CVO-2012.9.29-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D.C. 20549
 
  
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended September 29, 2012
 
Commission file number 1-12551
 
 
CENVEO, INC.
(Exact name of Registrant as specified in its charter.)
 
COLORADO
84-1250533
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
 
ONE CANTERBURY GREEN
201 BROAD STREET
 
STAMFORD, CT
06901
(Address of principal executive offices)
(Zip Code)
 
 
203-595-3000
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý  No o
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ý  No o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o   Accelerated filer ý  Non-accelerated filer o  Smaller reporting company o
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No ý
 
As of November 6, 2012 the registrant had 63,762,268 shares of common stock outstanding.
 



CENVEO, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended September 29, 2012

PART I — FINANCIAL INFORMATION
Page No.
Item 1:
Financial Statements (unaudited)
 
 
 
 
 
Item 2:
Item 3:
Item 4:
 
 
PART II — OTHER INFORMATION
 
Item 1:
Item 1A:
Item 6:
 

 


1

PART I. FINANCIAL INFORMATION

Item 1.   Financial Statements
 
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
 
September 29, 2012
 
December 31, 2011
 
(unaudited)
 
 
Assets
 
 
 
Current assets:
 

 
 

Cash and cash equivalents
$
10,335

 
$
17,753

Accounts receivable, net
278,305

 
288,483

Inventories
131,769

 
133,796

Prepaid and other current assets
69,878

 
72,742

Assets of discontinued operations - current
—

 
22,956

Total current assets
490,287

 
535,730

 
 
 
 
Property, plant and equipment, net
290,794

 
328,567

Goodwill
191,715

 
190,822

Other intangible assets, net
215,496

 
223,563

Other assets, net
91,274

 
79,490

Assets of discontinued operations - long-term
—

 
27,416

Total assets
$
1,279,566

 
$
1,385,588

Liabilities and Shareholders’ Deficit
 

 
 

Current liabilities:
 

 
 

Current maturities of long-term debt
$
11,151

 
$
8,809

Accounts payable
179,779

 
186,648

Accrued compensation and related liabilities
28,776

 
39,155

Other current liabilities
76,904

 
95,907

Liabilities of discontinued operations - current
—

 
5,346

Total current liabilities
296,610

 
335,865

 
 
 
 
Long-term debt
1,205,715

 
1,237,534

Other liabilities
176,724

 
185,419

Liabilities of discontinued operations - long-term
—

 
8,474

Commitments and contingencies


 


Shareholders’ deficit:
 

 
 

    Preferred stock
—

 
—

    Common stock
638

 
633

Paid-in capital
354,096

 
350,390

Retained deficit
(695,991
)
 
(672,847
)
Accumulated other comprehensive loss
(58,226
)
 
(59,880
)
Total shareholders’ deficit
(399,483
)
 
(381,704
)
Total liabilities and shareholders’ deficit
$
1,279,566

 
$
1,385,588

 
See notes to condensed consolidated financial statements.

2

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(in thousands, except per share data)
(unaudited) 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Net sales
 
$
451,274

 
$
475,835

 
$
1,345,764

 
$
1,422,705

Cost of sales
 
364,125

 
381,766

 
1,096,476

 
1,157,155

Selling, general and administrative expenses
 
45,424

 
53,573

 
140,766

 
165,059

Amortization of intangible assets
 
2,547

 
2,586

 
7,756

 
7,752

Restructuring, impairment and other charges
 
4,190

 
4,685

 
22,566

 
13,977

Operating income
 
34,988

 
33,225

 
78,200

 
78,762

Gain on bargain purchase                                                      
 
—

 
(641
)
 
—

 
(11,720
)
Interest expense, net
 
28,926

 
28,435

 
85,574

 
88,064

Loss on early extinguishment of debt, net
 
25

 
—

 
11,439

 
—

Other expense (income), net
 
491

 
(904
)
 
(327
)
 
(567
)
Income (loss) from continuing operations before income taxes
 
5,546

 
6,335

 
(18,486
)
 
2,985

Income tax expense (benefit)
 
888

 
5,061

 
(598
)
 
2,250

Income (loss) from continuing operations
 
4,658

 
1,274

 
(17,888
)
 
735

(Loss) income from discontinued operations, net of taxes
 
(183
)
 
1,531

 
(5,256
)
 
5,228

Net income (loss)
 
4,475

 
2,805

 
(23,144
)
 
5,963

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
Reclassifications of losses related to interest rate swaps into earnings, net of taxes
 
—

 
—

 
—

 
1,792

Currency translation adjustment
 
2,412

 
(5,146
)
 
1,654

 
(3,745
)
Comprehensive (loss) income
 
$
6,887

 
$
(2,341
)
 
$
(21,490
)
 
$
4,010

 
 
 
 
 
 
 
 
 
Income (loss) per share – basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.07

 
$
0.02

 
$
(0.28
)
 
$
0.01

Discontinued operations
 
—

 
0.02

 
(0.08
)
 
0.08

Net income (loss)
 
$
0.07

 
$
0.04

 
$
(0.36
)
 
$
0.09

 
 
 
 
 
 
 
 
 
Income (loss) per share – diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.06

 
$
0.02

 
$
(0.28
)
 
$
0.01

Discontinued operations
 
—

 
0.02

 
(0.08
)
 
0.08

Net income (loss)
 
$
0.06

 
$
0.04

 
$
(0.36
)
 
$
0.09

 
 
 
 
 
 
 
 
 
Weighted average shares outstanding:
 
 

 
 

 
 

 
 

Basic
 
63,624

 
63,068

 
63,502

 
62,891

Diluted
 
84,544

 
63,197

 
63,502

 
63,157

 
 
See notes to condensed consolidated financial statements.

3

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 
For The Nine Months Ended
 
September 29, 2012
 
October 1, 2011
Cash flows from operating activities:
 
 
 
Net (loss) income
$
(23,144
)
 
$
5,963

  Adjustments to reconcile net (loss) income to net cash provided by operating activities:
 

 
 

Loss on sale of discontinued operations, net of taxes
5,411

 
—

Income from discontinued operations, net of taxes
(155
)
 
(5,228
)
Depreciation and amortization, excluding non-cash interest expense
46,461

 
48,054

Non-cash interest expense, net
5,796

 
4,100

Deferred income taxes
(2,796
)
 
2,469

(Gain) loss on sale of assets
(1,296
)
 
318

Non-cash restructuring, impairment and other charges, net
10,801

 
3,209

Gain on bargain purchase
—

 
(11,720
)
Loss on early extinguishment of debt, net
11,439

 
—

Stock-based compensation provision
4,445

 
7,129

Other non-cash charges
3,800

 
4,723

Changes in operating assets and liabilities, excluding the effects of acquired businesses:
 

 
 

Accounts receivable
9,775

 
(13,015
)
Inventories
(636
)
 
8,924

Accounts payable and accrued compensation and related liabilities
(14,659
)
 
10,120

Other working capital changes
(19,181
)
 
(15,266
)
Other, net
(12,650
)
 
(18,502
)
Net cash provided by operating activities of continuing operations
23,411

 
31,278

Net cash (used in) provided by operating activities of discontinued operations
(4,733
)
 
7,603

Net cash provided by operating activities
18,678

 
38,881

Cash flows from investing activities:
 

 
 

Cost of business acquisitions, net of cash acquired
(644
)
 
(59,719
)
Capital expenditures
(15,637
)
 
(10,798
)
Proceeds from sale of property, plant and equipment
2,333

 
10,989

Proceeds from sale of intangible asset
1,700

 
—

Net cash used in investing activities of continuing operations
(12,248
)
 
(59,528
)
Net cash provided by (used in) investing activities of discontinued operations
39,921

 
(419
)
Net cash provided by (used in) investing activities
27,673

 
(59,947
)
Cash flows from financing activities:
 

 
 

Repayment of 10.5% senior notes
(169,875
)
 
—

Repayment of 7.875% senior subordinated notes
(196,088
)
 
—

Borrowings (repayment) of Term Loan B due 2016
17,987

 
(2,850
)
Repayment of 8.375% senior subordinated notes
(24,787
)
 
—

Payment of financing related costs and expenses and debt issuance discounts
(32,335
)
 
—

Repayments of other long-term debt
(3,499
)
 
(4,505
)
Retirement of common stock upon vesting of RSUs
(734
)
 
(1,283
)
Proceeds from issuance of 11.5% senior notes
225,000

 
—

Proceeds from issuance of 7% senior exchangeable notes
86,250

 
—

Borrowings under revolving credit facility, net
45,550

 
—

Proceeds from exercise of stock options
—

 
350

Net cash used in financing activities of continuing operations
(52,531
)
 
(8,288
)
Net cash used in financing activities of discontinued operations
(1,652
)
 
—

Net cash used in financing activities
(54,183
)
 
(8,288
)
Effect of exchange rate changes on cash and cash equivalents
414

 
1,175

Net decrease in cash and cash equivalents
(7,418
)
 
(28,179
)
Cash and cash equivalents at beginning of period
17,753

 
49,756

Cash and cash equivalents at end of period
$
10,335

 
$
21,577


See notes to condensed consolidated financial statements.

4
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation
 
The accompanying unaudited condensed consolidated financial statements (“financial statements”) of Cenveo, Inc. and its subsidiaries (collectively, “Cenveo” or the “Company”) have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission (“SEC”) and, in the Company’s opinion, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of financial position as of September 29, 2012, and the results of operations and cash flows as of and for the three and nine months ended September 29, 2012 and October 1, 2011. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to SEC rules. The results of operations for the three and nine months ended September 29, 2012 are generally not indicative of the results to be expected for any interim period or for the full year, primarily due to seasonality and restructuring, acquisition and debt related activities or transactions. The December 31, 2011 consolidated balance sheet has been derived from the audited consolidated financial statements at that date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2011 filed with the SEC.
 
It is the Company’s practice to close its fiscal quarters on the Saturday closest to the last day of the calendar quarter. The reporting periods for the three and nine months ended September 29, 2012 and October 1, 2011, each consisted of 13 weeks and 39 weeks, respectively.

In 2011, the Company began exploring opportunities to divest certain non-strategic or underperforming businesses within its manufacturing platform. As a result, beginning in the fourth quarter of 2011, the financial results of the Company's documents and forms business as well as the Company's wide-format papers business have been accounted for as discontinued operations (collectively the “Discontinued Operations”) resulting in the Company's historical consolidated balance sheets, statements of operations and comprehensive income (loss) ("statement of operations") and statements of cash flows being reclassified to reflect these discontinued operations separately from the Company's continuing operations for all periods presented. Effective January 1, 2012, the Company realigned operating responsibilities. In connection with this change in management reporting and strategy, the Company realigned its reportable segments, resulting in the prior year disclosure being updated to reflect current year presentation.
 
New Accounting Pronouncements

Effective January 1, 2012, the Company adopted an accounting pronouncement relating to the presentation of comprehensive income. This pronouncement requires the presentation of comprehensive income in either: (i) a continuous statement of comprehensive income or (ii) two separate, but consecutive statements. The adoption of this pronouncement does impact the Company's financial statement presentation, is applied retrospectively, and did not have a material impact on the Company's condensed consolidated financial statements.

Effective January 1, 2012, the Company adopted an accounting pronouncement to update the testing of goodwill for impairment.  This pronouncement provides companies with the option of performing a qualitative assessment before calculating the fair value of a reporting unit in step one of its goodwill impairment test. If a company determines, on the basis of qualitative factors, the fair value of a reporting unit is more likely than not to be less than the carrying amount, the two-step impairment test would be required to be performed. Otherwise, further impairment testing would not be needed. The Company performs its goodwill impairment testing in the fourth quarter of each fiscal year. The adoption of this pronouncement is not expected to have a material impact on the Company's condensed consolidated financial statements.

Effective July 27, 2012, the Company adopted an accounting pronouncement to update the testing of indefinite-lived intangible assets, other than goodwill, for impairment. This pronouncement provides companies with the option of performing a qualitative assessment before calculating the fair value of the asset in step one of its impairment test. Although this accounting pronouncement revises the examples of events and circumstances that an entity should consider in interim periods, it does not revise the requirements to test: (i) indefinite-lived intangible assets annually for impairment, and (ii) between annual tests if there are changes in events or circumstances. The Company performs its indefinite-lived intangible assets testing in the fourth quarter of each fiscal year. The adoption of this pronouncement is not expected to have a material impact on the Company's condensed consolidated financial statements.




5
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. Acquisitions

The Company accounts for business combinations under the provisions of the Business Combination Topic of the Financial Accounting Standards Board’s Accounting Standards Codification (“ASC”) 805.  Acquisitions are accounted for by the purchase method, and accordingly, the assets and liabilities of the acquired businesses have been recorded at their estimated fair value on the acquisition date with the excess of the purchase price over their estimated fair value recorded as goodwill. In the event the estimated fair value of the assets and liabilities acquired exceeds the purchase price paid, a bargain purchase gain is recorded in the condensed consolidated statement of operations.

Acquisition-related costs are expensed as incurred. Acquisition-related including integration costs, are included in selling, general and administrative expenses in the Company’s condensed consolidated statement of operations and were $0.7 million and $0.8 million for the three months ended September 29, 2012 and October 1, 2011, respectively, and $1.1 million and $4.9 million for the nine months ended September 29, 2012 and October 1, 2011, respectively.

2011

Nesbitt
On August 1, 2011, the Company acquired essentially all of the assets of Nesbitt Graphics, Inc. ("Nesbitt"), which had annual net sales of approximately $5.6 million prior to the acquisition by the Company. Nesbitt is a niche content management business that focuses on high end book content development and project management offerings and was acquired to further enhance the Company's content management operations. The total purchase price was approximately $5.6 million, and was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at their acquisition date. The changes from the Company's original purchase price allocation primarily relates to changes in working capital settlements from the acquisition date. The Nesbitt acquisition resulted in $2.0 million of goodwill, all of which is deductible for income tax purposes, and was assigned to the Company's print and envelope segment. The Company believes that the recognized goodwill related to Nesbitt is due to expected synergies and a reasonable market premium. The acquired identifiable intangible assets relate to customer relationships of $1.4 million, which are being amortized over their estimated useful life of 10 years.

Nesbitt’s results of operations and cash flows are included in the Company’s condensed consolidated statements of operations and cash flows from August 1, 2011. Pro forma results for the three and nine months ended October 1, 2011, assuming the acquisition of Nesbitt had been made on January 3, 2010, have not been presented since the effect would not be material.

Envelope Product Group

On February 1, 2011, the Company acquired the assets of MeadWestvaco Corporation's Envelope Product Group ("EPG"). EPG manufactures and distributes envelope products for the billing, financial, direct mail and office products markets and had approximately 900 employees, all of which were located in the United States. Prior to the acquisition, EPG had annual net sales of approximately $240 million. The Company believes EPG will further strengthen its existing envelope operations and will provide for manufacturing efficiencies given EPG's unique asset base and geographic overlap of facilities that exists between EPG and the Company's existing envelope operations. EPG was assigned to the Company's print and envelope segment. The purchase price was approximately $55.2 million and was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date. The EPG acquisition resulted in a bargain purchase gain of approximately $11.7 million, which was recognized in the Company's condensed consolidated statement of operations. Prior to the recognition of the bargain purchase gain, the Company reassessed the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The Company believes it was able to acquire EPG for less than the fair value of its net assets due to its operating results prior to the Company's acquisition and given its parent company's desire to exit a non-core business. The acquired identifiable intangible assets relate to: (i) a trade name of $1.0 million, which is being amortized over its estimated useful life of 10 years and (ii) a patent of $0.5 million, which is being amortized over its estimated useful life of 15 years.


6
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

Purchase Price Allocation

The following table summarizes the allocation of the purchase price of EPG to the assets acquired and liabilities assumed in the acquisition as of February 1, 2011 (in thousands):

 
 
Original
 
Adjustments
 
Adjusted
Accounts receivable, net
 
$
29,817

 
$
—

 
$
29,817

Inventories
 
21,352

 
541

 
21,893

Prepaid and other current assets
 
386

 
—

 
386

Property, plant and equipment, net
 
37,982

 
406

 
38,388

Other intangible assets, net
 
1,500

 
—

 
1,500

Other assets, net
 
2,240

 
—

 
2,240

Total assets acquired
 
93,277

 
947

 
94,224

Current liabilities
 
25,340

 
243

 
25,583

Other liabilities
 
1,763

 
—

 
1,763

Total liabilities assumed
 
27,103

 
243

 
27,346

Net assets acquired
 
66,174

 
704

 
66,878

Cost of EPG acquisition
 
55,635

 
(477
)
 
55,158

Gain on bargain purchase of EPG
 
$
10,539

 
$
1,181

 
$
11,720

 
The changes from the Company's original purchase price allocation primarily relate to inventory fair value of $0.5 million, revisions to property, plant and equipment valuations of $0.4 million and adjustments to certain accruals of $0.2 million to present them at their estimated fair value. The Company finalized its purchase price allocation during the fourth quarter of 2011.

The fair values of property, plant and equipment and intangible assets associated with the EPG acquisition were determined to be Level 3 under the fair value hierarchy. Property, plant and equipment values were estimated based on discussions with machinery and equipment brokers, internal expertise related to the equipment and current marketplace conditions. The trade name and patent intangible assets were valued using a relief from royalty method based on future estimated revenues. The inputs used in the relief from royalty method include discount rates based on a weighted average cost of capital, growth and relief from royalty rates as well as an obsolescence factor.

EPG's results of operations and cash flows are included in the Company's condensed consolidated statements of operations and cash flows from February 1, 2011. As a result of the Company's integration of EPG into the Company's existing envelope operations, it is impracticable to disclose the amounts of revenues and earnings of EPG since the acquisition date.

Unaudited Pro Forma Financial Information

The following supplemental pro forma consolidated summary financial information of the Company for the nine months ended October 1, 2011 presented herein have been prepared by adjusting the historical data as set forth in its condensed consolidated statements of operations to give effect to the EPG acquisition as if it had been made as of January 3, 2010 (in thousands, except per share amounts):
 

7
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 
 
Nine Months Ended
October 1, 2011
 
 
As
Reported
 
Pro
Forma
Net sales
 
$
1,422,705

 
$
1,443,487

Operating income
 
78,762

 
83,526

Income (loss) from continuing operations
 
735

 
(3,497
)
Net income (loss)
 
5,963

 
1,731

Income (loss) per share – basic and diluted:
 
 

 
 

Continuing operations
 
$
0.01

 
$
(0.05
)
Discontinued operations
 
0.08

 
0.08

Net income
 
$
0.09

 
$
0.03

Weighted average shares outstanding:
 
 

 
 

Basic
 
62,891

 
62,891

Diluted
 
63,157

 
62,891


The supplemental pro forma consolidated summary financial information is presented for comparative purposes only and does not purport to be indicative of the Company’s actual condensed consolidated results of operations had the EPG acquisition actually been consummated as of the beginning of the period noted above or of the Company’s expected future results of operations. The adjustments related to the EPG acquisition supplemental pro forma consolidated summary financial information above include the elimination of sales between the Company and EPG, removal of acquisition related expenses and bargain purchase gain related to the acquisition, an estimate of the interest expense related to the increased debt resulting from the EPG acquisition and an adjustment to the statutory income tax rate. In addition, the Company has performed its assessment of the purchase price allocation by identifying intangible assets and estimating the fair value of intangible and tangible assets, including a trade name, patent and property, plant and equipment for which pro forma adjustments have been made to depreciation and amortization expense related to these estimated fair values.

3. Discontinued Operations

On February 10, 2012, the Company completed the sale of its documents and forms business ("Documents Group"). Net cash proceeds were approximately $35.5 million. The original sale price of $40.0 million was subject to customary working capital settlement negotiations, which were completed during the three months ended September 29, 2012, pursuant to the purchase and sale agreement. The operating results of the Documents Group, are reported in discontinued operations in the Company's financial statements for all periods presented herein.

On January 27, 2012, the Company completed the sale of its wide format business, for cash proceeds of approximately $4.7 million. The operating results of the wide-format business, are reported in discontinued operations in the Company's financial statements for all periods presented herein.

The following table shows the components of assets and liabilities that are classified as discontinued operations in the Company's consolidated balance sheet as of December 31, 2011 (in thousands):


8
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 
 
December 31, 2011
Accounts receivable, net
 
$
7,647

Inventories
 
14,356

Prepaid and other current assets
 
953

Assets of discontinued operations - current
 
22,956

Property, plant and equipment, net
 
10,273

Other assets, net (1)
 
17,143

Assets of discontinued operations - long-term
 
27,416

Accounts payable
 
4,352

Accrued compensation and related liabilities
 
548

Other current liabilities
 
446

Liabilities of discontinued operations - current
 
5,346

Liabilities of discontinued operations - long-term
 
8,474

Net assets
 
$
36,552

(1) Includes $2.8 million of goodwill and $14.3 million of intangible assets at December 31, 2011.

The following table summarizes certain statement of operations information for discontinued operations (in thousands):
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Net sales
 
$
—

 
$
24,717

 
$
9,190

 
$
76,111

(Loss) income from discontinued operations before income taxes
 
(150
)
 
2,479

 
250

 
8,482

Income tax (benefit) expense on discontinued operations
 
(59
)
 
948

 
95

 
3,254

Loss on sale of discontinued operations, net of taxes of $0.1 million and $3.4 million, respectively
 
(92
)
 
—

 
(5,411
)
 
—

(Loss) income from discontinued operations, net of taxes
 
$
(183
)
 
$
1,531

 
$
(5,256
)
 
$
5,228

Income (loss) per share - basic and diluted
 
$
—

 
$
0.02

 
$
(0.08
)
 
$
0.08


Income (loss) from discontinued operations, net of taxes for the nine months ended September 29, 2012 also includes the reduction of a liability of $1.8 million, net of tax expense of $1.2 million, due to the expiration of certain statutes of limitations related to a previous divestiture.




9
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. Inventories
 
Inventories by major category are as follows (in thousands):
 
 
 
September 29, 2012
 
December 31, 2011
Raw materials
 
$
50,928

 
$
49,236

Work in process
 
20,330

 
20,968

Finished goods
 
60,511

 
63,592

 
 
$
131,769

 
$
133,796


5. Property, Plant and Equipment
 
Property, plant and equipment are as follows (in thousands):
 
 
 
September 29, 2012
 
December 31, 2011
Land and land improvements
 
$
17,538

 
$
20,276

Buildings and building improvements
 
105,542

 
111,498

Machinery and equipment
 
593,534

 
600,066

Furniture and fixtures
 
11,232

 
10,453

Construction in progress
 
7,093

 
4,840

 
 
734,939

 
747,133

Accumulated depreciation
 
(444,145
)
 
(418,566
)
 
 
$
290,794

 
$
328,567


Assets Held for Sale
 
In connection with the Company’s cost savings, restructuring and integration plans, there are currently two owned properties that are available for sale, which relate to the Company’s print and envelope segment. The Company has recorded the related assets as available for sale in other assets, net on its condensed consolidated balance sheet and has presented them at their fair value less estimated cost to sell, which is approximately $5.9 million and approximates fair value.

In the first nine months of 2012, the Company sold one manufacturing facility, which related to its print and envelope segment and was classified as available for sale, for net proceeds of $1.4 million. These assets were recorded at their fair value less estimated cost to sell in the first quarter of 2012.
 
In the first nine months of 2011, the Company sold four manufacturing facilities, two of which related to its label and packaging segment and two of which related to its print and envelope segment, all of which were classified as available for sale, for net proceeds of $9.6 million and it also sold certain manufacturing assets for net proceeds of $1.0 million. These assets were recorded at their fair value less estimated cost to sell in the fourth quarter of 2010.


10
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill as of September 29, 2012 and December 31, 2011 by reportable segment are as follows (in thousands):

 
 
Print and Envelope
 
Label and Packaging
 
Total
Balance as of December 31, 2011
 
$
78,857

 
$
111,965

 
$
190,822

Acquisitions, net
 
644

 
—

 
644

Foreign currency translation
 
249

 
—

 
249

Balance as of September 29, 2012
 
$
79,750

 
$
111,965

 
$
191,715



Other intangible assets are as follows (in thousands):
 
 
 
 
 
September 29, 2012
 
December 31, 2011
 
 
Weighted Average Remaining Amortization Period (Years)
 
Gross
Carrying
Amount
 
Accumulated Impairment Charges
 
Accumulated
Amortization
 
Net
Carrying
Amount
 
Gross
Carrying
Amount
 
Accumulated Impairment Charges
 
Accumulated
Amortization
 
Net
Carrying
Amount
Intangible
assets with
determinable
lives:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Customer relationships
 
11
 
$
166,715

 
$
(27,234
)
 
$
(61,600
)
 
$
77,881

 
$
166,652

 
$
(27,234
)
 
$
(54,911
)
 
$
84,507

Trademarks and trade names
 
23
 
23,482

 
—

 
(6,361
)
 
17,121

 
23,481

 
—

 
(5,620
)
 
17,861

Patents
 
9
 
3,528

 
—

 
(2,789
)
 
739

 
3,528

 
—

 
(2,583
)
 
945

Non-compete agreements
 

 
510

 
—

 
(495
)
 
15

 
510

 
—

 
(439
)
 
71

Other
 
 
 
—

 
—

 
—

 
—

 
600

 
—

 
(161
)
 
439

Subtotal
 
13
 
194,235

 
(27,234
)
 
(71,245
)
 
95,756

 
194,771

 
(27,234
)
 
(63,714
)
 
103,823

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Intangible
assets with
indefinite
lives:
 
 
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 

Trademarks
 
 
 
141,740

 
(22,000
)
 
—

 
119,740

 
141,740

 
(22,000
)
 
—

 
119,740

Total
 
 
 
$
335,975

 
$
(49,234
)
 
$
(71,245
)
 
$
215,496

 
$
336,511

 
$
(49,234
)
 
$
(63,714
)
 
$
223,563

 
Annual amortization expense of intangible assets for the next five years is estimated to be as follows (in thousands):
 
 
Annual Estimated
 Expense
2012
$
10,043

2013
9,760

2014
9,631

2015
8,464

2016
7,243

 
Sale of Intangible Asset

In the first nine months of 2012, the Company received proceeds of $1.7 million related to the buyout of a royalty

11
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

agreement by a third party. Prior to its sale, the royalty agreement was accounted for as an intangible asset in the Company's condensed consolidated balance sheet. As a result of this transaction, the Company recorded a gain of $1.3 million in other (income) expense, net in its condensed consolidated statement of operations.

7. Long-Term Debt
 
Long-term debt is as follows (in thousands):
 
 
September 29, 2012
 
December 31, 2011
Revolving credit facility, due 2014
$
45,550

 
$
—

7.875% senior subordinated notes, due 2013
86,621

 
284,878

8.375% senior subordinated notes, due 2014 ($25.2 million outstanding principal amount as of December 31, 2011)
—

 
25,424

Term Loan B, due 2016 ($374.2 million and $356.2 million outstanding principal amount as of September 29, 2012 and December 31, 2011, respectively)
371,371

 
353,033

10.5% senior notes, due 2016
—

 
170,000

7% senior exchangeable notes, due 2017
86,250

 
—

11.5% senior notes, due 2017 ($225.0 million outstanding principal amount as of September 29, 2012)
217,353

 
—

8.875% senior second lien notes, due 2018 ($400.0 million outstanding principal amount as of September 29, 2012 and December 31, 2011)
397,924

 
397,704

Other debt including capital leases
11,797

 
15,304

 
1,216,866

 
1,246,343

Less current maturities
(11,151
)
 
(8,809
)
Long-term debt
$
1,205,715

 
$
1,237,534


The estimated fair value of the Company’s long-term debt was approximately $1.2 billion as of September 29, 2012 and $1.1 billion as of December 31, 2011. The fair value was determined by the Company to be Level 2 under the fair value hierarchy and was based upon review of observable pricing in secondary markets for each debt instrument.

As of September 29, 2012, the Company was in compliance with all debt agreement covenants.

Term Loan Add-On and Add-On Amendment
 
On June 8, 2012, the Company issued $65 million aggregate principal amount of additional term loans (the “Term Loan Add-On”) under its senior secured credit agreement, which includes a $170 million revolving credit facility due 2014 (the "2010 Revolving Credit Facility") and a $380 million term loan due 2016 (the "Term Loan B") (collectively with the Term Loan Add-On and 2010 Revolving Credit Facility, the “2010 Credit Facilities”). The Term Loan Add-On was issued at a discount of approximately $0.7 million. Concurrently with the Term Loan Add-On, the Company amended the 2010 Credit Facilities (the “Add-On Amendment”) to allow for the repurchase of up to $135 million of its 7.875% senior subordinated notes due 2013 (the “7.875% Notes”), subject to maintaining certain liquidity thresholds and other customary conditions. The Company capitalized debt issuance costs of $1.8 million, which will be amortized over the remaining life of the 2010 Credit Facilities. Consenting lenders received $2.0 million for the Add-On Amendment, of which $1.1 million was capitalized and will be amortized over the remaining life of the 2010 Credit Facilities. Additionally, the interest rate margin for all loans under the 2010 Credit Facilities increased to (i) 5.125% from 4.75% per annum for London Interbank Offered Rate (“LIBOR”) based loans and to (ii) 4.125% from 3.75% per annum for prime rate loans. The Add-On Amendment also delayed a step down in the maximum first lien leverage ratio covenant to 2.25x from 2.50x until the first quarter of 2013. Proceeds from the Term Loan Add-On were initially used to repay outstanding revolving credit borrowings and to pay related fees and expenses, which will provide capacity under the 2010 Revolving Credit Facility to repurchase the 7.875% Notes.

11.5% Senior Notes
 
On March 28, 2012, the Company issued $225 million aggregate principal amount of 11.5% senior notes due 2017 (the

12
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

“11.5% Notes”) that were sold with registration rights to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act of 1933.  The 11.5% Notes were issued at a discount of approximately $8.3 million, of which $7.6 million remains unamortized as of September 29, 2012. The 11.5% Notes were issued pursuant to an indenture (the “11.5% Indenture”) among the Company, certain subsidiary guarantors and U.S. Bank National Association, as trustee. The Company will pay interest on the 11.5% Notes, semi-annually, in cash in arrears, on May 15 and November 15 of each year commencing May 15, 2012. The 11.5% Notes have no required principal payments prior to their maturity on May 15, 2017.  The 11.5% Notes are guaranteed on a senior unsecured basis by the Company and substantially all of its existing and future North American subsidiaries. As such, the 11.5% Notes rank pari passu with all of the Company's existing and future senior debt and senior to any of the Company's subordinated debt. The Company may redeem the 11.5% Notes, in whole or in part, on or after May 15, 2015, at redemption prices ranging from 100% to approximately 105.75%, plus accrued and unpaid interest. In addition, at any time prior to May 15, 2015, the Company may redeem up to 35% of the aggregate principal amount of the notes originally issued with the net cash proceeds of certain public equity offerings, at a redemption price of 111.50% plus accrued and unpaid interest. The Company may also redeem some or all of the 11.5% Notes before May 15, 2015 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus a “make whole” premium. Each holder of the 11.5% Notes has the right to require the Company to repurchase such holder's notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest thereon, upon the occurrence of certain events specified in the indenture that constitute a change of control. The 11.5% Indenture contains a number of covenants that, among other things, restrict, subject to certain exceptions, the Company's ability and the ability of the Company's subsidiaries, to incur or guarantee additional indebtedness, make restricted payments (including paying dividends on, redeeming or repurchasing our capital stock), permit restricted subsidiaries to pay dividends or make other distributions or payments, dispose of assets, make investments, grant liens on assets, merge or consolidate or transfer certain assets, and enter into transactions with affiliates. The 11.5% Indenture also contains certain customary affirmative covenants. In order to fulfill its registration rights obligations, on May 10, 2012, the Company launched a registered exchange offer (the "Exchange Offer") to exchange any and all of its unregistered 11.5% Notes for publicly tradeable notes having substantially identical terms, except for the elimination of some transfer restrictions, registration rights and additional interest payments relating to the outstanding notes. The Exchange Offer expired on June 18, 2012.

7% Senior Exchangeable Notes
 
Concurrently with the 11.5% Notes, the Company issued $86.3 million aggregate principal amount of senior exchangeable notes due 2017 (the “7% Notes”) that were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933.  The 7% Notes were issued pursuant to an indenture (the “7% Indenture”) among the Company, certain subsidiary guarantors and U.S. Bank National Association, as trustee. The Company will pay interest on the 7% Notes semi-annually, in cash in arrears, on May 15 and November 15 of each year, commencing November 15, 2012. The 7% Notes have no required principal payments prior to their maturity on May 15, 2017.  The 7% Notes are guaranteed on a senior unsecured basis by the Company and substantially all of its North American subsidiaries. As such, the 7% Notes rank pari passu with all of the Company's existing and future senior debt and senior to any of the Company's subordinated debt. The Company may not redeem the notes at its option. Upon a fundamental change, as defined in the 7% Indenture, holders of 7% Notes may require the Company to repurchase all or a portion of such holder's notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date, as defined in the 7% Indenture. The 7% Indenture does not contain any financial covenants or any restrictions, among other things, on the payment of dividends, the incurrence of other indebtedness, or the issuance or repurchase of securities by the Company. The 7% Indenture does not contain any covenants or other provisions to protect holders of the notes in the event of a highly leveraged transaction or a change of control, except to the extent described in the 7% Indenture.

The 7% Notes are exchangeable at any time prior to the close of business on the business day immediately preceding the maturity date for shares of the Company's common stock at an exchange rate of 241.5167 shares per $1,000 principal amount of 7% Notes, which is equal to an exchange price of approximately $4.14 per share, subject to adjustment under certain specified circumstances. This represents a premium of 22.5% above the last reported sale price of Cenveo's common stock on the New York Stock Exchange on Thursday, March 22, 2012, which was $3.38 per share. If a holder elects to exchange notes in connection with a make-whole fundamental change, as described in the 7% Indenture, such holder may also be entitled to receive a make-whole premium upon exchange in certain circumstances.

2012 Refinancing

Net proceeds of the 11.5% Notes and 7% Notes together with borrowings under the Company's 2010 Revolving Credit Facility were used to fund the cash tender offers for any and all of the Company's 8.375% senior subordinated notes due 2014 (the “8.375% Notes”) and 10.5% senior notes due 2016 (the “10.5% Notes”), plus $45 million aggregate principal amount of the Company's 7.875% Notes and to repurchase an additional $73.4 million of 7.875% Notes through open market, negotiated purchases

13
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

to refinance such indebtedness, and to pay related fees and expenses (collectively the “2012 Refinancing”). In connection with the issuance of the 11.5% Notes and the 7% Notes, the Company capitalized debt issuance costs of $6.0 million and $3.0 million, respectively, all of which will be amortized over the life of the 11.5% Notes and the 7% Notes.

2012 Amended Credit Facilities

In February of 2012, the Company amended the 2010 Credit Facilities (the “2012 Amendment”) to increase its restricted dispositions basket in connection with the sale of the Documents Group. The 2012 Amendment required that 25% of net proceeds be used to repay the Term Loan B and requires that the remaining amount be used to reinvest in the business or refinance certain existing debt. On February 14, 2012, the Company repaid $9.5 million of the Term Loan B in connection with this provision. The 2012 Amendment required the Company to repay unsecured and second lien debt in an amount equal to 75% of the net proceeds. In connection with the 2012 Amendment, the Company paid $1.7 million to consenting lenders and related fees, which are included in discontinued operations in the condensed consolidated statement of operations.

Effective March 5, 2012, the Company increased its borrowing capacity under the 2010 Revolving Credit Facility to $170 million from $150 million as a result of receiving an additional commitment, as permitted under the 2010 Credit Facilities. On March 9, 2012, the Company repaid $34.7 million of its Term Loan B as part of its required excess cash flow payment.

Extinguishments

In the third quarter of 2012, the Company purchased in the open market approximately $16.0 million of its 7.875% Notes and retired them for $16.2 million including accrued and unpaid interest. In connection with the retirement, the Company wrote-off $0.1 million of unamortized debt issuance costs. The Company expects to continue to repurchase the 7.875% Notes throughout the remainder of this year and into 2013. Since September 29, 2012, the Company has purchased an additional $1.0 million of 7.875% Notes and retired them for $1.0 million including accrued and unpaid interest.

In the second quarter of 2012, the Company purchased in the open market approximately $50.0 million of its 7.875% Notes and retired them for $49.5 million including accrued and unpaid interest. In connection with the retirement, the Company recorded a gain on early extinguishment of debt of $0.3 million, which includes the write-off of $0.1 million of unamortized debt issuance costs.
 
In connection with the 2012 Refinancing, the Company incurred a loss on early extinguishment of debt of $12.7 million, of which $9.6 million related to tender and consent fees paid to consenting lenders of its 7.875% Notes, 10.5% Notes and 8.375% Notes and $3.1 million relates to the write-off of previously unamortized debt issuance costs.

In the first quarter of 2012, and prior to the 2012 Refinancing, the Company purchased in the open market approximately $13.8 million, $5.0 million and $2.0 million of its 7.875% Notes, 10.5% Notes and 8.375% Notes, respectively, and retired them for $12.2 million, $4.9 million and $1.6 million, respectively, including accrued and unpaid interest.  In connection with the retirement of these 7.875% Notes, 10.5% Notes and 8.375% Notes, the Company recorded a gain on early extinguishment of debt of approximately $2.1 million, which includes the write-off of $0.1 million of unamortized debt issuance costs.

8. Commitments and Contingencies

The Company is party to various legal actions that are ordinary and incidental to its business. While the outcome of pending legal actions cannot be predicted with certainty, management believes the outcome of these various proceedings will not have a material adverse effect on the Company’s financial statements. In January, 2012, the Company reached an agreement with all parties to settle all controversies and disputes with prejudice in connection with certain civil litigations filed in the United States District Court for the Northern District of New York and in the Superior Court of New Jersey, Burlington County. As the Company's liability arising out of these litigations existed as of the December 2011 balance sheet date, this settlement was recorded in the fourth quarter of 2011 within other expense (income), net in the condensed consolidated statement of operations. The Company funded this settlement in the first quarter of 2012. In September 2011, the Company reached an agreement with all defendants to settle all controversies and disputes and agreed to dismiss all claims against the defendants with prejudice in connection with a civil litigation filed in Minneapolis, Minnesota. This settlement was recorded as a reduction to selling, general and administrative expenses in the condensed consolidated statement of operations.
 
The Company is involved in certain environmental matters and has been designated as a potentially responsible party for certain hazardous waste sites. There have been no material changes related to these environmental matters and, based on information currently available, the Company believes that remediation of these environmental matters will not have a material adverse effect on the Company’s financial statements.

14
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The Company’s income, sales and use, and other tax returns are routinely subject to audit by various authorities. The Company believes that the resolution of any matters raised during such audits will not have a material adverse effect on the Company’s financial statements.

The Company participates in a number of multi-employer pension plans for union employees (“Multi-Employer Plans”) and is exposed to significant risks and uncertainties arising from its participation in these Multi-Employer Plans. These risks and uncertainties, including changes in future contributions due to partial or full withdrawal of the Company and other participating employers from these Multi-Employer Plans, could significantly increase the Company’s future contributions or the underfunded status of these Multi-Employer Plans. Two of the Multi-Employer Plans are in mass withdrawal status. While it is not possible to quantify the potential impact of future actions of the Company or other participating employers from these Multi-Employer Plans, continued participation in or withdrawal from these multi-employer pension plans could have a material impact on the Company’s financial statements.



9. Fair Value Measurements
 
Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or non-recurring basis. Fair value is determined based on the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants.
 
The fair value of the Company’s cash and cash equivalents, accounts receivable, net, current maturities of long-term debt and accounts payable approximate their carrying value due to their short term nature. On a recurring basis, the Company records its pension plan assets at fair value.

The table below presents the carrying value and fair value of these assets and liabilities of the Company as of September 29, 2012 and December 31, 2011, respectively (in thousands): 

 
 
September 29, 2012
 
December 31, 2011
 
 
Carrying
Value
 
Fair
Value
 
Carrying
Value
 
Fair
Value
Cash and cash equivalents
 
$
10,335

 
$
10,335

 
$
17,753

 
$
17,753

Accounts receivable, net
 
278,305

 
278,305

 
288,483

 
288,483

Current maturities of long-term debt
 
11,151

 
11,151

 
8,809

 
8,809

Accounts payable
 
179,779

 
179,779

 
186,648

 
186,648


The Company is required, on a non-recurring basis, to adjust the carrying value of its long-lived assets held (Note 5) and goodwill and other intangible assets (Note 6). These assets were determined by the Company to be Level 2 and Level 3 under the fair value hierarchy and are not measured at fair value on an ongoing basis; however, they are subject to fair value adjustments in certain circumstances, such as when there is evidence that impairment may exist. The Company also records the assets and liabilities assumed in its acquisitions (Note 2) at fair value.



15
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

10. Retirement Plans
 
The components of the net periodic expense for the Company’s pension plans and other postretirement benefit plans are as follows (in thousands):
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Service cost
 
$
415

 
$
440

 
$
1,449

 
$
1,097

Interest cost
 
3,642

 
3,722

 
10,908

 
11,265

Expected return on plan assets
 
(4,141
)
 
(4,094
)
 
(12,657
)
 
(12,275
)
Net amortization and deferral
 
(1
)
 
(2
)
 
(3
)
 
(4
)
Recognized net actuarial loss
 
1,562

 
190

 
4,818

 
822

Net periodic expense
 
$
1,477

 
$
256

 
$
4,515

 
$
905


Interest cost on projected benefit obligation includes $0.2 million related to the Company’s other postretirement plans in each of the three months ended September 29, 2012 and October 1, 2011, and $0.7 million and $0.6 million in the nine months ended September 29, 2012 and October 1, 2011, respectively.
 
For the nine months ended September 29, 2012, the Company made contributions of $15.7 million to its pension plans and other postretirement plans. The Company expects to contribute approximately $2.7 million to its pension plans and other postretirement plans for the remainder of 2012.

16
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. Stock-Based Compensation
 
The Company did not issue any form of stock-based compensation in the first nine months of 2012. The only changes to the Company’s stock-based compensation awards from the amounts presented as of December 31, 2011 were the vesting of 363,125 and 795,459 restricted stock units ("RSUs") of the Company’s common stock and the cancellation or forfeiture of 735,150 and 894,480 stock options and 1,875 and 21,875 RSUs for the three and nine months ended September 29, 2012, respectively.

Total stock-based compensation expense recognized in selling, general and administrative expenses in the Company’s condensed consolidated statements of operations was $1.5 million and $4.4 million for the three and nine months ended September 29, 2012, respectively, and $2.1 million and $7.1 million for the three and nine months ended October 1, 2011, respectively.
 
As of September 29, 2012, there was approximately $6.0 million of total unrecognized compensation cost related to unvested share-based compensation grants, which is expected to be amortized over a weighted-average period of 1.9 years.

12. Restructuring, Impairment and Other Charges
2012 Plan

In the first nine months of 2012, the Company announced the closure and consolidation of a print plant into its existing print operations. Additionally, the Company began implementing a cost savings initiative (collectively with the print plant closure and consolidation, the “2012 Plan”). The cost saving initiative is primarily focused on the Company's print and envelope segment and corporate expenses. This initiative will focus on the consolidation of office and warehouse space and other overhead cost elimination plans, including headcount reductions of approximately 700 employees. The Company expects to be substantially complete with the 2012 Plan by the end of 2012.

EPG Integration Plan
Upon the completion of the EPG acquisition, the Company developed and implemented its plan to integrate EPG into its existing envelope operations (the “EPG Plan”). Since the date of acquisition, activities related to the EPG Plan have included the closure and consolidation of five manufacturing facilities into the Company's existing operations and the elimination of duplicative headcount. The Company anticipates that the integration of EPG will be completed in 2012 and may include additional closure or consolidation of manufacturing facilities and further headcount reductions.
Residual Plans

In addition to the plans described above, the Company currently has five residual cost savings, restructuring and integration plans: (i) the 2011 other restructuring plans from our print and envelope and label and packaging segments (the "Other Restructuring Plans") (ii) the Nashua Corporation acquisition integration plan (the “Nashua Plan”), (iii) the Glyph acquisition plan (collectively with the EPG Plan and Nashua Plan, the “Acquisition Integration Plans”), (iv) the 2009 Cost Savings and Restructuring Plan, and(v) the 2007 Cost Savings and Integration Plan. The Company refers to these plans, collectively with the Other Restructuring Plans, as the “Residual Plans”. The Company does not anticipate any significant future expenses related to the Residual Plans, other than modifications to its current assumptions for lease terminations, multi-employer pension withdrawal liabilities and ongoing expenses related to maintaining restructured assets.
    

17
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

The following tables present the details of the expenses recognized as a result of these plans.

2012 Activity

Restructuring, impairment and other charges for the three months ended September 29, 2012 were as follows (in thousands):

 
 
Employee
Separation
Costs
 
Asset Impairments
net of gain on sale
 
Equipment
Moving
Expenses
 
Lease
Termination
Expenses
 
Multi-employer Pension
Withdrawal Expenses
 
Building
Clean-up &
Other
Expenses
 
Total
Print and Envelope
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012 Plan
$
1,200

 
$
(3
)
 
$
20

 
$
6

 
$
—

 
$
180

 
$
1,403

 
Residual Plans
112

 
—

 
8

 
5

 
169

 
107

 
401

 
Acquisition Integration Plans
657

 
792

 
43

 
125

 
—

 
69

 
1,686

Total Print and Envelope
1,969

 
789

 
71

 
136

 
169

 
356

 
3,490

Label and Packaging
 

 
 

 
 

 
 

 
 

 
 

 
 

 
2012 Plan
632

 
—

 
—

 
—

 
—

 
2

 
634

 
Residual Plans
26

 
—

 
—

 
(9
)
 
—

 
—

 
17

Total Label and Packaging
658

 
—

 
—

 
(9
)
 
—

 
2

 
651

Corporate
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Residual Plans
—

 
—

 
—

 
—

 
—

 
49

 
49

Total Corporate
—

 
—

 
—

 
—

 
—

 
49

 
49

Total Restructuring, Impairment and Other Charges
$
2,627

 
$
789

 
$
71

 
$
127

 
$
169

 
$
407

 
$
4,190


Restructuring, impairment and other charges for the nine months ended September 29, 2012 were as follows (in thousands):

 
 
Employee
Separation
Costs
 
Asset Impairments
net of gain on sale
 
Equipment
Moving
Expenses
 
Lease
Termination
Expenses
 
Multi-employer Pension
Withdrawal Expenses
 
Building
Clean-up &
Other
Expenses
 
Total
Print and Envelope
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2012 Plan
$
3,444

 
$
6,631

 
$
532

 
$
342

 
$
5,400

 
$
1,251

 
$
17,600

 
Residual Plans
451

 
—

 
47

 
219

 
(313
)
 
964

 
1,368

 
Acquisition Integration Plans
953

 
824

 
88

 
176

 
—

 
238

 
2,279

Total Print and Envelope
4,848

 
7,455

 
667

 
737

 
5,087

 
2,453

 
21,247

Label and Packaging
 

 
 

 
 

 
 

 
 

 
 

 
 

 
2012 Plan
709

 
—

 
6

 
—

 
—

 
13

 
728

 
Residual Plans
382

 
—

 
—

 
43

 
—

 
4

 
429

 
Acquisition Integration Plans
—

 
—

 
(4
)
 
—

 
—

 
—

 
(4
)
Total Label and Packaging
1,091

 
—

 
2

 
43

 
—

 
17

 
1,153

Corporate
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Residual Plans
—

 
—

 
—

 
—

 
—

 
166

 
166

Total Corporate
—

 
—

 
—

 
—

 
—

 
166

 
166

Total Restructuring, Impairment and Other Charges
$
5,939

 
$
7,455

 
$
669

 
$
780

 
$
5,087

 
$
2,636

 
$
22,566



18
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2011 Activity

Restructuring, impairment and other charges for the three months ended October 1, 2011 were as follows (in thousands):
 
 
Employee
Separation
Costs
 
Asset Impairments
net of gain on sale
 
Equipment
Moving
Expenses
 
Lease
Termination
Expenses
 
Multi-employer Pension
Withdrawal Expenses
 
Building
Clean-up &
Other
Expenses
 
Total
Print and Envelope
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residual Plans
$
216

 
$
42

 
$
53

 
$
508

 
$
1,352

 
$
561

 
$
2,732

 
Acquisition Integration Plans
710

 
131

 
543

 
17

 
—

 
90

 
1,491

Total Print and Envelope
926

 
173

 
596

 
525

 
1,352

 
651

 
4,223

Label and Packaging
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Residual Plans
346

 
—

 
—

 
23

 
—

 
—

 
369

 
Acquisition Integration Plans
(14
)
 
—

 
—

 
—

 
—

 
—

 
(14
)
Total Label and Packaging
332

 
—

 
—

 
23

 
—

 
—

 
355

Corporate
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Residual Plans
—

 
—

 
—

 
8

 
—

 
99

 
107

Total Corporate
—

 
—

 
—

 
8

 
—

 
99

 
107

Total Restructuring, Impairment and Other Charges
$
1,258

 
$
173

 
$
596

 
$
556

 
$
1,352

 
$
750

 
$
4,685


Restructuring, impairment and other charges for the nine months ended October 1, 2011 were as follows (in thousands):
 
 
Employee
Separation
Costs
 
Asset Impairments
net of gain on sale
 
Equipment
Moving
Expenses
 
Lease
Termination
Expenses
 
Multi-employer Pension
Withdrawal Expenses
 
Building
Clean-up &
Other
Expenses
 
Total
Print and Envelope
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Residual Plans
$
607

 
$
1,943

 
$
606

 
$
1,572

 
$
1,352

 
$
2,225

 
$
8,305

 
Acquisition Integration Plans
1,766

 
638

 
1,560

 
25

 
—

 
260

 
4,249

Total Print and Envelope
2,373

 
2,581

 
2,166

 
1,597

 
1,352

 
2,485

 
12,554

Label and Packaging
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Residual Plans
937

 
—

 
—

 
(158
)
 
—

 
(28
)
 
751

 
Acquisition Integration Plans
39

 
130

 
76

 
6

 
—

 
175

 
426

Total Label and Packaging
976

 
130

 
76

 
(152
)
 
—

 
147

 
1,177

Corporate
 
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Residual Plans
—

 
—

 
—

 
82

 
—

 
164

 
246

Total Corporate
—

 
—

 
—

 
82

 
—

 
164

 
246

Total Restructuring, Impairment and Other Charges
$
3,349

 
$
2,711

 
$
2,242

 
$
1,527

 
$
1,352

 
$
2,796

 
$
13,977



A summary of the activity related to the restructuring liabilities for all the cost savings, restructuring and integration initiatives were as follows (in thousands):


19
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 
Employee Separation Cost
 
Lease Termination
 
Pension
Withdrawal
Liabilities
 
Building Clean-up,
Equipment Moving
and Other Expenses
 
Total
2012 Plan
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2011
$
—

 
$
—

 
$
—

 
$
—

 
$
—

Accruals, net
4,153

 
342

 
5,400

 
1,802

 
11,697

Payments
(3,124
)
 
(72
)
 
—

 
(1,802
)
 
(4,998
)
Balance as of September 29, 2012
$
1,029

 
$
270

 
$
5,400

 
$
—

 
$
6,699

 
 
 
 
 
 
 
 
 
 
Residual Plans
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2011
$
1,071

 
$
3,804

 
$
22,538

 
$
—

 
$
27,413

Accruals, net
833

 
262

 
(313
)
 
1,181

 
1,963

Payments
(1,604
)
 
(1,702
)
 
(2,001
)
 
(1,181
)
 
(6,488
)
Balance as of September 29, 2012
$
300

 
$
2,364

 
$
20,224

 
$
—

 
$
22,888

 
 
 
 
 
 
 
 
 
 
Acquisition Integration Plans
 
 
 
 
 
 
 
 
 
Balance as of December 31, 2011
$
492

 
$
1,346

 
$
—

 
$
—

 
$
1,838

Accruals, net
953

 
176

 
—

 
322

 
1,451

Payments
(773
)
 
(331
)
 
—

 
(322
)
 
(1,426
)
Balance as of September 29, 2012
$
672

 
$
1,191

 
$
—

 
$
—

 
$
1,863


13.  Income (Loss) per Share

Basic income (loss) per share is computed based upon the weighted average number of common shares outstanding for the period. Diluted income (loss) per share for the three months ended September 29, 2012, is calculated using two approaches. The first approach, the treasury stock method, reflects the potential dilution that could occur if the stock options and RSUs (“Equity Awards”) to issue common stock were exercised. The second approach, the if converted method, reflects the potential dilution of the Equity Awards and the 7% Notes being exchanged for common stock. Under this method, interest expense associated with the 7% Notes, net of tax, is added back to income from continuing operations and the shares outstanding are increased by the underlying 7% Notes equivalent.

For the nine months ended September 29, 2012 and October 1, 2011, the effect of approximately 25,066,150 and 5,731,478, respectively, related to the exchange of the 7% Notes for common stock, stock options outstanding and unvested RSUs, which would be calculated using the treasury stock method, were excluded from the calculation of diluted income (loss) per share, as the effect would be anti-dilutive.

The following table sets forth the computation of basic and diluted income (loss) per share for the periods ended (in thousands, except per share data):
 

20
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Numerator for basic income (loss) per share:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations
 
$
4,658

 
$
1,274

 
$
(17,888
)
 
$
735

(Loss) income from discontinued operations, net of taxes
 
(183
)
 
1,531

 
(5,256
)
 
5,228

Net income (loss)
 
$
4,475

 
$
2,805

 
$
(23,144
)
 
$
5,963

Numerator for diluted income (loss) per share:
 
 
 
 
 
 
 
 
Income (loss) from continuing operations - as reported
 
$
4,658

 
$
1,274

 
$
(17,888
)
 
$
735

Interest expense on 7% Notes, net of taxes
 
1,020

 
—

 
—

 
—

Income (loss) from continuing operations - after assumed conversions of dilutive shares
 
5,678

 
1,274

 
(17,888
)
 
735

(Loss) income from discontinued operations, net of taxes
 
(183
)
 
1,531

 
(5,256
)
 
5,228

Net income for diluted income (loss) per share after assumed conversions of dilutive shares
 
$
5,495

 
$
2,805

 
$
(23,144
)
 
$
5,963

Denominator for weighted average common shares outstanding:
 
 

 
 

 
 

 
 

Basic shares
 
63,624

 
63,068

 
63,502

 
62,891

Dilutive effect of convertible notes
 
20,831

 
—

 
—

 
—

Dilutive effect of equity awards
 
89

 
129

 
—

 
266

Diluted shares
 
84,544

 
63,197

 
63,502

 
63,157

 
 
 
 
 
 
 
 
 
Income (loss) per share – basic:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.07

 
$
0.02

 
$
(0.28
)
 
$
0.01

Discontinued operations
 
—

 
0.02

 
(0.08
)
 
0.08

Net income (loss)
 
$
0.07

 
$
0.04

 
$
(0.36
)
 
$
0.09

 
 
 
 
 
 
 
 
 
Income (loss) per share – diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.06

 
$
0.02

 
$
(0.28
)
 
$
0.01

Discontinued operations
 
—

 
0.02

 
(0.08
)
 
0.08

Net income (loss)
 
$
0.06

 
$
0.04

 
$
(0.36
)
 
$
0.09


14. Segment Information

In the first quarter of 2012, the Company realigned its reportable segments as a result of the sale of the Discontinued Operations combined with the realignment of management responsibilities and strategy. Previously, the Company reported its segments as envelopes, forms and labels and commercial printing. Beginning January 1, 2012, the Company realigned its segments into two complementary reportable segments - the print and envelope segment and the label and packaging segment. The print and envelope segment provides a wide array of print offerings such as high-end printed materials including car brochures, advertising literature, corporate identity and brand marketing material, digital printing and content management; and direct mail offerings and custom and stock envelopes. The label and packaging segment specializes in the design, manufacturing and printing of labels such as, custom labels, overnight packaging labels, pressure-sensitive prescription labels and high quality packaging offerings, full body shrink sleeves, and specialized folded carton packaging. Segment information for the three and nine months ended October 1, 2011 has been reclassified to reflect the 2012 reportable segment presentation.

Operating income (loss) of each segment includes substantially all costs and expenses directly related to the segment's operations. Corporate expenses include corporate general and administrative expenses including stock-based compensation.

Corporate identifiable assets primarily consist of cash and cash equivalents, miscellaneous receivables, deferred financing fees, deferred tax assets and other assets.

21
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)


The following tables present certain segment information (in thousands):

 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
Net sales:
 
 
 
 
 
 
 
 
Print and envelope
 
$
343,012

 
$
367,454

 
$
1,016,332

 
$
1,090,999

Label and packaging
 
108,262

 
108,381

 
329,432

 
331,706

Total
 
$
451,274

 
$
475,835

 
$
1,345,764

 
$
1,422,705

Operating income:
 
 

 
 

 
 

 
 

Print and envelope
 
$
29,876

 
$
29,888

 
$
63,951

 
$
75,262

Label and packaging
 
12,472

 
12,882

 
37,343

 
36,174

Corporate
 
(7,360
)
 
(9,545
)
 
(23,094
)
 
(32,674
)
Total
 
$
34,988

 
$
33,225

 
$
78,200

 
$
78,762

Restructuring, impairment and other charges:
 
 

 
 

 
 

 
 

Print and envelope
 
$
3,490

 
$
4,223

 
$
21,247

 
$
12,554

Label and packaging
 
651

 
355

 
1,153

 
1,177

Corporate
 
49

 
107

 
166

 
246

Total
 
$
4,190

 
$
4,685

 
$
22,566

 
$
13,977

Net sales by product line:
 
 

 
 

 
 

 
 

Print
 
$
174,132

 
$
179,406

 
$
497,607

 
$
537,005

Envelope
 
168,880

 
188,048

 
518,725

 
553,994

Label
 
82,478

 
81,781

 
248,484

 
250,430

Packaging
 
25,784

 
26,600

 
80,948

 
81,276

Total
 
$
451,274

 
$
475,835

 
$
1,345,764

 
$
1,422,705

Intercompany sales:
 
 

 
 

 
 

 
 

Print and envelope to label and packaging
 
$
1,739

 
$
1,002

 
$
5,253

 
$
3,488

Label and packaging to print and envelope
 
1,902

 
2,334

 
5,024

 
4,592

Total
 
$
3,641

 
$
3,336

 
$
10,277

 
$
8,080


 
 
September 29, 2012
 
December 31, 2011
Identifiable assets:
 
 
 
 
Print and envelope
 
$
818,087

 
$
867,329

Label and packaging
 
337,002

 
392,417

Corporate
 
124,477

 
125,842

Total
 
$
1,279,566

 
$
1,385,588



22
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. Condensed Consolidating Financial Information

Cenveo, Inc. is a holding company (the “Parent Company”), which is the ultimate parent of all Cenveo subsidiaries. The Parent Company’s wholly owned subsidiary, Cenveo Corporation (the “Subsidiary Issuer”), issued the 7.875% Notes and the 8.875% senior second lien notes due 2018 (the "8.875% Notes" and, collectively with the 7.875% Notes, the “Subsidiary Issuer Notes”), which are fully and unconditionally guaranteed, on a joint and several basis, by the Parent Company and substantially all of its wholly-owned subsidiaries (the “Guarantor Subsidiaries”).

Presented below is condensed consolidating financial information for the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries as of September 29, 2012 and December 31, 2011 and for the three and nine months ended September 29, 2012 and October 1, 2011.  The condensed consolidating financial information has been presented to show the financial position, results of operations and cash flows of the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries, assuming the guarantee structure of the Subsidiary Issuer Notes was in effect at the beginning of the periods presented.

The supplemental condensed consolidating financial information reflects the investments of the Parent Company in the Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting. The Company’s primary transactions with its subsidiaries other than the investment account and related equity in net income (loss) of unconsolidated subsidiaries are the intercompany payables and receivables between its subsidiaries.

23
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
September 29, 2012
(in thousands)

 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
7,878

 
$
503

 
$
1,954

 
$
—

 
$
10,335

Accounts receivable, net
—

 
99,804

 
177,484

 
1,017

 
—

 
278,305

Inventories
—

 
57,839

 
73,836

 
94

 
—

 
131,769

Notes receivable from subsidiaries
—

 
36,938

 
—

 
—

 
(36,938
)
 
—

Prepaid and other current assets
—

 
54,738

 
11,765

 
3,375

 
—

 
69,878

Total current assets
—

 
257,197

 
263,588

 
6,440

 
(36,938
)
 
490,287

 
 
 
 
 
 
 
 
 
 
 
 
Investment in subsidiaries
(399,483
)
 
1,749,180

 
7,301

 
6,725

 
(1,363,723
)
 
—

Property, plant and equipment, net
—

 
90,860

 
198,505

 
1,429

 
—

 
290,794

Goodwill
—

 
29,540

 
155,932

 
6,243

 
—

 
191,715

Other intangible assets, net
—

 
6,724

 
206,777

 
1,995

 
—

 
215,496

Other assets, net
—

 
126,723

 
(36,581
)
 
1,132

 
—

 
91,274

Total assets
$
(399,483
)
 
$
2,260,224

 
$
795,522

 
$
23,964

 
$
(1,400,661
)
 
$
1,279,566

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ (Deficit) Equity
 

 
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt
$
—

 
$
6,359

 
$
4,792

 
$
—

 
$
—

 
$
11,151

Accounts payable
—

 
102,839

 
76,050

 
890

 
—

 
179,779

Accrued compensation and related liabilities
—

 
15,810

 
12,384

 
582

 
—

 
28,776

Other current liabilities
—

 
53,971

 
22,263

 
670

 
—

 
76,904

Intercompany payable (receivable)
—

 
1,120,031

 
(1,127,827
)
 
7,796

 
—

 
—

Notes payable to issuer
—

 
—

 
36,938

 
—

 
(36,938
)
 
—

Total current liabilities
—

 
1,299,010

 
(975,400
)
 
9,938

 
(36,938
)
 
296,610

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
—

 
1,198,710

 
7,005

 
—

 
—

 
1,205,715

Other liabilities
—

 
161,987

 
14,737

 
—

 
—

 
176,724

Shareholders’ (deficit) equity
(399,483
)
 
(399,483
)
 
1,749,180

 
14,026

 
(1,363,723
)
 
(399,483
)
Total liabilities and shareholders’ (deficit) equity
$
(399,483
)
 
$
2,260,224

 
$
795,522

 
$
23,964

 
$
(1,400,661
)
 
$
1,279,566




24
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the three months ended September 29, 2012
(in thousands)

 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
172,051

 
$
275,071

 
$
4,152

 
$
—

 
$
451,274

Cost of sales
—

 
143,226

 
217,459

 
3,440

 
—

 
364,125

Selling, general and administrative expenses
—

 
24,370

 
20,864

 
190

 
—

 
45,424

Amortization of intangible assets
—

 
137

 
2,276

 
134

 
—

 
2,547

Restructuring, impairment and other charges
—

 
1,805

 
2,383

 
2

 
—

 
4,190

Operating income
—

 
2,513

 
32,089

 
386

 
—

 
34,988

Interest expense, net
—

 
28,784

 
148

 
(6
)
 
—

 
28,926

Intercompany interest expense (income)
—

 
(414
)
 
391

 
23

 
—

 
—

Loss on early extinguishment of debt, net
—

 
25

 
—

 
—

 
—

 
25

Other expense (income), net
—

 
375

 
(3
)
 
119

 
—

 
491

  Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries
—

 
(26,257
)
 
31,553

 
250

 
—

 
5,546

Income tax (benefit) expense
—

 
(1,777
)
 
1,898

 
767

 
—

 
888

  Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries
—

 
(24,480
)
 
29,655

 
(517
)
 
—

 
4,658

Equity in income of unconsolidated subsidiaries
4,475

 
28,990

 
(517
)
 
—

 
(32,948
)
 
—

Income (loss) from continuing operations
4,475

 
4,510

 
29,138

 
(517
)
 
(32,948
)
 
4,658

Loss from discontinued operations, net of taxes
—

 
(35
)
 
(148
)
 
—

 
—

 
(183
)
Net income (loss)
4,475

 
4,475

 
28,990

 
(517
)
 
(32,948
)
 
4,475

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of unconsolidated subsidiaries
2,412

 
2,412

 
1,244

 
—

 
(6,068
)
 
—

Currency translation adjustment
—

 
—

 
1,168

 
1,244

 
—

 
2,412

Comprehensive (loss) income
$
6,887

 
$
6,887

 
$
31,402

 
$
727

 
$
(39,016
)
 
$
6,887



25
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the nine months ended September 29, 2012
(in thousands)

 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
528,102

 
$
805,787

 
$
11,875

 
$
—

 
$
1,345,764

Cost of sales
—

 
440,660

 
645,435

 
10,381

 
—

 
1,096,476

Selling, general and administrative expenses
—

 
77,096

 
63,079

 
591

 
—

 
140,766

Amortization of intangible assets
—

 
444

 
6,910

 
402

 
—

 
7,756

Restructuring, impairment and other charges
—

 
3,331

 
19,139

 
96

 
—

 
22,566

Operating income
—

 
6,571

 
71,224

 
405

 
—

 
78,200

Interest expense, net
—

 
85,118

 
469

 
(13
)
 
—

 
85,574

Intercompany interest expense (income)
—

 
(1,102
)
 
1,030

 
72

 
—

 
—

Loss on early extinguishment of debt, net
—

 
11,439

 
—

 
—

 
—

 
11,439

Other (income) expense, net
—

 
(245
)
 
23

 
(105
)
 
—

 
(327
)
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries
—

 
(88,639
)
 
69,702

 
451

 
—

 
(18,486
)
Income tax expense (benefit)
—

 
(4,922
)
 
3,596

 
728

 
—

 
(598
)
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries
—

 
(83,717
)
 
66,106

 
(277
)
 
—

 
(17,888
)
Equity in income of unconsolidated subsidiaries
(23,144
)
 
58,186

 
(277
)
 
—

 
(34,765
)
 
—

Income (loss) from continuing operations
(23,144
)
 
(25,531
)
 
65,829

 
(277
)
 
(34,765
)
 
(17,888
)
(Loss) income from discontinued operations, net of taxes
—

 
2,387

 
(7,643
)
 
—

 
—

 
(5,256
)
Net (loss) income
(23,144
)
 
(23,144
)
 
58,186

 
(277
)
 
(34,765
)
 
(23,144
)
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of unconsolidated subsidiaries
1,654

 
1,654

 
179

 
—

 
(3,487
)
 
—

Currency translation adjustment
—

 
—

 
1,475

 
179

 
—

 
1,654

Comprehensive (loss) income
$
(21,490
)
 
$
(21,490
)
 
$
59,840

 
$
(98
)
 
$
(38,252
)
 
$
(21,490
)


26
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended September 29, 2012
 (in thousands)

 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities of continuing operations
$
4,446

 
$
(87,609
)
 
$
104,046

 
$
2,528

 
$
—

 
$
23,411

Net cash used in operating activities of discontinued operations
—

 
(1,799
)
 
(2,934
)
 
—

 
—

 
(4,733
)
Net cash provided by (used in)operating activities
4,446

 
(89,408
)
 
101,112

 
2,528

 
—

 
18,678

Cash flows from investing activities:
 

 
 

 
 

 
 

 
 

 
 

Cost of business acquisitions, net of cash acquired
—

 
(644
)
 
—

 
—

 
—

 
(644
)
Capital expenditures
—

 
(7,819
)
 
(7,701
)
 
(117
)
 
—

 
(15,637
)
Proceeds from sale of property, plant and equipment
—

 
32

 
2,301

 
—

 
—

 
2,333

Proceeds from sale of intangible assets
—

 
1,700

 
—

 
—

 
—

 
1,700

Intercompany note
—

 
3,900

 
—

 
—

 
(3,900
)
 
—

Net cash used in investing activities of continuing operations
—

 
(2,831
)
 
(5,400
)
 
(117
)
 
(3,900
)
 
(12,248
)
Net cash provided by investing activities of discontinued operations
—

 
16,414

 
23,507

 
—

 
—

 
39,921

Net cash provided by (used in) investing activities
—

 
13,583

 
18,107

 
(117
)
 
(3,900
)
 
27,673

Cash flows from financing activities:
 

 
 

 
 

 
 

 
 

 
 

Repayment of 10.5% senior notes
—

 
(169,875
)
 
—

 
—

 
—

 
(169,875
)
Repayment of 7.875% senior subordinated notes
—

 
(196,088
)
 
—

 
—

 
—

 
(196,088
)
Borrowings (Repayment) of Term Loan B due 2016
—

 
17,987

 
—

 
—

 
—

 
17,987

Repayment of 8.375% senior subordinated notes
—

 
(24,787
)
 
—

 
—

 
—

 
(24,787
)
Payment of financing related costs and expenses and debt issuance discounts
—

 
(32,335
)
 
—

 
—

 
—

 
(32,335
)
Repayments of other long-term debt
—

 
(300
)
 
(3,199
)
 
—

 
—

 
(3,499
)
Retirement of common stock upon vesting of RSUs
(734
)
 
—

 
—

 
—

 
—

 
(734
)
Proceeds from issuance of 11.5% senior notes
—

 
225,000

 
—

 
—

 
—

 
225,000

Proceeds from issuance of 7% senior exchangeable notes
—

 
86,250

 
—

 
—

 
—

 
86,250

Borrowings under revolving credit facility, net
—

 
45,550

 
—

 
—

 
—

 
45,550

Intercompany note
—

 
—

 
—

 
(3,900
)
 
3,900

 
—

Intercompany advances
(3,712
)
 
117,920

 
(116,198
)
 
1,990

 
—

 
—

Net cash (used in) provided by financing activities of continuing operations
(4,446
)
 
69,322

 
(119,397
)
 
(1,910
)
 
3,900

 
(52,531
)
Net cash used in financing activities of discontinued operations
—

 
(1,652
)
 
—

 
—

 
—

 
(1,652
)
Net cash (used in) provided by financing activities
(4,446
)
 
67,670

 
(119,397
)
 
(1,910
)
 
3,900

 
(54,183
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
401

 
13

 
—

 
414

Net increase (decrease) in cash and cash equivalents
—

 
(8,155
)
 
223

 
514

 
—

 
(7,418
)
Cash and cash equivalents at beginning of period
—

 
16,033

 
280

 
1,440

 
—

 
17,753

Cash and cash equivalents at end of period
$
—

 
$
7,878

 
$
503

 
$
1,954

 
$
—

 
$
10,335



27
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
December 31, 2011
(in thousands)

 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Assets
 
 
 
 
 
 
 
 
 
 
 
Current assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
—

 
$
16,033

 
$
280

 
$
1,440

 
$
—

 
$
17,753

Accounts receivable, net
—

 
113,368

 
174,003

 
1,112

 
—

 
288,483

Inventories
—

 
63,234

 
70,434

 
128

 
—

 
133,796

Notes receivable from subsidiaries
—

 
40,838

 
—

 
—

 
(40,838
)
 
—

Prepaid and other current assets
—

 
57,967

 
10,953

 
3,822

 
—

 
72,742

Assets of discontinued operations - current
—

 
9,455

 
13,501

 
—

 
—

 
22,956

Total current assets
—

 
300,895

 
269,171

 
6,502

 
(40,838
)
 
535,730

 
 
 
 
 
 
 
 
 
 
 
 
Investment in subsidiaries
(381,704
)
 
1,681,084

 
7,399

 
6,725

 
(1,313,504
)
 
—

Property, plant and equipment, net
—

 
96,680

 
229,932

 
1,955

 
—

 
328,567

Goodwill
—

 
29,244

 
155,361

 
6,217

 
—

 
190,822

Other intangible assets, net
—

 
6,785

 
214,435

 
2,343

 
—

 
223,563

Other assets, net
—

 
107,286

 
(29,400
)
 
1,604

 
—

 
79,490

Assets of discontinued operations - long-term
—

 
5,717

 
21,699

 
—

 
—

 
27,416

Total assets
$
(381,704
)
 
$
2,227,691

 
$
868,597

 
$
25,346

 
$
(1,354,342
)
 
$
1,385,588

 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Shareholders’ (Deficit) Equity
 

 
 

 
 

 
 

 
 

 
 

Current liabilities:
 

 
 

 
 

 
 

 
 

 
 

Current maturities of long-term debt
$
—

 
$
4,109

 
$
4,700

 
$
—

 
$
—

 
$
8,809

Accounts payable
—

 
94,503

 
91,311

 
834

 
—

 
186,648

Accrued compensation and related liabilities
—

 
26,173

 
12,760

 
222

 
—

 
39,155

Other current liabilities
—

 
72,813

 
22,634

 
460

 
—

 
95,907

Liabilities of discontinued operations - current
—

 
2,492

 
2,854

 
—

 
—

 
5,346

Intercompany payable (receivable)
—

 
1,005,396

 
(1,011,202
)
 
5,806

 
—

 
—

Notes payable to issuer
—

 
—

 
36,938

 
3,900

 
(40,838
)
 
—

Total current liabilities
—

 
1,205,486

 
(840,005
)
 
11,222

 
(40,838
)
 
335,865

 
 
 
 
 
 
 
 
 
 
 
 
Long-term debt
—

 
1,227,238

 
10,296

 
—

 
—

 
1,237,534

Other liabilities
—

 
175,088

 
10,331

 
—

 
—

 
185,419

Liabilities of discontinued operations - long-term
—

 
1,583

 
6,891

 
—

 
—

 
8,474

Shareholders’ (deficit) equity
(381,704
)
 
(381,704
)
 
1,681,084

 
14,124

 
(1,313,504
)
 
(381,704
)
Total liabilities and shareholders’ (deficit) equity
$
(381,704
)
 
$
2,227,691

 
$
868,597

 
$
25,346

 
$
(1,354,342
)
 
$
1,385,588



28
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the three months ended October 1, 2011
(in thousands)
 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
186,436

 
$
285,733

 
$
3,666

 
$
—

 
$
475,835

Cost of sales
—

 
153,843

 
224,189

 
3,734

 
—

 
381,766

Selling, general and administrative expenses
—

 
28,830

 
24,492

 
251

 
—

 
53,573

Amortization of intangible assets
—

 
123

 
2,329

 
134

 
—

 
2,586

Restructuring, impairment and other charges
—

 
2,907

 
1,778

 
—

 
—

 
4,685

Operating income (loss)
—

 
733

 
32,945

 
(453
)
 
—

 
33,225

Gain on bargain purchase
—

 
(641
)
 
—

 
—

 
—

 
(641
)
Interest expense, net
—

 
28,257

 
187

 
(9
)
 
—

 
28,435

Intercompany interest expense (income)
—

 
(292
)
 
238

 
54

 
—

 
—

Other (income) expense, net
—

 
557

 
(758
)
 
(703
)
 
—

 
(904
)
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries
—

 
(27,148
)
 
33,278

 
205

 
—

 
6,335

Income tax expense (benefit)
—

 
2,714

 
2,450

 
(103
)
 
—

 
5,061

Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries
—

 
(29,862
)
 
30,828

 
308

 
—

 
1,274

Equity in income of unconsolidated subsidiaries
2,805

 
32,271

 
308

 
—

 
(35,384
)
 
—

Income (loss) from continuing operations
2,805

 
2,409

 
31,136

 
308

 
(35,384
)
 
1,274

Income from discontinued operations, net of taxes
—

 
396

 
1,135

 
—

 
—

 
1,531

Net income (loss)
2,805

 
2,805

 
32,271

 
308

 
(35,384
)
 
2,805

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of unconsolidated subsidiaries
(5,146
)
 
(5,146
)
 
(2,220
)
 
—

 
12,512

 
—

Reclassifications of losses related to interest rate swaps into earnings, net of taxes
—

 
—

 
—

 
—

 
—

 
—

Currency translation adjustment
—

 
—

 
(2,926
)
 
(2,220
)
 
—

 
(5,146
)
Comprehensive income (loss)
$
(2,341
)
 
$
(2,341
)
 
$
27,125

 
$
(1,912
)
 
$
(22,872
)
 
$
(2,341
)


29
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
For the nine months ended October 1, 2011
(in thousands)
 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Net sales
$
—

 
$
529,703

 
$
877,663

 
$
15,339

 
$
—

 
$
1,422,705

Cost of sales
—

 
439,826

 
704,670

 
12,659

 
—

 
1,157,155

Selling, general and administrative expenses
—

 
89,084

 
75,164

 
811

 
—

 
165,059

Amortization of intangible assets
—

 
324

 
7,026

 
402

 
—

 
7,752

Restructuring, impairment and other charges
—

 
7,783

 
6,190

 
4

 
—

 
13,977

Operating income (loss)
—

 
(7,314
)
 
84,613

 
1,463

 
—

 
78,762

Gain on bargain purchase
—

 
(11,720
)
 
—

 
—

 
—

 
(11,720
)
Interest expense, net
—

 
87,489

 
615

 
(40
)
 
—

 
88,064

Intercompany interest expense (income)
—

 
(919
)
 
736

 
183

 
—

 
—

Other (income) expense, net
—

 
134

 
(5
)
 
(696
)
 
—

 
(567
)
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries
—

 
(82,298
)
 
83,267

 
2,016

 
—

 
2,985

Income tax expense (benefit)
—

 
3,588

 
(1,549
)
 
211

 
—

 
2,250

Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries
—

 
(85,886
)
 
84,816

 
1,805

 
—

 
735

Equity in income of unconsolidated subsidiaries
5,963

 
90,429

 
1,805

 
—

 
(98,197
)
 
—

Income (loss) from continuing operations
5,963

 
4,543

 
86,621

 
1,805

 
(98,197
)
 
735

Income (loss) from discontinued operations, net of taxes
—

 
1,420

 
3,808

 
—

 
—

 
5,228

Net income (loss)
5,963

 
5,963

 
90,429

 
1,805

 
(98,197
)
 
5,963

Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Other comprehensive income (loss) of unconsolidated subsidiaries
(1,953
)
 
(3,745
)
 
(2,173
)
 
—

 
7,871

 
—

Reclassifications of losses related to interest rate swaps into earnings, net of taxes
—

 
1,792

 
—

 
—

 
—

 
1,792

Currency translation adjustment
—

 
—

 
(1,572
)
 
(2,173
)
 
—

 
(3,745
)
Comprehensive income (loss)
$
4,010

 
$
4,010

 
$
86,684

 
$
(368
)
 
$
(90,326
)
 
$
4,010




30
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
For the nine months ended October 1, 2011
 (in thousands)
 
Parent
Company
 
Subsidiary
Issuer
 
Guarantor
Subsidiaries
 
Non-
Guarantor
Subsidiaries
 
Eliminations
 
Consolidated
Cash flows from operating activities:
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by (used in) operating activities of continuing operations
$
7,129

 
$
(98,875
)
 
$
117,744

 
$
5,280

 
$
—

 
$
31,278

Net cash provided by operating activities of discontinued operations
—

 
2,884

 
4,719

 
—

 
—

 
7,603

Net cash provided by (used in) operating activities
7,129

 
(95,991
)
 
122,463

 
5,280

 
—

 
38,881

Cash flows from investing activities:
 

 
 

 
 

 
 

 
 

 
 

Cost of business acquisitions, net of cash acquired
—

 
(59,719
)
 
—

 
—

 
—

 
(59,719
)
Capital expenditures
—

 
(6,753
)
 
(3,507
)
 
(538
)
 
—

 
(10,798
)
Proceeds from sale of property, plant and equipment
—

 
1,288

 
9,701

 
—

 
—

 
10,989

Intercompany note
—

 
5,600

 
—

 
—

 
(5,600
)
 
—

Net cash (used in) provided by investing activities of continuing operations
—

 
(59,584
)
 
6,194

 
(538
)
 
(5,600
)
 
(59,528
)
Net cash used in investing activities of discontinued operations
—

 
(419
)
 
—

 
—

 
—

 
(419
)
Net cash (used in) provided by investing activities
—

 
(60,003
)
 
6,194

 
(538
)
 
(5,600
)
 
(59,947
)
Cash flows from financing activities:
 

 
 

 
 

 
 

 
 

 
 

Borrowings (Repayment) of Term Loan B due 2016
—

 
(2,850
)
 
—

 
—

 
—

 
(2,850
)
Repayments of other long-term debt
—

 
(14
)
 
(4,491
)
 
—

 
—

 
(4,505
)
Purchase and retirement of common stock upon vesting of RSUs
(1,283
)
 
—

 
—

 
—

 
—

 
(1,283
)
Borrowings under revolving credit facility, net
—

 
—

 
—

 
—

 
—

 
—

Proceeds from exercise of stock options
350

 
—

 
—

 
—

 
—

 
350

Intercompany note
—

 
—

 
—

 
(5,600
)
 
5,600

 
—

Intercompany advances
(6,196
)
 
131,219

 
(125,067
)
 
44

 
—

 
—

Net cash provided by (used in) financing activities
(7,129
)
 
128,355

 
(129,558
)
 
(5,556
)
 
5,600

 
(8,288
)
Effect of exchange rate changes on cash and cash equivalents
—

 
—

 
66

 
1,109

 
—

 
1,175

Net increase (decrease) in cash and cash equivalents
—

 
(27,639
)
 
(835
)
 
295

 
—

 
(28,179
)
Cash and cash equivalents at beginning of period
—

 
46,882

 
1,010

 
1,864

 
—

 
49,756

Cash and cash equivalents at end of period
$
—

 
$
19,243

 
$
175

 
$
2,159

 
$
—

 
$
21,577



31

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, which we refer to as MD&A, of Cenveo, Inc. and its subsidiaries, which we refer to as Cenveo, should be read in conjunction with the accompanying condensed consolidated financial statements and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2011, which we refer to as our 2011 Form 10-K. Item 7 of our 2011 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of September 29, 2012.

Forward-Looking Statements
 
Certain statements in this report may constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements generally can be identified by the use of terminology such as “may,” “expect,” “intend,” “estimate,” “anticipate,” “plan,” “foresee,” “believe” or “continue” and similar expressions, or as other statements that do not relate solely to historical facts. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that could cause actual results to differ materially from what is expressed or forecasted in these forward-looking statements. In view of such uncertainties, investors should not place undue reliance on our forward-looking statements. Such statements speak only as of the date they were made, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Factors that could cause actual results to differ materially from management’s expectations include, without limitation: (i) recent United States and global economic conditions have adversely affected us and could continue to do so; (ii) our substantial level of indebtedness could impair our financial condition and prevent us from fulfilling our business obligations; (iii) our ability to service or refinance our debt; (iv) the terms of our indebtedness imposing significant restrictions on our operating and financial flexibility; (v) additional borrowings are available to us that could further exacerbate our risk exposure from debt;  (vi) our ability to successfully integrate acquired businesses into our business; (vii) a decline in our consolidated profitability or profitability within one of our individual reporting units could result in the impairment of our assets, including goodwill, other long-lived assets and deferred tax assets; (viii) intense competition and fragmentation in our industry; (ix) the general absence of long-term customer agreements in our industry, subjecting our business to quarterly and cyclical fluctuations; (x) factors affecting the United States postal services impacting demand for our products; (xi) the availability of the Internet and other electronic media adversely affecting our business; (xii) increases in paper costs and decreases in the availability of raw materials; (xiii) our labor relations; (xiv) our compliance with environmental laws; (xv) our dependence on key management personnel; (xvi) our dependence upon information technology systems; and (xvii) our international operations and the risks associated with operating outside of the United States. This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. Additional information regarding these and other factors can be found elsewhere in this report and in our other filings with the Securities and Exchange Commission, which we refer to as the SEC.

Business Overview

We are one of the largest diversified printing companies in North America, according to the December 2011 Printing Impressions 400 report. Our broad portfolio of products includes commercial printing, envelope converting, label manufacturing and specialty packaging. We operate a global network of strategically located manufacturing facilities, serving a diverse base of over 100,000 customers. Our business strategy focuses on providing our customers with quality product offerings, improving our cost structure and profitability, and pursuing strategic acquisitions that either expand our current product offerings or allow us to enter into niche businesses that are highly complementary to our current product offering.

We operate our business in two complementary reportable segments: print and envelope and label and packaging.


Print and Envelope. We are one of the leading commercial printers in North America and the largest envelope manufacturer. In August 2011, we added to our print and envelope business with the acquisition of Nesbitt Graphics, Inc., which we refer to as Nesbitt. In February 2011, we added to our print and envelope business with the acquisition of MeadWestvaco Corporation’s Envelope Product Group, which we refer to as EPG. Our print and envelope segment represents approximately 76.0% and 75.5% of our net sales for the three and nine months ended September 29, 2012, respectively.

Our print and envelope segment serves customers ranging from Fortune 50 companies to middle market and small companies operating in niche markets.  This segment primarily caters to the consumer products, financial services, travel and leisure and telecommunications industries. We offer direct mail products used for customer solicitations and custom envelopes used for billing and remittance by end users including banks, brokerage firms and insurance and credit card companies. We produce

32

a broad line of specialty and stock envelopes that are sold through wholesalers, distributors, contract stationers, national catalogs for the office product markets and office product superstores. We provide a wide array of print offerings to our customers including electronic prepress, digital asset archiving, direct-to-plate technology, high-quality color printing on web and sheet-fed presses, digital printing and content management. The broad selection of print products we produce includes annual reports, car brochures, direct mail products, advertising literature, corporate identity materials and brand marketing materials.  Our content management business offers complete solutions, including editing, content processing, content management, electronic peer review, production, distribution and reprint marketing.

Label and Packaging.  We are a leading label manufacturer and the largest North American prescription label manufacturer for retail pharmacy chains. Our specialty packaging business currently focuses on specialty folded carton packaging and shrink-sleeve packaging. Our label and packaging segment represented approximately 24.0% and 24.5% of our net sales for the three and nine months ended September 29, 2012, respectively.

Our label and packaging segment serves customers ranging from multinational, national, middle market and small companies serving niche markets and resale customers. We print a diverse line of custom labels for a broad range of industries including manufacturing, warehousing, packaging, food and beverage, and health and beauty, which we sell through extensive networks within the resale channels. We also provide direct mail and overnight packaging labels, food and beverage labels, and shelf and scale labels for national and regional customer accounts. We also produce pressure-sensitive prescription labels for the retail pharmacy chain market. We produce premium high quality promotional packaging offerings including, folded carton, and full body shrink sleeves. Our primary customers for our specialty packaging products are pharmaceutical, apparel, tobacco, neutraceutical and other large multinational consumer product companies.

Consolidated Operating Results

This MD&A includes an overview of our condensed consolidated results of operations for the three and nine months ended September 29, 2012 and October 1, 2011 followed by a discussion of the results of operations of each of our reportable segments for the same periods. Our results for the three months ended October 1, 2011 include the operating results of Nesbitt for less than a full three months. Our results for the nine months ended October 1, 2011 include the operating results of EPG and Nesbitt for less than a full nine months.

Market Conditions

The overall printing industry is highly fragmented which creates overcapacity and price sensitivity in many of our businesses. The uncertainty that remains with the current United States and global economic conditions most likely will continue to affect our results of operations and financial position. These uncertainties about future economic conditions in a challenging operating environment make it difficult for us to forecast our future operating results. We believe our efforts to reduce our operating cost structure, which we implemented at the beginning of the economic downturn, allowed us to mitigate significant impacts to our operating performance and to our business over the past two years. Therefore, we continue to pursue additional cost savings opportunities in an effort to mitigate any further potential impact on our operations from the remaining uncertainty surrounding the current economic conditions.

2012 Overview

During the first nine months of 2012, our print and envelope operations have focused on completing the integration of EPG into our existing operations, mitigating the decline in direct mail sales due to our financial institution customers decreased demand for customer solicitations and mitigating the decline in our publisher services group revenue due to the decline in the circulation of journals and periodicals. We believe we will complete the integration of EPG into our existing operations by the end of 2012 and our efforts to mitigate sales declines have resulted in sales opportunities that should partly offset the decline in sales volumes attributable to direct mail and journals and periodicals.

During the first nine months of 2012, our label and packaging operations have focused on enhancing our e-commerce customer solutions, enhancing our long-run labels business with a focus on prime label capabilities and aligning our operating platform subsequent to the divestiture of two product lines in early 2012. We believe these efforts will provide greater sales opportunities for these businesses and provide focus on our growth business lines.

In addition to the operations focus noted above, we have been focused on our 2013 debt maturity. We began the year with a planned approach to eliminate this debt maturity and, to date, we have executed certain steps within that plan. To date, we have refinanced or paid down approximately 73% of this tranche and, most recently, we announced that we have been evaluating several

33

alternatives to address the 2013 maturity by the end of 2012, including an unsecured loan. We expect to announce a solution shortly in regards to completing one of these alternative methods. For further discussion related our capital structure and activities taken in 2012 to address our 2013 debt maturity, see the Long-Term Debt section below.

Discontinued Operations
In 2011, we began exploring our opportunities to divest certain non-strategic or underperforming businesses within our manufacturing platform. As a result, in the fourth quarter of 2011, the financial results of our documents and forms business as well as our wide-format papers business were accounted for as discontinued operations, which we refer to collectively as the Discontinued Operations, resulting in our historical consolidated balance sheets, statement of operations and comprehensive income (loss) and statement of cash flows being reclassified to reflect these discontinued operations separately from our continuing operations.

In February of 2012, we completed the sale of our documents and forms business, which we refer to as the Documents Group. Net cash proceeds were approximately $35.5 million. The original sale price of $40.0 million was subject to working capital settlement negotiations, which were completed during the three months ended September 29, 2012, pursuant to the purchase and sale agreement. In January of 2012, we completed the sale of our wide-format papers business and received proceeds of $4.7 million.

Reportable Segments

In the first quarter of 2012, we realigned our reportable segments as a result of the sale of the Discontinued Operations combined with the realignment of management responsibilities and strategy. Previously, we reported our segments as envelopes, forms and labels and commercial printing. Beginning January 1, 2012, we realigned our segments into two complementary reportable segments: the print and envelope segment and the label and packaging segment.


34

A summary of our condensed consolidated statements of operations is presented below.  The summary presents reported net sales and operating income. See Segment Operations below for a summary of net sales and operating income of our reportable segments that we use internally to assess our operating performance. Our fiscal quarters end on the Saturday closest to the last day of the calendar month. Our reporting periods for the three and nine month periods ended September 29, 2012 and October 1, 2011 each consisted of 13 weeks and 39 weeks, respectively.
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
 
 
(in thousands, except
per share amounts)
 
(in thousands, except
per share amounts)
Net sales
 
$
451,274

 
$
475,835

 
$
1,345,764

 
$
1,422,705

Operating income:
 
 

 
 

 
 

 
 
Print and envelope
 
$
29,876

 
$
29,888

 
$
63,951

 
$
75,262

Label and packaging
 
12,472

 
12,882

 
37,343

 
36,174

Corporate
 
(7,360
)
 
(9,545
)
 
(23,094
)
 
(32,674
)
Total operating income
 
34,988

 
33,225

 
78,200

 
78,762

Gain on bargain purchase
 
—

 
(641
)
 
—

 
(11,720
)
Interest expense, net
 
28,926

 
28,435

 
85,574

 
88,064

Loss on early extinguishment of debt, net
 
25

 
—

 
11,439

 
—

Other expense (income), net
 
491

 
(904
)
 
(327
)
 
(567
)
Income (loss) from continuing operations before income taxes
 
5,546

 
6,335

 
(18,486
)
 
2,985

Income tax expense (benefit)
 
888

 
5,061

 
(598
)
 
2,250

Income (loss) income from continuing operations
 
4,658

 
1,274

 
(17,888
)
 
735

(Loss) income from discontinued operations, net of taxes
 
(183
)
 
1,531

 
(5,256
)
 
5,228

Net income (loss)
 
$
4,475

 
$
2,805

 
$
(23,144
)
 
$
5,963

Income (loss) per share—basic:
 
 

 
 

 
 

 
 
Continuing operations
 
$
0.07

 
$
0.02

 
$
(0.28
)
 
$
0.01

Discontinued operations
 
—

 
0.02

 
(0.08
)
 
0.08

Net income (loss)
 
$
0.07

 
$
0.04

 
$
(0.36
)
 
$
0.09

Income (loss) per share – diluted:
 
 
 
 
 
 
 
 
Continuing operations
 
$
0.06

 
$
0.02

 
$
(0.28
)
 
$
0.01

Discontinued operations
 
—

 
0.02

 
(0.08
)
 
0.08

Net income (loss)
 
$
0.06

 
$
0.04

 
$
(0.36
)
 
$
0.09


35

Net Sales
 
Net sales decreased $24.6 million, or 5.2%, in the third quarter of 2012, as compared to the third quarter of 2011, primarily due to lower sales from our print and envelope segment of $24.4 million. See Segment Operations below for a detailed discussion of the primary factors affecting the change in our net sales by reportable segment.

Net sales decreased $76.9 million, or 5.4%, in the first nine months of 2012, as compared to the first nine months of 2011, due to lower sales from our print and envelope segment of $74.7 million and our label and packaging segment of $2.3 million. See Segment Operations below for a detailed discussion of the primary factors affecting the change in our net sales by reportable segment.


Operating Income

Operating income increased $1.8 million, or 5.3%, in the third quarter of 2012, as compared to the third quarter of 2011. This increase was primarily due to lower corporate expenses of $2.2 million. See Segment Operations below for a more detailed discussion of the primary factors for the changes in operating income by reportable segment.

Operating income decreased $0.6 million, or 0.7%, in the first nine months of 2012, as compared to the first nine months of 2011. This decrease was primarily due to decreases from our print and envelope segment of $11.3 million, partially offset by lower corporate expenses of $9.6 million and increases in operating income from our label and packaging segment of $1.2 million. See Segment Operations below for a more detailed discussion of the primary factors for the changes in operating income by reportable segment.

Gain on Bargain Purchase

During the third quarter and first nine months of 2011, in connection with the acquisition of EPG, we recognized a preliminary bargain purchase gain of approximately $0.6 million and $11.7 million, respectively.

Interest Expense

Interest expense increased $0.5 million to $28.9 million in the third quarter of 2012, as compared to $28.4 million in the third quarter of 2011. The increase is primarily due to an increase in weighted average interest rates due to our refinancing activities in 2012, offset by lower average outstanding debt balances as a result of debt repayments using cash flow from operations. Interest expense in the third quarter of 2012 reflected average outstanding debt of approximately $1.3 billion and a weighted average interest rate of 8.2%, as compared to average outstanding debt of $1.4 billion and a weighted average interest rate of 7.9% in the third quarter of 2011.

Interest expense decreased $2.5 million to $85.6 million in the first nine months of 2012, as compared to $88.1 million in the first nine months of 2011. The decrease is primarily due to the lower average outstanding debt balances primarily as a result of debt repayments using cash flow from operations and the proceeds from the sale of the Discontinued Operations, offset in part by higher interest expense as a result of our refinancing activities in 2012. Interest expense in the first nine months of 2012 reflected average outstanding debt of approximately $1.3 billion and a weighted average interest rate of 8.1%, as compared to average outstanding debt of $1.4 billion and a weighted average interest rate of 8.0% in the first nine months of 2011.

Loss on Early Extinguishment of Debt

During the first nine months of 2012, in connection with refinancing activities, we incurred a loss on early extinguishment of debt of $13.8 million, of which $10.7 million relates to tender and consent fees paid to consenting lenders, $3.3 million relates to the write-off of previously unamortized debt issuance costs. The loss on early extinguishment is partially offset by the gains on early extinguishment of debt of $2.4 million related to the repurchase of $198.3 million of our 7.875% Notes, $170.0 million of our 10.5% senior notes due 2016, which we refer to as the 10.5% Notes, and $25.4 million of our 8.375% senior subordinated notes due 2014, which we refer to as the 8.375% Notes plus accrued and unpaid interest thereon.


36

Income Taxes
 
 
 
  Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
 
 
(in thousands)
 
(in thousands)
Income tax expense (benefit) from U.S. operations
 
$
(20
)
 
$
4,620

 
$
(1,939
)
 
$
633

Income tax expense from foreign operations
 
908

 
441

 
1,341

 
1,617

Income tax expense (benefit)
 
$
888

 
$
5,061

 
$
(598
)
 
$
2,250

Effective income tax rate
 
16.0
%
 
79.9
%
 
3.2
%
 
75.4
%

In the third quarter of 2012, we had an income tax expense of $0.9 million, compared to an income tax expense of $5.1 million in the third quarter of 2011. The tax expense for the third quarter of 2012 primarily relates to income tax on our foreign operations. The tax expense for the third quarter of 2011 primarily relates to income taxes on our domestic operations. Our effective tax rate in the third quarter of 2012 was lower than the federal statutory rate, primarily due to non-deductible expenses and state income taxes. Our effective tax rate in the quarter ended October 1, 2011 was higher than the federal statutory rate, primarily due to non-deductible expenses and state income taxes.

In the first nine months of 2012, we had an income tax benefit of $0.6 million, compared to an income tax expense of $2.3 million in the first nine months of 2011. The tax benefit for the first nine months of 2012 primarily relates to income taxes on our domestic operations. The income tax expense for the first nine months of 2011, primarily relates to income taxes on our foreign operations. Our effective tax rate in the first nine months of 2012 was lower than the federal statutory rate, primarily due to non-deductible expenses and state income taxes. The income tax expense for the first nine months of 2011 includes income tax expense of $4.3 million related to our bargain purchase gain in connection with the acquisition of EPG. Our effective tax rate in the nine months ended October 1, 2011 was higher than the federal statutory rate, primarily due to non-deductible expenses and state income taxes.

We assess the recoverability of our deferred tax assets and, to the extent recoverability does not satisfy the “more likely than not” recognition criteria, record a valuation allowance against our deferred tax assets. We consider all positive and negative evidence in evaluating our ability to realize our net deferred tax assets, including our operating results, ongoing tax planning, and forecast of future taxable income, on a jurisdiction by jurisdiction basis. Significant judgment is required with respect to the determination of whether or not a valuation allowance is required for certain of our deferred tax assets. As of September 29, 2012, the total valuation allowance on our net U.S. deferred tax assets was approximately $21.5 million.

(Loss) Income from Discontinued Operations, net of taxes
(Loss) income from discontinued operations represents the results of operations, including tax effects of our Discontinued Operations. The results for the third quarter of 2012 include the loss on sale of our Discontinued Operations of $0.2 million, net of a tax benefit of $0.1 million. Loss from discontinued operations was $0.2 million, net of a tax benefit of $0.1 million for the third quarter of 2012.
The results for the first nine months of 2012 include the loss on sale of our Discontinued Operations of $5.4 million, net of a tax benefit of $3.4 million. Income from discontinued operations of $0.3 million, net of taxes of $0.1 million for the first nine months of 2012, include the reduction of a liability of $1.8 million, net of tax expense of $1.2 million, due to the expiration of certain statutes of limitations related to a previous divestiture.

Segment Operations
 
Our Chief Executive Officer monitors the performance of the ongoing operations of our two reportable segments. We assess performance based on net sales and operating income.







37

Print and Envelope
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
 
 
  (in thousands)
 
  (in thousands)
Segment net sales
 
$
343,012

 
$
367,454

 
$
1,016,332

 
$
1,090,999

Segment operating income
 
$
29,876

 
$
29,888

 
$
63,951

 
$
75,262

Operating income margin
 
8.7
%
 
8.1
%
 
6.3
%
 
6.9
%
Restructuring, impairment and other charges
 
$
3,490

 
$
4,223

 
$
21,247

 
$
12,554


Segment Net Sales
 
Segment net sales for our print and envelope segment decreased $24.4 million, or 6.7%, in the third quarter of 2012, as compared to the third quarter of 2011. Net sales for our envelope operations decreased $19.2 million primarily due to: (i) lower sales volumes from our direct mail customers, primarily financial institutions, related to lower demand for customer solicitations and (ii) lower sales volumes from our office product customers due to our decision to exit lower margin business. Net sales for our commercial printing operations declined $5.2 million, primarily due to: (i) lower sales volumes due to the closure and consolidation of a print plant into our existing operations and continued declines in the circulation of journals and periodicals, and (ii) lower sales due to price pressures that continue to exist within the print industry, offset slightly by higher sales from the integration of Nesbitt into our operations, as Nesbitt was not included in our results for a full three months in the third quarter of 2011.

Segment net sales for our print and envelope segment decreased $74.7 million, or 6.8%, in the first nine months of 2012, as compared to the first nine months of 2011. Net sales for our commercial printing operations declined $39.4 million, primarily due to: (i) lower sales volumes due to the closure and consolidation of a print plant into our existing operations, customer product launches that occurred in the first nine months of 2011, but did not repeat in the first nine months of 2012 and continued declines in the circulation of journals and periodicals, and (ii) lower sales due to price pressures that continue to exist within the print industry, offset slightly by higher sales from the integration of Nesbitt into our operations, as Nesbitt was not included in our results for a full nine months in 2011. Net sales of our envelope operations decreased $35.3 million primarily due to: (i) lower sales volumes from our direct mail customers, primarily financial institutions, related to lower demand for customer solicitations and (ii) lower sales volumes from our office product customers due to our decision to exit certain lower margin business. These decreases in our envelope net sales were offset by: (i) higher sales from the integration of EPG into our operations, including the impact of work transitioned from our existing operations to EPG and vice versa, as EPG was not included in our results for a full nine months in 2011, and (ii) higher sales due to our ability to pass along material price increases to our customers.

Segment Operating Income

Segment operating income for our print and envelope segment decreased less than $0.1 million, or 0.1%, in the third quarter of 2012, as compared to the third quarter of 2011. This decrease was primarily due to lower gross margins of $6.7 million, primarily due to increased pension expense, lower byproduct recoveries and continued price pressures, substantially offset by: (i) lower selling, general and administrative expenses of $5.9 million, primarily due to lower commission expense and a lower cost structure due to the integration of EPG into our existing envelope operations, and (ii) lower restructuring, impairment and other charges of $0.7 million.

Segment operating income for our print and envelope segment decreased $11.3 million, or 15.0%, in the first nine months of 2012, as compared to the first nine months of 2011. This decrease was primarily due to: (i) lower gross margins of $17.5 million, primarily due to increased pension expense, lower byproduct recoveries and continued price pressures, and (ii) higher restructuring, impairment and other charges of $8.7 million, primarily due to the closure and consolidation of a print plant and an envelope plant into our existing operations. These decreases were offset in part by lower selling, general and administrative expenses of $15.0 million, primarily due to lower commission expense and a lower cost structure due to the integration of EPG into our existing envelope operations.


38

Label and Packaging
 
 
 
Three Months Ended
 
Nine Months Ended
 
 
September 29, 2012
 
October 1, 2011
 
September 29, 2012
 
October 1, 2011
 
 
(in thousands)
 
(in thousands)
Segment net sales
 
$
108,262

 
$
108,381

 
$
329,432

 
$
331,706

Segment operating income
 
$
12,472

 
$
12,882

 
$
37,343

 
$
36,174

Operating income margin
 
11.5
%
 
11.9
%
 
11.3
%
 
10.9
%
Restructuring, impairment and other charges
 
$
651

 
$
355

 
$
1,153

 
$
1,177


Segment Net Sales

Segment net sales for our label and packaging segment decreased $0.1 million, or 0.1%, in the third quarter of 2012, as compared to the third quarter of 2011. Net sales from our packaging operations decreased $0.8 million, primarily due to our decision to exit certain low margin customer accounts, offset in part by new sales opportunities and our ability to pass along material price increases to our customers. Net sales from our label operations increased $0.7 million, primarily due to increased sales from our custom label business, primarily due to initiatives taken to enhance our e-commerce solution for our customers, offset in part by our decision to exit certain low margin business within our long-run label customer accounts.

Segment net sales for our label and packaging segment decreased $2.3 million, or 0.7%, in the first nine months of 2012, as compared to the first nine months of 2011. Net sales from our label operations declined $1.9 million, primarily due to our decision to exit certain low margin business within our long-run label customer accounts, offset in part by increased sales from our custom label business, primarily due to initiatives taken to enhance our e-commerce solution for our customers. Net sales from our packaging operations decreased $0.3 million, primarily due to lower sales due to our decision to exit certain low margin customer accounts, offset in part by our ability to pass along material price increases to our customers.

Segment Operating Income
 
Segment operating income for our label and packaging segment decreased $0.4 million, or 3.2%, in the third quarter of 2012, as compared to the third quarter of 2011. This decrease was primarily due to higher restructuring, impairment and other charges of $0.3 million.

Segment operating income for our label and packaging segment increased $1.2 million, or 3.2%, in the first nine months of 2012, as compared to the first nine months of 2011. This increase was due to increased gross margins of $0.8 million, primarily due to increased margins in our packaging segment due to our decision to exit certain low margin customer accounts, offset by margin decline in our labels operations due to increased pension expense, and (ii) lower selling, general and administrative expenses of $0.2 million due to cost savings initiatives executed in 2011.

Corporate Expenses

Corporate expenses include the costs of running our corporate headquarters. Corporate expenses were lower by $2.2 million, or 22.9% in the third quarter of 2012, as compared to the third quarter of 2011, primarily due to lower compensation related expenses. Corporate expenses were lower by $9.6 million, or 29.3%, in the first nine months of 2012, as compared to the first nine months of 2011, primarily due to lower compensation related expenses.

Restructuring, Impairment and Other Charges
    
During the first nine months of 2012, we continued the integration of our EPG acquisition and announced the closure and consolidation of a manufacturing facility. We also announced the closure and consolidation of a print plant into our existing print operations. Additionally, we began implementing a cost savings initiative, which collectively with the print plant closure and consolidation, we refer to as the 2012 Plan. The cost saving initiative is primarily focused on our print and envelope segment and our corporate expenses. This initiative will focus on consolidation of office and warehouse space and other overhead cost elimination plans, including targeted headcount reductions of approximately 700 employees.

During the third quarter of 2012, as a result of the 2012 Plan, our EPG integration plan and our residual restructuring and cost savings actions, we incurred $4.2 million of restructuring, impairment and other charges, which included $2.6 million of

39

employee separation costs, asset impairments, net of $0.8 million, equipment moving expenses of $0.1 million, lease termination expenses of $0.1 million, multi-employer pension withdrawal expenses of $0.2 million and building clean-up and other expenses of $0.4 million. During the third quarter of 2011, as a result of our EPG integration plan and residual restructuring and cost savings actions, we incurred $4.7 million of restructuring, impairment and other charges, which included $1.3 million of employee separation costs, asset impairments, net of $0.2 million, equipment moving expenses of $0.6 million, lease termination expenses of $0.6 million, multi-employer pension withdrawal expenses of $1.4 million and building clean-up and other expenses of $0.8 million.

During the first nine months of 2012, as a result of the 2012 Plan, our EPG integration plan and our residual restructuring and cost savings actions, we incurred $22.6 million of restructuring, impairment and other charges, which included $5.9 million of employee separation costs, asset impairments, net of $7.5 million, equipment moving expenses of $0.7 million, lease termination expenses of $0.8 million, multi-employer pension withdrawal expenses of $5.1 million and building clean-up and other expenses of $2.6 million. During the first nine months of 2011, as a result of our EPG integration plan and residual restructuring and cost savings actions, we incurred $14.0 million of restructuring, impairment and other charges, which included $3.3 million of employee separation costs, asset impairments, net of $2.7 million, equipment moving expenses of $2.2 million, lease termination expenses of $1.5 million, multi-employer pension withdrawal expenses of $1.4 million and building clean-up and other expenses of $2.8 million.

As of the quarter ended September 29, 2012, our total restructuring liability was $31.5 million, of which $6.1 million is included in other current liabilities and $25.3 million, which is expected to be paid through 2032, is included in other liabilities in our condensed consolidated balance sheet. Our multi-employer pension withdrawal liabilities are $25.6 million of our remaining restructuring liabilities. We believe these liabilities represent our anticipated ultimate withdrawal liabilities; however, we are exposed to significant risks and uncertainties arising from our participation in these multi-employer pension plans. While it is not possible to quantify the potential impact of our future actions or the future actions of other participating employers from the multi-employer pension plans for which we have exited, our anticipated ultimate withdrawal liabilities may be significantly impacted in the future due to lower future contributions or increased withdrawals from other participating employers.


Liquidity and Capital Resources

Net Cash Provided By Operating Activities of Continuing Operations. Net cash provided by operating activities of continuing operations was $23.4 million in the first nine months of 2012, which was primarily due to our net loss adjusted for non-cash items of $60.8 million, offset by a use of working capital of $24.7 million and pension and post-retirement plan contributions, net of pension expense, of $11.5 million. The use of working capital primarily resulted from: (i) a decrease in other working capital changes primarily due to the timing of interest payments on our outstanding debt and a payment of a litigation settlement, and (ii) a decrease in accounts payable due to the timing of vendor payments. These uses of working capital were offset in part by a decrease in accounts receivables due to the timing of collections from and sales to our customers.
 
Cash provided by operating activities is generally sufficient to meet daily disbursement needs.  On days when our cash receipts exceed disbursements, we reduce our revolving credit balance or place excess funds in conservative, short-term investments until there is an opportunity to pay down debt. On days when our cash disbursements exceed cash receipts, we use invested cash balances and/or our revolving credit to fund the difference. As a result, our daily revolving credit balance fluctuates depending on working capital needs.  Regardless, at all times we believe we have sufficient liquidity available to us to fund our cash needs.

Net cash provided by operating activities of continuing operations was $31.3 million in the first nine months of 2011, which was primarily due to our net income adjusted for non-cash items of $59.0 million, offset by a use of working capital of $9.2 million and pension and post-retirement plan contributions, net of pension expense, of $16.7 million. The use of working capital primarily resulted from: (i) a decrease in other working capital changes primarily due to the timing of customer related payments, and (ii) an increase in our accounts receivables due to the timing of collections from and sales to our customers. These decreases were offset in part by: (i) an increase in accounts payable due to the timing of vendor payments, and (ii) a decrease in our inventories primarily due to our inventory management initiative, which began in the third quarter of 2011.

Net Cash (Used in) Provided by Operating Activities of Discontinued Operations. Represents the net cash (used in) provided by the Discontinued Operations operating activities.

Net Cash Used in Investing Activities of Continuing Operations. Net cash used in investing activities of continuing operations was $12.2 million in the first nine months of 2012, primarily resulting from capital expenditures of $15.6 million and $0.6 million of cash consideration for the acquisition of Nesbitt related to working capital settlement provisions. These uses of

40

cash were offset in part by proceeds received from the sale of property, plant and equipment of $2.3 million and proceeds received from the sale of an intangible asset of $1.7 million.
 
Our debt agreements limit capital expenditures to $40.0 million in 2012 plus any proceeds received from the sale of property, plant and equipment and, if certain conditions are satisfied, any unused permitted amounts from 2011. We estimate that we will spend approximately $20.0 million on capital expenditures in 2012, before considering proceeds from the sale of property, plant and equipment. Our primary sources for our capital expenditures are cash generated from operations, proceeds from the sale of property, plant and equipment, and financing capacity within our current debt arrangements. These sources of funding are consistent with prior years’ funding of our capital expenditures.

Net cash used in investing activities of continuing operations was $59.5 million in the first nine months of 2011, primarily resulting from $59.7 million of cash consideration for the acquisitions of EPG and Nesbitt and capital expenditures of $10.8 million, offset in part by $11.0 million of proceeds from the sale of property, plant and equipment.
Net Cash Provided by (Used in) Investing Activities of Discontinued Operations. Represents the net cash provided by (used in) Discontinued Operations related to investing activities. In the first nine months of 2012, the cash provided by discontinued investing activities relates to net cash proceeds of $39.9 million from the sale of the Discontinued Operations.

Net Cash Used In Financing Activities of Continuing Operations. Net cash used in financing activities of continuing operations was $52.5 million in the first nine months of 2012, primarily due to refinancing activities, including the issuance of $65 million aggregate principal amount of an additional term loan, which we refer to as the Term Loan Add-On, the repayment of $45.1 million of term loans primarily as a result of the excess cash flow sweep feature and the open market repurchases and retirements of our 7.875% Notes, 10.5% Notes and 8.375% Notes, of approximately $79.8 million, $5.0 million and $2.0 million, respectively, for $77.9 million, $4.9 million and $1.6 million, respectively, plus accrued and unpaid interest. These refinancing activities also included: (i) the repayment of $118.4 million of our 7.875% Notes, $165.0 million of our 10.5% Notes, and $23.2 million of our 8.375% Notes, (ii) the payment of $30.0 million of tender and consent fees and related transaction costs, (iii) the issuance of our $225.0 million 11.5% senior notes due 2017, which we refer to as the 11.5% Notes with an original issuance discount of $8.3 million, and (iv) the issuance of our $86.3 million 7% senior exchangeable notes due 2017, which we refer to as the 7% Notes. These decreases were offset by (i) proceeds from the issuance of our 11.5% Notes (ii) proceeds from the issuance of our 7% Notes, and (iii) borrowings under our revolving credit facility.

Net cash used in financing activities of continuing operations was $8.3 million in the first nine months of 2011, primarily due to repayments of our other long-term debt of $4.5 million and our Term Loan B due 2016 of $2.9 million.

Net Cash Used in Financing Activities of Discontinued Operations. Represents the net cash used in Discontinued Operations related to financing activities. In the first nine months of 2012, the cash used in discontinued financing activities relates to fees paid by us to amend our 2010 Credit Facilities of $1.7 million.

Long-Term Debt. Our total outstanding long-term debt, including current maturities, was approximately $1.2 billion as of September 29, 2012, a decrease of $29.5 million from December 31, 2011. As of September 29, 2012, approximately 66% of our debt outstanding was subject to fixed interest rates. As of November 6, 2012, we had approximately $26.0 million borrowing availability under our 2010 Revolving Credit Facility. From time to time we may seek to refinance our debt obligations as business needs and market conditions warrant.

On June 8, 2012, we issued the Term Loan Add-On in the principal amount of $65 million, under our senior secured credit agreement, which includes a $170 million revolving credit facility due 2014, which we refer to as the 2010 Revolving Credit Facility, and a $380 million term loan due 2016, which we refer to as the Term Loan B, collectively we refer to as our 2010 Credit Facilities. The Term Loan Add-On was issued at a discount of approximately $0.7 million. Concurrently with the Term Loan Add-On, we amended the 2010 Credit Facilities, which we refer to as the Add-On Amendment, to allow for the repurchase of up to $135 million of our 7.875% Notes, subject to maintaining certain liquidity thresholds and other customary conditions. We capitalized debt issuance costs of $1.8 million, which will be amortized over the remaining life of the 2010 Credit Facilities. Consenting lenders received $2.0 million for the Add-On Amendment, of which $1.1 million was capitalized and will be amortized over the remaining life of our 2010 Credit Facilities. Additionally, the interest rate margin for all loans under the 2010 Credit Facilities increased to (i) 5.125% from 4.75% per annum for London Interbank Offered Rate (“LIBOR”) based loans and to (ii) 4.125% from 3.75% per annum for prime rate loans. The Add-On Amendment also delayed a step down in the maximum first lien leverage ratio covenant to 2.25x from 2.50x until the first quarter of 2013. Proceeds from the Term Loan Add-On were initially used to repay outstanding revolving credit borrowings and to pay related fees and expenses, which will provide capacity under the 2010 Revolving Credit Facility to repurchase the 7.875% Notes.

41

    
On March 28, 2012, we issued $225 million aggregate principal amount of our 11.5% Notes that were sold with registration rights to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933, and to certain non-U.S. persons in accordance with Regulation S under the Securities Act of 1933.  The 11.5% Notes were issued at a discount of approximately $8.3 million, of which $7.6 million remains unamortized as of September 29, 2012. The 11.5% Notes were issued pursuant to an indenture, which we refer to as the 11.5% Indenture, among us, certain subsidiary guarantors and U.S. Bank National Association, as trustee. We will pay interest on the 11.5% Notes semi-annually, in cash in arrears, on May 15 and November 15 of each year, commencing May 15, 2012. The 11.5% Notes have no required principal payments prior to their maturity on May 15, 2017.  The 11.5% Notes are guaranteed on a senior unsecured basis by us and substantially all of our existing and future North American subsidiaries. As such, the 11.5% Notes rank pari passu with all of our existing and future senior debt and senior to any of our subordinated debt. We may redeem the 11.5% Notes, in whole or in part, on or after May 15, 2015, at redemption prices ranging from 100.0% to approximately 105.75%, plus accrued and unpaid interest. In addition, at any time prior to May 15, 2015, we may redeem up to 35% of the aggregate principal amount of the notes originally issued with the net cash proceeds of certain public equity offerings, at a redemption price of 111.50% plus accrued and unpaid interest. We may also redeem some or all of the 11.5% Notes before May 15, 2015 at a redemption price of 100% of the principal amount, plus accrued and unpaid interest, if any, to the redemption date, plus a “make whole” premium. Each holder of the 11.5% Notes has the right to require us to repurchase such holder's notes at a purchase price of 101% of the principal amount thereof, plus accrued and unpaid interest thereon, upon the occurrence of certain events specified in the indenture that constitute a change of control. The 11.5% Indenture contains a number of covenants that, among other things, restrict, subject to certain exceptions, our ability and the ability of our subsidiaries, to incur or guarantee additional indebtedness, make restricted payments (including paying dividends on, redeeming or repurchasing our capital stock), permit restricted subsidiaries to pay dividends or make other distributions or payments, dispose of assets, make investments, grant liens on assets, merge or consolidate or transfer certain assets, and enter into transactions with affiliates. The 11.5% Indenture also contains certain customary affirmative covenants. In order to fulfill our registration rights obligations, on May 10, 2012, we launched a registered exchange offer, which we refer to as the Exchange Offer, to exchange any and all of our unregistered 11.5% Notes for publicly tradeable notes having substantially identical terms, except for the elimination of some transfer restrictions, registration rights and additional interest payments relating to the outstanding notes. The Exchange Offer expired on June 18, 2012.

Concurrently with the 11.5% Notes, we issued $86.3 million aggregate principal amount of its 7% Notes that were sold to qualified institutional buyers in accordance with Rule 144A under the Securities Act of 1933.  The 7% Notes were issued pursuant to an indenture, which we refer to as the 7% Indenture, among us, certain subsidiary guarantors and U.S. Bank National Association, as trustee. We will pay interest on the 7% Notes semi-annually, in cash in arrears, on May 15 and November 15 of each year, commencing November 15, 2012. The 7% Notes have no required principal payments prior to their maturity on May 15, 2017.  The 7% Notes are guaranteed on a senior unsecured basis by us and substantially all of our North American subsidiaries. As such, the 7% Notes rank pari passu with all of our existing and future senior debt and senior to any of our subordinated debt. We may not redeem the notes at its option. Upon a fundamental change, as defined in the 7% Indenture, holders of 7% Notes may require us to repurchase all or a portion of such holder's notes for cash at a repurchase price equal to 100% of the principal amount of the notes to be repurchased, plus any accrued and unpaid interest to, but excluding, the fundamental change repurchase date, as defined in the 7% Indenture. The 7% Indenture does not contain any financial covenants or any restrictions, among other things, on the payment of dividends, the incurrence of other indebtedness, or the issuance or repurchase of securities by us. The 7% Indenture does not contain any covenants or other provisions to protect holders of the notes in the event of a highly leveraged transaction or a change of control, except to the extent described in the 7% Indenture.

The 7% Notes are exchangeable at any time prior to the close of business on the business day immediately preceding the maturity date for shares of our common stock at an exchange rate of 241.5167 shares per $1,000 principal amount of 7% Notes, which is equal to an exchange price of approximately $4.14 per share, subject to adjustment under certain specified circumstances. This represents a premium of 22.5% above the last reported sale price of our common stock on the New York Stock Exchange on Thursday, March 22, 2012, which was $3.38 per share. If a holder elects to exchange notes in connection with a make-whole fundamental change, as described in the 7% Indenture, such holder may also be entitled to receive a make-whole premium upon exchange in certain circumstances.

Net proceeds of the 11.5% Notes and 7% Notes together with borrowings under our 2010 Revolving Credit Facility were used to fund the cash tender offers for any and all of our 8.375% Notes and 10.5% Notes, plus $45 million aggregate principal amount of our 7.875% Notes and to repurchase an additional $73.4 million of 7.875% Notes through open market, negotiated purchases to refinance such indebtedness, and to pay related fees and expenses. In connection with the issuance of the 11.5% Notes and the 7% Notes, we capitalized debt issuance costs of $6.0 million and $3.0 million, respectively, all of which will be amortized over the life of the 11.5% Notes and the 7% Notes.

In the third quarter of 2012, we purchased in the open market approximately $16.0 million of our 7.875% Notes and

42

retired them for $16.2 million including accrued and unpaid interest. In connection with the retirement, we wrote-off of $0.1 million of unamortized debt issuance costs. Since September 29, 2012, we have purchased an additional $1.0 million of 7.875% Notes and retired them for $1.0 million including accrued and unpaid interest. In the second quarter of 2012, we purchased in the open market approximately $50.0 million of our 7.875% Notes and retired them for $49.5 million including accrued and unpaid interest. In connection with the retirement, we recorded a gain on early extinguishment of debt of $0.3 million, which includes the write-off of $0.1 million of unamortized debt issuance costs. In the first quarter of 2012 and prior to launching tender offers for our 7.875% Notes, 10.5% Notes and 8.375% Notes, we purchased in the open market approximately $13.8 million, $5.0 million and $2.0 million of our 7.875% Notes, 10.5% Notes and 8.375% Notes, respectively, and retired them for $12.2 million, $4.9 million and $1.6 million, respectively, including accrued and unpaid interest.

We expect to continue to repurchase the 7.875% Notes throughout the remainder of this year and into 2013. Per our 2010 Credit Facilities agreement, if on June 1, 2013 any of our 7.875% Notes remain outstanding, then all loans under the 2010 Credit Facilities, including our 2010 Revolving Credit Facility, our Term Loan B and our Term Loan Add-On, will mature on September 2, 2013. We announced that we have been evaluating several alternatives to address the 2013 maturity by the end of 2012, including an unsecured loan. We expect to finalize this process shortly and expect to announce a solution at that time. If we do not complete these transactions, we believe that our cash flow generation, the availability on our revolving credit facility and proceeds from the sale of real estate and non-core product lines currently being marketed by us, will be sufficient to address the remaining 7.875% Notes maturity.
 
Effective March 5, 2012, we increased our borrowing capacity under the 2010 Revolving Credit Facility to $170 million from $150 million as a result of receiving an additional commitment, as permitted under the 2010 Credit Facilities. On March 9, 2012, we repaid $34.7 million of Term Loan B as part of our required excess cash flow payment.

In February 2012, we amended our 2010 Credit Facilities, which we refer to as the 2012 Amendment, which includes 2010 Revolving Credit Facility and our $380 million term loan due 2016, which we refer to as our Term Loan B, to increase its restricted dispositions basket in connection with the sale of the Documents Group. The 2012 Amendment required that 25% of net proceeds be used to repay the Term Loan B and required that the remaining amount be used to reinvest in the business or refinance certain existing debt. On February 14, 2012, we repaid $9.5 million of the Term Loan B in connection with this provision. The 2012 Amendment required us to repay unsecured and second lien debt in an amount equal to 75% of the net proceeds. In connection with the 2012 Amendment we paid $1.7 million to consenting lenders and related fees.

Our 2010 Credit Facilities include financial covenants requiring us to operate within certain ratio thresholds with respect to our overall leverage, interest coverage, and first lien leverage. Failure to maintain these ratio thresholds, and/or failure to have effective internal controls would prevent us from borrowing additional amounts and could result in a default under the 2010 Credit Facilities.  Such default could cause the indebtedness outstanding under the 2010 Credit Facilities and, by reason of cross-acceleration or cross-default provisions, all of the other outstanding notes and any other indebtedness we may then have, to become immediately due and payable.
 
As the 2010 Credit Facilities have senior secured and first priority lien position in our capital structure and have the most restrictive covenants, therefore provided we are in compliance with the 2010 Credit Facilities, we would also be in compliance, in most circumstances, with our debt incurrence tests within all of our indentures.
 
As of September 29, 2012, we were in compliance with all debt agreement covenants.

Letters of Credit
 
On September 29, 2012, we had outstanding letters of credit of approximately $19.8 million related to performance and payment guarantees. Based on our experience with these arrangements, we do not believe that any obligations that may arise will be significant.


43

Credit Ratings

Our current credit ratings are as follows:
Rating Agency
 
Corporate
Rating
 
 
2010
Credit
Facilities
 
8.875%
Notes
 
11.5%
Notes
 
7.875%
Notes
 
Outlook
 
Last Update
Moody’s
 
B3
 
Ba3
 
B3
 
Caa2
 
Caa2
 
Negative
 
July 2012
Standard & Poor’s
 
B
 
BB-
 
B-
 
CCC+
 
CCC+
 
Negative
 
October 2012
In July 2012, Moody's Investors Services, which we refer to as Moody's, reaffirmed our Corporate Rating and the ratings on our 2010 Credit Facilities, 8.875% Notes, 11.5% Notes, and 7.875% Notes. The detail of our current ratings have been provided in the table above. In October 2012, Standard & Poor's Ratings Services, which we refer to as Standard & Poor's, reaffirmed our Corporate Rating and the ratings on our 2010 Credit Facilities, 8.875% Notes, 11.5% Notes and 7.875% Notes. The detail of our current ratings have been provided in the table above.
The terms of our existing debt do not have any rating triggers that impact our funding availability or influence our daily operations, including planned capital expenditures. We do not believe that our current ratings will unduly influence our ability to raise additional capital if and/or when needed. Some of our constituents closely track rating agency actions and would note any raising or lowering of our credit ratings; however, we believe that along with reviewing our credit ratings, additional quantitative and qualitative analysis must be performed to accurately judge our financial condition.
We expect that our internally generated cash flows and financing available under our 2010 Revolving Credit Facility will be sufficient to fund our working capital needs for the next twelve months; however, this cannot be assured.

Contractual Obligations

Contractual obligations disclosed in our 2011 Form 10-K increased by approximately $67.5 million as a result of our 2012 refinancing activities, the Term Loan Add-On and continued repurchases of our 7.875% Notes. Our expected future cash interest payments on long-term debt increased by approximately $80.1 million, primarily due to the extension of maturities on our outstanding debt and our outstanding long-term debt decreased by approximately $12.6 million, which excludes original issuance discounts.

Seasonality 
Our print plants also experience seasonal variations. Revenues associated with consumer publications, such as holiday catalogs and automobile brochures tend to be concentrated from July through October. Revenues from annual reports are generally concentrated from February through April.  Revenues associated with the educational and scholastic market and promotional materials tend to decline in the summer. As a result of these seasonal variations, some of our print operations operate at or near capacity at certain times throughout the year. Our envelope market and certain segments of the direct mail market have historically experienced seasonality with a higher percentage of volume of products sold to these markets occurring during the fourth quarter of the year primarily related to holiday purchases.
Our general label business has historically experienced a seasonal increase to net sales during the first and second quarters of the year primarily resulting from the release of our product catalogs to the trade channel customers and our customers’ spring advertising campaigns. Our prescription label business has historically experienced seasonality in net sales due to cold and flu seasons generally concentrated in the fourth and first quarters of the year. As a result of these seasonal variations, some of our label operations operate at or near capacity at certain times throughout the year.

New Accounting Pronouncements
 
We are required to adopt certain new accounting pronouncements. See Note 1 to our condensed consolidated financial statements included herein.
 
Available Information
 
Our Internet address is: www.cenveo.com. We make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to

44

Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such documents are filed electronically with the SEC. In addition, our earnings conference calls are archived for replay on our website.

Item 3. Quantitative and Qualitative Disclosures About Market Risk
 
We are exposed to market risks such as changes in interest and foreign currency exchange rates, which may adversely affect our results of operations and financial position.

As of September 29, 2012, we had variable rate debt outstanding of $418.8 million. Our Term Loan B is subject to a London Interbank Offered Rate, which we refer to as LIBOR, floor of 1.5%. As such, a change of 1% to current LIBOR rates would have a minimal impact to our interest expense.

Our changes in foreign currency exchange rates are managed through normal operating and financing activities. We have foreign operations, primarily in Canada and India, and thus are exposed to market risk for changes in foreign currency exchange rates. For the three and nine months ended September 29, 2012, a uniform 10% strengthening of the United States dollar relative to the local currency of our foreign operations would have resulted in a decrease in sales of approximately $2.1 million and $6.4 million, respectively, and operating income of approximately $0.2 million and $0.5 million, respectively.

Item 4. Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation 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, as amended (“Exchange Act”)) as of September 29, 2012. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 29, 2012 in order to provide reasonable assurance that information required to be disclosed by the Company in its filings under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
 
Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in the Exchange Act Rule 13a-15(f) and 15d-15(f)) during the quarter ended September 29, 2012 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
 
Inherent Limitations on Effectiveness of Controls
 
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.


45

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in claims or lawsuits that arise in the ordinary course of business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed probable and estimable. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is our opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material adverse effect on our consolidated financial statements.
In January of 2012, we reached an agreement with all parties to settle all controversies and disputes with prejudice in connection with certain civil litigations filed in the United States District Court for the Northern District of New York and in the Superior Court of New Jersey, Burlington County. We funded this settlement in the first quarter of 2012.
In September of 2011, we reached an agreement with all defendants to settle all controversies and disputes and agreed to dismiss all claims against the defendants with prejudice in connection with a civil litigation filed in Minneapolis, Minnesota. This settlement was received in the third quarter of 2011.
In the case of administrative proceedings related to environmental matters involving governmental authorities, we do not believe that any imposition of monetary damages or fines would be material.

Item 1A. Risk Factors
 
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk factors” in our Annual Report on Form 10-K for the year ended December 31, 2011, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results. 


46

Item 6.
Exhibits
 
 
Exhibit
Number
 
Description
 
 
 
2.1
Stock Purchase Agreement dated as of July 17, 2007 among Cenveo Corporation, Commercial Envelope Manufacturing Co., Inc. and its shareholders—incorporated by reference to Exhibit 2.1 to registrant’s current report on Form 8-K filed July 20, 2007.
 
 
3.1
Articles of Incorporation—incorporated by reference to Exhibit 3(i) of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997.
 
 
3.2
Articles of Amendment to the Articles of Incorporation dated May 17, 2004—incorporated by reference to Exhibit 3.2 to registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2004, filed August 2, 2004.
 
 
3.3
Amendment to Articles of Incorporation and Certificate of Designations of Series A Junior Participating Preferred Stock of the Registrant dated April 20, 2005—incorporated by reference to Exhibit 3.1 to registrant’s current report on Form 8-K filed April 21, 2005.
 
 
3.4
Bylaws as amended and restated effective February 22, 2007—incorporated by reference to Exhibit 3.2 to registrant’s current report on Form 8-K filed August 30, 2007.
 
 
4.1
Indenture dated as of February 4, 2004 between Mail-Well I Corporation, the Guarantors named therein and U.S. Bank National Association, as Trustee, and Form of Senior Subordinated Note and Guarantee relating to Mail-Well I Corporation’s 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.5 to registrant’s annual report on Form 10-K for the year ended December 31, 2003, filed February 27, 2004.
 
 
4.2
Supplemental Indenture, dated as of June 21, 2006 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.2 to registrant’s current report on Form 8-K filed June 27, 2006.
 
 

47

4.3
Third Supplemental Indenture, dated as of March 7, 2007 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.7 to registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2007, filed May 9, 2007.
 
 
4.4
Fourth Supplemental Indenture, dated as of July 9, 2007 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.8 to registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2007, filed August 8, 2007.
 
 
4.5
Fifth Supplemental Indenture, dated as of August 30, 2007 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.6 to registrant’s quarterly report on Form 10-Q for the quarter ended September 29, 2007, filed November 8, 2007.
 
 
4.6
Sixth Supplemental Indenture, dated as of April 16, 2008 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.7 to registrant’s quarterly report on Form 10-Q for the quarter ended June 28, 2008, filed August 7, 2008.
 
 
4.7
Seventh Supplemental Indenture, dated as of August 20, 2008 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.8 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 2008, filed November 5, 2008.
 
 
4.8
Eighth Supplemental Indenture, dated as of October 15, 2009 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.1 to registrant’s current report on Form 8-K filed October 16, 2009.
 
 
4.9
Ninth Supplemental Indenture, dated as of December 21, 2010 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.9 to registrant’s annual report on Form 10-K for the year ended January 1, 2011, filed March 2, 2011.
 
 
4.10
Tenth Supplemental Indenture, dated as of March 2, 2011 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7.875% Senior Subordinated Notes due 2013—incorporated by reference to Exhibit 4.10 to registrant’s quarterly report on Form 10-Q for the quarter ended April 2, 2011, filed May 11, 2011.
 
 
4.11
Indenture, dated as of June 15, 2004, among Cadmus Communications Corporation, the Guarantors named therein and Wachovia Bank, National Association, as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.9 to Cadmus Communications Corporation’s registration statement on Form S-4 filed August 24, 2004.

48

4.12
First Supplemental Indenture, dated as of March 1, 2005, to the Indenture dated as of June 15, 2004, among Cadmus Communications Corporation, the Guarantors named therein Mack Printing, LLC and Wachovia Bank, National Association, as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.9.1 to Cadmus Communications Corporation’s quarterly report on Form 10-Q for the quarter ended March 31, 2005, filed May 13, 2005.
 
 
4.13
Second Supplemental Indenture, dated as of May 19, 2006, to the Indenture dated as of June 15, 2004, among Cadmus Communications Corporation, the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.9.2 to Cadmus Communications Corporation’s annual report on Form 10-K for the year ended July 1, 2006, filed September 13, 2006.
 
 
4.14
Third Supplemental Indenture, dated as of March 7, 2007, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.11 to registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2007, filed May 9, 2007.
 
 
 
4.15
Fourth Supplemental Indenture, dated as of July 9, 2007, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.13 to registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2007, filed August 8, 2007.
 
 
 
4.16
Fifth Supplemental Indenture, dated as of August 30, 2007, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.13 to registrant’s quarterly report on Form 10-Q for the quarter ended September 29, 2007, filed November 8, 2007.
 
 
 
 
4.17
Sixth Supplemental Indenture, dated as of November 7, 2007, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.12 to registrant’s annual report on Form 10-K for the year ended December 29, 2007, filed March 28, 2008.
 
 
 
 
4.18
Seventh Supplemental Indenture, dated as of April 16, 2008, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.16 to registrant’s quarterly report on Form 10-Q for the quarter ended June 28, 2008, filed August 7, 2008.
 
 
 
 
4.19
Eighth Supplemental Indenture, dated as of August 20, 2008, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.18 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 2008, filed November 5, 2008.
 
 
 
 

49

4.20
Ninth Supplemental Indenture, dated as of October 15, 2009, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.2 to registrant’s current report on Form 8-K filed October 16, 2009.
 
 
 
 
4.21
Tenth Supplemental Indenture, dated as of December 21, 2010, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the Subsidiary Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.20 to registrant’s annual report on Form 10-K for the year ended January 1, 2011, filed March 2, 2011.
 
 
 
 
4.22
Eleventh Supplemental Indenture, dated as of March 2, 2011, to the Indenture dated as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus Communications Corporation), the  Guarantors named therein and U.S. Bank National Association (successor to Wachovia Bank, National Association), as Trustee, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.22 to registrant’s quarterly report on Form 10-Q for the quarter ended April 2, 2011, filed May 11, 2011.
 
 
 
 
4.23
Twelfth Supplemental Indenture, dated as of March 28, 2012, by and among Cenveo Corporation (as successor to Cadmus Communications Corporation), the subsidiary guarantors named therein and U.S. Bank National Association, as Trustee, to the indenture dated as of June 15, 2004, relating to the 8.375% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.1 to registrant's current report on Form 8-K filed March 30, 2012.
 
 
 
 
4.24
Indenture dated as of February 5, 2010 among Cenveo Corporation, the Guarantors named therein and Wells Fargo Bank, National Association, as Trustee, relating to the 8.875% Notes of Cenveo Corporation —incorporated by reference to Exhibit 4.1 to registrant’s current report on Form 8-K filed February 9, 2010.
 
 
 
 
4.25
First Supplemental Indenture, dated as of December 21, 2010, to the Indenture dated as of February 5, 2010 among Cenveo Corporation, the Guarantors named therein and Wells Fargo Bank, National Association, as Trustee, relating to the 8.875% Notes of Cenveo Corporation—incorporated by reference to Exhibit 4.28 to registrant’s annual report on Form 10-K for the year ended January 1, 2011, filed March 2, 2011.
 
 
 
 
4.26
Second Supplemental Indenture, dated as of March 2, 2011, to the Indenture dated as of February 5, 2010 among Cenveo Corporation, the Guarantors named therein and Wells Fargo Bank, National Association, as Trustee, relating to the 8.875% Notes of Cenveo Corporation—incorporated by reference to Exhibit 4.32 to registrant’s quarterly report on Form 10-Q for the quarter ended April 2, 2011, filed May 11, 2011.
 
 
 
 
4.27
Form of Guarantee issued by Cenveo, Inc. and the other Guarantors named therein relating to the 8.875% Notes of Cenveo Corporation—incorporated by reference to Exhibit 4.2 to registrant’s current report on Form 8-K filed February 9, 2010.
 
 
 
 
4.28
Form of Note issued by Cenveo Corporation—incorporated by reference to Exhibit 4.2 to registrant's current report on Form 8-K filed February 9, 2010.
 
 
 
 
4.29
Registration Rights Agreement dated as of February 5, 2010 among Cenveo Corporation, Cenveo, Inc., the other Guarantors named therein and the initial purchasers named therein—incorporated by reference to Exhibit 4.3 to registrant’s current report on Form 8-K filed February 9, 2010.
 

50

 
 
 
4.30
Intercreditor Agreement dated as of February 5, 2010 among Cenveo Corporation, Cenveo, Inc., the other Guarantors named therein and the initial purchasers named therein—incorporated by reference to Exhibit 4.4 to registrant’s current report on Form 8-K filed February 9, 2010.
 
 
 
 
4.31
Second Lien Pledge and Security Agreement dated as of February 5, 2010 among Cenveo Corporation, Cenveo, Inc., the other grantors named therein and Wells Fargo Bank, National Association, as collateral agent—incorporated by reference to Exhibit 4.28 to registrant’s annual report on Form 10-K for the year ended January 2, 2010, filed March 3, 2010.
 
 
 
 
4.32
Second Lien Intellectual Property Security Agreement dated as of February 5, 2010 among Cenveo Corporation, Cenveo, Inc., the other grantors named therein and Wells Fargo Bank, National Association, as collateral agent—incorporated by reference to Exhibit 4.29 to registrant’s annual report on Form 10-K for the year ended January 2, 2010, filed March 3, 2010.
 
 
 
 
4.33
Indenture, dated as of March 28, 2012, by and among the Company, Cenveo Corporation, the other guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 11.5% Notes—incorporated by reference to Exhibit 4.3 to registrant's current report on Form 8-K filed March 30, 2012.
 
 
 
 
4.34
Form of Guarantee issued by the Company and the other guarantors named therein relating to the 11.5% Notes—incorporated by reference to Exhibit 4.4 to registrant's current report on Form 8-K filed March 30, 2012.
 
 
 
 
4.35
Registration Rights Agreement, dated as of March 28, 2012, among the Company, Cenveo Corporation, the other guarantors named therein and the initial purchasers named therein relating to the 11.5% Notes—incorporated by reference to Exhibit 4.7 to registrant's current report on Form 8-K filed March 30, 2012.
 
 
 
 
4.36
Indenture, dated as of March 28, 2012, by and among the Company, Cenveo Corporation, the other guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 7% Notes—incorporated by reference to Exhibit 4.5 to registrant's current report on Form 8-K filed March 30, 2012.
 
 
 
 
4.37
Form of Guarantee issued by the Company and the other guarantors named therein relating to the 7% Notes—incorporated by reference to Exhibit 4.5 to registrant's current report on Form 8-K filed March 30, 2012.
 
 
 
 
10.1
Credit Agreement Supplement, dated as of June 5, 2012, among Cenveo Corporation, Cenveo, Inc., Bank of America, N.A., as Administrative Agent, and Bank of America, N.A., as Incremental Term Loan Lender-incorporated by reference to Exhibit 10.1 to registrant's current report on Form 8-K filed June 8, 2012.
 
 
 
 
10.2
Third Amendment, dated as of June 5, 2012, to Credit Agreement dated as of December 21, 2010 among Cenveo Corporation, Cenveo, Inc., Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer, and the other lenders party thereto-incorporated by reference to Exhibit 10.2 to registrant's current report on Form 8-K filed June 8, 2012.
 
 
 
 
31.1*
Certification by Robert G. Burton, Sr., Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 
31.2*
Certification by Scott J. Goodwin, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
 

51

32.1*
Certification of the Chief Executive Officer and of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this report on Form 10-Q.
 
 
 
 
101.INS**
XBRL Instance Document.
 
 
 
 
101.SCH**
XBRL Taxonomy Extension Schema Document.
 
 
 
 
101.CAL**
XBRL Taxonomy Extension Calculation Linkbase Document.
 
 
 
 
101.LAB**
XBRL Taxonomy Extension Label Linkbase Document.
 
 
 
 
101.PRE**
XBRL Taxonomy Extension Presentation Linkbase Document.
 
 
 
 
101.DEF**
XBRL Taxonomy Extension Definition Linkbase Document.
 
 
________________________
+Management contract or compensatory plan or arrangement.
*Filed herewith.
**Furnished herewith.


52

SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 7, 2012.
 

 
CENVEO, INC.
 
 
 
 
 
 
By:
/s/ Robert G. Burton, Sr.
 
 
Robert G. Burton, Sr.
 
 
Chairman and Chief Executive Officer
 
 
(Principal Executive Officer)
 
 
 
 
 
 
 
By:
/s/ Scott J. Goodwin
 
 
Scott J. Goodwin
 
 
Chief Financial Officer
 
 
(Principal Financial Officer and
 
 
Principal Accounting Officer)


53