can be no assurance, however, that third parties will not claim infringement by us with respect to current or future products, services or activities. Any infringement claim, with or without merit, could result in substantial costs and diversion of management and financial resources, and a successful claim could effectively block our ability to use or license products and services or cost us money.   Additional Capital—We may need additional capital in the future and it may not be available on acceptable terms.   We may require more capital in the future to:   •                                       fund our operations;   •                                       finance investments in equipment and infrastructure needed to maintain and expand our network;   •                                       enhance and expand the range of services we offer; and   •                                       respond to competitive pressures and potential strategic opportunities, such as investments, acquisitions and international expansion.   We cannot assure you that additional financing will be available on terms favorable to us, or at all. The terms of available financing may place limits on our financial and operating flexibility. If adequate funds are not available on acceptable terms, we may be forced to reduce our operations or delay, limit or abandon expansion opportunities. Moreover, even if we are able to continue our operations, the failure to obtain additional financing could reduce our competitiveness as our competitors may provide better maintained networks or offer an expanded range of services.   10        Consummation of Future Acquisitions—We may not be able to acquire other companies on satisfactory terms or at all.   Our business strategy includes pursuing acquisitions. Nonetheless, we cannot assure you that we will identify suitable acquisitions or that such acquisitions can be made at an acceptable price. If we acquire additional businesses, those businesses may require substantial capital. Although we will be able to borrow under our working capital facility under certain circumstances to fund acquisitions, we cannot assure you that such borrowings will be available in sufficient amounts or that other financing will be available in amounts and on terms that we deem acceptable. In addition, future acquisitions could result in us incurring debt and contingent liabilities. We cannot assure you that we will be successful in consummating future acquisitions on favorable terms or at all.   Integration of Acquired Businesses—The integration of acquired businesses may result in substantial costs, delays and other problems.   Our future performance will depend heavily on our ability to integrate the businesses that we may acquire. To integrate newly acquired businesses we must integrate manufacturing facilities and extend our financial and management controls and operating, administrative and information systems in a timely manner and on satisfactory terms and conditions. This may be more difficult with respect to significant acquisitions. We may not be able to successfully integrate acquired businesses or realize projected cost savings and synergies in connection with those acquisitions on the timetable contemplated or at all.   Furthermore, the costs of businesses that we may acquire could significantly impact our short-term operating results. These costs could include:   •                                         restructuring charges associated with the acquisitions; and   •                                         other expenses associated with a change of control, as well as non-recurring acquisition costs including accounting and legal fees, investment banking fees, recognition of transaction-related obligations and various other acquisition-related costs.   The integration of newly acquired businesses will require the expenditure of substantial managerial, operating, financial and other resources and may also lead to a diversion of management’s attention from our ongoing business concerns.   Finally, although we conduct and intend to conduct what we believe to be a prudent level of investigation regarding the businesses we purchase, in light of the circumstances of each transaction, an unavoidable level of risk remains regarding the actual condition of these businesses. Until we actually assume operating control of such business assets and their operations, we may not be able to ascertain the actual value or understand the potential liabilities of the acquired entities and their operations. Once we acquire a business, we are faced with risks, including:   •                                         the possibility that we have acquired substantial undisclosed liabilities;   •                                         the risks of entering markets in which we have limited or no prior experience;   •                                         the potential loss of key employees or customers as a result of changes in management; and   •                                         the possibility that we may be unable to recruit additional managers with the necessary skills to supplement the management of the acquired businesses.   We may not be successful in overcoming these risks.   Principal Stockholders—Our principal stockholders could exercise their influence over us.   As a result of their stock ownership of TSG Holdings Corp., our parent, Bruckmann, Rosser, Sherrill & Co., L.L.C. (“BRS”), Jefferies Capital Partners (“JCP”) and their respective affiliates together beneficially own about 84.8% of TSG Holdings Corp.’s outstanding capital stock. By virtue of their stock ownership and the terms of the securities holders agreement, these entities have significant influence over our management and will be able to determine the outcome of all matters required to be submitted to the stockholders for approval, including the election of our directors and the approval of mergers, consolidations and the sale of all or substantially all of our assets. The interests of BRS and JCP as equity owners of TSG Holdings Corp. may differ from the interests of our noteholders and the lenders under our working capital facility, and, as such, BRS and JCP may take actions which may not be in the interest of such noteholders and lenders. For example, if we encounter financial difficulties or are unable to pay our debts as they mature, the interests of our equity owners might conflict   11        with the interests of our noteholders and the lenders under our working capital facility. In addition, our equity owners may have an interest in pursuing acquisitions, divestitures, financings or other transactions that, in their judgment, could enhance their equity investments, even though such transactions might involve risks to our noteholders and the lenders under our working capital facility.   Effectiveness of our internal controls — Our internal controls over financial reporting may not be effective and our independent registered public accounting firm may not be able to certify as to their effectiveness, which could have a significant and adverse effect on our business and reputation.   We are evaluating our internal controls over financial reporting in order to allow management to report on, and our independent registered public accounting firm to attest to, our internal controls over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and rules and regulations of the SEC thereunder, which we refer to as “Section 404”.  We are in the process of documenting and testing our internal control procedures in order to satisfy the requirements of Section 404, which requires annual management assessments of the effectiveness of our internal controls over financial reporting and a report by our independent registered public accountants addressing these assessments. During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. We will be required to comply with the requirements of Section 404 for our fiscal year ending December 31, 2007. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. We cannot be certain as to the timing of completion of our evaluation, testing and any remediation actions of the impact of the same on our operations. If we are not able to implement the requirements of Section 404 in a timely manner or with adequate compliance, our independent registered public accounting firm may not be able to certify as to the effectiveness of our internal control over financial reporting and we may be subject to sanctions or investigation by regulatory authorities, such as the SEC. In addition, we expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly. We cannot predict or estimate the amount of additional costs we may incur as a result of these requirements or the timing of such costs.   ITEM 1B.   UNRESOLVED STAFF COMMENTS   None.   ITEM 2.   PROPERTIES   We operate a network of 16 manufacturing, warehousing and office facilities located throughout the East Coast and Midwest that occupy, in total, about 1,226,270 square feet. We maintain more than 978,000 square feet of production space consisting of manufacturing and publication services. We own about 78% of the square footage we use.  The following table provides an overview of our manufacturing, warehousing and office facilities.        Location       Function(s)       Ownership   Structure       Total Size   (Sq. Feet)         Hunt Valley, MD       Corporate   Headquarters       Leased       6,366         Barre, VT       Publication   Services (Short-run journals)       Leased       12,884         Orford, NH       Publication   Services (Other publications)       Leased       6,895         Hanover, PA       Manufacturing   (Short-run journals)       Owned   (1)   159,250         Berlin, VT       Manufacturing   (Short-run journals)       Owned   (1)   55,450         Chelsea, MI       Manufacturing   (Other publications)       Owned   (1)   135,279         Hanover, NH       Manufacturing   (Other publications)       Owned   (1)   147,830         Ashburn, VA       Manufacturing   (Other publications)       Owned   (1)   70,159         Lisbon, ME       Manufacturing   (Specialty catalogs)       Owned   (1)   266,447         Ann Arbor, MI       Manufacturing   and Distribution (Other publications)       Owned   (1)   124,726         Williamstown, VT       Warehousing   (Short-run journals)       Leased       27,120         Lebanon, NH       Warehousing   (Other publications)       Leased       6,600         Lewiston, ME       Warehousing   (Specialty catalogs)       Leased       55,858         Lewiston, ME       Warehousing   (Specialty catalogs)       Leased       43,800         Lewiston, ME       Warehousing   (Specialty catalogs)       Leased       97,606         Auburn, ME       Warehousing   (Specialty catalogs)       Leased       10,000                         Total       1,226,270          12         (1)     Subject to liens in favor of the holders of our outstanding senior secured notes and the lenders under our working capital facility.   Some of our office and warehouse leases are on yearly renewals, with the lease of our corporate headquarters expiring in December 2011, subject to a renewal option.  We believe that our office, manufacturing and warehousing facilities are adequate for our immediate needs and that additional or substitute space is available at a reasonable cost if needed to accommodate future growth and expansion.  In addition to the properties listed above, we occasionally lease space for single offices for our sales representatives.   In 2005, our Sheridan Press subsidiary demolished the 36,060 square foot building adjacent to its main plant in Hanover, Pennsylvania and expanded its existing facility by 52,200 square feet to provide additional manufacturing capacity.   In 2005, our Dartmouth Printing Company subsidiary completed a 24,700 square foot expansion of its existing facility in Hanover, New Hampshire to provide additional manufacturing capacity.   We are continuing our efforts to sell the Ann Arbor, Michigan book facility. We may consolidate this facility with our Chelsea, Michigan operation, pending a firm offer from a third party at an acceptable price. Additionally, we are evaluating various options to expand the Chelsea, Michigan production facility in 2006 to accommodate other business needs.   We have listed for sale the former Capital City Press production facility in Berlin, Vermont as a result of the consolidation of this business in early 2006. Additionally, we have entered into a lease agreement for 11,700 square feet of office space in Waterbury, Vermont, beginning approximately May 2006. The Waterbury lease will accommodate the needs of Dartmouth Journal Services as it assumes responsibility for the services that had been performed by the Publication Services group at Capital City Press, which had occupied leased space in Barre, Vermont.   Our United Litho subsidiary entered into a lease agreement for 4,800 square feet of storage space in Sterling, Virginia beginning in March 2006.   ITEM 3.   LEGAL PROCEEDINGS   We currently are involved in various litigation proceedings as a defendant and are from time to time involved in routine litigation. In the opinion of our management, these matters are not expected to have a material adverse effect on our business, financial condition or results of operations.   ITEM 4.   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS   There were no matters submitted to a vote of security holders during the fourth quarter ended December 31, 2005.   PART II   ITEM 5.   MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES   We are wholly-owned by TSG Holdings Corp, a privately owned corporation. There is no public trading market for our equity securities or for those of TSG Holdings Corp. As of March 28, 2006, there were 32 holders of TSG Holdings Corp. common stock.   Our working capital facility contains customary restrictions on our ability and the ability of certain of our subsidiaries to declare or pay any dividends or repurchase stock. The indenture governing our 10¼% Senior Secured Notes due 2011 also contains customary terms restricting our ability and the ability of certain of our subsidiaries to declare or pay   13        any dividends or repurchase stock. For further information related to the payment of dividends, see the discussion contained in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”  Information with respect to shares of common stock that may be issued under our equity compensation plans is set forth in Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management.”   ITEM 6.   SELECTED FINANCIAL DATA              Successor Basis       Predecessor Basis (1)                 Year ended       Year ended       August 21, 2003       January 1, 2003                                 December 31,       December 31,       to December 31,       to August 20,       Year Ended December 31,         (Dollars in thousands)       2005       2004       2003       2003       2002       2001         Statement of Income Data:                                                                                                                   Net sales       $   347,959       $   287,513       $   81,193       $   131,904       $   208,837       $   212,302         Gross profit       64,456       60,782       18,745       31,839       48,997       42,742         Selling and administrative expenses       39,594       37,404       12,704       23,619       32,244       31,083         Operating income       21,897       21,456       5,415       8,108       17,133       10,613         Net income       1,180       2,330       760       1,169       6,624       1,399                                                                   Balance Sheet Data (at end of period):                                                                                                                   Cash and cash equivalents       $   7,962       $   4,975       $   9,918               $   48       $   37         Property, plant and equipment, net       119,220       115,253       57,277               45,664       50,330         Total assets       300,721       299,139       202,488               99,955       105,787         Total debt and capital leases       164,904       164,894       103,641               66,003       75,429         Mandatorily redeemable preferred stock       —       —       —               18,192       18,192         Total stockholders’ equity (deficit)       54,996       54,065       47,760               (7,923   )   (14,547   )                                                               Other Financial Data:                                                                                                                   Depreciation and amortization       $   17,072       $   14,593       $   4,168       $   4,874       $   8,442       $   9,163         Capital expenditures       21,282       21,827       2,915       5,213       4,870       7,791           (1)          Periods prior to August 20, 2003 represent the predecessor company prior to the consummation of the Buyout Transactions (discussed below under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”), and our historical consolidated financial data for such periods do not give effect to the Buyout Transactions.   ITEM 7.   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   The following discussion should be read in conjunction with, and is qualified in its entirety by reference to, our historical consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. The discussions in this section contain forward-looking statements that involve risks and uncertainties. Actual results could differ materially from those discussed below. See “Special Note Regarding Forward-Looking Statements” and Part I, Item 1A, “Risk Factors” for a discussion of some of the risks that could affect us in the future.   Introduction   We are a leading specialty printer offering a full range of printing and value-added support services for the journal, catalog, magazine, book and article reprint markets. We provide a wide range of printing services and value-added support services, such as electronic publishing support, digital proofing, preflight checking, offshore key stroking and copy editing, online peer review systems, manuscript tracking systems, subscriber database maintenance, mail sortation and distribution, customer audits and training classes, and back issue fulfillment. We utilize a decentralized management structure, which provides our customers with access to the resources of a large company, while maintaining the high level of service and flexibility of a smaller company.   Overview   Buyout and acquisition transactions   On August 21, 2003, TSG Holdings Corp. purchased 100% of the outstanding capital stock of The Sheridan Group, Inc. from its existing stockholders (the “Buyout”) for total cash consideration of $142.0 million less net debt (as defined in the stock purchase agreement), resulting in cash of $79.9 million being paid to the selling stockholders. The accounting purchase price was $186.6 million, which was comprised of the $79.9 million of cash paid to the selling stockholders, $51.4 million of assumed liabilities and $55.3 million of refinanced debt. We funded the acquisition price and   14        the related fees and expenses with the proceeds of the sale of $105,000,000 aggregate principal amount of our 10¼% Senior Secured Notes due 2011 (the “2003 Notes”) and equity investments in TSG Holdings Corp. We refer to the Buyout, the sale of the 2003 Notes, the closing of our working capital facility and the equity investments collectively as the “Buyout Transactions.”   On May 25, 2004, The Sheridan Group, Inc., through a newly formed subsidiary, purchased substantially all of the assets and business of The Dingley Press (the “Dingley Acquisition”).  The accounting purchase price was $95.4 million, which was comprised of cash paid of $65.5 million, $26.0 million of assumed liabilities and $3.9 million of financing costs. We funded the acquisition price and the related fees and expenses with the proceeds of the sale of $60,000,000 aggregate principal amount of our 10¼% Senior Secured Notes due 2011 (the “2004 Notes”), available cash and equity investments in TSG Holdings Corp. The 2003 Notes and the 2004 Notes are fully and unconditionally guaranteed on a joint and several basis by all of our subsidiaries. We refer to the Dingley Acquisition, the sale of the 2004 Notes, the amendment of our working capital facility and the equity investments collectively as the “Dingley Transactions.”   This discussion and analysis of our results of operations includes periods prior to the consummation of the Buyout. Accordingly, the discussion and analysis of historical periods prior to August 21, 2003 does not reflect the significant impact that the Buyout Transactions have had and will have on us, including increased leverage and increased liquidity requirements. In addition, this discussion and analysis only covers the historical financial condition and results of operations of The Dingley Press since May 25, 2004, the date of the Dingley Acquisition.   Results discussed for the year ended December 31, 2003 represent the mathematical addition of the Successor basis results of operations and the Predecessor basis results of operations. We have combined these results for discussion purposes only and, accordingly, they may yield results that are not strictly comparable on a period-to-period basis primarily due to (i) the impact of required purchase accounting adjustments, (ii) the new basis of accounting established as a result of the Buyout and (iii) the significant increase in debt and related interest expense. We believe that this is the most meaningful way to present our results of operations. Such results are not indicative of what the results for the year ended December 31, 2003 would have been had the Buyout not occurred.   Facility shutdown   On December 15, 2005, due to trends in the short-run journal business and the high capital investment necessary to maintain two manufacturing facilities serving the same market, our Board of Directors approved a restructuring plan to consolidate all short-run journal printing operations into one site. During the first quarter of 2006, we consolidated the printing of short-run journals at The Sheridan Press in Hanover, Pennsylvania and closed the Capital City Press facility in Berlin, Vermont.  Approximately 200 positions were eliminated as a result of the closure. Of the 200 employees affected, approximately 45 Publication Services employees were offered jobs with one of our subsidiaries, Dartmouth Journal Services.   Charges related to this restructuring will be recorded as the plan is implemented. We estimate approximately $3.3 million of restructuring charges resulting in future cash expenditures will be incurred, including $2.2 million of charges related to severance and other personnel costs and $1.1 million of other exit costs. Of the estimated $3.3 million in anticipated restructuring costs, we recorded approximately $0.4 million in 2005 and expect to record the remainder of the costs in 2006.   We have undertaken efforts to sell the Capital City Press facility. The amount to be realized from this sale is not reasonably estimable at this time. The facility will be classified as an asset held for sale as of the end of the first quarter of 2006. We also estimate non-cash charges of $2.3 million in the first quarter of 2006 associated with the accelerated depreciation and amortization of equipment and the Capital City Press trade name which will be disposed of as a result of the shutdown.   Internal Controls   Since 2004, we have invested significant resources to comprehensively document and analyze our system of internal controls over financial reporting, which included contracting with outside consultants, the hiring of a Manager of Financial Controls to lead the internal audit function, along with the initiation of a Company-wide internal controls improvement project. The focus of the improvement project, and the steering committee founded to oversee the project, has been to design, implement and maintain a system of internal controls, including financial policies and procedures, sufficient   15        to satisfy our reporting obligations as a public company. Throughout 2005, we continued to document significant processes and identify areas requiring improvement, and we are in the process of designing enhanced processes and controls to address the concerns identified. We plan to continue these initiatives as well as prepare for our first management report on internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act of 2002, for the year ending December 31, 2007.   We believe adequate resources and expertise, both internal and external, have been put in place to meet the Section 404 requirements. We intend to work closely with our independent registered public accounting firm during this process. Though we have taken efforts to become Section 404 compliant by the end of 2007, there is no guarantee that our efforts will result in a management assurance, or an attestation by our independent auditors, that the operating effectiveness and design of our internal controls are adequate.   Critical Accounting Estimates   The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates, and the differences could be material. We consider the following accounting policies to be critical policies which involve various estimation processes:   •                  Allowance for doubtful accounts; •                  Impairment of goodwill and other identifiable intangibles; •                  Income taxes; and •                  Self-insurance.   Allowance for Doubtful Accounts   Our policy with respect to trade accounts and notes receivable is to maintain an adequate allowance or reserve for doubtful accounts for estimated losses from the inability of our customers to make required payments. The process to estimate the collectibility of our trade accounts receivable balances consists of two steps. First, we evaluate specific accounts for which we have information that the customer may have an inability to meet its financial obligations (e.g., bankruptcy). In these cases, using our judgment based on available facts and circumstances, we record a specific allowance for that customer against the receivable to reflect the amount we expect to ultimately collect. Second, we then establish an additional reserve for all customers based on a range of percentages applied to aging categories, based on management’s best estimate. If the financial condition of our customers were to deteriorate and result in an impairment of their ability to make payments, additional allowances may be required.   Impairment of Long-Lived Assets and Goodwill   We conduct impairment reviews of long-lived assets and goodwill in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” and SFAS No. 142, “Goodwill and Other Intangible Assets.”   We adopted SFAS No. 142 on January 1, 2002 and performed a fair market valuation analysis of goodwill as of the same date. We tested goodwill for impairment using the two-step process prescribed in SFAS No. 142. The first step was to screen for potential impairment, while the second step measured the amount of the impairment, if any. We also performed the required impairment tests of goodwill to identify whether an impairment existed under this statement on December 31, 2005 and 2004. No impairments were noted as a result of these tests. At December 31, 2005, we had $57.0 million in goodwill. While significant judgment is required, we believe that our estimates of fair value are reasonable. However, should our assumptions change in future years, our fair value models could result in lower fair values for goodwill, which could materially affect the value of goodwill and our results of operations.   We periodically review long-lived assets, consisting primarily of property, plant and equipment and identified intangibles subject to amortization, for impairment, pursuant to SFAS No. 144, by analyzing the future undiscounted cash flows whenever events or changes in circumstances indicate that the carrying value may not be recoverable. No impairments were noted as a result of these tests. While significant judgment is required, we believe that our estimates of future undiscounted cash flows are reasonable. However, should our assumptions change in future years, our fair value models   16        could result in lower fair values of long-lived assets, which could materially affect the value of long-lived assets and the results of operations.   Income Taxes   As part of the process of preparing our consolidated financial statements, we are required to estimate income taxes in each of the jurisdictions in which we operate. In addition to estimating the actual current tax liability, we must assess future tax effects of temporary differences between the tax bases of assets and liabilities and amounts reflected on our consolidated balance sheets, and operating loss carryforwards. Such differences result in deferred tax assets and liabilities, which are recorded in our consolidated balance sheets. We then assess the likelihood that deferred tax assets will be recovered from future taxable income, and, to the extent recovery is not considered likely, establish a valuation allowance against those assets. The valuation allowance is based on estimates of future taxable income in jurisdictions in which we operate and the period over which the deferred tax assets will be recoverable. We use our best judgment in determining the provision for income taxes, the deferred tax assets and liabilities and any valuation allowance recorded against the net deferred tax assets.   To the extent that actual results differ from our estimates, new information results in changes to estimates or there is a material change in the actual tax rates or time periods within which the underlying temporary differences become taxable or deductible, we may need to establish an additional valuation allowance, reduce our existing valuation allowance or adjust the effective tax rate, all of which could materially impact our financial position and results of operations.   In addition, as part of the financial statement process, we assess the positions taken on our tax returns and establish tax reserves for tax contingencies that in our judgment are probable and estimable. These estimates could change as the tax returns are reviewed by the tax authorities or as statutes of limitations close on the returns; however, we believe that we have adequately provided for all such tax contingencies.   Self-Insurance   We are self-insured for healthcare and workers’ compensation costs. We seek to mitigate the risk related to our ultimate claims exposure under these self-insurance arrangements through the purchase of various levels of individual and aggregate claims stop-loss insurance coverage with third-party insurers. We periodically review health insurance and workers’ compensation claims outstanding and estimates of incurred but not reported claims with our third-party claims administrators and adjust our reserves for self-insurance risk accordingly. Provisions for medical and workers’ compensation claims are based on estimates, which are subject to differing financial outcomes based upon the nature and severity of those claims. As a result, additional reserves may be required in future periods.   Results of Operations   The following table sets forth, for the periods indicated, information derived from our consolidated statements of income expressed as a percentage of net sales for the periods presented. The percentage relationships for the year ended December 31, 2003 were derived by combining our results of operations for the period January 1, 2003 through August 20, 2003 and for the period August 21, 2003 through December 31, 2003, which, respectively, are the periods before and after the date of the Buyout Transactions. Accordingly, the data for these two periods and the periods following the Buyout Transactions were prepared on differing bases of accounting and, as a result, the comparability of such percentage relationships with other periods is limited, primarily as a result of one-time transaction costs, amortization of intangibles, depreciation of fixed assets and interest expense related to outstanding debt balances.   17                   Year Ended       Year Ended       Year Ended                 December 31,       December 31,       December 31,         (Expressed as percentages)       2005       2004       2003                                           Net sales       100.0       100.0       100.0         Cost of sales       81.5       78.9       76.3         Gross profit       18.5       21.1       23.7         Selling and administrative expenses       11.4       13.0       17.1         (Gain) loss on disposition of fixed assets       0.2       —       —         Restructuring costs       0.1       —       —         Amortization of intangibles       0.5       0.6       0.3         Total operating expenses       12.2       13.6       17.4         Operating income       6.3       7.5       6.3         Other (income) expense                                 Interest expense       5.5       5.8       4.3         Fair value adjustment to interest rate   collar       —       —       (0.1   )     Interest income       (0.1   )   (0.1   )   (0.1   )     Other, net       (0.1   )   —       (0.2   )     Total other expense       5.3       5.7       3.9         Income before income taxes       1.0       1.8       2.4         Income tax provision       0.7       1.0       1.5         Net income       0.3       0.8       0.9          Our business includes three reportable segments comprised of “Short-run Journals,” “Specialty Catalogs” and “Other Publications.” Short-run Journals are primarily medical, technical, scientific or scholarly journals and related reprints with run lengths of less than 5,000 copies. The Specialty Catalogs segment, which is comprised of the assets and operations of The Dingley Press acquired on May 25, 2004, is focused on catalog merchants that require run lengths between 300,000 and 10,000,000 copies. The Other Publications business segment is comprised of three operating segments, which produce specialty magazines, medium-run journals and short-run books.   18                   Successor Basis       Predecessor Basis                                 Four-months                                         and eleven-days       Seven-months                 Year ended       Year ended       ended December       and twenty-days                 December 31,       December 31,       31,       ended August 20,                 2005       2004       2003       2003         Net sales                                         Short-run journals       $   99,955       $   97,277       $   33,453       $   55,371         Specialty catalogs       111,846       64,204       —       —         Other publications       141,643       131,172       49,606       79,785         Intersegment eliminations       (5,485   )   (5,140   )   (1,866   )   (3,252   )     Consolidated total       $   347,959       $   287,513       $   81,193       $   131,904                                                   Operating income (loss)                                         Short-run journals       $   12,618       $   13,344       $   4,087       $   6,573         Specialty catalogs       2,599       3,483       —       —         Other publications       8,678       6,885       2,471       2,396         Corporate       (1,998   )   (2,256   )   (1,143   )   (861   )     Consolidated total       $   21,897       $   21,456       $   5,415       $   8,108                                                   Assets                                         Short-run journals       $   98,535       $   94,442       $   89,851                 Specialty catalogs       85,633       88,147       —                 Other publications       113,722       112,348       110,563                 Corporate       2,831       4,202       2,074                 Consolidated total       $   300,721       $   299,139       $   202,488                                                           Depreciation and amortization                                         Short-run journals       $   4,796       $   4,604       $   1,640       $   1,490         Specialty catalogs       5,785       3,424       —       —         Other publications       6,281       6,399       2,426       3,168         Corporate       210       166       102       216         Consolidated total       $   17,072       $   14,593       $   4,168       $   4,874                                                   Capital expenditures                                         Short-run journals       $   8,992       $   4,583       $   913       $   3,425         Specialty catalogs       3,552       5,815       —       —         Other publications       8,522       11,122       1,991       1,773         Corporate       216       307       11       15         Consolidated total       $   21,282       $   21,827       $   2,915       $   5,213                                                   Goodwill                                         Short-run journals       $   24,069       $   24,069       $   26,098                 Specialty catalogs       13,553       14,333       —                 Other publications       19,361       19,361       18,543                 Corporate       —       —       —                 Consolidated total       $   56,983       $   57,763       $   44,641                                                           Intangible assets                                         Short-run journals       $   26,507       $   27,463       $   28,418                 Specialty catalogs       3,208       3,390       —                 Other publications       16,834       17,428       18,023                 Corporate       —       —       —                 Consolidated total       $   46,549       $   48,281       $   46,441                  19        Comparison of Years Ended December 31, 2005 and December 31, 2004   Net sales were $348.0 million in 2005, a $60.5 million or 21.0% increase compared to net sales of $287.5 million for 2004. The Dingley Acquisition, completed in May 2004, added the specialty catalogs segment and accounted for $47.6 million of the sales growth. Significant growth in other publications combined with slightly stronger net sales in short-run journals accounted for the rest of the increase. Net sales in 2005 and 2004 included shipping and postage fees billed to customers totaling $33.0 million and $27.4 million, respectively.   Net sales for the short-run journals segment were $100.0 million in 2005, a $2.7 million or 2.8% increase compared to net sales of $97.3 million for 2004. The increase in net sales for the short-run journals segment was primarily attributable to higher paper and shipping revenue as well as new titles that were awarded to us partially offset by declines in revenue related to prepress services. Net sales for the specialty catalogs segment were $111.8 million in 2005, a $47.6 million or 74.2% increase compared to net sales of $64.2 million for 2004. The Dingley Acquisition added the specialty catalogs segment of the printing market. This segment has been included in our results since the May 2004 acquisition date which primarily accounts for the comparative sales growth for 2005. Net sales for the other publications segment for 2005 were $141.6 million, a $10.4 million or 8.0% increase compared to $131.2 million for 2004. Continued growth in medium-run journals and magazine revenues accounted for most of the growth in the other publications segment.   Gross profit for 2005 was $64.5 million, a $3.7 million or 6.0% increase compared to gross profit of $60.8 million for 2004. Gross margin for 2005 decreased to 18.5% of net sales compared to 21.1% for 2004. The gross margin decline for 2005 was attributable primarily to the inclusion of a full year’s gross margin for The Dingley Press as a result of the Dingley Acquisition, as the specialty catalogs segment has a lower gross margin than our other businesses. Increases in paper and shipping expenses, which are primarily pass-through costs for our businesses, as well as pricing pressures also contributed to the gross margin decline in 2005.   Selling and administrative expenses for 2005 were $39.6 million, a $2.2 million or 5.9% increase compared to $37.4 million for 2004. The increase for 2005 was due mainly to the inclusion of a full year of selling and administrative expenses for The Dingley Press as a result of the Dingley Acquisition.   Gain or loss on fixed asset dispositions for 2005 was a loss of $0.6 million as compared to a gain of $0.2 million for 2004.   Restructuring expenses related to the shutdown of Capital City Press were $0.4 million in 2005. In December 2005, our Board of Directors approved a plan to shut down the operations of Capital City Press and consolidate the production of short-run journals at The Sheridan Press. This decision resulted from trends in the short-run journals industry and the capital investment required for maintaining two facilities serving the same market. The $0.4 million charge recorded in the fourth quarter of 2005 related primarily to guaranteed severance payments and other one-time costs. We estimate an additional $2.9 million of restructuring charges resulting in future cash expenditures will be charged in 2006, as the shutdown is implemented. We also estimate non-cash charges of approximately $2.3 million in the first quarter of 2006 associated with accelerated depreciation and amortization on tangible and intangible assets which will be disposed of as a result of the shutdown. Restructuring expenses related to the closure of the Sheridan Books facility in Fredericksburg, Virginia were $0.3 million in 2004.   Amortization expense for 2005 was $2.0 million, a $0.2 million increase compared to amortization expense of $1.8 million for 2004. The increase in amortization expense in 2005 was due to the recognition of intangible assets associated with the Dingley Acquisition in May 2004.   Operating income for 2005 was $21.9 million, a $0.4 million or 2.1% increase compared to operating income of $21.5 million for 2004. Operating margin for 2005 was 6.3%, reflecting a 1.2 margin point decrease compared to an operating margin of 7.5% for 2004. Operating margins were lower in 2005 due primarily to the acquisition of The Dingley Press in May 2004, as the specialty catalogs segment has a lower operating margin than our other businesses. Operating margins were also adversely impacted by higher paper and freight costs as well as pricing pressure.   Operating income for the short-run journals segment for 2005 was $12.6 million, a $0.7 million or 5.4% decrease compared to operating income of $13.3 million for 2004. The decrease in operating income was primarily attributable to declines in revenues related to prepress services, resulting from continued pricing pressure and the loss of business to lower cost offshore suppliers, as well as $0.4 million of restructuring costs associated with the decision to shutdown the operations of Capital City Press and consolidate the production of short-run journals at The Sheridan Press. Operating margin for the   20        short-run journals segment was 12.6% for 2005, reflecting a 1.1 margin point decrease compared to an operating margin of 13.7% for 2004. The decline in prepress service sales, pricing pressures, increases in paper and shipping costs and restructuring costs were primarily responsible for the decrease in operating margins for 2005. Operating income for the specialty catalogs segment for 2005 was $2.6 million, a $0.9 million or 25.4% decrease compared to operating income of $3.5 million for 2004. Operating margin for the specialty catalogs segment was 2.3% for 2005, reflecting a 3.1 margin point decrease compared to an operating margin of 5.4% for 2004. Increases in transportation costs and utility rates, coupled with pricing pressures and a full year’s allocation of corporate overhead were primarily responsible for the lower operating income and operating margins experienced in the specialty catalogs segment for 2005. Increases in paper costs, although a pass-through item to customers, also adversely impacted the operating margin for specialty catalogs in 2005. Operating income for the other publications segment for 2005 was $8.7 million, a $1.8 million or 26.0% increase compared to operating income of $6.9 million for 2004. Operating margin for the other publications segment was 6.1% for 2005, reflecting a 0.9 margin point increase compared to an operating margin of 5.2% for 2004. The increased operating income and operating margin in the other publications segment were primarily due to manufacturing labor and overhead savings realized from the closing of the Sheridan Books facility in Fredericksburg, Virginia and the consolidation of the manufacturing operations into our facility in Chelsea, Michigan during the third and fourth quarters of 2004.   Interest expense in 2005 was $19.0 million, a $2.3 million or 13.7% increase compared to interest expense of $16.7 million for 2004. This increase was primarily attributable to recording a full year of interest expense for the debt associated with the Dingley Acquisition for 2005 as compared to a partial year in 2004 since the Dingley Acquisition was finalized in May 2004.   Other income (including interest income) for 2005 was $0.7 million, a $0.4 million increase compared to other income (including interest income) of $0.3 million for 2004. This increase was due primarily to increases in the market value of investments held in deferred compensation funds as well as interest income earned on tax refunds during 2005.   Income before income taxes for 2005 was $3.6 million, a $1.5 million or 29.0% decrease as compared to income before income taxes of $5.1 million for 2004. Income before income taxes margin for 2005 of 1.0% decreased 0.8 margin points compared to a 1.8% margin for 2004. The decrease in income before income taxes margin for 2005 was mainly the result of higher interest expense associated with the financing of the Dingley Acquisition in May 2004, poorer operating results in our specialty catalogs segment and the restructuring costs recorded in connection with the shutdown of Capital City Press partially offset by improved profitability in other publications.   Our effective income tax rate in 2005 was 67.4% compared to 54.3% in 2004. The increase was primarily the result of the impact of increased state tax apportionment in states with unitary tax filing requirements, primarily Maine and New Hampshire, as well as other high tax states. The decline in pre-tax operating income in 2005 also contributed to the higher effective income tax rate.   Net income for 2005 was $1.2 million, a $1.1 million or 49.3% decrease from net income of $2.3 million for 2004. The decrease in net income for 2005 was principally due to higher interest expense associated with the financing of the Dingley Acquisition in May 2004, poorer operating results in our specialty catalogs segment and the restructuring costs recorded in connection with the shutdown of Capital City Press partially offset by improved profitability in the other publications segment.   Comparison of Years Ended December 31, 2004 and December 31, 2003   Net sales were $287.5 million in 2004, a $74.4 million or 34.9% increase compared to net sales of $213.1 million for 2003. The Dingley Acquisition, completed in May 2004, added the specialty catalog segment and accounted for $64.2 million of the sales growth. Significant growth in short-run journals combined with slightly stronger net sales in other publications accounted for the rest of the increase. Net sales in 2004 and 2003 included shipping and postage fees billed to customers totaling $27.4 million and $19.7 million, respectively.   Net sales for the short-run journal segment were $97.3 million in 2004, an $8.5 million or 9.5% increase compared to net sales of $88.8 million for 2003. The increase in net sales for the short-run journals segment was attributable to new titles that were awarded to us during 2004, primarily from existing customers. Net sales for the other publications segment for 2004 were $131.2 million, a $1.8 million or 1.4% increase compared to $129.4 million for 2003. Continued growth in medium-run journals and magazine revenues, partially offset by a decrease in our book business, accounted for the growth in the other publications segment. Softness in the book business resulted in our decision to close the Sheridan Books facility in Fredericksburg, VA and consolidate the manufacturing operations into our facility in Chelsea, MI. We subsequently sold the Fredericksburg facility.   21        Gross profit for 2004 was $60.8 million, a $10.2 million or 20.2% increase compared to gross profit of $50.6 million for 2003. Gross margin for 2004 decreased to 21.1% of net sales compared to 23.7% for 2003. The gross margin decline for 2004 was attributable primarily to the Dingley Acquisition, as the specialty catalog segment has a lower gross margin than our other businesses. The decline attributable to The Dingley Press was partially offset by productivity gains, driven by capital investments, realized by other segments during 2004.   Selling and administrative expenses for 2004 were $37.4 million, a $1.1 million or 3.0% increase compared to $36.3 million for 2003. The increase for 2004 was due mainly to the addition of selling and administrative expenses for The Dingley Press, higher employee costs, including healthcare, the management fee paid to our equity sponsors and increases in accounting, legal and other costs associated with the additional reporting and compliance requirements resulting from the public registration of the 2003 Notes and the 2004 Notes, partially offset by the absence of $3.5 million of transaction costs related to the Buyout Transactions (which were expensed as incurred in 2003).   Gain or loss on fixed asset dispositions for 2004 was a gain of $0.2 million and was a loss of $0.1 million for 2003.   Restructuring costs for 2004 were $0.3 million; none were recorded in 2003. The restructuring costs in 2004 were due to the closure of the Sheridan Books facility in Fredericksburg, Virginia and were primarily related to employee termination and other one-time costs.   Amortization expense for 2004 was $1.8 million, a $1.1 million increase compared to amortization expense of $0.7 million for 2003. The increase in amortization expense in 2004 was due to the recognition of intangible assets associated with the Buyout in August 2003 and the Dingley Acquisition in May 2004.   Operating income for 2004 was $21.5 million, an $8.0 million or 58.7% increase compared to operating income of $13.5 million for 2003. Operating margin for 2004 was 7.5%, reflecting a 1.2 margin point increase compared to an operating margin of 6.3% for 2003. The margin improvement for 2004 compared to 2003 was largely a function of the impact of one-time transaction costs related to the Buyout Transactions in August 2003.   Interest expense in 2004 was $16.7 million, a $7.9 million or 88.7% increase compared to interest expense of $8.8 million for 2003. This increase was primarily attributable to the increase in debt associated with the Buyout Transactions and the Dingley Transactions, coupled with the higher interest rate of the 2003 Notes and the 2004 Notes as well as $0.3 million of liquidated damages accrued as a result of not having an exchange registration statement for the 2003 Notes filed with the Securities and Exchange Commission and declared effective by the deadline required by the registration rights agreement relating to the 2003 Notes.   Other income (including interest income) for 2004 was $0.3 million, a $0.1 million or 28.3% decrease compared to other income (including interest income) of $0.4 million for 2003.   Income before income taxes for 2004 was $5.1 million, unchanged as compared to income before income taxes of $5.1 million for 2003. Income before income taxes margin for 2004 of 1.8% decreased 0.6 margin points compared to a 2.4% margin for 2003. The decrease in income before income taxes margin for 2004 was mainly the result of higher interest expense and increased depreciation and amortization expense attributable to the Buyout Transactions and the Dingley Transactions, as well as higher administrative costs associated with public reporting in connection with the 2003 Notes and the 2004 Notes, partially offset by higher net sales and the absence of the transaction costs related to the Buyout Transactions (which were incurred in 2003).   Our effective income tax rate in 2004 was 54.3% compared to 62.4% in 2003. The decrease was caused by a reduction in the amount of tax reserves established in 2004 as compared to 2003, partially offset by an increase in our effective state rate brought about by the unitary tax filing requirements in Maine as a result of the Dingley Acquisition.   Net income for 2004 was $2.3 million, a $0.4 million or 20.8% increase from net income of $1.9 million for 2003. The increase in net income for 2004 was principally due to the impact of higher net sales and the absence of the 2003 transaction costs related to the Buyout Transactions partially offset by higher interest expense and increased depreciation and amortization expense attributable to the Buyout Transactions and the Dingley Transactions as well as higher costs associated with public reporting in connection with the 2003 Notes and the 2004 Notes.   22        Liquidity and Capital Resources   Operating Activities   Net cash provided by operating activities was $23.5 million for 2005 compared to $22.7 million for 2004. This $0.8 million increase was primarily the result of $2.5 million of additional depreciation and amortization in 2005 as a result of the Dingley Acquisition and reductions in working capital deployed, partially offset by lower earnings.   Investing Activities   Net cash used in investing activities was $20.3 million for 2005 compared to $85.0 million for 2004. This $64.7 million decrease was primarily the result of the absence in 2005 of the $65.5 million of cash paid related to the Dingley Acquisition offset by $0.8 million of proceeds received from our insurer in 2005 as a result of property damage suffered in September 2004 at our manufacturing facility in Ashburn, Virginia.   Financing Activities   Total debt outstanding at December 31, 2005 was $164.9 million which was unchanged as compared to $164.9 million outstanding at December 31, 2004.   Net cash used in financing activities for 2005 was $0.2 million which primarily resulted from the payment of a cash dividend. Net cash provided by financing activities for 2004 totaled $57.3 million and consisted of $61.2 million of proceeds from the sale of the 2004 Notes less $3.9 million of costs paid in connection with such sale in conjunction with the Dingley Acquisition.   We had cash of $8.0 million as of December 31, 2005 compared to $5.0 million as of December 31, 2004. During 2005, we utilized cash provided by operating activities to make investments in new equipment and make the semi-annual interest payments on the 2003 Notes and the 2004 Notes. During 2004, we utilized cash provided by operating activities as well as cash from additional borrowings to help fund the Dingley Acquisition, make investments in new equipment and make the semi-annual interest payments on the 2003 Notes and the 2004 Notes.   Indebtedness   As of December 31, 2005, we had total indebtedness of $164.9 million comprised entirely of amounts due under the 2003 Notes and the 2004 Notes, all with a scheduled maturity of August 2011. We will have significant interest payments due on the outstanding notes as well as interest payments due on any borrowings under our working capital facility, under which there were no amounts outstanding as of December 31, 2005. Total cash interest payments related to our working capital facility and the 2003 Notes and the 2004 Notes are expected to be in excess of $16.9 million on an annual basis.   Concurrent with the closing of the Dingley Transactions, we amended our working capital facility. This amendment, among other things, increased our borrowing availability from $18.0 million to $30.0 million. The terms of our working capital facility, as amended, are substantially as set forth below. Revolving advances are available from the lenders in an aggregate principal amount of up to $30.0 million, subject to a borrowing base test. We are able to repay and re-borrow such advances until the May 2009 maturity date.   Our working capital facility and the indenture governing the 2003 Notes and the 2004 Notes contain various covenants which limit our discretion in the operation of our businesses. Additionally, our working capital facility contains various restrictive covenants. Among other things, it prohibits us from prepaying other indebtedness, including the 2003 Notes and the 2004 Notes, and it requires us to satisfy certain financial tests including an interest coverage ratio and requires us to maintain a minimum EBITDA (as defined in and calculated pursuant to our working capital facility) (such EBITDA being referred to hereinafter as “WCF EBITDA”), both calculated for the period consisting of the four preceding consecutive fiscal quarters. WCF EBITDA is defined in and calculated pursuant to our working capital facility and is used below solely for purposes of calculating our compliance with the covenants in our working capital facility. Failure to satisfy the financial tests in our working capital facility would constitute a default under our working capital facility. The required interest coverage ratio is 2.00 to 1.00 and the minimum WCF EBITDA requirement (calculated on a rolling twelve months) is $33.0 million through the end of the third quarter of 2006 and $36.0 million thereafter. For the year ended December 31, 2005, our interest coverage ratio was 2.42 to 1.00 and our WCF EBITDA for purposes of our working capital facility was $41.6 million. In addition, our working capital facility restricts our ability to declare or pay any dividends and prohibits us from making any payments with respect to the 2003 Notes and the 2004 Notes if we fail to perform our obligations under, or fail to meet the conditions of, our working capital facility or if payment creates a default under our working capital facility.   WCF EBITDA calculated pursuant to the working capital facility is defined as net income (loss) before interest expense, income taxes, depreciation, amortization and other non-cash charges (including all fees and costs relating to the   23        transactions contemplated by the working capital facility) as defined in the working capital facility. WCF EBITDA calculated pursuant to the working capital facility is not an indicator of financial performance or liquidity under generally accepted accounting principles and may not be comparable to similarly captioned information reported by other companies. In addition, it should not be considered as an alternative to, or more meaningful than, income before income taxes, cash flows from operating activities or other traditional indicators of operating performance.   WCF EBITDA is reconciled directly to cash flow from operations as follows (in thousands):              Year ended       Year ended       Year ended                 December 31,       December 31,       December 31,                 2005       2004       2003         Net cash provided by operating activities       $   23,543       $   22,692       $   20,137         Accounts receivable       704       1,697       (1,144   )     Notes receivable       —       —       (104   )     Inventories       556       (6,658   )   (1,641   )     Other current assets       611       897       373         Refundable income taxes       (1,935   )   1,213       (155   )     Other assets       846       816       515         Accounts payable       (3,357   )   (1,363   )   (638   )     Accrued expenses       (125   )   2,877       (2,001   )     Accrued interest       119       (2,604   )   (2,544   )     Other liabilities       (509   )   (543   )   (4   )     Provision for doubtful accounts       (53   )   (196   )   (315   )     Provision for inventory realizability and   LIFO value       (64   )   (136   )   (19   )     Deferred income tax benefit (expense)       269       (252   )   456         Gain (loss) on disposition of fixed assets,   net       (586   )   172       (51   )     Income tax provision       2,436       2,765       3,197         Cash interest expense       17,201       14,989       6,944         Management fees       827       769       210         Non cash adjustments:                                 Purchase accounting write-up of inventory       —       257       629         Adjustments to LIFO value       30       30       15         Decrease (increase) in market value of   investments       (85   )   (66   )   (143   )     Amortization of prepaid lease costs       83       83       83         Loss on disposition of fixed assets       695       1,010       54         Non-recurring transaction costs       —       —       3,484         Restructuring costs       429       256       —         Gain on sale of Fredericksburg, VA land and   building, net of exit costs       —       (776   )   —         The Dingley Press EBITDA from January 1,   2004 through May 24, 2004 (a)       —       4,327       —         Working Capital Facility EBITDA       $   41,635       $   42,256       $   27,338           (a)               For covenant calculation purposes, WCF EBITDA for The Dingley Press prior to the Dingley Acquisition was included with our results for the full year.   The indenture governing the 2003 Notes and the 2004 Notes also contains various restrictive covenants. It, among other things: (i) limits our ability and the ability of our subsidiaries to incur additional indebtedness, issue shares of preferred stock, incur liens and enter into certain transactions with affiliates; (ii) places restrictions on our ability to pay dividends or make certain other restricted payments; and (iii) places restrictions on our ability and the ability of our subsidiaries to merge or consolidate with any other person or sell, assign, transfer, convey or otherwise dispose of all or substantially all of our   24        assets.   Our principal sources of liquidity are expected to be cash flow generated from operations and borrowings under our working capital facility. Our principal uses of cash are expected to be to meet debt service requirements, finance our capital expenditures and provide working capital. We estimate that our capital expenditures for 2006 will total about $24.9 million. Based on our current level of operations, we believe that our cash flow from operations, available cash and available borrowings under our working capital facility will be adequate to meet our future short-term and long-term liquidity needs. Our future operating performance and ability to extend or refinance our indebtedness will be dependent on future economic conditions and financial, business and other factors that may be beyond our control.   Contractual Obligations   The following table summarizes our future minimum non-cancelable contractual obligations as of December 31, 2005:              Remaining Payments Due by Period                                 2007 to       2009 to       2011 and         (in thousands)       Total       2006       2008       2010       beyond                                                           Long term debt, including interest (1)       $   260,133       $   16,913       $   33,825       $   33,825       $   175,570         Operating leases       14,775       4,983       7,419       2,160       213         Purchase obligations (2)       31,020       23,318       5,511       2,191       —         Other long-term obligations (3)       1,411       247       505       344       315                                                           Total       $   307,339       $   45,461       $   47,260       $   38,520       $   176,098           (1) Includes the $105.0 million aggregate principal amount due on the 2003 Notes and the $60.0 million aggregate principal amount due on the 2004 Notes plus interest at 10.25% payable semi-annually through August 15, 2011. (2) Represents payments due under purchase agreements for consumable raw materials and commitments for construction projects and equipment acquisitions. (3) Represents payments due under non-compete arrangements with our former Chairman of the Board and the President of The Dingley Press.   Off-Balance Sheet Arrangements   At December 31, 2005 and 2004, we did not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.   Effect of Inflation   Inflation generally affects us by increasing our costs of labor, equipment and new materials. We do not believe that inflation has had any material effect on our results of operations during 2005, 2004 and 2003.   Recently Issued Accounting Pronouncements   In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 123 (“SFAS 123R”), “Share-Based Payment.” SFAS 123R requires that the cost of equity-based service awards be measured based on the   25        grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award or the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the effective date of SFAS 123R. The effective date of the new standard under these new rules is January 1, 2006. Adoption of this statement will have an impact on our consolidated financial statements as we will be required to expense the fair value of our stock option grants rather than disclose the impact on our consolidated net income within our footnotes, as is our current practice. We do not believe adoption of SFAS 123R will have a material effect on our consolidated financial position, results of operations or cash flows.   In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the Staff’s interpretation of SFAS 123R. This interpretation expresses the views of the Staff regarding the interaction between SFAS 123R and certain SEC rules and regulations and provides the Staff’s views regarding the valuation of share-based payment arrangements by public companies. In particular, this SAB provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods, the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123R in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R, the modification of employee share options prior to adoption of SFAS 123R and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123R. We will adopt SAB 107 in connection with our adoption of SFAS 123R.   In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (“SFAS 154”) which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change. It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS 154 in the first quarter of fiscal 2006.   In September 2005, the Emerging Issues Task Force (“EITF”) issued EITF 05-06, “Determining the Amortization Period for Leasehold Improvements after Lease Inception or Acquired in a Business Combination”. EITF 05-06 requires that leasehold improvements acquired in a business combination be capitalized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition.  EITF 05-06 also requires leasehold improvements that are placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured (as defined in paragraph 5 of Statement 13) at the date the leasehold improvements are purchased. EITF 05-06 is effective for leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. Early adoption of the consensus is permitted in periods for which financial statements have not been issued.  We do not believe that the adoption of EITF 05-06 will have a material effect on our consolidated financial position, results of operations or cash flows.   In October 2005, the FASB issued SFAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (“FSP SFAS 13-1”). FSP SFAS 13-1 concludes that there is no distinction between the right to use a leased asset during and after the construction period; therefore rental costs incurred during the construction period should be recognized as rental expense and included in income from continuing operations. FSP SFAS 13-1 is effective for the first reporting period beginning after December 15, 2005; early adoption is permitted. We plan to adopt FSP SFAS 13-1 in the first quarter of 2006 and do not expect FSP SFAS 13-1 to have a material impact on the consolidated financial statements.   ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK   Market risk represents the risk of changes in value of a financial instrument, derivative or non-derivative, caused by fluctuations in interest rates, foreign exchange rates and equity prices. Changes in these factors could cause fluctuations in results of our operations and cash flows. In the ordinary course of business, we are exposed to foreign currency and interest rate risks. These risks primarily relate to the sale of products and services to foreign customers and changes in interest rates on our long-term debt.   Foreign Exchange Rate Market Risk   We consider the U.S. dollar to be the functional currency for all of our entities. Substantially all of our net sales   26        and our expenses in fiscal years 2005, 2004 and 2003 were denominated in U.S. dollars. Therefore, foreign currency fluctuations did not materially impact our financial results in those periods.   Interest Rate Market Risk   We could be exposed to changes in interest rates. Our working capital facility is variable rate debt. Interest rate changes, therefore, generally do not affect the market value of such debt but do impact the amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant. We currently do not have any borrowings under our working capital facility. All of our other debt carries fixed interest rates.   ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA   Report of Independent Registered Public Accounting Firm   To the Board of Directors and the Stockholder of the Sheridan Group, Inc.   In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of changes in the stockholders’ equity (deficit) and mandatorily redeemable convertible preferred stock, and of cash flows present fairly, in all material respects, the financial position of The Sheridan Group, Inc. and Subsidiaries (the “Company”)(“Successor”) at December 31, 2005 and 2004, and the results of their operations and their cash flows for the years ended December 31, 2005 and 2004 and the four-month and eleven-day period ended December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.   As discussed in Note 2 to the consolidated financial statements, on August 21, 2003, Sheridan Acquisition Corp., a newly formed entity, acquired the outstanding stock of the Company. The financial statements for the periods subsequent to August 21, 2003 have been prepared on a basis of accounting arising from this acquisition. The financial statements for the period from January 1, 2003 to August 20, 2003 are presented on the Company’s previous basis of accounting.        /s/ PricewaterhouseCoopers   LLP         Baltimore, Maryland     March 29, 2006      27        Report of Independent Registered Public Accounting Firm   To the Board of Directors and the Stockholders of the Sheridan Group, Inc.   In our opinion, the accompanying consolidated statements of income, of changes in stockholders’ equity (deficit) and mandatorily redeemable convertible preferred stock and of cash flows present fairly, in all material respects, the results of operations and cash flows of The Sheridan Group, Inc. and Subsidiaries (the “Company”)(“Predecessor”) for the seven-month and twenty-day period ended August 20, 2003, in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.   As discussed in Note 2 to the consolidated financial statements, on August 21, 2003, Sheridan Acquisition Corp., a newly formed entity, acquired the outstanding stock of the Company. The financial statements for the periods subsequent to August 21, 2003 have been prepared on a basis of accounting arising from this acquisition. The financial statements for the period from January 1, 2003 to August 20, 2003 are presented on the Company’s previous basis of accounting.        /s/ PricewaterhouseCoopers   LLP         Baltimore, Maryland     March 24, 2004      28        The Sheridan Group, Inc. and Subsidiaries Consolidated Balance Sheets At December 31, 2005 and 2004              December 31,       December 31,                 2005       2004         Assets                         Current assets                         Cash and cash equivalents       $   7,962,406       $   4,974,615         Accounts receivable, net of allowance for   doubtful accounts of $956,612 and $1,136,719, respectively       33,544,025       32,893,070         Inventories, net       19,055,266       18,562,870         Other current assets       4,125,713       4,325,228         Refundable income taxes       677,061       2,611,725         Deferred income taxes       1,167,836       1,907,748         Total current assets       66,532,307       65,275,256                                   Property, plant and equipment, net       119,219,511       115,253,354         Intangibles, net       46,549,163       48,281,162         Goodwill       56,983,043       57,763,307         Deferred financing costs, net       6,915,181       8,672,108         Other assets       4,521,350       3,893,675                                   Total assets       $   300,720,555       $   299,138,862                                   Liabilities                         Current liabilities                         Accounts payable       $   19,401,927       $   17,487,828         Accrued expenses       24,220,519       24,214,084         Total current liabilities       43,622,446       41,701,912                                   Notes payable       164,903,580       164,893,650         Deferred income taxes       33,740,457       35,529,769         Other liabilities       3,457,939       2,948,686         Total liabilities       245,724,422       245,074,017         Commitments and contingencies (Notes 13 and   18)                                                   Stockholder’s Equity                         Common stock, $0.01 par value; 100 shares   authorized; 1 share issued and outstanding at December 31, 2005 and 2004       —       —         Additional paid-in capital       50,975,800       50,975,000         Retained earnings       4,020,333       3,089,845         Total stockholder’s equity       54,996,133       54,064,845                                   Total liabilities and stockholder’s equity       $   300,720,555       $   299,138,862          The accompanying notes are an integral part of these consolidated financial statements.   29        The Sheridan Group, Inc. and Subsidiaries Consolidated Statements of Income Years Ended December 31, 2005 and December 31, 2004 and Periods Ended December 31 and August 20, 2003              Successor Basis       Predecessor Basis                                 Four-months and       Seven-months and                 Year Ended       Year Ended       eleven-days ended       twenty-days ended                 December 31,       December 31,       December 31,       August 20,                 2005       2004       2003       2003         Net sales       $   347,958,675       $   287,513,124       $   81,192,856       $   131,904,436         Cost of sales       283,502,625       226,730,754       62,447,372       100,065,635         Gross profit       64,456,050       60,782,370       18,745,484       31,838,801         Selling and administrative expenses       39,594,103       37,404,454       12,703,533       23,619,398         (Gain) loss on disposition of fixed assets       585,617       (172,405   )   23,610       26,583         Restructuring costs       429,231       256,481       —       —         Amortization of intangibles       1,950,204       1,838,073       603,624       85,079         Total operating expenses       42,559,155       39,326,603       13,330,767       23,731,060         Operating income       21,896,895       21,455,767       5,414,717       8,107,741         Other (income) expense                                         Interest expense       18,967,623       16,678,096       4,423,048       4,698,393         Fair value adjustment to interest rate   collar       —       —       —       (283,123   )     Interest income       (280,254   )   (183,296   )   (47,153   )   (66,603   )     Other, net       (406,853   )   (133,516   )   (235,236   )   (93,154   )     Total other expense       18,280,516       16,361,284       4,140,659       4,255,513         Income before income taxes       3,616,379       5,094,483       1,274,058       3,852,228         Income tax provision       2,436,000       2,764,851       513,845       2,683,312         Net income       $   1,180,379       $   2,329,632       $   760,213       $   1,168,916          The accompanying notes are an integral part of these consolidated financial statements.   30        The Sheridan Group, Inc. and Subsidiaries Consolidated Statements of Changes in Stockholders’ Equity (Deficit) and Mandatorily Redeemable Convertible Preferred Stock Years Ended December 31, 2005 and December 31, 2004 and Periods Ended December 31 and August 20, 2003              Mandatorily Redeemable       Class A       Class E       Successor       Additional       Retained Earnings       Total                 Preferred Stock       Common Stock       Common Stock       Common Stock       Paid-In       (Accumulated       Stockholders’                 Shares       Amount       Shares       Amount       Shares       Amount       Shares       Amount       Capital       Deficit)       Equity (Deficit)         Balance   as of December 31, 2002       18,192       $   18,191,665       60,916       $   609       —       $   —       —       $   —       $   2,437,847       $   (10,361,553   )   $   (7,923,097   )     Predecessor Basis                                                                                                 Net income       —       —       —       —       —       —       —       —       —       1,168,916       1,168,916         Stock option   compensation       —       —       12,389       124       —       —       —       —       1,000,132       —       1,000,256         Exercised   warrants       —       —       —       —       26,300       263       —       —       —       —       263         Conversion of   mandatorily redeemable       —       —       —       —       —       —       —       —       —       —       —         preferred stock   to Class A common stock       (18,192   )   (18,191,665   )   230,800       2,308       —       —       —       —       18,189,357       —       18,191,665         Ending balance of   predecessor company       —       —       304,105       3,041       26,300       263       —       —       21,627,336       (9,192,637   )   12,438,003                                                                                                           Successor Basis                                                                                                 Issuance of   successor common stock       —       —       —       —       —       —       1       —       47,000,000       —       47,000,000         Net Income       —       —       —       —       —       —       —       —       —       760,213       760,213         Balance   as of December 31, 2003       —       —       —       —       —       —       1       —       47,000,000       760,213       47,760,213         Capital   contribution from parent company       —       —       —       —       —       —       —       —       3,975,000       —       3,975,000         Net income       —       —       —       —       —       —       —       —       —       2,329,632       2,329,632         Balance   as of December 31, 2004       —       —       —       —       —       —       1       —       50,975,000       3,089,845       54,064,845         Cash dividend       —       —       —       —       —       —       —       —       —       (249,891   )   (249,891   )     Capital   contribution from parent company       —       —       —       —       —       —       —       —       800       —       800         Net income       —       —       —       —       —       —       —       —       —       1,180,379       1,180,379         Balance   as of December 31, 2005       —       $   —       —       $   —       —       $   —       1       $   —       $   50,975,800       $   4,020,333       $   54,996,133          The accompanying notes are an integral part of these consolidated financial statements.   31        The Sheridan Group, Inc. and Subsidiaries Consolidated Statements of Cash Flows Years Ended December 31, 2005 and December 31, 2004 and Periods Ended December 31 and August 20, 2003              Successor Basis       Predecessor Basis                                 Four-months and       Seven-months and                 Year ended       Year ended       eleven-days ended       twenty-days ended                 December 31,       December 31,       December 31,       August 20,                 2005       2004       2003       2003                                                   Cash   flows provided by operating activities:                                         Net income       $   1,180,379       $   2,329,632       $   760,213       $   1,168,916         Adjustments to   reconcile net income to net cash from operating activities                                         Depreciation       15,121,343       12,755,046       3,563,957       4,591,401         Amortization of   assets under capital lease       —       —       —       197,527         Amortization of   intangible assets       1,950,204       1,838,073       603,624       85,079         Provision for   doubtful accounts       53,074       195,961       81,823       232,757         Provision   (credit) for inventory realizability and LIFO value       63,950       136,110       (9,555   )   28,372         Fair value   adjustment to interest rate collar       —       —       —       (283,123   )     Amortization of   deferred financing costs and debt discount, included in interest expense       1,766,857       1,689,413       496,175       1,681,665         Deferred income   tax expense (benefit)       (269,136   )   332,614       (739,434   )   284,109         (Gain)/loss on   disposition of fixed assets       585,617       (172,405   )   23,610       26,583         Changes in   operating assets and liabilities, net of assets acquired and liabilities   assumed:                                         Accounts receivable       (704,029   )   (1,697,032   )   (2,325,780   )   3,470,338         Notes receivable       —       —       33,356       70,636         Inventories       (556,346   )   6,657,930       1,981,057       (340,259   )     Other current   assets       (610,456   )   (896,973   )   (657,603   )   284,837         Refundable income   taxes       1,934,664       (1,292,999   )   466,393       (311,135   )     Other assets       (845,880   )   (816,179   )   117,688       (633,394   )     Accounts payable       3,357,249       1,363,309       1,284,949       (646,728   )     Accrued expenses       125,202       (2,877,309   )   (241,779   )   2,243,055         Accrued interest       (118,767   )   2,604,371       3,629,504       (1,085,925   )     Other liabilities       509,253       542,515       (280,457   )   284,288         Net cash provided   by operating activities       23,543,178       22,692,077       8,787,741       11,348,999                                                   Cash   flows used in investing activities                                         Purchases of   property, plant and equipment       (21,282,193   )   (21,827,456   )   (2,914,838   )   (5,213,268   )     Proceeds from   sale of fixed assets       165,926       2,404,366       27,044       26,155         Proceeds from   insurance coverage       809,971       —       —       —         Collection of   notes receivable       —       —       430,630       —         Acquisition of   business, net of cash acquired       —       (65,529,531   )   (79,883,936   )   —         Net cash used in   investing activities       (20,306,296   )   (84,952,621   )   (82,341,100   )   (5,187,113   )                                               Cash   flows (used in) provided by financing activities                                         Borrowing of   revolving line of credit       21,568,000       9,274,000       —       15,693,315         Repayment of   revolving line of credit       (21,568,000   )   (9,274,000   )   (2,121,771   )   (16,473,000   )     Repayment of long   term debt       —       —       (56,744,439   )   (5,185,798   )     Repayment of   obligation under capital leases       —       —       (1,469,565   )   (164,376   )     Payment of   deferred financing costs in connection with issuance of long term debt       —       (3,882,593   )   (6,873,594   )   —         Payment of   dividend       (249,891   )                             Proceeds from   issuance of long term debt       —       61,200,000       103,600,350       —         Proceeds from   capital contribution from parent company       800       —       47,000,000       —         Net cash (used   in) provided by financing activities       (249,091   )   57,317,407       83,390,981       (6,129,859   )                                               Net increase   (decrease) in cash and cash equivalents       2,987,791       (4,943,137   )   9,837,622       32,027                                                   Cash and   cash equivalents                                         Cash and cash   equivalents, beginning of year       4,974,615       9,917,752       80,130       48,103                                                   Cash and cash   equivalents, end of year       $   7,962,406       $   4,974,615       $   9,917,752       $   80,130                                                   Supplemental   disclosure of cash flow information                                         Cash paid during   the year for                                         Interest       $   17,319,533       $   14,092,645       $   5,353       $   4,282,030         Income taxes, net   of refunds       $   738,852       $   3,699,852       $   771,943       $   2,238,506                                                   Non-cash   investing and financing activities                                         Conversion of   preferred stock into common stock       $   —       $   —       $   18,191,665       $   —         Asset additions   in accounts payable       $   977,324       $   2,420,474       $   1,040,000       $   176,000         Issuance of stock   as purchase consideration       $   —       $   3,975,000       $   —       $   —          The accompanying notes are an integral part of these consolidated financial statements.   32        The Sheridan Group, Inc. and Subsidiaries Notes to Consolidated Financial Statements Years Ended December 31, 2005 and December 31, 2004 and Periods Ended December 31 and August 20, 2003   1. Business Organization   The Sheridan Group, Inc. (“TSG” or the “Company”) is one of the leading specialty printers in the United States, offering a full range of printing and value-added support services for the journal, magazine, book, catalog and article reprint markets. The Company provides a wide range of printing services and value-added support services, such as electronic copy editing, composition, digital proofing, subscriber database maintenance, distribution services and electronic publishing support. TSG has eight wholly-owned subsidiaries: The Sheridan Press, Inc. (“TSP”), United Litho, Inc. (“ULI”), Dartmouth Printing Company (“DPC”), Capital City Press, Inc. (“CCP”), Sheridan Books, Inc. (“SBI”), Dartmouth Journal Services, Inc. (“DJS”), The Dingley Press, Inc. (“TDP”) and The Sheridan Group Holding Company (collectively with TSG, the “Company”).   The Company is a wholly-owned subsidiary of TSG Holdings Corp. (“Holdings”), which is owned 84.8% by its equity sponsors, Bruckmann, Rosser, Sherrill & Co. LLC (“BRS”) and Jefferies Capital Partners (“JCP”), and 15.2% by the management and directors of TSG.   2. Acquisitions   The Sheridan Group, Inc.   On August 1, 2003, Sheridan Acquisition Corp., a newly formed, wholly-owned subsidiary of Holdings entered into a stock purchase agreement with the Company to purchase all of the Company’s outstanding capital stock (the “Sheridan Acquisition”). On August 21, 2003, Sheridan Acquisition Corp., completed a private debt offering of 10.25% senior secured notes (the “2003 Notes”) totaling $105.0 million, priced to yield 10.50% that mature August 15, 2011. Proceeds from the 2003 Notes of $103.6 million (which was net of discount), together with $47.0 million of new equity investments, were used to fund the Sheridan Acquisition, cover fees and expenses of the 2003 Notes offering and the Sheridan Acquisition and repay 100% of the Company’s then outstanding revolving line of credit, Term A & B credit agreements, senior subordinated debt, industrial revenue bonds, and various notes payable and capital leases, which totaled approximately $55.3 million. The total purchase price for the Sheridan Acquisition was $186.6 million, which consisted of $55.3 million of refinanced indebtedness discussed above, cash paid of $79.9 million and liabilities assumed of $51.4 million. Included in the purchase price was a standard seller indemnity escrow fund totaling $5.0 million, which was disbursed to the sellers on August 21, 2004. Concurrent with the Sheridan Acquisition, Sheridan Acquisition Corp. merged with and into the Company.   The Sheridan Acquisition was treated as a purchase business combination requiring a new basis of accounting for the acquired assets and liabilities pursuant to the requirements of Statement of Financial Accounting Standard (“SFAS”) No. 141 “Business Combinations.” Accordingly, the financial statements of the Company as of and for periods subsequent to August 21, 2003 are referred to as the “Successor basis” statements and all financial statements prior to that date are referred to as the “Predecessor basis” statements. The aforementioned application of purchase accounting resulted in higher depreciation and amortization expense. Accordingly, because of the Sheridan Acquisition and new basis of accounting, the Company’s financial statements for the period subsequent to the Sheridan Acquisition are not comparable to the Predecessor’s financial statements for the periods prior to the Sheridan Acquisition.   The Dingley Press, Inc.   On March 5, 2004, the Company entered into an agreement to purchase substantially all of the assets and business of The Dingley Press of Lisbon, Maine (the “Dingley Acquisition”). On May 25, 2004, the Company completed a private debt offering of 10.25% senior secured notes (the “2004 Notes”) totaling $60.0 million, priced to yield 9.86%, that mature August 15, 2011. The 2004 Notes have identical terms to the 2003 Notes. Proceeds from the 2004 Notes of $61.2 million (which included a premium), together with approximately $4.0 million of stock issued by TSG Holdings Corp., which was contributed to the Company as additional paid-in capital, were used to fund the Dingley Acquisition and to cover fees and expenses of the 2004 Notes offering and the Dingley Acquisition. The total purchase price for the Dingley Acquisition was $95.4 million, which consisted of cash paid of $65.5 million, liabilities assumed of $26.0 million and financing costs of $3.9 million. Included in the purchase price was a standard seller indemnity escrow fund totaling $3.0 million which expired on November 25, 2005. The results of operations of The Dingley Press have been included in the Company’s results of operations since the date of the Dingley Acquisition.   33        The Dingley Acquisition was accounted for as a purchase in accordance with SFAS No. 141, “Business Combinations,” and the Company accordingly allocated the purchase price of The Dingley Press based upon the fair value of net assets acquired and liabilities assumed. The total purchase price was allocated to the acquired assets and liabilities based on their respective fair values at May 25, 2004 as follows:      Current   assets       $   26,926         Property, plant & equipment       49,711         Intangible assets       3,978         Goodwill       14,829         Total assets   acquired       95,444         Liabilities assumed       (26,006   )     Net assets   acquired       $   69,438          During 2005, the Company has revised the original allocation of purchase price made to the net assets acquired as a result of the Dingley Acquisition. The Company corrected the classification of the deferred tax asset arising from the portion of tax deductible goodwill acquired in excess of book goodwill. The revision resulted in an increase to goodwill and a decrease to deferred tax assets of $11.2 million, as of the acquisition date. The revision had no effect on net assets acquired as a result of the acquisition and no impact on previously reported consolidated statements of income, cash flows, and stockholders’ equity. As a result of the revision, reflected in the December 31, 2004 consolidated balance sheet, and in accordance with FAS 109, “Accounting for Income Taxes”, the Company will realize a tax benefit associated with the amount of tax goodwill in excess of book goodwill associated with the acquisition. The Company will only recognize the benefit when realized on future tax returns and will apply the benefit first to reduce book goodwill associated with the acquisition to zero, second to reduce to zero other noncurrent intangible assets related to the acquisition, and third to reduce income tax expense. During 2005, the Company incurred a tax benefit of $0.8 million associated with the realization of tax deductible goodwill in excess of book goodwill. Such amount has been recorded as a reduction to book goodwill for the year ended December 31, 2005 (see Note 7).   The acquisition of The Dingley Press provides the Company with an opportunity for future growth while diversifying its product offering. Importantly, the catalog market, in which The Dingley Press competes, has characteristics that are similar to the other business segments of the Company. The purchase price of The Dingley Press was based on the projected business growth and cash flows of The Dingley Press over the next several years and indicated a value that was in excess of the current net book value of the business, resulting in the recognition of various intangible assets and goodwill. The goodwill is deductible for tax purposes and the intangible assets consist primarily of customer relationships.   The following unaudited pro forma summary for the year ended December 31, 2004 presents the consolidated results of operations as if the Dingley Acquisition had occurred as of January 1, 2004. The following unaudited pro forma summary for the year ended December 31, 2003 presents the consolidated results of operations as if both the Sheridan Acquisition and the Dingley Acquisition (the “Acquisitions”) occurred as of January 1, 2003. The summary includes adjustments for depreciation and amortization of noncurrent assets, income taxes, interest expense on the debt incurred to fund the Acquisitions, management fees and transaction costs which would have been incurred had the Acquisitions occurred as of the beginning of the periods presented. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the Acquisitions and other transactions occurred as of that date or results which may occur in the future.              (Unaudited)   December 31,         (Dollars in thousands)       2004       2003                                   Revenue       $   324,453       $   306,939         Net income       $   2,074       $   1,773                      3. Summary of Significant Accounting Policies   Principles of Consolidation   The consolidated financial statements include the accounts of The Sheridan Group, Inc. and its wholly-owned subsidiaries, TSP, ULI, DPC, CCP, SBI, TDP, DJS and The Sheridan Group Holding Company. All material intercompany balances and transactions have been eliminated.   34        Use of Estimates   The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.   Revenue Recognition   In accordance with Staff Accounting Bulletin (“SAB”) 104, “Revenue Recognition,” the Company records revenue when realized or realizable and earned when all of the following criteria are met:   • Persuasive evidence of an arrangement exists, • Delivery has occurred or services have been rendered, • The seller’s price to the buyer is fixed and determinable, and • Collectibility is reasonably assured.   As such, substantially all revenue is recognized when a product is shipped and title and risk of loss transfers to the customer. Shipping and handling fees billed to customers are included in net sales and any cost of shipping and handling is included in cost of sales.   Cash and Cash Equivalents   Cash and cash equivalents include amounts invested in accounts which are readily convertible to known amounts or have original maturities of three months or less when purchased.   Business and Credit Concentrations   The Company’s customers are not concentrated in any specific geographic region, but are concentrated in the journal, magazine, book, specialty catalog and article reprint markets. There were no significant accounts receivable from a single customer. The Company establishes an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information.   Accounts Receivable and Allowance for Doubtful Accounts   Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company’s best estimate of probable credit losses in its existing accounts receivable. The Company reviews the allowance for doubtful accounts on a regular basis. Past due balances over 120 days are reviewed for collectibility and form the basis of the Company’s reserve. When the Company determines that a particular customer poses a credit risk, a specific reserve is established. Account balances are charged off against the allowance when the Company feels it is probable the receivable will not be recovered. The Company does not have any off-balance sheet credit exposure related to its customers.   A rollforward of the allowance for doubtful accounts is as follows:   35                   Successor Basis       Predecessor Basis                 Year Ended   December 31,       Year Ended   December 31,       Four-months and   eleven-days   ended December   31,       Seven-months   and twenty-days   ended August 20,                 2005       2004       2003       2003                                                   Balance at   beginning of period       $   1,136,719       $   1,089,139       $   1,155,565       $   996,685         Charged to   expense       53,074       195,961       81,823       232,757         Deductions       (233,181   )   (549,793   )   (148,249   )   (73,877   )     Other (a)       —       401,412       —       —         Balance at   end of period       $   956,612       $   1,136,719       $   1,089,139       $   1,155,565           (a) Represents the opening balance in the allowance resulting from the acquisition of The Dingley Press during 2004.   Inventories   Inventories are stated at the lower of cost or market with the cost of TSP’s paper inventory and SBI’s work-in-process inventory determined by the last-in, first-out (“LIFO”) cost method. The cost of the remaining inventory (approximately 92% of inventories at December 31, 2005 and December 31, 2004) is determined using the first-in, first-out (“FIFO”) method.   Property and Equipment   Property, plant and equipment are recorded at cost, except those assets acquired through the Acquisitions, in which case they are recorded at fair value. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, as follows: 1-11 years for machinery and equipment; and 10-40 years for buildings and land improvements. Leasehold improvements are amortized over their estimated useful lives or the term of the underlying lease, whichever is shorter. Upon disposal of property, plant and equipment, the cost of the asset and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is reflected in earnings.   Expenditures for renewals and improvements which extend the original estimated lives of the assets are capitalized. Expenditures for maintenance and repairs are charged to operations as incurred.   The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable pursuant to SFAS No. 144 (“SFAS 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets.” Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered to be impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of by sale are reported at the lower of the carrying amount or fair value less costs to sell.   Income Taxes   Deferred income taxes are recognized for the tax consequences of applying enacted statutory tax rates applicable to future years to differences between the financial statement carrying amounts and the tax bases of existing assets and liabilities. A valuation allowance is recorded against deferred tax assets when it is more likely than not that a deferred tax asset will not be realized.   Goodwill   Effective January 1, 2002, the Company adopted SFAS No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets,” which establishes financial accounting and reporting for acquired goodwill and other intangible assets. Under SFAS 142, goodwill and indefinite-lived intangible assets are no longer amortized but are reviewed at least annually for   36        impairment. Separable intangible assets that have finite useful lives will continue to be amortized over their useful lives.   SFAS 142 requires that goodwill be tested for impairment at the reporting unit level at adoption and at least annually thereafter, utilizing a two-step methodology. The initial step requires the Company to determine the fair value of each reporting unit and compare it to the carrying value, including goodwill, of such unit. If the fair value exceeds the carrying value, no impairment loss is recognized. However, if the carrying value of the reporting unit exceeds its fair value, the goodwill of this unit may be impaired. The amount, if any, of the impairment is then measured in the second step by comparing the implied fair value of goodwill, determined using estimated future discounted cash flows, to the carrying value of goodwill for each reporting unit.   Identified Intangible and Other Long-Lived Assets   Identified intangible assets, which primarily consist of customer relationships and trade names, were valued at fair value with the assistance of independent appraisers, effective with the Acquisitions. All long-lived assets are amortized over the estimated useful lives. The Company periodically reviews long-lived assets for impairment using undiscounted future cash flows whenever events or changes in circumstances indicate that the carrying value may not be recoverable, and does not believe there is any impairment of intangible assets or other long-lived assets as of December 31, 2005 and 2004 pursuant to SFAS 144.   Deferred Financing Costs   Deferred financing costs incurred in connection with the 2003 Notes and the 2004 Notes are being amortized over the term of the related debt using the effective interest method. Deferred financing costs incurred in connection with establishing the revolving credit agreement are being amortized over the term of the agreement using the straight-line method. Accumulated amortization as of December 31, 2005 and 2004 was $3,849,214 and $2,092,287, respectively.   Accounting for Stock Options   The Company uses the intrinsic value method as defined in Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” to account for stock options issued to employees. Accordingly, no compensation expense has been recognized for stock options granted, as the exercise prices of the options were in excess of or equal to the fair value of the underlying common stock on the date of the option grants.   The following table reflects pro forma net income had the Company elected to adopt the fair value approach of SFAS No. 123, “Accounting for Stock-Based Compensation”:              Successor Basis       Predecessor Basis                 Year ended   December 31,       Year ended   December 31,       Four-months   and eleven-days   ended December   31,       Seven-months   and twenty-days   ended August 20,                 2005       2004       2003       2003                                                   Net income   (loss) as reported       $   1,180,379       $   2,329,632       $   760,213       $   1,168,916         Less:   Stock-based compensation, net of tax       13,615       12,460       —       32,275         Pro forma   net income (loss)       $   1,166,764       $   2,317,172       $   760,213       $   1,136,641          The estimated fair value of each option on the date of grant was calculated using the Black-Scholes option-pricing model. The following table summarizes the weighted-average of the assumptions used for stock options granted:              December 31,   2005       December 31,   2004       December 31,   2003         Risk-free   interest rate       4.38   %   3.95   %   3.95   %     Average   expected years until exercise       5.6 years       6.5 years       7 years         Expected   volatility       0   %   0   %   0   %     Dividend   yield       0   %   0   %   0   %     Weighted   average fair value per share       $   2.17       $   2.26       $   2.41                       37        Fair Value Information   The Company believes that the carrying amounts of cash and cash equivalents, accounts and notes receivable, accounts payable and accrued expenses reported in the consolidated balance sheets approximate their fair values due to the short maturity of these instruments. The estimated fair value of the Company’s publicly traded debt, based on quoted market prices, was approximately $169.7 million and $180.5 million as of December 31, 2005 and 2004, respectively.   Derivative Instruments and Hedging Activities   On January 1, 2001, the Company adopted SFAS No. 133 (“SFAS 133”), “Accounting for Derivative Instruments and Hedging Activities.” This statement established accounting and reporting standards for derivative financial instruments, including certain derivative financial instruments embedded in other contracts and for hedging activity. SFAS 133 requires the Company to recognize all derivatives as either assets or liabilities in its financial statements and record these instruments at their fair values. In order to achieve hedge accounting treatment, hedging activities must be appropriately designated, documented and proven to be effective as a hedge of a balance sheet item pursuant to provisions of SFAS 133. The Company elected, as permitted by SFAS 133, not to prove the hedge effectiveness of its interest rate collar due to the administrative burden of complying with SFAS 133. As a result, changes in the fair value of the interest rate collar were recorded through current income rather than through other comprehensive income. On August 21, 2003, a portion of the proceeds from the 2003 Notes were used to pay the obligation of $529,897, relating to the interest rate collar, and the interest rate collar agreement was terminated. The Company had no derivative financial instruments at December 31, 2005 and 2004.   Advertising Costs   The Company expenses advertising costs as the advertising occurs in accordance with American Institute of Certified Public Accountants, Statement of Position 93-7, “Reporting on Advertising Costs.” Advertising expense, included in selling and administrative expenses in the consolidated statements of income, was approximately $469,000, $491,000, $160,000 and $363,000 for the years ended December 31, 2005 and 2004, the four-months and eleven-days ended December 31, 2003 and the seven-months and twenty-days ended August 20, 2003, respectively.   New Accounting Standards   In December 2004, the Financial Accounting Standards Board (“FASB”) issued a revision to SFAS No. 123 (“SFAS 123R”), “Share-Based Payment.” SFAS 123R requires that the cost of equity-based service awards be measured based on the grant-date fair value of the award. The cost will be recognized over the period during which an employee is required to provide service in exchange for the award or the requisite service period. No compensation cost is recognized for equity instruments for which employees do not render the requisite service. In April 2005, the Securities and Exchange Commission announced the adoption of a new rule that amends the effective date of SFAS 123R. For the Company, the effective date of the new standard under these new rules is January 1, 2006. Adoption of this statement will have an impact on the Company's consolidated financial statements as it will be required to expense the fair value of stock option grants rather than disclose the impact on consolidated net income within the footnotes, as is the current practice. The Company does not believe adoption of SFAS 123R will have a material effect on its consolidated financial position, results of operations or cash flows.   In March 2005, the Securities and Exchange Commission (“SEC”) issued Staff Accounting Bulletin No. 107 (“SAB 107”) regarding the Staff’s interpretation of SFAS 123R. This interpretation expresses the views of the Staff regarding the interaction between SFAS 123R and certain SEC rules and regulations and provides the Staff’s views regarding the valuation of share-based payment arrangements by public companies. In particular, this SAB provides guidance related to share-based payment transactions with non-employees, the transition from nonpublic to public entity status, valuation methods, the accounting for certain redeemable financial instruments issued under share-based payment arrangements, the classification of compensation expense, non-GAAP financial measures, first-time adoption of SFAS 123R in an interim period, capitalization of compensation cost related to share-based payment arrangements, the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R, the modification of employee share options prior to adoption of SFAS 123R and disclosures in Management’s Discussion and Analysis subsequent to adoption of SFAS 123R. The Company will adopt SAB 107 in connection with its adoption of SFAS 123R.   In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections, (“SFAS 154”) which replaces APB Opinion No. 20, Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements. SFAS 154 applies to all voluntary changes in accounting principle and requires retrospective application (a term defined by the statement) to prior periods’ financial statements, unless it is impracticable to determine the effect of a change.   38        It also applies to changes required by an accounting pronouncement that does not include specific transition provisions. SFAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company will adopt SFAS 154 in the first quarter of fiscal 2006.   In September 2005, the Emerging Issues Task Force (“EITF”) issued EITF 05-06, “ Determining the Amortization Period for Leasehold Improvements after Lease Inception or Acquired in a Business Combination”. EITF 05-06 requires that leasehold improvements acquired in a business combination be capitalized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured at the date of acquisition. EITF 05-06 also requires leasehold improvements that are placed in service significantly after and not contemplated at or near the beginning of the lease term should be amortized over the shorter of the useful life of the assets or a term that includes required lease periods and renewals that are deemed to be reasonably assured (as defined in paragraph 5 of Statement 13) at the date the leasehold improvements are purchased. EITF 05-06 is effective for leasehold improvements that are purchased or acquired in reporting periods beginning after June 29, 2005. Early adoption of the consensus is permitted in periods for which financial statements have not been issued. The Company does not believe that the adoption of EITF 05-06 will have a material effect on its consolidated financial position, results of operations or cash flows.   In October 2005, the FASB issued SFAS 13-1, Accounting for Rental Costs Incurred during a Construction Period (“FSP SFAS 13-1”). FSP SFAS 13-1 concludes that there is no distinction between the right to use a leased asset during and after the construction period; therefore rental costs incurred during the construction period should be recognized as rental expense and included in income from continuing operations. FSP SFAS 13-1 is effective for the first reporting period beginning after December 15, 2005; early adoption is permitted. The Company plans to adopt FSP SFAS 13-1 in the first quarter of 2006 and does not expect FSP SFAS 13-1 to have a material impact on the consolidated financial statements.   Reclassifications   Certain previously reported amounts have been reclassified to conform to the current year presentation.   4. Inventories   Inventories consist of the following:              December 31,   2005       December 31,   2004         Work-in-process       $   9,998,419       $   7,591,952         Raw materials (principally paper)       9,116,711       11,001,183                 19,115,130       18,593,135         Excess of current cost over LIFO inventory   value       (59,864   )   (30,265   )             $   19,055,266       $   18,562,870          The Company maintained a reserve for the realizability of inventory in the amounts of $95,988 and $127,144 for the years ended December 31, 2005 and 2004, respectively, which are included in the amounts in the table above relating to work-in-process and raw materials. A rollforward of the inventory reserve is as follows:   39                   Successor Basis       Predecessor Basis                 Year Ended   December 31,       Year Ended   December 31,       Four-months and   eleven-days   ended December   31,       Seven-months and   twenty-days ended   August 20,                 2005       2004       2003       2003                                                   Balance at   beginning of period       $   127,144       $   72,608       $   83,285       $   69,949         Charged to   expense       34,351       105,845       (9,555   )   13,336         Deductions       (65,507   )   (51,309   )   (1,122   )   —         Balance at   end of period       $   95,988       $   127,144       $   72,608       $   83,285          5. Property, Plant and Equipment   Property, plant and equipment consist of the following:              December 31,   2005       December 31,   2004         Land       $   5,235,310       $   5,205,316         Buildings   and improvements       39,934,420       33,024,140         Machinery   and equipment       103,704,298       92,312,572                 148,874,028       130,542,028         Accumulated   depreciation       (29,654,517   )   (15,288,674   )     Property,   plant and equipment, net       $   119,219,511       $   115,253,354          Depreciation and amortization expense for the years ended December 31, 2005 and 2004, the four-months and eleven-days ended December 31, 2003 and the seven-months and twenty-days ended August 20, 2003 was $15,121,343, $12,755,046, $3,563,957 and $4,788,928, respectively.   6. Intangible Assets   In conjunction with the Acquisitions, the Company acquired intangible assets relating to customer relationships, trade names and technology. The customer relationships, trade names and technology are being amortized using the straight-line method over their estimated useful lives as described below. Amortization expense for the years ended December 31, 2005 and 2004, related to customer relationships, trade name and technology intangible assets was $1,731,999 and $1,659,705, respectively.                      December 31, 2005       December 31, 2004                 Useful Life       Cost       Accumulated   Amortization       Net       Cost       Accumulated   Amortization       Net         Customer   relationships       25 years       $   27,800,000       $   2,540,241       $   25,259,759       $   27,800,000       $   1,428,241       $   26,371,759         Trade names       40 years       22,400,000       1,314,430       21,085,570       22,400,000       754,430       21,645,570         Technology       5 years       300,000       96,166       203,834       300,000       36,167       263,833                         $   50,500,000       $   3,950,837       $   46,549,163       $   50,500,000       $   2,218,838       $   48,281,162          In December 2005, our Board of Directors approved a plan to consolidate the printing of short-run journals at The Sheridan Press and shut down the Capital City Press facility. In connection with this shutdown, the Capital City Press trade name, with a net cost of $1,881,962 as of December 31, 2005, will be amortized over its remaining useful life of three months.   The Company estimates annual amortization expense related to these intangibles as follows:   40            Years Ended December 31,       Amortization         2006       $   3,563,962         2007       1,682,000         2008       1,682,000         2009       1,645,834         2010       1,622,000         Thereafter       36,353,367                           Total       $   46,549,163           7. Goodwill   Goodwill at December 31, 2005 represents the excess of the purchase price over the estimated fair value of the net assets acquired in The Sheridan Group and The Dingley Press acquisitions. Goodwill of $43,430,022 from the Sheridan Acquisition is a result of a stock purchase, and therefore is not deductible for tax purposes. Goodwill of $13,553,021 from the Dingley Acquisition is a result of an asset purchase and is deductible for tax purposes.   As of December 31, 2005, the initial step in our annual test for goodwill impairment indicated potential impairment in our specialty catalogs segment, as a result of declining results at TDP. We completed the second step by comparing the implied fair value of goodwill to the carrying value of goodwill for TDP. As a result of the second step, we determined that the goodwill at TDP was not impaired. The changes in the carrying amount of goodwill for the years ended December 31, 2004 and 2005, are as follows:              Short-Run   Journals       Specialty   Catalogs       Other   Publications       Consolidated         Balance   at December 31, 2003       $   26,098,237       $   —       $   18,542,817       $   44,641,054         Adjustment   of deferred tax liabilities related to assets acquired in the Sheridan   Acquisition       (656,490   )   —       817,804       161,314         Adjustment   of valuation allowance established in the Sheridan Acquisition       (1,223,505   )   —       —       (1,223,505   )     Adjustment   of contingency related to the Sheridan Acquisition       (148,841   )   —       —       (148,841   )     Creation of   goodwill as a result of the Dingley Acquisition       —       14,829,126       —       14,829,126         Realization   of tax goodwill benefit related to the Dingley Acquisition       —       (495,841   )   —       (495,841   )     Balance   at December 31, 2004       $   24,069,401       $   14,333,285       $   19,360,621       $   57,763,307         Realization   of tax goodwill benefit related to the Dingley Acquisition       —       (780,264   )   —       (780,264   )     Balance   at December 31, 2005       $   24,069,401       $   13,553,021       $   19,360,621       $   56,983,043          8. Other Assets   Other assets consist of the following:   41                   December 31,   2005       December 31,   2004         Notes and   other receivables, net       $   1,172,148       $   1,802,240         Prepaid   expenses and deposits       3,327,091       2,929,257         Non-compete   agreements, net       582,080       800,285         Deferred   compensation plan assets       3,477,251       2,599,898         Other       88,493       87,223         Total       8,647,063       8,218,903         Less:   current portion       4,125,713       4,325,228         Long-term   portion       $   4,521,350       $   3,893,675          Notes receivable are presented net of an allowance of $194,820 and $431,877 as of December 31, 2005 and 2004, respectively. Non-compete agreements are presented net of accumulated amortization of $1,121,929 and $903,724 as of December 31, 2005 and 2004, respectively. Amortization expense related to the non-compete agreements (which is included in amortization of intangibles in the consolidated statements of income and cash flows) for the years ended December 31, 2005 and 2004, the four- months and eleven-days ended December 31, 2003, the seven-months and twenty-days ended August 20, 2003, was $218,205, $178,368, $44,491 and $85,079, respectively.   Other receivables at December 31, 2004, included approximately $721,000 representing an amount due from an insurance carrier to reimburse us for property damage sustained at ULI. This receivable was collected in full during 2005.   9. Notes Payable and Revolving Credit Facility   In conjunction with the Sheridan Acquisition, on August 21, 2003, the Company completed a private debt offering of 10.25% senior secured notes totaling $105.0 million, priced to yield 10.50%, that mature August 15, 2011. The carrying value of the 2003 Notes was $103.9 million and $103.8 million as of December 31, 2005 and 2004, respectively.   In conjunction with the Dingley Acquisition, on May 25, 2004, the Company completed a private debt offering of 10.25% senior secured notes totaling $60.0 million, priced to yield 9.86%, that mature August 15, 2011. The carrying value of the 2004 Notes was $61.0 million and $61.1 million as of December 31, 2005 and 2004, respectively. The 2004 Notes have identical terms to the 2003 Notes.   The 2003 Notes and the 2004 Notes are collateralized by security interests in substantially all of the assets of the Company and its subsidiaries, subject to permitted liens. The capital stock, securities and other payment rights of the Company’s subsidiaries will constitute collateral for the 2003 Notes and the 2004 Notes only to the extent that Rule 3-10 and Rule 3-16 of Regulation S-X under the Securities Act do not require separate financial statements of a subsidiary to be filed with the SEC. Payment obligations under the 2003 Notes and the 2004 Notes are guaranteed jointly and severally, irrevocably and unconditionally, by all of the Company’s subsidiaries. The Sheridan Group, Inc. (the stand-alone parent company) owns 100% of the outstanding stock of all of its subsidiaries and has no material independent assets or operations. There are no restrictions on the ability of The Sheridan Group, Inc. (the stand-alone parent company) to obtain funds by dividend, advance or loan from its subsidiaries.   In connection with the offerings of the 2003 Notes and the 2004 Notes (the “Offerings”), the Company entered into registration rights agreements pursuant to which the Company was required to register the 2003 Notes and the 2004 Notes with the SEC. The Company filed Registration Statements on Form S-4 with the SEC in connection with exchange offers of its outstanding 2003 Notes and 2004 Notes for like principal amounts of new senior secured notes. The Registration Statement covering the 2003 Notes was declared effective on October 13, 2004. The Registration Statement covering the 2004 Notes was declared effective on October 25, 2004. The new senior secured notes are identical in all material respects to the 2003 Notes and the 2004 Notes, except that the new senior secured notes do not bear legends restricting the transfer thereof.   The terms of the registration rights agreement relating to the 2003 Notes required the Company to have had an exchange registration statement for the 2003 Notes filed with the SEC and declared effective by February 17, 2004. Because of additional SEC requirements as a result of the Dingley Acquisition, the Company was not able to satisfy this requirement until October 13, 2004. Consequently, during 2004 the Company paid liquidated damages with respect to the 2003 Notes totaling approximately $319,000, which is included in interest expense for the year ended December 31, 2004. The 2004   42        Notes did not accrue any liquidated damages since the registration of the 2004 Notes was declared effective prior to November 21, 2004.   In an event of default, the holders of at least 25% in aggregate principal amount of the 2003 Notes and the 2004 Notes, may declare the principal, premium, if any, and accrued and unpaid interest on the 2003 Notes and the 2004 Notes to be due and payable immediately.   Concurrent with the offering of the 2003 Notes, the Company entered into a revolving credit agreement (the “Revolver”). The Revolver was amended concurrent with the offering of the 2004 Notes. Terms of the Revolver allow for revolving debt of up to $30.0 million, including letters of credit commitments of up to $5.0 million, subject to a borrowing base test. Borrowings under the Revolver bear interest at the bank’s base rate or the LIBOR rate plus a margin of 1.75% at the Company’s option and mature in May 2009. Interest is payable monthly in arrears. The Company has agreed to pay an annual commitment fee on the unused portion of the Revolver at a rate of 0.35%. In addition, the Company has agreed to pay an annual fee of 1.875% on all letters of credit outstanding. As of December 31, 2005, the Company had no borrowings outstanding under the Revolver, had unused amounts available of $27,950,000 and had $2,050,000 in outstanding letters of credit.   Borrowings under the Revolver are collateralized by the assets of the Company and its subsidiaries, subject to permitted liens. The Revolver contains various covenants including provisions that prohibit the Company from incurring and prepaying other indebtedness and places restrictions on the Company’s ability to pay dividends. It also requires the Company to satisfy financial tests, such as an interest coverage ratio and the maintenance of a minimum amount of earnings before interest, taxes depreciation and amortization (as defined in the revolving credit agreement). The Company has complied with all of the restrictive covenants as of December 31, 2005.   In an event of default, all principal and interest due under the Revolver shall be immediately due and payable.   10. Accrued Expenses   Accrued expenses consist of the following:              December 31,   2005       December 31,   2004         Payroll and   related expenses       $   5,508,232       $   6,027,051         Profit   sharing accrual       2,219,059       1,834,393         Accrued   interest       6,375,826       6,494,593         Customer   prepayments       3,670,677       3,638,336         Deferred   revenue       1,515,840       1,314,656         Self-insured   health and worker’s compensation accrual       3,075,622       2,792,300         Other       1,855,263       2,112,755         Total       $   24,220,519       $   24,214,084          11. Other Liabilities   Other liabilities consist of the following:              December 31,   2005       December 31,   2004         Non-compete agreements       $   971,327       $   1,146,312         Deferred compensation       2,394,894       1,760,636         Other       91,718       41,738         Total       $   3,457,939       $   2,948,686          43        12. Income Taxes   The components of the income tax provision (benefit) are as follows:              Successor Basis       Predecessor Basis                 December 31,       December 31,       Four-months and   eleven-days ended   December 31,       Seven-months and   twenty-days ended   August 20,                 2005       2004       2003       2003         Current                                         Federal       $   2,151,489       $   1,819,044       $   1,098,000       $   1,977,357         State       553,647       613,193       155,279       421,846                 2,705,136       2,432,237       1,253,279       2,399,203         Deferred                                         Federal       (1,173,117   )   (45,795   )   (684,226   )   126,242         State       903,981       378,409       (55,208   )   157,867                 (269,136   )   332,614       (739,434   )   284,109                 $   2,436,000       $   2,764,851       $   513,845       $   2,683,312          Deferred income taxes reflect the net tax effects of the temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the deferred tax assets and liabilities were as follows:              December 31,   2005       December 31,   2004                                   Deferred   tax assets                         Incentive   and vacation accrual       $   1,156,191       $   848,513         Bad debt   reserve       435,811       441,234         Self   insurance accrual       553,939       434,658         Intangible   assets       607,128       549,825         Amortization   of financing costs       425,981       298,395         Inventory-additional   costs capitalized for tax       220,918       201,247         Net   operating loss carryforwards-Federal       420,791       522,451         Net   operating loss carryforwards-States       691,603       469,772         Fixed asset   basis related to state disallowance of bonus depreciation       227,177       268,793         Other       44,677       30,197         Valuation   allowance       (978,482   )   (669,180   )     Total   deferred tax assets       3,805,734       3,395,905         Deferred   tax liabilities                         Intangible   assets       18,273,862       18,484,743         Inventory   basis difference       277,078       283,589         Property and   equipment       16,539,330       16,937,677         Land       1,112,861       1,145,727         Prepaid   insurance       175,224       166,190         Total   deferred tax liabilities       36,378,355       37,017,926         Net deferred   tax liabilities       $   32,572,621       $   33,622,021          44                   December 31,       December 31,                 2005       2004         Included in the balance sheet                         Noncurrent   deferred tax liabilities in excess of assets       $   33,740,457       $   35,529,769         Current   deferred tax assets in excess of liabilities       1,167,836       1,907,748         Net deferred tax liability       $   32,572,621       $   33,622,021          During 2005 and 2004, the Company realized a tax benefit of $0.8 million and $0.5 million, respectively, associated with the realization of tax deductible goodwill in excess of book goodwill. Such amount has been recorded as a reduction to book goodwill for the years ending December 31, 2005 and 2004 (see Note 7).   During 2004, the Company refined its determination of deferred tax liabilities associated with fixed assets acquired in the Sheridan Acquisition, resulting in an increase to goodwill and deferred tax liabilities of approximately $161,000.   At December 31, 2005 and 2004, the Company had U.S. Federal net operating loss (“NOL”) deduction carryforwards of approximately $1,238,000 and $1,537,000, respectively, attributable to one of its subsidiaries.   The Internal Revenue Code and various state taxing jurisdictions place certain limitations on the annual amount of NOL carryforwards which can be utilized if certain changes in the Company’s ownership occur. In connection with the Company’s 1998 acquisition of CCP, a change in ownership occurred, resulting in a limitation on the utilization of CCP’s preacquistion NOLs. During 2004, the Company elected to adopt an alternative method of determining the limitation on the use of the NOLs pursuant to IRS Notice 2003-65, which resulted in a decrease to the limitation on the use of Federal and certain State NOLs. As a result, the Company received U.S. Federal and State of Vermont income tax refunds of approximately $1,322,000, generated from additional use of the net operating losses against taxable income in 2000, 2001, and 2002. Thus, management concluded during 2004 that it is more likely than not that the remaining U.S. Federal net operating losses in the table shown below and the related State net operating losses will be utilized. Accordingly, the related valuation allowance of approximately $1,220,000 was fully reversed in 2004. This reversal of valuation allowance resulted in a reduction to goodwill since the valuation allowance had been established through purchase accounting upon the acquisition of CCP.   The remaining Federal NOLs as of December 31, 2005 are subject to limitations which allow for approximately $299,000 of NOLs to be available for use each year. The Company’s Federal NOLs will expire approximately as follows:       Amount of Regular       Year of         Net Operating Loss       Expiration         385,000       2008         674,000       2009         179,000       2011           As of December 31, 2005 and 2004, the Company had state NOLs with a tax effected value of approximately $692,000 and $470,000, respectively, in various jurisdictions, which begin to expire in 2008. Management has determined that a valuation allowance is needed for approximately $623,000 and $320,000 as of December 31, 2005 and 2004, respectively, against net operating losses in State jurisdictions without sufficient prior earnings.   The Company utilized NOLs against Federal and State taxable income, which reduced tax expense for 2005 by approximately $123,000.   The Company has also determined that valuation allowances of approximately $355,000 and $350,000 as of December 31, 2005 and 2004, respectively, are needed for a deferred tax asset relating to transaction costs from the Sheridan Acquisition which are deductible for tax purposes upon sale of the Company. Given the indefinite timing of this reversal, a valuation allowance was established.   45        The Company has provided for contingencies related to income taxes in accordance with SFAS No. 5. At December 31, 2005 and December 31, 2004, the Company has reserves of approximately $559,000 and $527,000, respectively, related to transaction costs for the Sheridan Acquisition. In analyzing the need for the provision of tax contingency reserves, including interest, management reviewed applicable statutes, rules, regulations and interpretations and established these reserves based on past experiences and judgments about potential actions by taxing jurisdictions.   A rollforward of the Company’s valuation allowance is as follows:              Successor Basis       Predecessor Basis                                 Four-months and       Seven-months and                 Year Ended       Year Ended       eleven-days ended       twenty-days ended                 December 31,       December 31,       December 31,       August 20,                 2005       2004       2003       2003                                                   Balance at beginning of period       $   669,180       $   1,870,660       $   1,532,007       $   1,532,007                                                   Charged to expense       309,302       319,551       338,653       —                                                   Reductions       —       (1,223,505   )   —       —                                                   Other, net       —       (297,526   )   —       —                                                   Balance at end of period       $   978,482       $   669,180       $   1,870,660       $   1,532,007          The Company’s income tax provision differs from taxes computed using the U.S. Federal statutory tax rate as follows:              Successor Basis       Predecessor Basis                                 Four-months and       Seven-months and                 Years ended       Years ended       eleven-days ended       twenty-days ended                 December 31,       December 31,       December 31,       August 20,                 2005       2004       2003       2003                 Amount       Amount       Amount       Amount         Income before income taxes       $   3,616,379       $   5,094,483       $   1,274,058       $   3,852,228                                                   U.S. Federal statutory tax rate       $   1,229,569       $   1,732,125       $   433,180       $   1,309,758         Increase   (decrease) in tax expense resulting from:       31,620       21,957       —       504,916         Tax reserves     Amortization   of non-deductible goodwill       —       —       —       35,122         Non-deductible   stock warrant costs       —       —       —       153,425         Non-deductible   meals and entertainment       79,459       82,218       31,522       48,064         Change in   valuation allowance       309,302       319,551       —       338,660         State income   taxes, net of U.S.                                         Federal   income tax benefit       168,352       (91,584   )   47,276       173,331         Change in   state tax apportionment and rates       780,198       554,080       —       —         Domestic   production activity deduction       (65,179   )   —       —       —         Other, net       (97,321   )   146,504       1,867       120,036         Income tax   provision       $   2,436,000       $   2,764,851       $   513,845       $   2,683,312          During 2005 and 2004, the Company reported an increase in its deferred State tax provision of approximately $780,000 and $554,000 to properly reflect higher anticipated State effective income taxes due primarily to increased apportionment of the Company’s taxable income to states with unitary filing requirements and other high tax states.   On October 22, 2004, the President of the U.S. signed into law the American Jobs Creation Act of 2004. During 2005, the Company realized a benefit of approximately $65,000 from the deduction associated with domestic production activities. This special deduction is 3% of qualifying income for years 2005 and 2006, 6% in years 2007 through 2009 and 9% thereafter.   46        13. Commitments   In February 1998, the Company entered into an employment agreement with its former Chairman of the Board. This agreement includes a 10 year non-compete arrangement, which expires in 2008. The liability for this agreement is to be paid out in increments increasing from $126,000 to $151,200 per year, over 15 years. Included in other liabilities as of December 31, 2005 is approximately $728,000 related to the net present value of the obligation under this agreement.   In May 2004, the Company entered into an employment agreement with the President of The Dingley Press. This agreement includes a 5 year non-compete arrangement, which expires in 2009. The liability for this agreement is to be paid out in increments of $108,000 per year over 5 years. Included in other liabilities as of December 31, 2005 is approximately $243,000 related to the net present value of the obligation under the agreement.   The Company leases warehouse, plant and office space, printing equipment, computer equipment and delivery equipment under non-cancelable operating leases. Rental expense relating to these leases was approximately $5,441,000, $4,806,000, $1,649,000 and $3,295,000 for the years ended December 31, 2005 and 2004, the four-months and eleven-days ended December 31, 2003, and the seven-months and twenty-days ended August 20, 2003, respectively. As of December 31, 2005 approximate minimum future rental payments under non-cancelable operating leases are as follows:      Years Ended December 31,                 2006       $   4,983,000         2007       4,407,000         2008       3,012,000         2009       1,734,000         2010       426,000         Thereafter       213,000         Total       $   14,775,000          In exchange for certain pricing arrangements, the Company has entered into agreements to purchase consumable raw materials. The Company has also entered into agreements to acquire additional plant and equipment. As of December 31, 2005, approximate future payments related to these agreements are as follows:              Raw       Plant and         Years Ended December 31,       materials       equipment         2006       $   5,914,000       $   17,404,000         2007       2,768,000       —         2008       2,743,000       —         2009       2,087,000       —         2010       104,000       —         Thereafter       —       —         Total       $   13,616,000       $   17,404,000          14. Mandatorily Redeemable Convertible Preferred Stock   In conjunction with the Sheridan Acquisition on August 21, 2003, the Predecessor Company’s outstanding A and A-1 mandatorily redeemable convertible preferred shares were converted into Class A Common Stock at rates of 12.385 and 13.76 shares of common stock for each preferred share, respectively.   The Predecessor Company’s mandatorily redeemable convertible preferred stock (the “Preferred Stock”), which was convertible into common stock, was comprised of the following series, all of which were $1.00 par value:   47                                   Predecessor Basis                                 Issued and Outstanding   at December 31,   2002         Series       Authorized       Voting Rights       Dollars       Shares                                                   A           20,000       Voting       $   14,206,665       14,207         A-1           20,000       Voting       3,985,000       3,985         B           20,000       Non-Voting       —       —         B-1           20,000       Non-Voting       —       —         C           20,000       Non-Voting       —       —                                 $   18,191,665                  The Series A and A-1 shares were entitled to the number of votes equal to the number of shares of Class A Common Stock into which they could be converted. The Preferred Stock had no preferential dividend feature and each share of Preferred Stock had a liquidation preference of $1,000 plus interest on such amount at the rate of 8% per year compounded quarterly from the date of issuance until the liquidation date (approximately $26,268,000, in the aggregate, as of December 31, 2002). The Corporation was required, upon the occurrence of any disposition event to redeem at the closing thereof all of the Preferred Stock then outstanding at a price per share equal to the liquidation value. The Preferred Stock was convertible into common stock at any time at the option of the holder. The Series A and A-1 Preferred Stock was convertible into Class A Common Stock at the rates of 12.385 and 13.76 shares of common stock for each share of Preferred Stock, respectively, and the Series B, B-1 and C Preferred Stock was convertible into Class E Common Stock at the rates of 12.385, 13.76 and 16.673 shares of common stock for each share of Preferred Stock, respectively.   15. Stockholders’ Equity   Predecessor Basis   On August 21, 2003, in conjunction with the Sheridan Acquisition, all outstanding common stock including all Preferred Stock, which concurrently converted into common stock, was redeemed by the stockholders.   Common Stock   The Company’s common stock was comprised of the following classes, all of which are $0.01 par value:                              Predecessor Basis                                 Issued and Outstanding   at December 31,   2002         Series       Authorized       Voting Rights       Dollars       Shares                                                   A       12,250,000       Voting       $    609       60,916         B       495,000       Non-Voting       —       —         C       12,250,000       Voting       —       —         D       5,000       Non-Voting       —       —         E       12,250,000       Non-Voting       —       —                                 $    609                  Stock Purchase Warrants   In connection with a financing transaction in February 1998, the Company issued warrants to certain lending institutions to purchase 1,578.5 stock units at a purchase price of $1.00 per share of Series C Preferred Stock or $0.01 per share of Class E Common Stock (in the case of the conversion of the Preferred Stock) included in such stock unit. Each stock unit was comprised of either one share of Series C Preferred Stock or the number of shares of Class E Common Stock into which one share of Series C Preferred Stock was convertible. The warrants were exercisable immediately and expired on February 2, 2008, unless extended per the Warrant Agreement. The Company recorded a discount to the related note of approximately $1,200,000 for the estimated fair market value at grant date of the stock warrants issued as calculated using a binomial model. These costs were being amortized over the term of the Senior Subordinated Debt. The outstanding warrants were entitled to share in receipt of any dividends declared and distributed to any class of shares as if the warrants had been exercised immediately prior to the declaration. On August 21, 2003, in conjunction with the Acquisition, all outstanding warrants to purchase common stock were exercised.   48        Stock Option Plan   The Company reserved for issuance 29,243 shares of its Class A Common Stock pursuant to its 1998 Stock Option Plan (the “1998 Plan”). Incentive Stock Options were granted at prices for issuance not less than the fair market value of the stock at the date of grant. Options generally vested ratably over a five year period, except for those options granted to officers, portions of which vested ratably over time and the remainder of which vested only upon the achievement of certain performance targets or after ten years from the date of grant. A portion of the unvested options would immediately vest upon the occurrence of certain future events, as specified in the 1998 Plan, including the sale of the Company or a qualified public offering. Options were not exercisable until the passage of ten years from date of issuance except upon the occurrence of a sale of the Company or a qualified public offering. The options expire 12 years from the date of grant. On August 21, 2003, in connection with the Sheridan Acquisition, all outstanding options (totaling 27,723 shares) were exercised and the 1998 Plan was terminated.   Successor Basis   Stock Option Plan   On October 16, 2003, Holdings adopted the 2003 Stock-based Incentive Compensation Plan (the “2003 Plan”), pursuant to which Holdings has reserved for issuance 55,500 shares of its Common Stock. Incentive Stock Options are granted at prices for issuance not less than the fair market value of the stock at the date of grant. Options generally vest ratably over a five year period, except those options granted to officers, portions of which vest ratably over five years, and the remainder of which vest upon the achievement of certain performance targets, occurrence of certain future events, including the sale of the Company or a qualified public offering, or after eight years from the date of grant, as specified in the 2003 Plan. Options expire ten years from date of grant. The 2003 Plan activity was as follows:              Year ended       Year ended                 December 31,       December 31,                 2005       2004         Shares under option at beginning of year       55,500       48,700         Options granted (weighted average exercise   price of $10.00)       900       7,700         Options canceled (weighted average exercise   price of $10.00)       (3,920   )   (900   )     Options exercised (exercise price of   $10.00)       (80   )   —         Shares under option at end of year       52,400       55,500          At December 31, 2005, the remaining weighted average life of the outstanding options was approximately 8 years. All options issued since plan inception were granted with an exercise price of $10.00, which equaled the fair market value of Holdings Common Stock on the date of grant. At December 31, 2005, 15,270 options were exercisable. During 2005, 80 options to purchase Holdings Common Stock were exercised and the $800 of proceeds received were contributed from Holdings to the Company.   16. Employee Benefit Plans   The Company sponsors two 401(k) retirement plans. The Company determines annual discretionary contributions to the plans. Contributions of approximately $2,886,000, $2,103,000, $756,000 and $1,087,000 were charged to operations for the years ended December 31, 2005 and 2004, the four-months and eleven-days ended December 31, 2003 and the seven-months and twenty-days ended August 20, 2003, respectively.   The Company maintains a non-qualified deferred compensation plan for certain employees which allows participants to annually elect (via individual contracts) to defer a portion of their compensation on a pre-tax basis and which allows for make-whole contributions for participants whose pre-tax deferrals are limited under the Company’s 401(k) Plan and other discretionary contributions. Employee and Company contributions are maintained in an irrevocable trust. Legally, the assets remain those of the Company; however, access to the trust assets is severely restricted. The trust cannot be revoked by the employer or an acquirer, but the assets are subject to the claims of the Company’s general creditors. The employee has no right to assign or transfer contractual rights in the trust. The participants are fully vested in their compensation deferred; however, the make-whole contributions and any employer discretionary contributions are subject to vesting requirements. The Company accounts for the plan in accordance with Emerging Issues Task Force (“EITF”) No. 97-14, “Accounting for Deferred Compensation Arrangements Where Amounts Earned Are Held in a Rabbi Trust and Invested.” Pursuant to EITF 97-14, as of December 31, 2005 and 2004, the Company recorded a deferred compensation liability of approximately $2,395,000 and $1,761,000, respectively, in other non-current liabilities in the accompanying consolidated balance sheets.    49        The change in the deferred compensation obligation related to changes in the fair value of the vested diversified assets held in trust is recorded in accordance with SFAS 115 as trading income (loss) in compensation expense with an offsetting entry to other income (loss), respectively. The diversified assets held in trust were approximately $3,477,000 and $2,600,000 as of December 31, 2005 and 2004, respectively, and are recorded at their fair value, based on quoted market prices, in other non-current assets on the accompanying consolidated balance sheets.   17. Related Party Transactions   In connection with the Sheridan Acquisition, the Company entered into a 10 year management agreement with BRS and JCP. The management fee is equal to the greater of $500,000 or 2% of earnings before interest, taxes depreciation and amortization (as defined in the management agreement), plus reasonable out-of-pocket expenses. The Company incurred and paid approximately $827,000 and $769,000 in such fees for the years ended December 31, 2005 and 2004, respectively.   J. M. Dryden Hall, Jr., a member of the Company’s board of directors, has served the Company as legal counsel. Fees paid to Mr. Hall for the years ended December 31, 2005 and 2004, the four-months and eleven-days ended December 31, 2003, the seven-months and twenty-days ended August 20, 2003, were approximately $50,000, $56,000,  $33,000 and $22,000, respectively. Effective January 1, 2006, Mr. Hall will no longer serve as legal counsel to the Company.   18. Contingencies   The Company is party to legal actions as a result of various claims arising in the normal course of business. The Company believes that the disposition of these matters will not have a material adverse effect on the financial condition, results of operations or liquidity of the Company.   19. Business Segments   The Company is a specialty printer in the United States offering a full range of printing and value-added support services for the journal, catalog, magazine, book and article reprint markets. The Company’s business includes three business reporting segments comprised of “Short-run Journals”, “Specialty Catalogs” and “Other Publications.” Short-run Journals are primarily medical, technical, scientific or scholarly journals and related reprints with run lengths of less than 5,000 copies. The Specialty Catalogs segment, which is comprised of the assets and operations of The Dingley Press acquired on May 25, 2004, is focused on catalog merchants that require run lengths between 300,000 and 10,000,000 copies. The Other Publications business segment is comprised of three operating segments which produce specialty magazines, medium-run journals and short-run books. Certain operations within the Company’s Other Publications segment have been aggregated following the provisions of SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” due to the similar characteristics of their financial performance and operations, including the nature of their service offerings, processes supporting the delivery of the services, customers, and marketing and sales processes.   The accounting policies of the operating segments are the same as those described in the Summary of Significant Accounting Policies. The results of each segment include certain allocations for general, administrative and other shared costs. However, certain costs, such as corporate profit sharing and bonuses and the amortization of a non-compete agreement with the Company’s former Chairman of the Board (Note 13), are not allocated to the segments. The Company’s customer base resides in the continental United States and its manufacturing, warehouse and office facilities are located throughout the East Coast and Midwest.   The Company had one customer, High Response Holdings, Inc., which accounted for 13.6 % of consolidated net sales for the year ended December 31, 2005. Net sales for High Response Holdings, Inc. are reported in the Specialty Catalogs segment. The Company had one customer, Elsevier, which accounted for 11.2% of consolidated net sales for the year ended December 31, 2004, 12.3% for the period ended December 31, 2003 and 12.1% for the period ended August 20, 2003, respectively. Net sales for Elsevier are reported in both the “Short-run Journals” and “Other Publications” segments.   The following table provides segment information for continuing operations (in thousands):   50                   Successor Basis       Predecessor Basis                                 Four-months                                         and eleven-days       Seven-months                 Year ended       Year ended       ended December       and twenty-days                 December 31,       December 31,       31,       ended August 20,                 2005       2004       2003       2003         Net sales                                         Short-run journals       $   99,955       $   97,277       $   33,453       $   55,371         Specialty catalogs       111,846       64,204       —       —         Other publications       141,643       131,172       49,606       79,785         Intersegment eliminations       (5,485   )   (5,140   )   (1,866   )   (3,252   )     Consolidated total       $   347,959       $   287,513       $   81,193       $   131,904                                                   Operating income (loss)                                         Short-run journals       $   12,618       $   13,344       $   4,087       $   6,573         Specialty catalogs       2,599       3,483       —       —         Other publications       8,678       6,885       2,471       2,396         Corporate       (1,998   )   (2,256   )   (1,143   )   (861   )     Consolidated total       $   21,897       $   21,456       $   5,415       $   8,108                                                   Assets                                         Short-run journals       $   98,535       $   94,442       $   89,851                 Specialty catalogs       85,633       88,147       —                 Other publications       113,722       112,348       110,563                 Corporate       2,831       4,202       2,074                 Consolidated total       $   300,721       $   299,139       $   202,488                                                           Depreciation and amortization                                         Short-run journals       $   4,796       $   4,604       $   1,640       $   1,490         Specialty catalogs       5,785       3,424       —       —         Other publications       6,281       6,399       2,426       3,168         Corporate       210       166       102       216         Consolidated total       $   17,072       $   14,593       $   4,168       $   4,874                                                   Capital expenditures                                         Short-run journals       $   8,992       $   4,583       $   913       $   3,425         Specialty catalogs       3,552       5,815       —       —         Other publications       8,522       11,122       1,991       1,773         Corporate       216       307       11       15         Consolidated total       $   21,282       $   21,827       $   2,915       $   5,213                                                   Goodwill                                         Short-run journals       $   24,069       $   24,069       $   26,098                 Specialty catalogs       13,553       14,333       —                 Other publications       19,361       19,361       18,543                 Corporate       —       —       —                 Consolidated total       $   56,983       $   57,763       $   44,641                                                           Intangible assets                                         Short-run journals       $   26,507       $   27,463       $   28,418                 Specialty catalogs       3,208       3,390       —                 Other publications       16,834       17,428       18,023                 Corporate       —       —       —                 Consolidated total       $   46,549       $   48,281       $   46,441                  51        20. Restructuring and Other Exit Costs   Due to trends in the short-run journal business and the high capital investment necessary to maintain two manufacturing facilities serving the same market, the Company’s Board of Directors, on December 15, 2005, approved a restructuring plan to consolidate all short-run journal printing operations into one site. During the first quarter of 2006, the Company consolidated the printing of short-run journals at The Sheridan Press in Hanover, Pennsylvania and closed the Capital City Press facility in Berlin, Vermont. Approximately 200 positions were eliminated as a result of the closure. Of the 200 employees affected, approximately 45 Publication Services employees were offered jobs with one of the Company’s subsidiaries, Dartmouth Journal Services.   Charges related to this restructuring will be recorded as the plan is implemented. The Company estimates approximately $3.3 million of restructuring charges resulting in future cash expenditures will be incurred, including $2.2 million of charges related to severance and other personnel costs and $1.1 million of other exit costs. Of the estimated $3.3 million in anticipated restructuring costs, the Company recorded approximately $0.4 million in 2005 and expects to record the remainder of the costs in 2006.   The Company has undertaken efforts to sell the Capital City Press facility. The amount to be realized from this sale is not reasonably estimable at this time. The facility will be classified as an asset held for sale as of the end of the first quarter of 2006. The Company also estimates non-cash charges of $2.3 million in the first quarter of 2006 associated with the accelerated depreciation and amortization of equipment and the Capital City Press trade name which will be disposed of as a result of the shutdown.   On August 31, 2005 the Company announced plans to reduce the scope of its Publications Services operation at Capital City Press and eliminate approximately 35 positions involved with composition and graphics work and also lay off about 10 printing operations employees due to a reduced volume of printing work. In connection with these layoffs, we recorded approximately $74,000 of restructuring costs in 2005, primarily related to severance payments. The Company also incurred a charge of approximately $70,000, included in cost of sales, in 2005 related to the write-off of equipment.   In September 2004, the Company closed the Sheridan Books, Inc. facility in Fredericksburg, VA, which was part of the Other Publications segment, and moved most of the manufacturing operations equipment from this facility to its facility in Chelsea, Michigan. As a result of this action, the Company incurred approximately $256,000 of restructuring costs related to employee termination and other closure-related expenses. No amounts were accrued related to this restructuring at December 31, 2004.   The Fredericksburg facility and excess equipment were sold during 2004. The sale of the land and building, which had a carrying value of approximately $952,000, resulted in a gain of approximately $919,000.  In connection with the sale of the land and building, the Company incurred approximately $143,000 of costs related to vacating the facility.  The sale and disposal of the excess equipment, which had a carrying value of approximately $484,000, resulted in a loss of approximately $435,000.   21. Quarterly Financial Information (unaudited)   Quarterly financial information for the years ended December 31, 2005 and 2004 is as follows (in thousands):   52                   First       Second       Third       Fourth         2005       Quarter       Quarter       Quarter       Quarter         Net sales       $   84,995       $   84,124       $   87,403       $   91,437         Gross profit       16,326       15,302       16,534       16,294         Operating income       5,762       4,785       5,780       5,570         Net income       $   469       $   91       $   498       $   122                     First       Second       Third       Fourth         2004       Quarter       Quarter       Quarter       Quarter         Net sales       $   54,396       $   63,939       $   82,516       $   86,662         Gross profit       13,371       14,871       16,586       15,954         Operating income       4,168       5,414       6,314       5,560         Net income (loss)       $   674       $   998       $   771       $   (113   )      ITEM 9.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE   Not applicable.   ITEM 9A.   CONTROLS AND PROCEDURES   As of the end of the period covered by this Annual Report on Form 10-K, we conducted an evaluation, under the supervision and with the participation of the principal executive officer (“CEO”) and principal financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)). Based on this evaluation, the CEO and CFO concluded that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed by us in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. There was no change in our internal control over financial reporting during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.   ITEM 9B.   OTHER INFORMATION   Not applicable.   PART III   ITEM 10.   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT   We are a wholly-owned subsidiary of TSG Holdings Corp., whose stockholders include affiliates of Bruckmann, Rosser, Sherrill & Co., LLC and Jefferies Capital Partners, and members of our senior management.   Our Equity Sponsors   Bruckmann, Rosser, Sherrill & Co., LLC, or BRS, is a New York-based private equity investment firm with about $1.2 billion under management. BRS was founded in 1995 and has since invested in over 30 companies in the following industries: restaurants, consumer goods, specialty retail, recreation/leisure, apparel, home furnishings, industrial and commercial services (including equipment rental), commercial equipment manufacturing, wholesale distribution and healthcare services. BRS and its affiliates are collectively referred to as “BRS.”   Jefferies Capital Partners, or JCP, is a New York-based private equity investment firm with over $1.0 billion in equity commitments under management. Since 1994, JCP’s professionals have invested in over 45 companies in a variety of industries. JCP focuses on partnering with entrepreneurs and management teams in industries in which JCP has expertise. JCP invests in management buyouts, recapitalizations, industry consolidations and growth equity. JCP and its affiliates are collectively referred to as “JCP.”   53        Directors and Executive Officers   Our executive officers and directors are as follows:      Name       Age       Position     John A. Saxton       56       President and Chief   Executive Officer and Director     Robert M. Jakobe       52       Vice President and Chief   Financial Officer and Secretary     Patricia A. Stricker       41       Vice President, Operations   and Human Resources     Douglas R. Ehmann       49       Vice President and Chief   Technology Officer     Joan B. Davidson       44       President and Chief   Operating Officer—The Sheridan Press, Inc. (“TSP”)     Gary J. Kittredge       55       President and Chief   Operating Officer—Capital City Press, Inc. (“CCP”)     Robert M. Moore       40       President and Chief   Operating Officer—Sheridan Books, Inc. (“SBI”)     David C. Hewitt       63       President and Chief   Operating Officer—Dartmouth Printing Company (“DPC”)     J. Kenneth Garner       52       President and Chief   Operating Officer—United Litho, Inc. (“ULI”)     G. Paul Bozuwa       45       President—Dartmouth Journal   Services, Inc. (“DJS”)     Christopher A. Pierce        57       President and Chief   Operating Officer—The Dingley Press, Inc. (“TDP”)     Thomas J. Baldwin       47       Director     Nicholas Daraviras       32       Director     Craig H. Deery       58       Director     Gary T. DiCamillo       55       Director     J. Rice Edmonds       35       Director     J. M.   Dryden Hall, Jr.       72       Director     James L. Luikart       60       Director     Nicholas R. Sheppard       31       Director     George A. Whaling       69       Director      The table above provides a current list of our executive officers and their respective current positions. Effective April 1, 2006, the following organizational changes will be implemented. Mr. Pierce will be named Chairman of TDP and Mr. Moore will become President and Chief Operating Officer of TDP. Mr. Michael J. Seagram will become an executive officer serving as President and Chief Operating Officer of SBI. Mr. Hewitt will retire from his role at DPC and Mr. Kittredge will become the President and Chief Operating Officer of DPC. The new titles are used in the following biographies.   John A. Saxton, President, Chief Executive Officer and Director. Mr. Saxton joined us in 1995 as our President and Chief Executive Officer and has served on our board of directors since 1991. Prior to joining us, Mr. Saxton held various positions at The Procter & Gamble Company, most recently serving as President of the Noxell Corporation following its acquisition by The Procter & Gamble Company in 1990. Mr. Saxton is a member of the National Association for Printing Leadership’s Walter E. Soderstrom Society, which honors individuals in the printing industry who have significantly contributed to the development and the progress of the graphic arts. Mr. Saxton holds a B.S. from Bucknell University.    Robert M. Jakobe, Vice President and Chief Financial Officer and Secretary. Mr. Jakobe joined us in 1994 as our Vice President and Chief Financial Officer. Prior to joining us, he worked at various positions within The Procter & Gamble Company, most recently serving as Division Comptroller and Vice President of Finance for the Noxell Corporation. Mr. Jakobe holds a B.A. from the University of Notre Dame.   Patricia A. Stricker, Vice President, Operations and Human Resources. Ms. Stricker joined us in 1998 and has served as our Vice President, Operations and Human Resources since January 2003. From 2000 to 2003, she served as President of SBI. Ms. Stricker served as our Vice President, Corporate Development from 1999 to 2000, and as our Projects Manager from 1998 to 1999. Prior to joining us, Ms. Stricker held various positions at General Physics Corporation, most recently serving as Vice President, Finance and Administration. She holds a B.A. from the College of Notre Dame of Maryland.   Douglas R. Ehmann, Vice President and Chief Technology Officer. Mr. Ehmann joined us in 1998 as our Vice President and Chief Technology Officer. Prior to joining us, he worked at Northrop Grumman Corporation as a Sector Chief Information Officer for Information Systems from 1995 to 1998 and in the Management Systems Division at the Procter & Gamble Company from 1981 to 1995. Mr. Ehmann serves on the Executive Committee of the Print Industries Market Information and Research (PRIMIR) organization. He holds a B.S., an M.E. and an M.B.A. from Cornell University.   Joan B. Davidson, President and Chief Operating Officer—TSP. Ms. Davidson joined us in 1995 and has served as President and Chief Operating Officer of TSP since 1996. From 1995 to 1996, she served as Finance Manager of TSP. Prior to joining us, Ms. Davidson worked in various positions in the marketing and finance departments of The Procter &   54        Gamble Company, most recently serving as a Finance Manager. Ms. Davidson is active in the industry as Chairman of the National Association for Printing Leadership and as past Secretary and past Treasurer of the Print and Graphic Scholarship Foundation of the Graphic Arts. She is a member of the National Association for Printing Leadership’s Walter E. Soderstrom Society. Ms. Davidson holds a B.S. from the College of Notre Dame of Maryland and an M.B.A. from Loyola College in Maryland.   Gary J. Kittredge, President and Chief Operating Officer—DPC. Mr. Kittredge joined us in 2000 and effective April 1, 2006 will serve as President and Chief Operating Officer of DPC. From 2002 to 2006, he served as President and Chief Operating Officer of CCP. From 2000 to 2002, he served as Executive Vice President of CCP. Prior to joining us, Mr. Kittredge was the General Manager and Vice President of Manufacturing for IPD Printing. Prior to that, he served as a Business Unit Manager and Manager of Technical Development of Litho-Krome Co., a subsidiary of Hallmark Cards, Incorporated. Mr. Kittredge is a member of the Board of Directors of the Printing Industry of New England. He holds a B.S. and an M.S. from Rochester Institute of Technology.   Robert M. Moore, President and Chief Operating Officer—TDP. Mr. Moore joined us in 2000 and effective April 1, 2006, will serve as President and Chief Operating Officer of TDP. From 2003 to 2006, he served as President and Chief Operating Officer of SBI. From November 2001 to January 2003, he served as Vice President of Finance of SBI, and, from 2000 to November 2001, Mr. Moore served as Director of Finance of SBI. Prior to joining us, Mr. Moore held several positions at The Procter & Gamble Company, most recently serving as Assistant Brand Manager, New Business Development from 1999 to 2000. He served as Finance Manager, Commercial Products Group from 1998 to 1999 and as Manager, Profit Forecasting for the Food and Beverage Sector from 1997 to 1998. Mr. Moore holds a B.A. from the University of Cincinnati.   David C. Hewitt, President and Chief Operating Officer—DPC. Mr. Hewitt joined us in 1998 and is retiring effective April 1, 2006. From 1998 to 2006, he served as President and Chief Operating Officer of DPC. From 1970 to 1998, he served as Executive Vice President and co-owner of DPC. Mr. Hewitt has been active in industry affairs. He previously served on the Executive Committee and the Board of Directors of the Printing Industries of America. He is also past Chair of the Printing Industries of America’s Association Relations Committee. Mr. Hewitt holds a B.A. from Dartmouth College and an M.B.A. from Harvard Business School.   J. Kenneth Garner, President and Chief Operating Officer—ULI. Mr. Garner joined us in 1975 and has served as President and Chief Operating Officer of ULI since 1994. From 1985 to 1992, he served as Executive Vice President and Chief Operating Officer of ULI. Mr. Garner is very active in industry affairs and is a past Chairman of the National Association for Printing Leadership (“NAPL”), a member of the Walter E. Soderstrom Society and the recipient of the 2002 Soderstrom Award. He is a former chairman of the Graphic Arts Education & Research Foundation, Environmental Conservation Board, and the Printing Industries of America’s (“PIA’s”) Executive Development Committee. He is a former director of the Graphic Arts Show Company and the Printing Industries of Virginia. He is a current director for the Virginia Printing Foundation. Mr. Garner holds a B.A. from Randolph-Macon College.   G. Paul Bozuwa, President—DJS. Mr. Bozuwa joined us in 1991 and has served as President of DJS since 2002, when he led the creation of DJS. From 1995 to 2002, Mr. Bozuwa served as President and Chief Operating Officer of CCP. From 1991 to 1995, he served as Chief Financial Officer of CCP. Mr. Bozuwa is active in industry affairs serving as Chair of the task force on Science, Journals, Poverty and Human Development, past Chairman of the Finance Committee and past Treasurer of the Council of Science Editors. Prior to joining us, he was an Associate of Kearsarge Ventures, a venture fund, from 1989 to 1991. Mr. Bozuwa holds a B.A. from Dartmouth College and an M.B.A. from the University of New Hampshire.   Christopher A. Pierce—Chairman—TDP. Mr. Pierce joined us in May 2004, upon the consummation of the Dingley Acquisition, and effective April 1, 2006, will serve as Chairman of TDP. From 2004 to 2006, he served as President and Chief Operating Officer of TDP. From 1980 to the time of the Dingley Acquisition, Mr. Pierce served as President of The Dingley Press. Mr. Pierce holds a B.A. from Bowdoin College.   Michael J. Seagram, President and Chief Operating Officer—SBI. Mr. Seagram joined us in 2003 and effective April 1, 2006 will serve as President and Chief Operating Officer of SBI. From 2003 to 2006, he served as Vice President of Sales and Marketing of SBI. Before joining SBI, Mr. Seagram was Owner and President of Aristoplay, Ltd., a publisher of children’s games, from 1997 to 2003. He was also the Owner and President of the marketing firm, Seagram & Singer, Inc. from 1986 to 1998. Mr. Seagram holds a B.S. from Wayne State University.   Thomas J. Baldwin, Director. Mr. Baldwin is a Managing Director of BRS. He joined BRS in 2000. From 1995   55        to 2000, Mr. Baldwin was a Principal at PB Ventures, Inc. From 1988 to 1995, he served as Vice President and then Managing Director of The INVUS Group, Ltd., a private equity investment firm. Prior to that he was a consultant with the Boston Consulting Group, a strategy consulting firm. Mr. Baldwin holds a B.B.A. from Siena College and an M.B.A. from Harvard Business School. Mr. Baldwin is also a director of Eurofresh, Inc., Lazy Days, Inc. and Totes Isotoner Corporation.   Nicholas Daraviras, Director. Mr. Daraviras is a Managing Director of JCP. Mr. Daraviras joined JCP in 1996. Mr. Daraviras holds a B.S. and an M.B.A. from the Wharton School of the University of Pennsylvania. Mr. Daraviras also serves as a director of Edgen Corp. and various private companies in which JCP has an interest.   Craig H. Deery, Director. Mr. Deery was a Managing Director of JCP from 2002 to 2003. He previously served as a member of our board of directors from 1995 to 2001. From 1987 to 2002, Mr. Deery was a Managing Director at BancBoston Capital, where he served on the management committee of BancBoston Capital. While at BancBoston Capital, Mr. Deery supervised a direct investment portfolio of $500 million, including mezzanine securities and equity as a minority, co-invest, and control investor. Prior to 1987, Mr. Deery spent fifteen years at BancBoston, serving as a team leader in domestic lending and as Senior Credit Officer and Chairman of the Credit Committee of BancBoston Australia, Ltd. Mr. Deery holds a B.A. from Bucknell University and an M.B.A. from New York University. Mr Deery is also a director of First Ipswich Bancorp.   Gary T. DiCamillo, Director. Mr. DiCamillo has been a member of our board of directors since 1989. Mr. DiCamillo has served as President and Chief Executive Officer of American Crystal, Inc. in Dedham, Massachusetts since 2005. From 2002 to 2005, Mr. DiCamillo served as President, Chief Executive Officer, and Director of TAC Worldwide Companies. From 1995 to 2002, he was Chairman and Chief Executive Officer of Polaroid Corporation (which filed a voluntary petition for reorganization under Chapter 11 of the U.S. Bankruptcy Code on October 12, 2001), and from 1993 to 1995 he was President of Worldwide Power Tools for Black & Decker Corporation. Mr. DiCamillo holds a B.S. from Rensselaer Polytechnic Institute and an M.B.A. from Harvard Business School. Mr. DiCamillo is also a director of Pella Corporation, 3Com Corporation and Whirlpool Corporation.   J. Rice Edmonds, Director. Mr. Edmonds is a Managing Director at BRS. He joined BRS in 1996. From 1993 to 1996, he worked in the high yield finance group of Bankers Trust. Mr. Edmonds holds a B.S. from the University of Virginia McIntire School of Commerce and an M.B.A. from The Wharton School of the University of Pennsylvania. Mr. Edmonds is also a director of McCormick & Schmick Restaurant Corporation, Real Mex Restaurants, Inc., Town Sports International, Inc. and several private companies in which BRS has an interest.   J. M. Dryden Hall, Jr., Director. Mr. Hall has been a member of our board of directors since 1967. Mr. Hall formed and has been the principal in the law firm of J.M.D. Hall, Jr., P.A. and its predecessors in Baltimore, Maryland since 1962. Mr. Hall holds a B.A. from Johns Hopkins University and an L.L.B. from New York University Law School.   James L. Luikart, Director. Mr. Luikart is Executive Vice President of JCP. Mr. Luikart joined JCP in 1994 after spending over twenty years with Citicorp, the last seven years of which were as a Vice President of Citicorp Venture Capital, Ltd. Mr. Luikart holds a B.A. from Yale University and an M.I.A. from Columbia University. Mr. Luikart also serves as a director of W & T Offshore, Inc., Edgen Corp. and various private companies in which JCP has an interest.   Nicholas R. Sheppard, Director. Mr. Sheppard is a Vice President at BRS. He joined BRS in 2000. From 1997 to 2000, he worked as a Consultant in the London and New York offices of Marakon Associates, a strategy consulting firm. Mr. Sheppard is a graduate of the London School of Economics. Mr. Sheppard is a director of Penhall International, Inc.   George A. Whaling, Director. Mr. Whaling has been a member of our board of directors since 1998. Mr. Whaling is Chairman of Kingston Capital in Pt. Pleasant, New Jersey. From 1980 to 1997, he served as the President and owner of Petty Printing Company, a commercial web printer. Mr. Whaling holds a B.A. from Colgate University. Mr. Whaling is a Trustee and Director of Colgate University, Chairman of the Hamilton Initiative LLC and a director of Augusta Glenn Partners, LLC.   Board Composition   The securities holders agreement among BRS, JCP and the other stockholders of TSG Holdings Corp. provides that TSG Holdings Corp.’s and our board of directors will consist of ten members, including four designees of BRS (who currently are Messrs. Baldwin, DiCamillo, Edmonds and Sheppard), four designees of JCP (who currently are Messrs. Daraviras, Deery, Luikart and Whaling) and two directors jointly designated by both BRS and JCP (who currently are Messrs. Hall and Saxton). Pursuant to the securities holders agreement, we may not take certain significant actions without   56        the approval of each of BRS and JCP. See Part III, Item 13, “Certain Relationships and Related Transactions—Securities Holders Agreement.”   Board Committees   The board of directors has an audit committee and a compensation committee. The audit committee consists of Messrs. Daraviras, DiCamillo, Edmonds, Hall and Whaling. The audit committee reviews our financial statements and accounting practices, selects our independent registered public accounting firm and oversees our internal audit function. The compensation committee consists of Messrs. Baldwin, Deery and Luikart. The compensation committee makes recommendations to our board of directors concerning salaries and incentive compensation for our officers and employees and administers our employee benefit plans.   Audit Committee Financial Expert   The board of directors has determined that Mr. DiCamillo, the chairman of the audit committee, is the “audit committee financial expert” as defined in applicable SEC rules and regulations. Mr. DiCamillo is “independent” as defined in the listing standards of the New York Stock Exchange.   Code of Business Conduct   Our Code of Business Conduct applies to all employees of The Sheridan Group, Inc. and all its wholly-owned subsidiaries.  Each supervisor and above has been required to sign that they have read, understand and will comply with the Code. This Code is posted on our Internet website at http://www.sheridan.com.  If any substantive amendments are made to the Code of Business Conduct or the Board of Directors grants any waiver from a provision of the Code to any officers of The Sheridan Group, Inc. or its wholly-owned subsidiaries, the nature of such amendment or waiver will be disclosed on the website at the above address.   ITEM 11.   EXECUTIVE COMPENSATION   Compensation of Directors   Each director who is not also one of our executive officers or an employee of BRS or JCP receives a fee of $16,000 per year for their service on our board of directors. The chairman of the audit committee receives an additional fee of $4,000 per year. All directors are reimbursed for any personal expenses incurred in the conduct of their duties as a director.   Compensation of Executive Officers   The following table summarizes compensation awarded or paid by us during 2005, 2004 and 2003 to our President and Chief Executive Officer and our four next most highly compensated executive officers (our “named executive officers”).   Summary Compensation Table                      Annual Compensation                 Name and Principal Position       Year       Salary       Bonus(1)       Other Annual   Compensation(2)       All Other   Compensation(3)         John A. Saxton       2005       $   509,939       $   102,000       $   —       $   135,123         President and Chief Executive       2004       509,648       380,000       —       233,847         Officer       2003       500,032       326,800       —       277,922         Joan B. Davidson       2005       254,893       78,435       —       113,774         President and Chief Operating       2004       244,359       120,135       —       104,943         Officer—TSP       2003       224,850       100,835       —       177,459         Paul Bozuwa       2005       231,885       50,200       —       66,361         President—DJS       2004       225,885       89,300       —       65,937                 2003       224,077       74,800       103,871       142,238         Robert M. Jakobe       2005       240,032       30,000       —       69,688         Vice President and Chief Financial       2004       229,043       131,900       —       63,954         Officer       2003       209,836       85,800       —       132,101         Robert M. Moore       2005       195,000       73,335       —       36,660         President and Chief Operating       2004       185,000       69,400       —       29,095         Officer - SBI       2003       175,000       76,692       —       31,087                            57         (1)   The amounts reported as ‘‘Bonus’’ for 2005, 2004 and 2003 consist of bonuses paid as management performance incentive compensation and other minor cash payments. The executive incentive compensation awards for the years ended December 31, 2005, 2004 and 2003, respectively, were as follows: Mr. Saxton— $102,000, $380,000 and $326,800; Ms. Davidson— $78,300, $120,000 and $100,700; Mr. Bozuwa— $50,200, $89,300 and $74,800; Mr. Jakobe— $30,000, $106,900 and $85,800; and Mr. Moore— $73,200, $69,400 and $76,300.  Mr. Jakobe received a $25,000 cash bonus in 2004 for completing the Dingley Acquisition.  Ms. Davidson received cash bonuses of $135 in 2005, 2004 and 2003.  Mr. Moore received cash bonuses of $135 in 2005 and $392 in 2003. (2)   The $103,871 reported as ‘‘Other Annual Compensation’’ for Mr. Bozuwa in 2003 consisted of taxable relocation income.  The value of certain perquisites and other personal benefits for the named executive officers is not included in the amounts disclosed because it did not exceed for any such named executive officer the lesser of $50,000 or 10% of the total annual salary and bonus reported for such named executive officer. (3)   The amounts reported as ‘‘All Other Compensation’’ for 2005, 2004 and 2003 include our contributions to individual 401(k) plan and deferred compensation accounts in connection with (a) our Profit Sharing Plan, (b) our employer matches under our 401(k) plan and (c) our retention awards granted to certain executive officers, which vest after five years. The profit sharing contributions for the years ended December 31, 2005, 2004 and 2003, respectively, were as follows: Mr. Saxton— $84,145, $84,523, and $64,963; Ms. Davidson— $35,202, $34,615 and $32,702; Mr. Bozuwa— $0, $0 and $0; Mr. Jakobe— $34,484, $29,954 and $25,568; and Mr. Moore— $12,669, $1,722 and $2,783.  The 401(k) match contributions for the years ended December 31, 2005, 2004, and 2003, respectively, were as follows: Mr. Saxton— $25,243, $28,663 and $11,687; Ms. Davidson— $10,502, $9,785 and $8,046; Mr. Bozuwa— $6,560, $5,779 and $6,968; Mr. Jakobe— $10,345, $8,986 and $7,114; and Mr. Moore— $4,200, $5,402 and $4,768.  The retention awards for the years ended December 31, 2005, 2004 and 2003, respectively, were as follows: Ms. Davidson— $63,750, $60,000 and $56,250; Mr. Bozuwa— $58,000, $56,500 and $55,000; Mr. Jakobe— $24,000, $22,500 and $21,000; and Mr. Moore— $19,500, $18,500 and $0.  The amounts reported as ‘‘All Other Compensation’’ for 2005, 2004 and 2003 also include taxable insurance benefits consisting of disability, life and executive physical costs. The taxable insurance benefits for the years ended December 31, 2005, 2004 and 2003, respectively, were as follows: Mr. Saxton— $25,735, $120,661 and $7,058; Ms. Davidson— $4,320, $543 and $2,776; Mr. Bozuwa— $1,801, $3,658 and $2,584; Mr. Jakobe— $858, $2,514 and $734; and Mr. Moore— $291, $3,471 and $230.  Of the amount paid to Mr. Saxton in 2004 for taxable insurance, $113,849 pertains to a payment regarding a supplemental term life policy covering the periods 1996 through 2004.  The amounts reported as ‘‘All Other Compensation’’ for 2003 include recapitalization bonuses payable in connection with the Buyout. The recapitalization bonuses were as follows: Mr. Saxton—$194,214; Ms. Davidson—$77,686; Mr. Jakobe—$77,686; Mr. Bozuwa—$77,686; and Mr. Moore $23,306.   Option Grants in Last Fiscal Year   No stock options were granted to the named executive officers during 2005.   Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option Values              Shares   Acquired on       Value   Realized       Number of   Securities Underlying   Unexercised Options at   Fiscal Year-End       Value of Unexercised In-   the-Money Options at   Fiscal Year-End(1)         Name       Exercise(#)       ($ )       Exercisable       Unexercisable       Exercisable       Unexercisable         John A. Saxton       0       N/A       1,650       3,850       $   40,838       $   95,288         Joan B. Davidson       0       N/A       1,050       2,450       25,988       60,638         G. Paul Bozuwa       0       N/A       900       2,100       22,275       51,975         Robert M. Jakobe       0       N/A       1,650       3,850       40,838       95,288         Robert M. Moore       0       N/A       900       2,100       22,275       51,975                             (1)   There is currently no public trading market for the common stock of TSG Holdings Corp. An independent appraiser engaged by TSG Holdings Corp. has determined that the fair market value of the common stock of TSG Holdings Corp. was $24.75 per share as of December 31, 2005.   Compensation Committee Interlocks and Insider Participation   In 2005, the compensation committee consisted of Messrs. Baldwin, Deery and Luikart. None of the members of the compensation committee are currently, or have been at any time since the time of our formation, one of our officers or employees.   58        Report of the Compensation Committee   The compensation committee is composed of three members of our board of directors. The role of the compensation committee is to make recommendations to our board of directors concerning salaries, incentive compensation and employee benefit programs.  The compensation committee reviews and approves employment agreements and compensation programs or benefit plans for our chief executive officer, our executive officers and certain other management employees.  The compensation committee periodically compares our executive compensation levels with those of companies with which we believe that we compete in recruitment and retention of senior executives.  The compensation committee also reviews and makes recommendations with respect to succession planning and management development.  The current members of the compensation committee are Messrs. Baldwin, Deery and Luikart.   The following is a summary of policies which the compensation committee analyzed in determining the compensation for our executive officers in 2005.   Compensation Philosophy   In reviewing our compensation programs, the compensation committee applies a philosophy which is based on the premise that our achievements result from the coordinated efforts of all individuals working toward common objectives.  We have developed a compensation policy that is designed to attract and retain qualified senior executives, reward executives for actions that result in the long-term enhancement of stockholder value and reward results with respect to our financial and operational goals.   Our compensation program for executive officers consists of three elements: (a) base salary which reflects an individual’s responsibilities, performance and expertise and is designed to be competitive with salary levels in effect at printing and other manufacturing companies of the same size; (b) cash bonuses tied to our achievement of specified financial goals for the year; and (c) stock options which strengthen the alignment of interests between the executive officers and the stockholders of TSG Holdings Corp., our parent. Additionally, retention awards are provided to certain key employees (excluding our chief executive officer) whose retention is determined by our board of directors to be critical to our ongoing success.   Base Salary   The base salaries for our chief executive officer and certain other executive officers are contained in their respective employment agreements and are subject to increase at the discretion of our board of directors.  The compensation committee has reviewed these agreements and the salaries of other officers and key management employees and determined that the salaries in place are in keeping with our compensation philosophy.  We establish salaries for executive officers and key management employees on the basis of personal performance and by reviewing available data, including published salary surveys regarding compensation of officers of comparably sized companies.  The compensation committee has reviewed the base salaries of our executive officers and key management employees for 2005 and is of the opinion that such salaries are in line with those paid by comparable companies.   Annual Cash Bonuses   Each of our executive officers, including our chief executive officer and our named executive officers, are eligible for annual bonuses based upon goals for the year under our management performance incentive plan, which are reviewed and approved by our board of directors.  Our executive officers are eligible to receive a maximum award of 50% of base salary, except Mr. Saxton, whose maximum award is 80% of base salary.  These awards for our named executive officers appear as “Bonus” in the Summary Compensation Table.   Stock Options Awards   Since October 2003, we have granted options to purchase common stock of TSG Holdings Corp., our parent, to provide long-term equity incentives for selected management employees.  Option grants are designed to align the interests of officers and employees with those of the stockholders, to provide each individual with a significant incentive to manage our business from the perspective of an owner and to remain employed by us.  The compensation committee considers awards made by the board of directors of TSG Holdings Corp. under the Stock-Based Incentive Plan in conjunction with the recipient’s level of responsibility and relative position within the company, past performance, potential and annual base salary.   59        Retention Awards   In 2005, our board of directors continued to provide retention awards to certain key employees.  Except for our chief executive officer, our named executive officers and certain other executive officers received retention awards in 2005. The awards for Mr. Bozuwa and Ms. Davidson were in accordance with their employment agreements.  The other awards were 10% of base salary. As these awards vest five years from the award date, they provide a long-term incentive for the recipients to remain with us.  These awards for our named executive officers are captured under “All Other Compensation” on the Summary Compensation Table.   CEO Compensation   Mr. Saxton joined us in 1995 as our President and Chief Executive Officer and has served on our board of directors since 1991.  On February 2, 1998, Mr. Saxton entered into an employment agreement with us and this agreement was subsequently amended on April 1, 2000.  The agreement established his base salary, a management incentive bonus percentage and an additional annual bonus equal to $30,000 minus the amount of company contributions to our profit sharing plan for Mr. Saxton’s benefit paid during the year. The compensation committee reviewed all forms of compensation to Mr. Saxton (salary, bonus and all other), and, in January 2005, determined that his base salary should be increased to $510,000.   Deductibility of Compensation   Section 162(m) of the Internal Revenue Code imposes a $1.0 million limit on the deductibility of compensation paid to certain executive officers of public companies, unless the compensation meets certain requirements for “performance-based” compensation.  In determining executive compensation, the compensation committee considers, among other factors, the possible tax consequences to us and to the executives.  However, tax consequences, including but not limited to tax deductibility by us, are subject to many factors (such as changes in the tax laws and regulations or interpretations thereof and the timing and nature of various decisions by executives regarding options and other rights) that are beyond our control.  In addition, the compensation committee believes that it is important for it to retain maximum flexibility in designing compensation programs that meet its stated objectives.  For all of the foregoing reasons, the compensation committee, while considering tax deductibility as one of its factors in determining compensation, will not limit compensation to those levels or types of compensation that will be deductible.  The compensation committee will, of course, consider alternative forms of compensation, consistent with its compensation goals, which preserve deductibility.   Conclusion   The compensation committee believes it has designed a compensation program that is competitive with the overall industry and is appropriately aligned with our financial goals and targeted stockholder returns.   The compensation committee is pleased to submit this report with regard to the above matters.   Thomas J. Baldwin Craig H. Deery James L. Luikart   Stock-Based Incentive Compensation Plan   TSG Holdings Corp. adopted a Stock-Based Incentive Compensation Plan in October 2003. The purpose of the 2003 Stock-Based Incentive Compensation Plan is to assist us in attracting and retaining valued management employees. The Stock-Based Incentive Compensation Plan will accomplish these goals by allowing eligible employees to receive awards of options to purchase common stock of TSG Holdings Corp., our parent. Eligible employees will receive options on terms as determined by TSG Holdings Corp.’s board of directors. Options granted under the Stock-Based Incentive Compensation Plan will vest over five years, based on both time and company performance. Our previous stock option plan was terminated as of the closing of the Buyout Transactions in August 2003.   Management Performance Incentive Plan   Our top thirty-two members of management participate in a management performance incentive plan, which compensates them for achievement of certain objectives established annually by our board of directors. For 2006, these objectives are based on our EBITDA, as well as the EBITDA of each executive’s operating subsidiary. Under the   60        management performance incentive plan, our executive officers are eligible to receive a maximum award of 50% of base salary, except Mr. Saxton, whose maximum award is 80% of base salary.   401(k) Plan   We sponsor a defined contribution plan, or 401(k) Plan, intended to qualify under section 401 of the Internal Revenue Code. Substantially all of our employees are eligible to participate in the 401(k) Plan on the first day of the month in which the employee has attained 18 years of age and 90 days of employment. Employees may make pre-tax contributions of their eligible compensation, not to exceed the limits under the Internal Revenue Code.  At all but one company, we match 50% of the employee’s contributions, up to a maximum of 4% of the employee’s eligible compensation.  The Dingley Press, Inc. matches 25% of the employee’s contributions, up to a maximum of 4% of the employee’s eligible compensation.  In addition, certain contributions from the company’s profit sharing plan are deposited into the 401(k) plan.  Certain companies also have a 1% fixed contribution, for which the 90 days of service is waived.  Employees may direct their investments among various pre-selected investment alternatives.  Employer contributions to the 401(k) plan, including profit sharing contributions, fixed contributions and employer matching contributions, vest after three years of employment.   Deferred Compensation Plan   In 2000, we established a nonqualified deferred compensation program which permits officers, directors and certain management employees to annually elect (via individual contracts) to defer a portion of their compensation, on a pre-tax basis. The benefit is based on the amount of compensation deferred, company make-whole contributions, employer discretionary contributions and earnings on the deferrals. The individuals are fully vested in the compensation deferred; however, the make-whole contributions and the employer discretionary contributions are subject to vesting requirements. At December 31, 2005 and 2004, the fully vested portion was approximately $2,395,000 and $1,761,000, respectively, and has been included in other non-current liabilities.   Due to new legislation, effective December 31, 2004, the existing Deferred Compensation Plan was frozen, and effective January 1, 2005, a new Deferred Compensation Plan was established.  The provisions of the new Deferred Compensation Plan are substantially similar to the provisions of the old Deferred Compensation Plan.   We have established a trust fund to hold the investments under this program. The trust holds shares in registered mutual funds, in an irrevocable rabbi trust, which are recorded as assets of ours. As of December 31, 2005 and 2004, total assets held by the trust were approximately $3,477,000 and $2,600,000, respectively and are included in other assets.   Profit Sharing Plan   The Sheridan Group Profit Sharing Plan is an incentive program provided to all eligible employees at each location, excluding Capital City Press and The Dingley Press, Inc.  Capital City Press had a Gainsharing Program, and The Dingley Press, Inc. does not currently provide a profit sharing plan. The annual discretionary profit sharing contribution for each participating operating subsidiary company is determined by a formula approved by our board of directors.   Under the formula approved for 2005, net profit prior to profit sharing had to exceed 8% for the year for profit sharing to be earned by the operating subsidiary. The total dollar contribution for an operating subsidiary cannot exceed 10% of their total payroll for the year. Discretionary profit sharing contributions to the 401(k) plan of approximately $2,886,000, $2,103,000 and $1,843,000 were charged to operations in 2005, 2004 and 2003, respectively.   All of the companies that participate in the Profit Sharing Plan, except for Dartmouth Printing Company, currently deposit profit sharing contributions into the employees’ 401(k) account. Dartmouth Printing Company had an established cash payment policy when they were acquired, which remains in place, although employees may choose to put their cash into their 401(k) account.   Change of Control Incentive Plans   In January 2006, our board of directors approved change-of-control incentive plans for the benefit of certain officers (currently Messrs. Jakobe, Ehmann, Walters, Kittredge, Moore, Seagram and Garner and Ms. Stricker) and our corporate staff employees, under which we agreed that if any plan beneficiary’s employment is terminated by us or our successors without cause, or by the plan beneficiary for ‘‘good reason,’’ within 18 months following any change in control, then the terminated plan beneficiary is entitled to receive severance benefits for the applicable period. In the case of the executive officers, the terminated plan beneficiary is to receive as severance his or her annual base salary and his or her   61        average annual incentive bonus during the two years preceding his or her termination date for a period of 18 months, amounts earned under his or her deferred compensation plan will fully vest and he or she will continue to have coverage under our health insurance plan for 18 months. In the case of the corporate staff employees, the terminated plan beneficiary is entitled to receive as severance his or her annual base salary for a period equal to the longer of 6 months or a period of two weeks for each full year of employment with us and he or she will continue to have coverage under our health insurance plan for such period.   Employment Agreements   We entered into an employment agreement with John A. Saxton, our President and Chief Executive Officer, on February 2, 1998, and amended this agreement as of April 1, 2000. Under his employment agreement, Mr. Saxton currently earns a base salary of $510,000 and is entitled to an annual management incentive bonus of up to 80% of his base salary under our management incentive performance plan, subject to increases by board action, as well as an additional annual bonus of an amount equal to $30,000 per fiscal year less the amount of our contributions to our profit sharing plan for Mr. Saxton’s benefit during such fiscal year. If Mr. Saxton’s employment is terminated by us without cause, or by Mr. Saxton for ‘‘good reason,’’ he is entitled to receive as severance his annual base salary and his average annual incentive bonus during the two years preceding his termination for a period of 24 months.   We entered into an employment agreement with G. Paul Bozuwa, President of DJS, on June 30, 2001, and amended this agreement as of April 18, 2003. Under his employment agreement, Mr. Bozuwa currently earns a base salary of $232,000 and is entitled to an annual management incentive bonus of up to 50% of his base salary. In addition to the incentive bonus, Mr. Bozuwa is entitled to an annual retention bonus, payable under a deferred compensation plan, of 25% of his base salary for each year he remains employed in his current position. Each annual award made pursuant to the annual retention bonus, plus any growth from investing such reward, becomes fully vested five years after the date the award is paid into the deferred compensation plan. In the event that Mr. Bozuwa no longer reports directly to John A. Saxton, the vesting period for each annual award shall immediately adjust to three years instead of five years. If Mr. Bozuwa’s employment is terminated by us without cause, or by Mr. Bozuwa for ‘‘good reason,’’ he is entitled to receive as severance his annual base salary and his average annual incentive bonus during the two years preceding his termination for a period of 18 months, amounts earned under his deferred compensation plan will fully vest and he will continue to have coverage under our health insurance plan for 18 months.   We entered into an employment agreement with Joan B. Davidson, President and Chief Operating Officer of TSP, on October 31, 2001. Under her employment agreement, Ms. Davidson currently earns a base salary of $255,000 and is entitled to an annual management incentive bonus of up to 50% of her base salary. In addition to the incentive bonus, Ms. Davidson is entitled to an annual retention bonus, payable under a deferred compensation plan, of 25% of her base salary for each year she remains employed in her current position. Each annual award made pursuant to the annual retention bonus, plus any growth from investing such reward, becomes fully vested five years after the date the award is paid into the deferred compensation plan. If Ms. Davidson’s employment is terminated by us without cause, or by Ms. Davidson for ‘‘good reason,’’ she is entitled to receive as severance her annual base salary and her average annual incentive bonus during the two years preceding her termination for a period of 18 months, amounts earned under her deferred compensation plan will fully vest and she will continue to have coverage under our health insurance plan for 18 months.   TDP entered into an employment agreement with Christopher A. Pierce, Chairman of TDP on May 25, 2004 and amended this agreement on March 28, 2006. Under his employment agreement, Mr. Pierce currently earns a base salary of $235,000 and is entitled to an annual management incentive bonus of up to 50% of his base salary. In addition, Mr. Pierce will receive annual non-compete payments in the amount of $108,000 over the first five years of the agreement. If Mr. Pierce’s employment is terminated by us without cause, or by Mr. Pierce for ‘‘good reason,’’ he is entitled to receive as severance his annual base salary and his average annual incentive bonus during the two years preceding his termination date for a period equal to the severance period, amounts earned under his deferred compensation plan will fully vest and he will continue to have coverage under our health insurance plan during the severance period. The severance period will be the longer of the time period from the date of termination of his employment until the end of the initial five year term or 18 months following the date of termination.   On March 28, 2006, we entered into an employment agreement with Robert M. Moore, as President and Chief Operating Officer of TDP effective April 1, 2006. Under his employment agreement, Mr. Moore will receive a base salary of $225,000 and is entitled to an annual management incentive bonus of up to 50% of his base salary. If Mr. Moore’s employment is terminated by us without cause or by Mr. Moore for “good reason,” he is entitled to receive as severance his annual base salary and his average annual incentive bonus during the two years preceding his termination for a period of 18 months, amounts earned under his deferred compensation plan will fully vest and the company would be responsible for COBRA   62        coverage for 18 months at the premium amount less the premium paid by the employee immediately prior to termination of employment.   Retention Awards   Annual retention awards are paid to certain management employees whose retention is determined by our board of directors to be critical to our ongoing success. These awards are deposited in the deferred compensation plan under the employee’s name and vest after five years. Other than the awards paid in accordance with the employment agreements of Mr. Bozuwa and Ms. Davidson, these awards are solely awarded at the board of directors’ discretion. Any awards made outside of an employment agreement were equal to 10% of base salary.   ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS   We are a wholly-owned subsidiary of TSG Holdings Corp. The following table sets forth certain information regarding the beneficial ownership of TSG Holdings Corp., as of March 28, 2006, by (i) each person or entity known to us to own more than 5% of any class of TSG Holdings Corp.’s outstanding securities, (ii) each known member of our board of directors and each of our named executive officers and (iii) all of the members of the board of directors and executive officers as a group. TSG Holdings Corp.’s outstanding securities consist of about 539,600 shares of TSG Holdings Corp. common stock and about 45,327 shares of TSG Holdings Corp. preferred stock, the terms of which are described in more detail below. To our knowledge, each of such stockholders will have sole voting and investment power as to the stock shown unless otherwise noted. Beneficial ownership of the securities listed in the table has been determined in accordance with the applicable rules and regulation promulgated under the Exchange Act.              Number and Percent of Shares of TSG Holdings Corp.(1)                 Preferred Stock       Common Stock                 Number       Percent       Number       Percent         Greater than 5% Stockholders:                                         Bruckmann, Rosser, Sherrill & Co. II,   L.P.(2)                                         126 East 56th Street New York,   New York 10022       19,209.704       42.4   %   228,687       42.4   %     Funds affiliated with Jefferies Capital   Partners(3)                                         520 Madison Avenue, 12th Floor   New York, New York 10022       19,209.704       42.4   %   228,687       42.4   %     Christopher A. Pierce(4)(5)       3,096.224       6.8   %   37,820       7.0   %     Named Executive Officers and Directors:                                         John A. Saxton(4)(6)(7)       1,340.426       3.0   %   17,607       3.3   %     Robert M. Jakobe(4)(8)(9)       108.190           *   2,938           *     Joan B. Davidson(4)(10)       67.021           *   1,848           *     Robert M. Moore(4)(11)       53.617           *   1,538           *     G. Paul Bozuwa(4)(12)       268.085           *   4,091           *     Thomas J. Baldwin(13)(14)       19,209.704       42.4   %   228,687       42.4   %     Nicholas Daraviras(15)       —       —       —       —         Craig H. Deery(4)       244.616           *   2,912           *     Gary T. DiCamillo(4)       268.085           *   3,191           *     J. Rice Edmonds(13)       —       —       —       —         J. M. Dryden Hall, Jr.(4)       89.362           *   1,064           *     James L. Luikart(15)(16)       19,209.704       42.4   %   228,687       42.4   %     Nicholas R. Sheppard(13)       —       —       —       —         George A. Whaling(4)       272.040           *   3,239           *     All executive officers and directors as a   group (20 persons)(17)       44,958.431       99.2   %   546,259       99.2   %       * indicates less than 1%   (1)   Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended, a person has beneficial ownership of any securities as to which such person, directly or indirectly, through any contract, arrangement, undertaking,   63        relationship or otherwise has or shares voting power and/or investment power and as to which such person has the right to acquire such voting and/or investment power within 60 days. Percentage of beneficial ownership as to any person as of a particular date is calculated by dividing the number of shares beneficially owned by such person by the sum of the number of shares outstanding as of such date and the number of shares as to which such person has the right to acquire voting and/or investment power within 60 days. (2)   The Sheridan Group Holdings (BRS), LLC (the “BRSLLC”) is controlled by Bruckmann, Rosser, Sherrill & Co. II, L.P. (the ‘‘BRS Fund’’) which is a private equity investment fund managed by Bruckmann, Rosser, Sherrill & Co., LLC. BRSE, L.L.C. (‘‘BRSE’’) is the general partner of the BRS Fund and by virtue of such status may be deemed to be the beneficial owner of the shares owned by BRSLLC. BRSE has the power to direct BRSLLC as to the voting and disposition of shares held by BRSLLC. No single person controls the voting and dispositive power of BRSE with respect to the shares owned by BRSLLC. Bruce Bruckmann, Harold O. Rosser, Stephen C. Sherrill, Paul D. Kaminski and Thomas J. Baldwin are the managers of BRSE, and none of them individually has the power to direct or veto the voting or disposition of shares owned by BRSLLC. BRSE expressly disclaims beneficial ownership of the shares owned by BRSLLC. Each of Messrs. Bruckmann, Rosser, Sherrill, Kaminski and Baldwin expressly disclaims beneficial ownership of the shares owned by BRSLLC. (3)   The Sheridan Group Holdings (Jefferies), LLC is controlled by ING Furman Selz Investors III L.P., ING Barings U.S. Leveraged Equity Plan LLC and ING Barings Global Leveraged Equity Plan Ltd. which are private equity investment funds managed by Jefferies Capital Partners. Brian P. Friedman and Mr. Luikart are the Managing Members of JCP and may be considered the beneficial owners of the shares owned by The Sheridan Group Holdings (Jefferies), LLC, but each of Messrs. Friedman and Luikart expressly disclaim beneficial ownership of such shares, except to the extent of each of their pecuniary interests therein. (4)   The address of each of Mr. Saxton, Mr. Jakobe, Ms. Davidson, Mr. Moore, Mr. Bozuwa, Mr. Pierce, Mr. Deery, Mr. DiCamillo, Mr. Hall and Mr. Whaling is c/o The Sheridan Group, Inc., 11311 McCormick Road, S260, Hunt Valley, Maryland 21031. (5)   Includes options to purchase 960 shares of TSG Holdings Corp. common stock exercisable within 60 days. (6)   Includes 15,957 shares which are owned by LMWW Custodian FBO John A. Saxton Roll-over IRA. Mr. Saxton may be deemed to beneficially own such shares. (7)   Includes options to purchase 1,650 shares of TSG Holdings Corp. common stock exercisable within 60 days. (8)   Includes 1,288 shares which are owned by LMWW Custodian FBO Robert M. Jakobe Roll-over IRA. Mr. Jakobe may be deemed to beneficially own such shares. (9)   Includes options to purchase 1,650 shares of TSG Holdings Corp. common stock exercisable within 60 days. (10) Includes options to purchase 1,050 shares of TSG Holdings Corp. common stock exercisable within 60 days. (11) Includes options to purchase 900 shares of TSG Holdings Corp. common stock exercisable within 60 days. (12) Includes options to purchase 900 shares of TSG Holdings Corp. common stock exercisable within 60 days. (13) The address of each of Mr. Baldwin, Mr. Edmonds and Mr. Sheppard is c/o Bruckmann, Rosser, Sherrill & Co., Inc., 126 East 56th Street, New York, New York 10022. (14) Consists of 19,209.704 shares of TSG Holdings Corp. preferred stock and 228,687 shares of TSG Holdings Corp. common stock owned and/or controlled by the BRSLLC. Mr. Baldwin may be deemed to share beneficial ownership of the shares owned of record and/or controlled by BRSLLC by virtue of his status as a manager of BRSE, but he expressly disclaims such beneficial ownership of the shares owned and/or controlled by BRSLLC. The members and managers of BRSE share investment and voting power with respect to securities owned and/or controlled by BRSE, but no individual controls such investment or voting power. (15) The address of each of Mr. Daraviras and Mr. Luikart is c/o Jefferies Capital Partners, 520 Madison Avenue, 12th Floor, New York, New York 10022. (16) Consists of 19,209.704 shares of TSG Holdings Corp. preferred stock and 228,687 shares of TSG Holdings Corp. common stock owned by The Sheridan Group Holdings (Jefferies), LLC. Mr. Luikart is a Managing Member of JCP and may be considered the beneficial owner of such shares, but he expressly disclaims such beneficial ownership of the shares owned by The Sheridan Group Holdings (Jefferies), LLC, except to the extent of his pecuniary interest therein. (17)Includes options to purchase 15,270 shares of TSG Holdings Corp. common stock exercisable within 60 days.   TSG Holdings Corp. Preferred Stock   TSG Holdings Corp.’s Certificate of Incorporation provides that TSG Holdings Corp. may issue 100,000 shares of preferred stock, 75,000 of which is designated as 10% Series A Cumulative Compounding Preferred Stock and 25,000 of which is undesignated. TSG Holdings Corp. preferred stock has a stated value of $1,000 per share and is entitled to annual dividends when, as and if declared, which dividends will be cumulative, whether or not earned or declared, and will accrue at a rate of 10%, compounding annually. As of March 28, 2006, there are issued and outstanding about 45,327 shares of TSG Holdings Corp. preferred stock.   64        Except as otherwise required by law, the TSG Holdings Corp. preferred stock is not entitled to vote. TSG Holdings Corp. may not pay any dividend upon (except for a dividend payable in Junior Stock, as defined below), or redeem or otherwise acquire shares of, capital stock junior to the TSG Holdings Corp. preferred stock (including the common stock) (“Junior Stock”) unless all cumulative dividends on the TSG Holdings Corp. preferred stock have been paid in full. Upon liquidation, dissolution or winding up of TSG Holdings Corp., holders of TSG Holdings Corp. preferred stock are entitled to receive out of the legally available assets of TSG Holdings Corp., before any amount shall be paid to holders of Junior Stock, an amount equal to $1,000 per share of TSG Holdings Corp. preferred stock, plus all accrued and unpaid dividends to the date of final distribution. If the available assets are insufficient to pay the holders of the outstanding shares of TSG Holdings Corp. preferred stock in full, the assets, or the proceeds from the sale of the assets, will be distributed ratably among the holders.  The TSG Holdings Corp. preferred stock is not redeemable.   TSG Holdings Corp. Common Stock   The Certificate of Incorporation of TSG Holdings Corp. provides that TSG Holdings Corp. may issue 1,000,000 shares of TSG Holdings Corp. common stock. About 539,680 shares of TSG Holdings Corp. common stock are issued and outstanding as of March 28, 2006. The holders of TSG Holdings Corp. common stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders.   Equity Compensation Plan Information   The following table sets forth information as of December 31, 2005 regarding all of our existing compensation plans pursuant to which equity securities are authorized for issuance to employees and non-employee directors.      Plan Category       Number of securities to   be issued upon exercise   of outstanding options,   warrants and rights       Weighted-average   exercise price of   outstanding options,   warrants and rights(1)       Number of Securities   remaining available for   future issuance under   equity compensation   plans (excluding   securities reflected   in column (a))                 (a)       (b)       (c)                                           Equity compensation plans approved by   security holders       N/A       N/A       N/A         Equity compensation plans not approved by   security holders       52,400       $   10.00       3,020         Total       52,400       $   10.00       3,020           (1)   As of December 31, 2005.   ITEM 13.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS   Securities Holders Agreement   At the closing of the Buyout Transactions, TSG Holdings Corp. entered into a securities holders agreement with BRS, JCP and the management investors. The securities holders agreement provides that TSG Holdings Corp.’s and our board of directors will consist of ten members, including four designees of BRS, four designees of JCP and two directors jointly designated by both BRS and JCP. Also pursuant to the securities holders agreement, we may not take certain significant actions, such as incurrences of indebtedness in excess of certain thresholds or a sale of all or substantially all of our assets, without the approval of each of BRS and JCP.   The securities holders agreement generally restricts the transfer of shares of TSG Holdings Corp. common stock or TSG Holdings Corp. preferred stock without the consent of BRS and JCP. Exceptions to this restriction include transfers to affiliates and transfers for estate planning purposes, in each case so long as any transferee agrees to be bound by the terms of the agreement.   Each of TSG Holdings Corp., BRS and JCP has a right of first refusal under the securities holders agreement with respect to sales of shares of TSG Holdings Corp. by management investors. Under certain circumstances, the stockholders have ‘‘tag-along’’ rights to sell their shares on a pro rata basis with the selling stockholder in certain sales to third parties. If   65        BRS and JCP approve a sale of TSG Holdings Corp., they have the right to require the other stockholders of TSG Holdings Corp. to sell their shares on the same terms. The securities holders agreement also contains a provision that gives TSG Holdings Corp. the right to repurchase a management investor’s shares upon termination of that management stockholder’s employment or removal or resignation from the board of directors.   Registration Rights Agreement   At the closing of the Buyout Transactions, TSG Holdings Corp., BRS, JCP and the management investors entered into a registration rights agreement. Pursuant to the registration rights agreement, upon the written request of either BRS or JCP, TSG Holdings Corp. has agreed to, on one or more occasions, prepare and file a registration statement with the SEC concerning the distribution of all or part of the shares of TSG Holdings Corp. common stock held by BRS or JCP or certain of their respective affiliates, as the case may be, and use its best efforts to cause the registration statement to become effective. Following an initial public offering of TSG Holdings Corp., BRS, JCP and the management investors also have the right, subject to certain exceptions and rights of priority, to have their shares included in certain registration statements filed by TSG Holdings Corp. Registration expenses of the selling stockholders (other than underwriting discounts and commissions and transfer taxes applicable to the shares sold by such stockholders or the fees and expenses of any accountants or other representatives retained by a selling stockholder) will be paid by TSG Holdings Corp. TSG Holdings Corp. has also agreed to indemnify the stockholders against certain customary liabilities in connection with any registration.   Management Agreement   In connection with the Buyout Transactions, we entered into a management agreement with BRS and JCP pursuant to which BRS and JCP may provide financial, advisory and consulting services to us. In exchange for these services, BRS and JCP will be entitled to an annual management fee. The total management fee will be equal to the greater of 2% of EBITDA (as defined in the Management Agreement) or $0.5 million per year, plus reasonable out-of-pocket expenses and will be split equally between BRS and JCP. In addition, BRS and JCP may negotiate with us to provide additional services in connection with any transaction in which we may be, or may consider becoming, involved. At the closing of the Sheridan Acquisition, BRS and JCP also were paid a transaction fee of about $1.0 million, plus reasonable out-of-pocket expenses, pursuant to the management agreement. The management agreement has an initial term of ten years. The agreement automatically renews for additional one year terms unless either we or BRS and JCP give written notice of termination within 90 days prior to the expiration of the initial term or any extension thereof. There are no minimum levels of service required to be provided pursuant to the management agreement. The management agreement includes customary indemnification provisions in favor of BRS and JCP.   Agreements with Our Officers and Directors   We employed J. M. Dryden Hall, Jr., a member of our board of directors, to serve as our legal counsel. In 2005, our fees paid to Mr. Hall totaled $50,000. Effective January 1, 2006, Mr. Hall will no longer serve as our legal counsel.   Other Related Party Transactions and Matters     In May 2005 our two principal stockholders, BRS and funds affiliated with Jefferies Capital Partners, each entered into a separate limited liability company agreement with John A. Saxton, our chief executive officer, pursuant to which each principal stockholder contributed their preferred and common stock of TSG Holdings Corp., our parent corporation, to a limited liability company, or LLC, called The Sheridan Group Holdings (BRS), LLC and The Sheridan Group Holdings (Jefferies), LLC, respectively, in exchange for limited liability company interests in the LLC, and Mr. Saxton acquired an interest in the LLC for nominal consideration. Mr. Saxton’s interest in each LLC entitles him to receive a portion of any profit earned by the LLC on the shares of TSG Holdings Corp. stock held by it, after the principal stockholder has received back its entire investment in such shares, plus a specified return on its investment. Under each limited liability company agreement, Mr. Saxton will forfeit his interest in the LLCs if he terminates or we terminate his employment for any reason; however, if Mr. Saxton’s employment is terminated as a result of his death, one–third of his interest in the LLC will not be forfeited for each year of his service following the date of the limited liability company agreement.   Ms. Stricker, Vice President, Operations and Human Resources, and Ms. Davidson, President and Chief Operating Officer of TSP, are sisters.   66        ITEM 14.   PRINCIPAL ACCOUNTING FEES AND SERVICES   The Company incurred fees for services performed by PricewaterhouseCoopers LLP as follows:              Year ended       Year ended                 December 31,       December 31,         (Dollars in thousands)       2005       2004         Audit fees (include the review of interim consolidated   financial statements, annual audit of the consolidated financial statements and   assistance with SEC filings)       $   654       $   1,146                                   Audit-related fees (include the annual   audit of the 401K plan, review of internal controls and due diligence related   to acquisitions)       2       665                                   Tax fees (include tax compliance,   transactional consulting and advice for state tax issues)       123       284                                   All other fees (include license fees for   online financial reporting and assurance literature)       2       —                                   Total       $    781       $    2,095          All services performed by PricewaterhouseCoopers LLP have been or will be approved by the audit committee prior to performance in accordance with legal requirements.   PART IV   ITEM 15.   EXHIBITS, FINANCIAL STATEMENT SCHEDULES   (a)  The following documents are filed as part of this Annual Report on Form 10-K:   (1)       All Financial Statements:              Page No.     Reports of   Independent Registered Public Accounting Firm       27-28     Consolidated balance   sheets as of December 31, 2005 and 2004       29     Consolidated   statements of income for the years-ended December 31, 2005 and 2004, and for   the four-months and eleven-days ended December 31, 2003, on a successor   basis, and for the seven-months and twenty-days ended August 20, 2003, on a   predecessor basis       30     Consolidated   statements of changes in stockholders’ equity (deficit) and mandatorily   redeemable convertible preferred stock for the years-ended December 31, 2005   and 2004, for the four-months and eleven-days ended December 31, 2003, on a   successor basis, and for the seven-months and twenty-days ended August 20,   2003, on a predecessor basis       31     Consolidated   statements of cash flows for the years-ended December 31, 2005 and 2004, and   for the four-months and eleven-days ended December 31, 2003, on a successor   basis, and for the seven-months and twenty-days ended August 20, 2003, on a   predecessor basis       32     Notes to   consolidated financial statements       33-53      (2)       Financial Statement Schedules:   All schedules have been omitted because they are not applicable or the required information is included in the consolidated financial statements and the footnotes thereto.   (3)       Exhibits   The following is a list of exhibits filed as part of this Annual Report on Form 10-K.  Where so indicated by footnote, exhibits which were previously filed are incorporated by reference.   67           2.1       Stock Purchase Agreement,   dated as of August 1, 2003, by and among Sheridan Acquisition Corp., The   Sheridan Group, Inc. and the shareholders, optionholders and warrantholders   named therein.†     2.2       First Amendment to Stock   Purchase Agreement, dated as of August 21, 2003, by and among Sheridan   Acquisition Corp., The Sheridan Group, Inc. and BancBoston Ventures Inc. and   John A. Saxton, on behalf of and solely in their capacity as representatives   of all of the Sellers (as defined in the Stock Purchase Agreement).†     2.3       Asset Purchase Agreement,   dated as of March 5, 2004, by and among The Sheridan Group, Inc., Lisbon   Acquisition Corp. and The Dingley Press.†     3.1       Amended and Restated   Certificate of Incorporation of TSG Holdings Corp.†     3.2       Amended and Restated   Bylaws of TSG Holdings Corp.†     3.3       Amended and Restated   Articles of Incorporation of The Sheridan Group, Inc.†     3.4       Amended and Restated   Bylaws of The Sheridan Group, Inc.†     3.5       Restated and Amended   Articles of Association of Capital City Press, Inc.†     3.6       Restated and Amended   By-laws of Capital City Press, Inc.†     3.7       Articles of Incorporation   of Dartmouth Journal Services, Inc.†     3.8       Bylaws of Dartmouth   Journal Services, Inc.†     3.9       Articles of Agreement of   Dartmouth Printing Company, as amended.†     3.10       By-Laws of Dartmouth   Printing Company.†     3.11       Certificate of   Incorporation of Sheridan Books, Inc., as amended.†     3.12       By-laws of Sheridan Books,   Inc.†     3.13       Certificate of   Incorporation of The Sheridan Group Holding Company.†     3.14       By-Laws of The Sheridan   Group Holding Company.†     3.15       Amended and Restated   Articles of Incorporation of The Sheridan Press, Inc.†     3.16       By-Laws of The Sheridan   Press, Inc.†     3.17       Amendment and Restatement   of Articles of Incorporation of United Litho, Inc.†     3.18       By-Laws of United Litho,   Inc.†     3.19       Amended and Restated   Certificate of Incorporation of The Dingley Press, Inc.†     3.20       Amended and Restated   Bylaws of The Dingley Press, Inc.     4.1       Indenture, dated as of   August 21, 2003, among Sheridan Acquisition Corp. and The Bank of New York,   as trustee and notes collateral agent.†     4.2       Supplemental Indenture,   dated as of August 21, 2003, among Capital City Press, Inc., Dartmouth   Printing Company, Dartmouth Journal Services, Inc., Sheridan Books, Inc., The   Sheridan Group Holding Company, The Sheridan Press, Inc., United Litho, Inc.   and The Bank of New York, as trustee and notes collateral agent.†     4.3       Form of 10¼% Senior   Secured Note Due 2011 (included in Exhibit 4.1).†     4.4       Registration Rights   Agreement, dated as of August 21, 2003, by and between Sheridan Acquisition   Corp. and Jefferies & Company, Inc.†     4.5       Joinder to the   Registration Rights Agreement, dated as of August 21, 2003, by and among   Capital City Press, Inc., Dartmouth Printing Company, Dartmouth Journal   Services, Inc., Sheridan Books, Inc., The Sheridan Group Holding Company, The   Sheridan Press, Inc., United Litho, Inc. and Jefferies & Company, Inc.†     4.6       Second Supplemental   Indenture, dated as of May 11, 2004, by and among The Sheridan Group, Inc.,   Lisbon Acquisition Corp. and The Bank of New York, as trustee and notes   collateral agent.†     4.7       Third Supplemental   Indenture, dated as of May 11, 2004, by and among The Sheridan Group, Inc.,   Capital City Press, Inc., Dartmouth Printing Company, Dartmouth Journal   Services, Inc., Lisbon Acquisition Corp., Sheridan Books, Inc., The Sheridan   Group Holding Company, The Sheridan Press, Inc., United Litho, Inc. and The   Bank of New York, as trustee and notes collateral agent.†      68           4.8       Registration Rights   Agreement, dated as of May 25, 2004, by and among The Sheridan Group, Inc.,   Capital City Press, Inc., Dartmouth Printing Company, Dartmouth Journal   Services, Inc., Lisbon Acquisition Corp., Sheridan Books, Inc., The Sheridan   Group Holding Company, The Sheridan Press, Inc., United Litho, Inc. and   Jefferies & Company, Inc.†     10.1       Amended and Restated   Revolving Credit Agreement, dated as of May 25, 2004, by and among The   Sheridan Group, Inc., Fleet National Bank, as administrative agent, issuer   and a lender, and the other financial institutions party thereto.†     10.2       Intercreditor Agreement,   dated as of August 21, 2003, among Sheridan Acquisition Corp., The Sheridan   Group, Inc., the guarantors signatory thereto, The Bank of New York, as   trustee and collateral agent, and Fleet National Bank.†     10.3       Securities Holders   Agreement, dated as of August 21, 2003, by and among TSG Holdings Corp.,   Bruckmann, Rosser, Sherrill & Co. II, L.P., ING Furman Selz Investors III   L.P., ING Barings Global Leveraged Equity Plan Ltd., ING Barings U.S.   Leveraged Equity Plan LLC and the management investors named therein.†     10.4       Registration Rights   Agreement, dated as of August 21, 2003, by and among TSG Holdings Corp.,   Bruckmann, Rosser, Sherrill & Co. II, L.P., ING Furman Selz Investors III   L.P., ING Barings Global Leveraged Equity Plan Ltd., ING Barings U.S.   Leveraged Equity Plan LLC and the management investors named therein.†     10.5       Securities Purchase   Agreement, dated as of August 21, 2003, by and among TSG Holdings Corp.,   Bruckmann, Rosser, Sherrill & Co. II, L.P., ING Furman Selz Investors III   L.P., ING Barings Global Leveraged Equity Plan Ltd. and ING Barings U.S.   Leveraged Equity Plan LLC.†     10.6       Securities Purchase and   Exchange Agreement, dated as of August 21, 2003, by and among TSG Holdings   Corp. and the management investors named therein.†     10.7       Management Agreement,   dated as of August 21, 2003, by and among Bruckmann, Rosser, Sherrill &   Co., LLC, FS Private Investments III LLC (d/b/a Jefferies Capital Partners)   and Sheridan Acquisition Corp.†     10.8       Employment and   Non-Competition Agreement, dated as of January 2, 1998, between The Sheridan   Group, Inc. and John A. Saxton, as amended by First Amendment to Employment   Agreement, dated as of April 1, 2000.†*     10.9       Employment and   Non-Competition Agreement, dated as of June 30, 2001, between The Sheridan   Group, Inc. and G. Paul Bozuwa, as amended by First Amendment to Employment   Agreement, dated as of April 18, 2003.†*     10.10       Employment and   Non-Competition Agreement, dated as of October 31, 2001, between The Sheridan   Group, Inc. and Joan B. Davidson.†*     10.11       TSG Holdings Corp. 2003   Stock-Based Incentive Compensation Plan.†*     10.12       The Sheridan Group, Inc.   Executive and Director Deferred Compensation Plan.†*     10.13       The Sheridan Group, Inc.   Change-of-Control Incentive Plan for Corporate Staff.*     10.14       The Sheridan Group, Inc.   Change-of-Control Incentive Plan for Key Management Employees.*     10.15       Amendment No. 1 to   Intercreditor Agreement, dated as of May 11, 2004, by and among The Sheridan   Group, Inc., the guarantors signatory thereto, The Bank of New York, as   trustee and collateral agent, and Fleet National Bank.†     10.16       Securities Purchase   Agreement, dated as of May 25, 2004, by and among TSG Holdings Corp. and the   management investors named therein.†     10.17       Joinder   Agreement—Securities Holders Agreement, dated as of May 25, 2004, by and   among Christopher A. Pierce, Eric Lane, William Braley, Kenneth Stickley, Jr.   and TSG Holdings Corp.†     10.18       Joinder   Agreement—Registration Rights Agreement, dated as of May 25, 2004, by and   among Christopher A. Pierce, Eric Lane, William Braley, Kenneth Stickley,   Jr., TSG Holdings Corp., Bruckmann, Rosser, Sherrill & Co. II, L.P., ING   Furman Selz Investors III L.P., ING Barings U.S. Leveraged Equity Plan LLC   and ING Barings Global Leveraged Equity Plan Ltd.†      69           10.19       Employment and   Non-Competition Agreement, dated as of May 25, 2004, among The Dingley Press,   Inc., Christopher A. Pierce and The Sheridan Group, Inc.*     10.20       Limited Liability Company Agreement dated as of May 10, 2005, of   The Sheridan Group Holdings (BRS), LLC by and between Bruckmann, Rosser,   Sherrill & Co. II, L.P. and John A. Saxton.     10.21       Limited Liability Company Agreement dated as of May 10, 2005, of   The Sheridan Group Holdings (Jefferies), LLC by and among ING Furman   Selz Investors III L.P., ING Barings U.S. Leveraged Equity Plan LLC, ING   Barings Global Leveraged Equity Plan Ltd. and John A. Saxton.     10.22       Joinder Agreement—Securities Holders Agreement and Registration   Rights Agreement, dated as of August 3, 2004, by and among William P. Walters   and TSG Holdings Corp.     10.23       Employment and Non-Competition Agreement, dated as of March 28, 2006,   among Robert M. Moore and The Sheridan Group, Inc.*     10.24       First Amendment to Employment Agreement, dated as of March 28, 2006,   among The Dingley Press, Inc., Christopher A. Pierce and The Sheridan Group,   Inc.*     21.1       Subsidiaries of The   Sheridan Group, Inc.†     31.1       Certification of Chief   Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities   Exchange Act of 1934, as adopted pursuant to Section 302 of the   Sarbanes-Oxley Act of 2002.     31.2       Certification of Chief   Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) of the Securities   Exchange Act of 1934, as adopted pursuant to Section 302 of the   Sarbanes-Oxley Act of 2002.     32.1       Certification pursuant to   18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the   Sarbanes-Oxley Act of 2002, executed by John A. Saxton, President and Chief   Executive Officer of The Sheridan Group, Inc. and Robert Jakobe, Chief Financial   Officer of The Sheridan Group, Inc.       †      Filed as a like numbered exhibit to the Registrant’s Registration Statement on Form S-4 (File No. 333-110441) and incorporated herein by reference.   *      Management contract or compensatory plan or arrangement.   70        SIGNATURES   Pursuant to the requirements of Section 13 or Section 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.          THE SHERIDAN GROUP, INC.                             By:   /s/ John A. Saxton                 Name:   John A. Saxton             Title:   President and Chief   Executive   Officer and Director             Date:   March 30, 2006             Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.      Signature       Title       Date                                   /s/ John A. Saxton       President and Chief Executive   Officer and Director       March 30, 2006         John A.   Saxton       (Principal   Executive Officer)                                           /s/   Robert M. Jakobe       Chief Financial Officer       March 30, 2006         Robert M.   Jakobe       (Principal   Financial and Accounting Officer)                                           /s/   Thomas J. Baldwin       Director       March 30, 2006         Thomas J.   Baldwin                                                   /s/   Nicholas Daraviras       Director       March 30, 2006         Nicholas   Daraviras                                                   /s/   Craig H. Deery       Director       March 30, 2006         Craig H.   Deery                                                   /s/   Gary T. DiCamillo       Director       March 30, 2006         Gary T.   DiCamillo                                                   /s/   J. Rice Edmonds       Director       March 30, 2006         J. Rice   Edmonds                          71           /s/ J. M. Dryden Hall, Jr.       Director       March 30, 2006         J. M.   Dryden Hall, Jr.                                                   /s/   James L. Luikart       Director       March 30, 2006         James L.   Luikart                                                   /s/   Nicholas R. Sheppard       Director       March 30, 2006         Nicholas   R. Sheppard                                                   /s/   George A. Whaling       Director       March 30, 2006         George A.   Whaling                          72         EX-3.20 2 a06-2160_1ex3d20.htm (I) ARTICLES OF INCORPORATION; (II) BYLAWS       Exhibit 3.20   AMENDED AND RESTATED BYLAWS   OF   THE DINGLEY PRESS, INC.   ARTICLE I   STOCKHOLDERS   1.1          Meetings.   1.1.1       Place. Meetings of the stockholders shall be held at such place as may be designated by the board of directors.   1.1.2       Annual Meeting. An annual meeting of the stockholders for the election of directors and for other business shall be held on such date and at such time as may be fixed by the board of directors.   1.1.3       Special Meetings. Special meetings of the stockholders may be called at any time by the president, or the board of directors, or the holders of a majority of the outstanding shares of stock of the Company entitled to vote at the meeting.   1.1.4       Quorum. The presence, in person or by proxy, of the holders of a majority of the outstanding shares of stock of the Company entitled to vote on a particular matter shall constitute a quorum for the purpose of considering such matter.   1.1.5       Voting Rights. Except as otherwise provided herein, in the certificate of incorporation or by law, every stockholder shall have the right at every meeting of stockholders to one vote for every share standing in the name of such stockholder on the books of the Company which is entitled to vote at such meeting. Every stockholder may vote either in person or by proxy.   ARTICLE II   DIRECTORS   2.1          Number and Term. The board of directors shall have authority to (i) determine the number of directors to constitute the board and (ii) fix the terms of office of the directors.   2.2          Meetings.   2.2.1       Place. Meetings of the board of directors shall be held at such place as may be designated by the board or in the notice of the meeting.          2.2.2       Regular Meetings. Regular meetings of the board of directors shall be held at such times as the board may designate. Notice of regular meetings need not be given.   2.2.3       Special Meetings. Special meetings of the board may be called by direction of the president or any two members of the board on three days’ notice to each director, either personally or by mail, telegram or facsimile transmission.   2.2.4       Quorum. A majority of all the directors in office shall constitute a quorum for the transaction of business at any meeting.   2.2.5       Voting. Except as otherwise provided herein, in the certificate of incorporation or by law, the vote of a  majority of the directors present at any meeting at which a quorum is present shall constitute the act of the board of directors.   2.2.6       Committees. The board of directors may, by resolution adopted by a majority of the whole board, designate one or more committees, each committee to consist of one or more directors and such alternate members (also directors) as may be designated by the board. Unless otherwise provided herein, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another director to act at the meeting in the place of any such absent or disqualified member. Except as otherwise provided herein, in the certificate of incorporation or by law, any such committee shall have and may exercise the powers of the full board of directors to the extent provided in the resolution of the board directing the committee.   ARTICLE III   OFFICERS   3.1          Election. At its first meeting after each annual meeting of the stockholders, the board of directors shall elect a president, treasurer, secretary and such other officers as it deems advisable including a chairman.   3.2          Authority, Duties and Compensation. The officers shall have such authority, perform such duties and serve for such compensation as may be determined by resolution of the board of directors. Except as otherwise provided by board resolution, (i) the president shall be the chief executive officer of the Company, shall have general supervision over the business and operations of the Company, may perform any act and execute any instrument for the conduct of such business and operations and shall preside at all meetings of the board and stockholders, (ii) the chairman, if applicable, shall have the duties determined by the board but shall not be a member thereof due to his/her position as chairman, (iii) the other officers shall have the duties customarily related to their respective offices, and (iv) any vice president, or vice presidents in   2        the order determined by the board, shall in the absence of the president have the authority and perform the duties of the president.   ARTICLE IV   INDEMNIFICATION   4.1          Right to Indemnification. The Company shall indemnify any person who was or is party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “proceeding”), by reason of the fact that such person is or was a director or officer of the Company or a constituent corporation absorbed in a consolidation or merger, or is or was serving at the request of the Company or a constituent corporation absorbed in a consolidation or merger, as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, or is or was a director or officer of the Company serving at its request as an administrator, trustee or other fiduciary of one or more of the employee benefit plans of the Company or other enterprise, against expenses (including attorneys’ fees), liability and loss actually and reasonably incurred or suffered by such person in connection with such proceeding, whether or not the indemnified liability arises or arose from any threatened, pending or completed proceeding by or in the right of the Company, except to the extent that such indemnification is prohibited by applicable law.   3        4.2          Advance of Expenses. Expenses incurred by a director or officer of the Company in defending a proceeding shall be paid by the Company in advance of the final disposition of such proceeding subject to the provisions of any applicable statute.   4.3          Procedure for Determining Permissibility. To determine whether any indemnification or advance of expenses under this Article IV is permissible, the board of directors by a majority vote of a quorum consisting of directors not parties to such proceeding may, and on request of any person seeking indemnification or advance of expenses shall be required to, determine in each case whether the applicable standards in any applicable statute have been met, or such determination shall be made by independent legal counsel if such quorum is not obtainable, or, even if obtainable, a majority vote of a quorum of disinterested directors so directs, provided that, if there has been a change in control of the Company between the time of the action or failure to act giving rise to the claim for indemnification or advance of expenses and the time such claim is made, at the option of the person seeking indemnification or advance of expenses, the permissibility of indemnification or advance of expenses shall be determined by independent legal counsel. The reasonable expenses of any director or officer in prosecuting a successful claim for indemnification, and the fees and expenses of any special legal counsel engaged to determine permissibility of indemnification or advance of expenses, shall be borne by the Company.   4.4          Contractual Obligation. The obligations of the Company to indemnify a director or officer under this Article IV, including the duty to advance expenses, shall be considered a contract between the Company and such director or officer, and no modification or repeal of any provision of this Article IV shall affect, to the detriment of the director or officer, such obligations of the Company in connection with a claim based on any act or failure to act occurring before such modification or repeal.   4.5          Indemnification Not Exclusive; Inuring of Benefit. The indemnification and advance of expenses provided by this Article IV shall not be deemed exclusive of any other right to which one indemnified may be entitled under any statute, provision of the Certificate of Incorporation, these bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office, and shall inure to the benefit of the heirs, executors and administrators of any such person.   4.6          Insurance and Other Indemnification. The board of directors shall have the power to (i) authorize the Company to purchase and maintain, at the Company’s expense, insurance on behalf of the Company and on behalf of others to the extent that power to do so has not been prohibited by statute, (ii) create any fund of any nature, whether or not under the control of a trustee, or otherwise secure any of its indemnification obligations, and (iii) give other indemnification to the extent permitted by statute.   4        ARTICLE V   TRANSFER OF SHARE CERTIFICATES   Transfers of share certificates and the shares represented thereby shall be made on the books of the Company only by the registered holder or by duly authorized attorney. Transfers shall be made only on surrender of the share certificate or certificates.   ARTICLE VI   AMENDMENTS   These bylaws may be amended or repealed at any regular or special meeting of the board of directors by vote of a majority of all directors in office or at any annual or special meeting of stockholders by vote of holders of a majority of the outstanding stock entitled to vote. Notice of any such annual or special meeting of stockholders shall set forth the proposed change or a summary thereof.   5         EX-10.22 3 a06-2160_1ex10d22.htm MATERIAL CONTRACTS       Exhibit 10.22   JOINDER   TSG Holdings Corp.   Joinder   To the Securities Holders Agreement   and   Registration Rights Agreement   TSG Holdings Corp. 11311 McCormick Road Suite 260 Hunt Valley, MD  21031-1437   Gentlemen and Ladies:   In connection with the undersigned’s receipt from the estate of David T. Merchant of 53.191 shares of Common Stock and 4.46809 shares of Series A 10% Cumulative Compounding Preferred Stock of TSG Holdings Corp., a Delaware corporation (the “Company”), which are represented by Certificate No. C30 and Certificate No. AP30, respectively (together the “Shares”), the undersigned hereby represents and warrants to, and agrees and covenants with, you as follows:   1.             By this instrument the undersigned shall be bound by the terms and conditions of the Securities Holders Agreement, dated as August 21, 2003 (the “Securities Holders Agreement”), by and among the Company, Bruckmann, Rosser, Sherrill & Co. II, L.P., a Delaware limited partnership (“BRS”), ING Furman Selz Investors III L.P., a Delaware limited partnership (“ING Furman Selz”), ING Barings Global Leveraged Equity Plan Ltd., a Bermuda corporation (“ING Barings Global”), ING Barings U.S. Leveraged Equity Plan LLC, a Delaware limited liability company (“ING Barings U.S.) and the other signatories thereto. The undersigned hereby agrees that it shall be a “Permitted Transferee” under the terms of the Securities Holders Agreement, and shall take the Shares subject to and be fully bound by the terms of the Securities Holders Agreement with the same effect as if it were a “Management Investor” as such term is defined therein. The undersigned further agrees that the Shares shall continue to be considered “Management Securities” for purposes of the Securities Holders Agreement, and William P. Walters shall be considered the Management Investor with respect to such Management Securities.   2.             By this instrument the undersigned also shall be bound by the terms and conditions of the Registration Rights Agreement, dated as of August 21, 2003 by and among the Company, BRS, ING Furman Selz, ING Barings Global, ING Barings U.S., and the other signatories thereto (the “Registration Rights Agreement,” and together with the Securities Holders Agreement, the “Agreements”). The undersigned hereby agrees that it shall take the          Shares subject to and be fully bound by the terms of the Registration Rights Agreement with the same effect as if it were a “Management Investor” as such term is defined therein. The undersigned further agrees that the Shares shall by deemed to be “Registrable Securities” for purposes of the Registration Rights Agreement, and the undersigned shall be deemed to be a holder of “Registrable Securities” for purposes thereof.   3.             The undersigned has read and understands each of the provisions of each of the Agreements.   4.             The undersigned has full legal right, power and authority to enter into this Joinder and to perform its obligations hereunder without the need for the consent of any other person.   5.             This Joinder has been duly authorized, executed and delivered and constitutes the valid and binding obligation enforceable against the undersigned in accordance with the terms hereof.   6.             The Shares are being acquired by the undersigned solely for its own account for investment and not with a view to any further distribution thereof that would violate the Securities Act of 1933, as amended (the “Securities Act”) or the applicable securities laws of any state. The undersigned will not distribute the Shares in violation of the Securities Act or the applicable securities laws of any state.   7.             The undersigned understands that the Shares have not been registered under the Securities Act or registered for resale under the securities laws of any state and must be held indefinitely unless subsequently registered under the Securities Act and any applicable state securities laws or unless an exemption from such registration is or becomes available.   8.             The undersigned agrees that the certificates representing the Shares shall bear the following legends or similar legends:   THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR OTHERWISE DISPOSED OF WITHOUT REGISTRATION UNDER THE SECURITIES ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE DELIVERY TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT REQUIRED.   THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO THE TERMS AND CONDITIONS OF A SECURITIES HOLDERS AGREEMENT BY AND AMONG THE COMPANY AND THE HOLDERS SPECIFIED THEREIN, AS AMENDED FROM TIME TO TIME (THE “SECURITIES HOLDERS AGREEMENT”), A COPY OF WHICH AGREEMENT IS ON FILE AT   2        THE PRINCIPAL OFFICE OF THE COMPANY. THE SALE, TRANSFER, ASSIGNMENT OR OTHER DISPOSITION OF THE SECURITIES IS SUBJECT TO THE TERMS OF SUCH AGREEMENT AND THE SECURITIES ARE TRANSFERABLE OR OTHERWISE DISPOSABLE ONLY UPON PROOF OF COMPLIANCE THEREWITH.   9.             In addition to the legends required by Section 8 above, the following legend shall appear on certificates representing Management Securities (as defined in the Securities Holders Agreement), provided, that the Company’s failure to cause certificates representing Management Securities to bear such legend shall not affect the Company’s Purchase Option described in Section 4.3 therein:   THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO A PURCHASE OPTION OF THE COMPANY APPLICABLE TO “MANAGEMENT SECURITIES” AS DESCRIBED IN THE SECURITIES HOLDERS AGREEMENT, A COPY OF WHICH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.   10.           The undersigned agrees that a notation will be made in the appropriate transfer records of the Company with respect to the restrictions on transfer of the Shares required under or pursuant to the Agreements.   11.           The undersigned has executed this Joinder and declare that the information contained herein is current, complete and accurate and may be relied upon by the Company.          Very truly yours,                              /s/ William   P. Walters             William P. Walters                         Dated: August 3, 2004                             Agreed and Accepted:                   TSG HOLDINGS CORP.                             By:       /s/ Robert M. Jakobe                 Name:   Robert M. Jakobe             Title:   Chief Financial Officer                   3         EX-10.23 4 a06-2160_1ex10d23.htm MATERIAL CONTRACTS       Exhibit 10.23   EMPLOYMENT AND NON-COMPETITION AGREEMENT (Robert M. Moore)   This EMPLOYMENT AND NON-COMPETITION AGREEMENT (this “Agreement”), dated as of April 1, 2006, is between The Sheridan Group, Inc., a Maryland corporation (the “Employer”), and Robert M. Moore (the “Employee”).   WHEREAS, the Employer wishes to employ the Employee as an executive officer of the Employer, and the Employee wishes to work as an executive officer of the Employer, on the terms set forth below.   NOW, THEREFORE, it is hereby agreed as follows:   §1.           EMPLOYMENT. The Employer hereby employs the Employee, and the Employee hereby accepts employment, upon the terms and subject to the conditions hereinafter set forth.   §2.           DUTIES. The Employee shall be employed as the President and Chief Operating Officer of The Dingley Press, a Maine corporation. In such capacity, the Employee shall have the executive responsibilities and duties assigned by the Employer’s Board of Directors (the “Board”) and shall report directly to the President of the Employer. The Employee agrees to devote his full time and best efforts to the performance of his duties to the Employer. Nothing contained herein shall be construed as prohibiting the Employee from serving as a director of any entity that is not in the Designated Industry, as defined in §8, so long as such activity does not involve a substantial time commitment and otherwise does not interfere with the performance of his duties under this Agreement.   §3.           TERM. The term of employment of the Employee hereunder shall commence on April 1, 2006 (the “Commencement Date”) and shall continue until April 1, 2007 (the “Initial Term”), unless earlier terminated pursuant to §6, and shall be renewed automatically for additional one (1) year terms thereafter unless terminated by either party by written notice to the other party given at least ninety (90) days prior to the expiration of the then current term.   §4.           COMPENSATION AND BENEFITS. During the term of the Employee’s employment hereunder, in consideration for the services of the Employee hereunder, the Employer shall compensate the Employee as follows:   (a)           Base Salary. The Employer shall pay the Employee, in accordance with the Employer’s current payroll practices, a base salary (the “Base Salary”). The Base Salary will be paid at an annual rate of $225,000. The Base Salary may be increased from time to time at the discretion of the Board and is in addition to the other benefits set forth herein.   (b)           Management Incentive Bonus. The Employee shall be eligible to receive from the Employer, for each of the fiscal years of the Employer ended after the date hereof, a management incentive bonus (the “Incentive Bonus”) in an amount up to fifty percent (50%) of the Base Salary for such fiscal year, in accordance with an incentive bonus plan to be adopted by the Board prior to the end of the first fiscal quarter for each such fiscal year. The Incentive Bonus for each fiscal year shall be paid within 30 days after the completion of the Employer’s audited financial statements for such fiscal year.   (c)           Insurance; Other Benefits. Accident, disability, and health insurance for the Employee shall be provided by the Employer under group accident, disability, and health insurance plans maintained by the Employer for, and on the terms and conditions generally applicable to, its full-time, salaried employees as such employment benefits may be modified from time to time by the Employer for all full-time, salaried employees. The amount and extent of such coverage shall be subject to the discretion of the Board. The Employee shall also be eligible to participate in any deferred compensation or          retirement plans maintained by the Employer, in accordance with the terms of such plans as in effect from time to time.   §5.           EXPENSES. The Employer shall reimburse the Employee for all reasonable expenses of types authorized by the Employer and incurred by the Employee in the performance of his duties hereunder. The Employee shall comply with such budget limitations and approval and reporting requirements with respect to expenses as the Employer may establish from time to time.   §6.           TERMINATION. The Employee’s employment hereunder shall commence on the Commencement Date and continue until the expiration of the Initial Term, and any extension of such term pursuant to §3, except that the employment of the Employee hereunder shall earlier terminate:   (a)           Death or Disability. Upon the death of the Employee during the term of his employment hereunder or, at the option of the Employer, in the event of the Employee’s physical or mental disability, upon thirty (30) days’ written notice from the Employer. The Employee shall be deemed disabled if an independent medical doctor (selected by the Employer’s health or disability insurer) certifies that the Employee has for 180 days, consecutive or non-consecutive, in any twelve (12) month period been physically or mentally disabled in a manner which seriously interferes with her ability to perform his responsibilities under this Agreement. Any refusal by the Employee to submit to a medical examination for the purpose of certifying physical or mental disability under this §6(a) shall be deemed to constitute conclusive evidence of the Employee’s physical or mental disability.   (b)           For Cause. For “Cause” immediately upon written notice by the Employer to the Employee. For purposes of this Agreement, a termination shall be for Cause if any one or more of the following has occurred:   (i)            the Employee shall have committed an act of fraud, embezzlement or misappropriation against the Employer, including, but not limited to, the offer, payment, solicitation or acceptance of any unlawful bribe or kickback with respect to the Employer’s business; or   (ii)           the Employee shall have been convicted by a court of competent jurisdiction of, or pleaded guilty or nolo contendere to, any felony or any crime involving moral turpitude; or   (iii)          the Employee shall have refused, after explicit written notice, to obey any lawful resolution of or direction by the Board which is consistent with his duties hereunder; or   (iv)          the Employee has been chronically absent from work (excluding vacations, illnesses or leaves of absence approved by the Board); or   (v)           the Employee shall have failed to perform the duties incident to his employment with the Employer on a regular basis, and such failure shall have continued for a period of twenty (20) days after written notice to the Employee specifying such failure in reasonable detail (other than as a result of the Employee’s Disability); or   (vi)          the Employee shall have engaged in the unlawful use (including being under the influence) or possession of illegal drugs on the Employer’s premises; or   (vii)         the Employee shall have breached any one or more provisions of the Stock Purchase Agreement, dated as of August 1, 2003, among the Employer and its stockholders as amended and in effect from time to time, and such breach shall have continued for a period of ten (10) days after written notice to the Employee specifying such breach in reasonable detail.          (c)           Resignation Without Good Reason; Without Cause. Upon thirty (30) days’ written notice by the Employer to the Employee or by the Employee to the Employer without Good Reason (as defined below).   (d)           Resignation With Good Reason. Upon written notice by the Employee to the Employer for Good Reason specifying in reasonable detail the basis for such termination, provided, that such notice shall be given no more than thirty (30) days following the event or condition which gives rise to such termination. For purposes of this Agreement, the term “Good Reason” shall mean the occurrence of any of the events or conditions described in subparagraphs (i) through (ii) hereof without the Employee’s express written consent which is not corrected within twenty (20) days after delivery by the Employee of written notice to the Employer:   (i)            a material reduction in the Employee’s status, position, scope of authority or responsibilities, the assignment to the Employee of any duties or responsibilities which are materially inconsistent with such status, position, authority or responsibilities; involuntary relocation of the Employee to an extent requiring an increase in his commute to his normal place of employment of more than 50 miles; or any removal of the Employee from or failure to reappoint him to any of positions to which the Employee has been appointed by the Employer, except in connection with the termination of his employment; or   (ii)           a material reduction by the Employer in the Employee’s compensation or benefits, except in conjunction with a general reduction by the Employer in the salaries of it’s executive level employees or the TDP site management team.   (e)           Rights and Remedies Upon Termination.   (i)           If the Employee’s employment hereunder is terminated by the Employer pursuant to §6(c) or by the Employee with Good Reason pursuant to §6(d), then the Employee shall be entitled to receive (A) severance payments, in accordance with the Employer’s then current payroll practices, at an annual rate equal to the sum of (1) the Employee’s Base Salary in effect at the time of such termination plus (2) the average of the Incentive Bonuses earned by the Employee for the two fiscal years immediately preceding the date of termination, for a period equal to eighteen (18) months (the “Severance Period”), (B) provided that the Employee elects continuation coverage, commonly known as COBRA coverage, under the health insurance plan maintained by the Employer for its full time salaried employees, the Employer, during the Severance Period, will pay the excess of the required COBRA premium for the Employee (and his spouse and dependents to the extent covered by the Employer’s health insurance plan at the time of Executive’s termination of employment) over the premium paid by the Employee for such coverage immediately prior to the Employee’s termination of employment, (C) payment of any expense reimbursements under §5 hereof for expenses incurred in the performance of his duties prior to termination, and (D) immediate vesting of the Employee’s deferred compensation account in accordance with the Deferred Compensation Plan.   (ii)          Notwithstanding the provisions of §6(e)(i), in the event the Employee accepts other employment during the Severance Period, the Employer shall be entitled to reduce the amount payable under §6(e)(i) by an amount equal to the income received by the Employee pursuant to such new employment during the Severance Period.   (iii)          Except as otherwise set forth in this §6(e), the Employee shall not be entitled to any severance or other compensation after termination.          §7.           INVENTIONS; ASSIGNMENT. All rights to discoveries, inventions, improvements and innovations (including all data and records pertaining thereto) related to the Employer’s business, whether or not patentable, copyrightable, registrable as a trademark, or reduced to writing, that the Employee may discover, invent or originate during the term of his employment hereunder, and for a period of six (6) months thereafter, either alone or with others and whether or not during working hours or by the use of the facilities of the Employer (“Inventions”), shall be the exclusive property of the Employer. The Employee shall promptly disclose all Inventions to the Employer, shall execute at the request of the Employer any assignments or other documents the Employer may deem necessary to protect or perfect its rights therein, and shall assist the Employer, at the Employer’s expense, in obtaining, defending and enforcing the Employer’s rights therein. The Employee hereby appoints the Employer as his attorney-in-fact to execute on his behalf any assignments or other documents deemed necessary by the Employer to protect or perfect its rights to any Inventions.   §8.           CONFIDENTIAL INFORMATION. The Employee recognizes and acknowledges that certain proprietary and confidential information of the Employer, including without limitation information regarding customers, pricing policies, methods of operation, proprietary computer programs, sales, products, profits, costs, markets, key personnel, formulae, product applications, technical processes, and trade secrets (hereinafter called “Confidential Information”) are valuable, special, and unique assets of the Employer and its affiliates. The Employee shall not, during or after his term of employment, disclose any or any part of the Confidential Information to any person, firm, corporation, association, or any other entity for any reason or purpose whatsoever, directly or indirectly, except as may be required pursuant to his employment hereunder and except as required by law, unless and until such Confidential Information becomes publicly available other than as a consequence of the breach by the Employee of his confidentiality obligations hereunder. In the event of the termination of his employment, whether voluntary or involuntary and whether by the Employer or the Employee, the Employee shall deliver to the Employer all documents and data pertaining to the Confidential Information and shall not take with him any documents or data of any kind or any reproductions (in whole or in part) or extracts of any items relating to the Confidential Information.   §9.           NON-COMPETITION. In consideration of the Employer’s obligations hereunder, during the term of the Employee’s employment hereunder and during the Designated Period (as defined herein), the Employee will not (i) anywhere within North America, engage, directly or indirectly, alone or as a shareholder (other than as a holder of stock of the Employer (or any of its affiliates) or as a holder of less than five percent (5%) of the common stock of any publicly traded corporation), partner, officer, director, employee or consultant of any other business organization that (A) is engaged or becomes engaged in the business of providing publishing and printing services journals, catalogs, and books or (B) is engaged in any other business activity that the Employer is conducting at the time of the Employee’s termination or any activity related thereto of which the Employee had knowledge that the Employer proposes to conduct (the “Designated Industry”), (ii) divert to any competitor of the Employer any customer of the Employer, or (iii) solicit or encourage any officer, employee or consultant of the Employer to leave its employ for employment by or with any competitor of the Employer. The term “Designated Period” shall mean a period following the termination of the Employee’s employment hereunder equal to the longer of (a) twelve (12) months and (b) the Severance Period. If at any time the provisions of this §9 shall be determined to be invalid or unenforceable, by reason of being vague or unreasonable as to area, duration or scope of activity, this §9 shall be considered divisible and shall become and be immediately amended to only such area, duration and scope of activity as shall be determined to be reasonable and enforceable by the court or other body having jurisdiction over the matter; and the Employee agrees that this §9 as so amended shall be valid and binding as though any invalid or unenforceable provision had not been included herein.          §10.         GENERAL.   (a)           Notices. All notices and other communications hereunder shall be in writing or by written telecommunication, and shall be deemed to have been duly given if delivered personally or if mailed by certified mail, return receipt requested, postage prepaid or sent by written telecommunication or telecopy, to the relevant address set forth below, or to such other address as the recipient of such notice or communication shall have specified to the other party hereto in accordance with this §10(a):   If to the Employer, to:      c/o The Sheridan Group, Inc.     11311 McCormick Road, Ste. 260     Hunt Valley, Maryland 21031-1437     Attention: President      With a copy to:      Carmen Romano     Dechert LLP     Cira Centre Building     2929 Arch Street     Philadelphia, PA 19104-2808      If to the Employee, to:      Robert M. Moore     The Dingley Press     119 Lisbon Street     Lisbon, ME 04250      (b)           Equitable Remedies. Each of the parties hereto acknowledges and agrees that upon any breach by the Employee of her obligations under §§7, 8 and 9 hereof, the Employer will have no adequate remedy at law, and accordingly will be entitled to specific performance and other appropriate injunctive and equitable relief.   (c)           Severability. If any provision of this Agreement is or becomes invalid, illegal or unenforceable in any respect under any law, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.   (d)           Waivers. No delay or omission by either party hereto in exercising any right, power or privilege hereunder shall impair such right, power or privilege, nor shall any single or partial exercise of any such right, power or privilege preclude any further exercise thereof or the exercise of any other right, power or privilege.   (e)           Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.   (f)            Assigns. This Agreement shall be binding upon and inure to the benefit of the heirs and successors of each of the parties hereto.   (g)           Arbitration of Disputes. Any controversy or claim arising out of or relating to this Agreement or the breach thereof shall, to the extent permitted by law, be settled by arbitration in any forum and form agreed upon by the parties, or in the absence of such an agreement, under the auspices of the American Arbitration Association (“AAA”) in Baltimore, Maryland in accordance with the          Employment Dispute Resolution Rules of the AAA, including, but not limited to, the rules and procedures applicable to the selection of arbitrators. Notwithstanding the foregoing, this §10(g) shall not preclude either party from pursuing a court action for the sole purpose of obtaining a temporary restraining order or a preliminary injunction in circumstances in which such relief is appropriate, provided that any other relief shall be pursued through an arbitration proceeding pursuant to this §10(g). The prevailing party shall be entitled to collect reasonable fees and expenses incurred by the prevailing party in connection with such arbitration or litigation from the other party to such arbitration or litigation.   (h)           Entire Agreement. This Agreement contains the entire understanding of the parties, supersedes all prior agreements and understandings relating to the subject matter hereof and shall not be amended except by a written instrument hereafter signed by each of the parties hereto.   (i)            Governing Law. This Agreement and the performance hereof shall be construed and governed in accordance with the laws of the State of Maryland.   IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties hereto have caused this Agreement to be duly executed as of the date and year first above written            THE SHERIDAN GROUP, INC.                             By:   /s/ John A. Saxton                 John A. Saxton             President and Chief Executive Officer             Signed: March 28, 2006                                         /s/ R. Moore                 Robert M. Moore             Signed: March 28, 2006                     EX-10.24 5 a06-2160_1ex10d24.htm MATERIAL CONTRACTS       Exhibit 10.24   March 28, 2006   Mr. Christopher A. Pierce 67 Portland Street Yarmouth, ME 04096   RE:  First Amendment to Employment Agreement   Dear Chris:   Reference is hereby made to the Employment and Non-Competition Agreement dated as of May 25, 2004 (the “Employment Agreement”) among The Dingley Press, Inc., a Delaware corporation (the “Employer”), Christopher A. Pierce (the “Employee”) and solely for purposes of §4, The Sheridan Group, Inc., a Maryland corporation and parent of the Employer (“Sheridan”). Capitalized terms used herein without definition shall have the meanings assigned to such terms in the Employment Agreement.   1.     Amendments to Employment Agreement:  We hereby further agree with you to amend the Employment Agreement effective April 1, 2006 as follows:   Section 2 of the Employment Agreement is hereby amended and restated in its entirety to read as follows:   DUTIES:  The Employee shall be employed as the Chairman of the Employer for the duration of the Agreement. In such capacity, the Employee shall focus primarily on sales, marketing and customer retention, but will not have day-to-day responsibility for the operations of the Employer. In addition, the Employee shall have additional executive responsibilities and duties as may be reasonably assigned by the President of the Employer. The Employee shall report directly to the President of Employer. The Employee agrees to devote his full time and best efforts to the performance of his duties to the Employer. Nothing contained herein shall be construed as prohibiting the Employee from serving (a) as a non-executive director of any non-profit organization, including any industry trade group, or (b) as a director of any other entity that is not in the Designated Industry, so long as, in either such case, such position does not provide any compensation to the Employee and otherwise does not materially interfere with the performance of his duties under this Agreement.   2.     Miscellaneous:  In all other respects, the Employment Agreement shall remain in full force and effect.   Please indicate your agreement to the foregoing by signing both copies of this letter, returning one to me and retaining the second copy for your personal file.   Very truly yours,          The Sheridan Group, Inc.   The Dingley Press, Inc.                                     By:   /s/ John A. Saxton       By:   /s/ John A. Saxton                 John A Saxton       John A. Saxton             President and Chief Executive Officer       Chief Executive Officer                             Agreed to and accepted by:                           /s/ Christopher A. Pierce                 Christopher A. Pierce                             EX-31.1 6 a06-2160_1ex31d1.htm 302 CERTIFICATION       Exhibit 31.1   CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350   I, John A. Saxton, certify that:   1.             I have reviewed this Annual Report on Form 10-K of The Sheridan Group, Inc.;   2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;   4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:   a)             designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;   b)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c)             disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and   5.             The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):   a)             all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and   b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.      Date:   March 30, 2006   By:   /s/ John A. Saxton                     John A. Saxton                 President and Chief Executive Officer                                EX-31.2 7 a06-2160_1ex31d2.htm 302 CERTIFICATION       Exhibit 31.2   CERTIFICATIONS PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350   I, Robert M. Jakobe, certify that:   1.             I have reviewed this Annual Report on Form 10-K of The Sheridan Group, Inc.;   2.             Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;   3.             Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;   4.             The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:   a)             designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;   b)            evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and   c)             disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and   5.             The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):   a)             all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and   b)            any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.      Date:   March 30, 2006   By:   /s/ Robert M. Jakobe                     Robert M. Jakobe                 Vice President and Chief Financial Officer              EX-32.1 8 a06-2160_1ex32d1.htm 906 CERTIFICATION       Exhibit 32.1   CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 18 U.S.C. SECTION 1350   In connection with The Sheridan Group, Inc. (the “Company”) Annual Report on Form 10-K for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, John A. Saxton, President and Chief Executive Officer of the Company, and Robert M. Jakobe, Vice President and Chief Financial Officer of the Company, certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of our knowledge:   (1)           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and   (2)           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.      Date:   March 30, 2006   By:   /s/ John A. Saxton                     John A. Saxton                 President and Chief Executive Officer                       Date:   March 30, 2006   By:   /s/ Robert M. Jakobe                     Robert M. Jakobe                 Vice President and Chief Financial Officer      A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.           -----END PRIVACY-ENHANCED MESSAGE-----