FORWARD-LOOKING INFORMATION

This report includes forward-looking statements covered by the Private Securities Litigation Reform Act of 1995. A forward-looking statement is neither a prediction nor a guarantee of future events or circumstances, and those future events or circumstances may not occur. All statements regarding our expected future financial condition, revenues or revenue growth, projected costs or cost savings, cash flows and future cash obligations, dividends, capital expenditures, business strategy, competitive positions, growth opportunities for existing products or products under development, and objectives of management are forward-looking statements that involve certain risks and uncertainties. In addition, forward-looking statements include statements in which we use words such as "anticipates," "projects," "expects," "plans," "intends," "believes," "estimates," "targets," and other similar expressions that indicate trends and future events. These forward-looking statements are based on current expectations and estimates; we cannot assure you that such expectations will prove to be correct. The Company undertakes no obligation to update forward-looking statements as a result of new information, since these statements may no longer be accurate or timely.

Because such statements deal with future events, actual results for fiscal year 2009 and beyond could differ materially from our current expectations depending on a variety of factors including, but not limited to, the risk factors discussed in Item 1A to Part I of the Company's Annual Report on Form 10-K for the year ended December 28, 2008 (Annual Report). You should read this Management Discussion and Analysis in conjunction with those risk factors and the financial statements and related notes included in this Quarterly Report on Form 10-Q (Quarterly Report) and included in our Annual Report. This Management's Discussion and Analysis includes the following sections:

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Critical Accounting Policies and Estimates-An update on the discussion provided in our Annual Report of the accounting policies that require our most critical judgments and estimates.

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Executive Summary-An overall discussion of changes in our business and key financial results for the third quarter and first nine months of 2009.

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Results of Operations-An analysis of our consolidated results of operations and segment results for the third quarter and year-to-date 2009 and 2008.

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Liquidity and Capital Resources-An analysis of cash flows and discussion of our financial condition.

CRITICAL ACCOUNTING POLICIES

In preparing the accompanying unaudited financial statements and accounting for the underlying transactions and balances, we applied the accounting policies disclosed in the Notes to the Consolidated Financial Statements contained in our Annual Report. Preparation of these unaudited financial statements requires us to make estimates and assumptions that affect the reported amount of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Although we believe our estimates and assumptions are reasonable, they are based on information presently available and actual results may differ significantly from those estimates.

We believe that some of the more critical estimates and related assumptions are in the areas of pension benefits, fair value measurements, deferred taxes, inventories, contingent liabilities, revenue recognition, and share-based compensation. For a detailed discussion of these critical accounting estimates, see the Management Discussion and Analysis included in our Annual Report. There were no significant changes in these critical accounting policies and estimates during 2009.

We have discussed the development and selection of the critical accounting policies and the related disclosures included in this Quarterly Report with the Audit Committee of our Board of Directors.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. We are required to use valuation techniques that are consistent with the market approach, income approach, and/or cost approach. Inputs to valuation techniques refer to the assumptions that market participants would use in pricing the asset or liability. Inputs may be observable, meaning those that reflect the assumptions market participants would use in pricing the asset or liability based on market data obtained from independent sources, or unobservable, meaning those that reflect our own estimate about the assumptions market participants would use in pricing the asset or liability based on the best information available in the circumstances. The fair value hierarchy for valuation inputs gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:

Level 1 - Quoted market prices in active markets for identical assets or liabilities

Level 2 - Observable market based inputs or unobservable inputs that are corroborated by market data

Level 3 - Unobservable inputs that reflect our own assumptions that are not corroborated by market data

Goodwill - During the second quarter of 2009, we performed the annual impairment test for goodwill. The test was performed at the reporting unit level using the two-step approach required by generally accepted accounting principles. For purposes of this test, the reporting unit evaluated was our POD Services business, which was one level below our Commercial, Healthcare, and Industrial operating segments.

The first step of the test required us to compare the fair value of the reporting unit to the carrying value of the assets assigned to that reporting unit, including goodwill. If the fair value exceeds the carrying value, goodwill is not impaired and no further testing is performed.

To determine fair value, we considered the cost, market, and income approaches.
We determined that the cost method would not yield a representative value at which market participants would transact, so this method was not utilized. We followed an income approach utilizing a discounted future cash flow analyses and a market-based approach based on a multiple of EBITDA. Our determination of the fair value of goodwill was based on the discounted future cash flow analysis since that resulted in the highest fair value. As a result, we determined that the fair value of the reporting unit was greater than its carrying value; therefore, goodwill was not impaired.

With the income approach, cash flows that are anticipated over several years, plus a terminal value at the end of that period, are discounted to their present value using an estimated weighted-average cost of capital. The most critical inputs used were the revenue and cost assumptions, the terminal value assumed, and the discount rate applied. We determined that these inputs were unobservable Level 3 inputs; therefore, the reporting unit fair value measurement was deemed a Level 3 measurement. The following describes the information used to develop the inputs used in our fair value calculations:

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Revenue and cost assumptions: Using historical trending and internal forecasting techniques, we projected revenue for the remainder of 2009 through 2013. We then applied our fixed and variable cost experience rates to the projected revenue to arrive at the future cash flow through 2013. A terminal value was then applied to the projected cash flow stream based on the year five cash flow.

We calculated three outcomes: a most likely, a best case, and a worst case based on future cash flow projections. All outcomes were weighted to arrive at an overall projected cash flow.

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Discount rate determination: We used a weighted-average cost of capital that assumed a mix of debt and equity consistent with our current financing structure and investor / lender expectations.

In addition to calculating a range of possible outcomes, we also performed a sensitivity analysis designed to understand the relative impact of the major assumptions used in our calculations. If our estimate of expected future cash flows had been 10% lower, or there was a 10% variation in either the terminal value or the discount rate, the expected future cash flows would still have exceeded the carrying value of the assets, including goodwill.

Intangible Assets - We held a trademark valued at $1.0 million related to the acquisition of Planet Print in 2002. The trademark was associated with our consulting and print-asset optimization product line, which was part of our shared services organization. In the second quarter of 2009, we received an offer to purchase certain assets related to this product line which indicated the value of the assets should be evaluated for impairment. Accordingly, we performed an evaluation of the recoverability of the trademark value; an annual test that was otherwise scheduled for the fourth quarter of 2009. The impairment test required us to compare the fair value of the trademark with its carrying amount.

To determine fair value, we considered the cost, market, and income approaches.
We determined that the cost method would not yield a representative value at which market participants would transact and that observable market data was not available without undue cost; therefore, these methods were not utilized. Our evaluation followed an income approach that utilized a discounted future cash flow analyses. Inherent in our fair value determinations are certain judgments and estimates relating to future cash flows, including interpretation of current economic indicators and market conditions, overall economic conditions, and our strategic operational plans. In connection with preparing the impairment assessment, our change in strategic direction and investment caused a deterioration in the expected future financial performance of the product line compared to the expected future financial performance at the end of fiscal 2008.
Based on the results of our evaluation, we recorded a non-cash impairment charge to write down the trademark by $0.9 million, which is included in Asset Impairments in the accompanying Consolidated Statements of Income. As a result of the write down, the value of the trademark was reduced to $0.1 as of June 28, 2009 and was considered a Level 3 fair value measurement. The trademark was subsequently sold in the third quarter.

With the income approach, cash flows that are anticipated over several years, plus a terminal value at the end of that period, are discounted to their present value using an estimated weighted-average cost of capital. The most critical inputs used were the revenue and cost assumptions, the terminal value assumed, and the discount rate applied. We determined that these inputs were unobservable Level 3 inputs; therefore, the reporting unit fair value measurement was deemed a Level 3 measurement. The following describes the significant inputs utilized in our fair value calculations and the information used to develop the inputs:

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Revenue and cost assumptions: We reviewed all existing customer contracts and the existing pipeline of new opportunities for the applicable product lines. We projected future unidentified customer opportunities using existing pricing practices and sale productivity trends. The customer data was then used to project future revenue over the next 5 years.

We reviewed historical cost and investment performance, classifying costs into fixed and variable categories and then projected the incremental costs and investments needed to match the revenue projections.

A terminal value was then applied to the projected cash flow stream based on the year five cash flow. We calculated three outcomes: a most likely, a best case, and a worst case. In addition, we calculated a fourth outcome that considered market data included in the purchase offer to determine the terminal value. All outcomes were weighted to arrive at an overall projected cash flow, with the most probability assigned to the fourth outcome.

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Discount rate: We used a weighted-average cost of capital that assumed a mix of debt and equity consistent with our current financing structure and investor / lender expectations.

In addition to calculating a range of possible outcomes, we also performed a sensitivity analysis designed to understand the relative impact of the major assumptions used in our calculations. If our estimate of expected future cash flows had been 10% lower, or there was a 10% variation in either the terminal value or the discount rate, the change in assumptions would have only a minor effect on the impairment amount.

EXECUTIVE SUMMARY

By the end of the first half of 2009, we substantially completed organization changes to align around our new vertical market strategy. We aligned management roles and resources to create an intense focus on customer needs within our three primary markets: Commercial, Healthcare, and Industrial. We also aligned our manufacturing, supply chain, client satisfaction, information technology, human resource, legal, and finance functions into a shared-services model in order to provide better support and service to our customers and create cost efficiencies.

Our business continues to be negatively impacted by the downturn in the economy, which has resulted in lower sales volume with our existing base of customers and increased price pressures. As expected, the continued adoption of digital and non-print related technologies by our customers has also negatively impacted sales volume. However, the rates of decline in the second and third quarters were lower than in the first quarter. We attribute this improvement to a more focused sales strategy which has enabled us to expand our customer base and increase sales on some growth-targeted products and a slight improvement in economic conditions within the manufacturing industry. We have seen stabilization through fewer account losses than the previous year and a modest return in units for many sectors. Furthermore, we have begun to see progress in our market focus as we have closed significant contracts during the quarter within each of our three business units that provide access to over $100 million of new annual revenue opportunities. Despite the decline in revenue, our relentless pursuit of cost reduction and focus on creating operating efficiencies has allowed us to maintain stable margins during this time.

The following summarizes some of the key financial results through September 2009:

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During 2009, a large number of employees elected to retire and receive lump sum payments from their pension plans. As a result, we recorded non-cash pension settlement charges in the amount of $20.4 million. These charges are discussed in more detail under "Pension curtailments and settlements" within the Results of Operations discussion.

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Third quarter net loss was ($5.5) million compared with income of $2.1 million in 2008. The year-to-date net loss was ($13.3) million, or ($0.46) per share compared with net income of $6.0 million, or $0.21 per share for 2008. On a per share basis, the pension settlements represented a loss of ($0.43) and restructuring charges represented a loss of ($0.22) per share for 2009.

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Cash flow on a net debt basis was ($2.0) million year-to-date compared with $11.3 million for 2008.

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Net debt through the third quarter of 2009 increased by $2 million from year-end 2008.

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In September, we signed a multi-year agreement with Novation, the largest group purchasing organization (GPO) in the healthcare market. With this agreement, we are now members of the 6 largest GPO's. This agreement will enable us to offer our solutions and services to a much broader customer base.

The MyC3 Initiative

In order to continue our progress, we launched an ongoing company-wide review of business practices and growth acceleration opportunities in July designed around the priorities of client satisfaction, cost reduction, and increased market coverage that we called MyC3. The intent of MyC3 is to simplify business, move closer to the customer, grow revenue, and improve overall efficiency of our business. The MyC3 Initiative is being conducted with the assistance of a third-party specializing in driving earnings growth through employee collaboration. As a result of this intensive process, we plan to:

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Optimize our manufacturing footprint by investing in regional Print on Demand Centers, scaling down local Print on Demand Centers, closing certain production and distribution centers, improving our supply chain, and simplifying processes

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Proactively address the movement to digital technologies and manage working capital more effectively by moving to on-demand based production, lowering inventory and warehousing requirements

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Reposition and refine our go-to-market organization to capture revenue growth in core markets

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Invest in system enhancements making it easier to serve customers

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Employ strategic procurement processes and systems that leverage vendor relationships company wide

Implementation of ideas generated through the MyC3 Initiative will continue through 2011, with a majority of the plans to be executed in the next 12 to 18 months. When fully implemented, we expect to achieve cost savings between $30 and $40 million, on an annual run-rate basis compared with the fourth quarter of 2009, through a combination of workforce reduction, strategic closure of production and distribution facilities, and other efficiency initiatives.

RESULTS OF OPERATIONS

The discussion that follows provides information which we believe is relevant to
an understanding of our consolidated results of operations and financial
condition, supplemented by a discussion of segment results where appropriate.
 This discussion focuses on year-to-date results, with discussion of material
items specific to the quarter as needed.


                                            13 Weeks Ended                          39 Weeks Ended
                                     September 27,  September 28,     %      September 27,  September 28,      %
                                          2009          2008        Change        2009           2008        Change
Revenue                              $       163.6  $       189.0     -13%   $       509.2  $       595.0      -14%
Cost of sales                                110.4          126.9     -13%           347.6          404.5      -14%
Gross margin                                  53.2           62.1     -14%           161.6          190.5      -15%
 Gross margin % of sales                      32.5%         32.9%                     31.7%          32.0%

SG&A expense                                  51.1           54.8      -7%           151.1          175.8      -14%
Pension curtailments and settlements           0.7            -                       20.4           (0.7)
Restructuring and asset impairment            10.5            2.7                     11.6            2.9
Other expense, net                             0.2            0.5                      0.6            1.6
Income (loss) from continuing
  operations before taxes                     (9.3)           4.1                    (22.1)          10.9
Income tax expense (benefit)                  (3.8)           2.0                     (8.8)           4.9
   % rate                                     41.2%         48.5%                     40.2%          45.0%
Income (loss) from continuing
  operations                         $        (5.5) $         2.1            $       (13.3) $         6.0

Revenue

On a year-to-date basis, revenue for 2009 was down $85.8 million or 14% compared with 2008. A majority of the overall revenue decline is a result of the downturn in the economy that began in 2008 and continued through 2009.
Declining consumer demand has negatively impacted our existing base of customers which has led to a decrease in order levels for many of our products. Additionally, we estimate that at least 10% of our overall revenue decline is attributable to the continued advancement of digital technologies. These external factors have contributed to declines in both units and pricing.

The following table details the estimated changes in revenue due to units and price for both the third quarter and year-to-date 2009. Changes in product mix did not materially contribute to the change in revenue in either period.

% of Revenue Change

        Quarter   Year-to-Date
Units      -12%           -15%
Price       -1%             1%
           -13%           -14%

Unit declines in the third quarter were lower than in the first and second quarters of 2009 as a result of expansions in our customer base, increased sales in some of our growth-targeted products, and slightly improving economic conditions within the manufacturing industry.

During the third quarter, we secured a contract with the largest group purchasing organization (Novation) in the healthcare market. This contract will provide access to a large market of customers previously not served by us.
While we do not expect to see a significant change in revenue before the end of 2009, we do expect a significant increase in 2010.

We typically experience higher revenue as a result of the pass through of our paper price increases. Since pricing on the supply side has stabilized during 2009, the continued price pressure from our customers has resulted in price concessions outpacing our price increases for paper costs. Without any substantial material price increases and with the current level of pricing pressure, we expect this trend to continue and to result in an overall price decline for 2009 as compared with 2008.

Cost of Sales/Gross Margin

Cost of sales decreased $56.9 million or 14% year-to-date 2009 as compared with 2008. Unit declines reduced costs by approximately 12%. Our workforce reduction and the successful execution of cost reduction initiatives implemented in 2007 and 2008 reduced overall costs by an additional 3%. The major categories of cost reductions included compensation and supply chain costs.
Material prices and changes in product mix increased costs slightly by approximately 1%. Cost of sales was also reduced by a favorable LIFO adjustment during the quarter which resulted from inventory levels declining during the year. We expect this trend to continue through the end of the year as we progress with various efforts to continue to reduce inventory on hand.

As a result, despite a decline in units, the gross margin percentages for the quarter and year-to-date were consistent with 2008. As a supplier with Novation, we provide specified discounts on our products and services to their members.
Therefore, as we gain new customers through the Novation contract, we expect our gross margin percentages to decline in 2010 due to these discounts.

Selling, General and Administrative Expenses

As shown in the following table, total SG&A expense decreased by $24.7 million or 14% on a year-to-date basis in 2009 as compared with 2008. SG&A expense declined $3.7 million or 7% in the third quarter of 2009 compared with 2008.
Since many of the cost reduction initiatives taken have been effective for almost a year, SG&A declined at a lower percentage during the quarter.

On a year-to-date basis, selling and sales support decreased $12.2 million and general and administrative expenses decreased $4.7 million. Expenses declined in salaries, commissions and bonuses, related fringe benefits, travel costs, and outsourced service costs primarily as a result of our workforce reduction and other cost reduction initiatives taken late in 2008 and early 2009.
Additionally, general and administrative expenses were also lower due to a decrease in our self-insured healthcare costs which were offset slightly by an increase in the amount of Company match in the 401(k) plan related to the qualified pension plan modifications in 2008.

On a year-to-date basis, pension amortization decreased $3.4 million due to our 2008 plan modifications that lowered the amount of actuarial losses to be recognized in 2009 and future years. Additionally, other pension and postretirement expenses declined $3.5 million due to a reduction in pension interest and service costs resulting from freezing the benefits of our qualified and nonqualified pension plans in 2008.

                                                             13 Weeks Ended                  39 Weeks Ended
                                                      September 27,   September 28,   September 27,   September 28,
                                                          2009            2008            2009            2008
Selling and sales support                                     26.7            29.1            79.7             91.9
Research and development                                       1.2             1.0             3.6              3.6
General and administrative expenses                           17.9            18.0            51.4             56.1
Depreciation                                                   2.2             2.4             6.6              7.5
Amortization of pension net actuarial losses                   3.6             4.8            11.8             15.2
Other pension and postretirement expenses                     (0.5)           (0.5)           (2.0)             1.5
  Total selling, general and administrative expense   $       51.1    $       54.8    $      151.1     $      175.8

Pension curtailments and settlements

As a result of associates retiring and electing a lump-sum payment of their pension benefit, we recorded non-cash settlement charges of $19.7 million in the first quarter of 2009 related to our qualified, non-qualified and supplemental executive retirement plans. A pension settlement charge is recorded when the total lump sum payments for a year exceed total service and interest costs recognized for that year. The settlement charge recognizes a pro-rata portion of the unrecognized actuarial losses at the date of the settlement.

As part of recording the settlement, we remeasured our pension obligations and plan assets under these plans as of March 1, 2009, the settlement date. The remeasurement resulted in an actuarial gain of $52.8 due to a change in the discount rate used to measure the benefit obligations from 5.75% at December 28, 2008 to 7.0% at March 1, 2009. The change in discount rate is primarily the result of increases in long-term interest rates during the period.
Additionally, we updated the fair value of our plan assets and recognized a net actuarial loss of $28.1 due to the actual rate of investment return on our qualified plan being less than the expected rate of return. As a result, we realized a net actuarial gain of $24.7 million which will be amortized into income in future years. This gain reduced our pension liabilities by $24.7, decreased our deferred tax assets by $9.8 million, and reduced accumulated comprehensive losses by $14.9 million. . . .