**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 30, 2007**




**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 x  No
      o




Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange
      Act.   Large accelerated filer x   Accelerated
      filer o  Non-accelerated
      filer 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
      x




As
      of November 1, 2007 the registrant had 53,800,448 shares of common stock
      outstanding.























**PART
      I. FINANCIAL INFORMATION**




**Item
                1.   Financial
                Statements**




**CENVEO,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED BALANCE SHEETS**


**(in
      thousands)**


**(Unaudited)**




**September
                30, 2007**
            
            **December
                31, 2006****Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            11,712
            
            $
            10,558Accounts
                receivable, net
            
            
            345,858
            
            
            230,098Inventories
            
            
            175,329
            
            
            92,406Assets
                held for sale
            
            
            4,278
            
            
            51,966Prepaid
                and other current assets
            
            
            48,384
            
            
            41,413Total
                current assets
            
            
            585,561
            
            
            426,441Property,
                plant and equipment, net
            
            
            438,270
            
            
            251,103Goodwill
            
            
            685,173
            
            
            258,136Other
                intangible assets, net
            
            
            273,790
            
            
            31,985Other
                assets, net
            
            
            42,993
            
            
            34,285Total
                assets
            
            $
            2,025,787
            
            $
            1,001,950**Liabilities
                and Shareholders’ Equity**Current
                liabilities:Current
                maturities of long-term debt
            
            $
            17,937
            
            $
            7,513Accounts
                payable
            
            
            169,846
            
            
            116,067Accrued
                compensation and related liabilities
            
            
            58,603
            
            
            40,242Other
                current liabilities
            
            
            88,054
            
            
            63,609Total
                current liabilities
            
            
            334,440
            
            
            227,431Long-term
                debt
            
            
            1,447,472
            
            
            667,782Deferred
                income taxes
            
            
            59,193
            
            
            4,356Other
                liabilities
            
            
            97,208
            
            
            40,640Commitments
                and contingencies
              Shareholders’
                equity:Preferred
                stock
            
            
            —
            
            
            —Common
                stock
            
            
            538
            
            
            535Paid-in
                capital
            
            
            251,055
            
            
            244,894Retained
                deficit
            
            
            (161,938
            )
            
            (186,436
            )Accumulated
                other comprehensive (loss) income
            
            
            (2,181
            )
            
            2,748Total
                shareholders’ equity
            
            
            87,474
            
            
            61,741Total
                liabilities and shareholders’ equity
            
            $
            2,025,787
            
            $
            1,001,950




See
      notes to condensed consolidated financial statements.


1




**CENVEO,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


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


**(Unaudited)**




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            **2007**
            
            **2006**Net
                sales
            $
            550,601
            
            $
            383,868
            
            $
            1,462,275
            
            $
            1,127,049Cost
                of sales
            
            433,774
            
            
            307,013
            
            
            1,166,483
            
            
            901,233Selling,
                general and administrative
            
            63,650
            
            
            45,703
            
            
            168,173
            
            
            145,874Amortization
                of intangible assets
            
            2,819
            
            
            1,422
            
            
            7,245
            
            
            3,984Restructuring
                and impairment charges
            
            20,312
            
            
            4,702
            
            
            32,094
            
            
            35,390Operating
                income
            
            30,046
            
            
            25,028
            
            
            88,280
            
            
            40,568(Gain)
                loss on sale of non-strategic businesses
            
            (189
            )
            
            —
            
            
            (189
            )
            
            1,849Interest
                expense, net
            
            25,283
            
            
            13,939
            
            
            63,091
            
            
            47,013Loss
                on early extinguishment of debt
            
            51
            
            
            —
            
            
            9,256
            
            
            32,744Other
                expense (income), net
            
            899
            
            
            102
            
            
            2,068
            
            
            (382
            )Income
                (loss) from continuing operations before income taxes
            
            4,002
            
            
            10,987
            
            
            14,054
            
            
            (40,656
            )Income
                tax expense
            
            160
            
            
            1,697
            
            
            4,698
            
            
            4,704Income
                (loss) from continuing operations
            
            3,842
            
            
            9,290
            
            
            9,356
            
            
            (45,360
            )Income
                (loss) from discontinued operations, net of taxes
            
            (810
            )
            
            2,326
            
            
            15,142
            
            
            136,083Net
                income
            $
            3,032
            
            $
            11,616
            
            $
            24,498
            
            $
            90,723Income
                (loss) per share - basic:Continuing
                operations
            $
            0.07
            
            $
            0.18
            
            $
            0.18
            
            $
            (0.85
            )Discontinued
                operations
            
            (0.01
            )
            
            0.04
            
            
            0.28
            
            
            2.55Net
                income
            $
            0.06
            
            $
            0.22
            
            $
            0.46
            
            $
            1.70Income
                (loss) per share - diluted:Continuing
                operations
            $
            0.07
            
            $
            0.17
            
            $
            0.17
            
            $
            (0.85
            )Discontinued
                operations
            
            (0.01
            )
            
            0.04
            
            
            0.28
            
            
            2.55Net
                income
            $
            0.06
            
            $
            0.21
            
            $
            0.45
            
            $
            1.70Weighted
                average shares:Basic
            
            53,572
            
            
            53,342
            
            
            53,545
            
            
            53,237Diluted
            
            54,531
            
            
            54,189
            
            
            54,614
            
            
            53,237




See
      notes to condensed consolidated financial statements.


2


**CENVEO,
      INC. AND SUBSIDIARIES**


**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(in
      thousands)**


**(Unaudited)**


**Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**Cash
                flows from operating activities:Net
                income
            
            $
            24,498
            
            $
            90,723Adjustments
                to reconcile net income to net cash provided by (used in) operating
                activities:Gain
                on sale of discontinued operations, net of taxes
            
            
            (15,962
            )
            
            (126,353
            )(Income)
                loss from discontinued operations, net of taxes
            
            
            820
            
            
            (9,730
            )Depreciation
                and amortization, excluding non-cash interest expense
            
            
            46,427
            
            
            30,487Non-cash
                interest expense, net
            
            
            1,044
            
            
            1,353Loss
                on early extinguishment of debt
            
            
            9,256
            
            
            32,744Stock-based
                compensation provision
            
            
            7,166
            
            
            3,363Non-cash
                restructuring and impairment charges
            
            
            17,153
            
            
            6,244Deferred
                income taxes
            
            
            4,082
            
            
            —(Gain)
                loss on sale of non-strategic businesses
            
            
            (189
            )
            
            1,849Other
                non-cash charges, net
            
            
            5,817
            
            
            2,959Changes
                in operating assets and liabilities, excluding the effects of acquired
                businesses:Accounts
                receivable
            
            
            (5,542
            )
            
            4,416Inventories
            
            
            (16,845
            )
            
            (2,006
            )Accounts
                payable and accrued compensation and related liabilities
            
            
            (2,276
            )
            
            (35,576
            )Other
                working capital changes
            
            
            (10,502
            )
            
            (11,181
            )Other,
                net
            
            
            (4,941
            )
            
            (5,832
            )Net
                cash provided by (used in) continuing operating activities
            
            
            60,006
            
            
            (16,540
            )Net
                cash provided by discontinued operating activities
            
            
            1,394
            
            
            6,424Net
                cash provided by (used in) operating activities
            
            
            61,400
            
            
            (10,116
            )Cash
                flows from investing activities:Cost
                of business acquisitions, net of cash acquired
            
            
            (627,116
            )
            
            (49,425
            )Capital
                expenditures
            
            
            (25,181
            )
            
            (15,744
            )Acquisition
                payments
            
            
            (3,653
            )
            
            (4,653
            )Proceeds
                from sale of property, plant and equipment
            
            
            4,851
            
            
            6,025Proceeds
                from divestitures, net
            
            
            226
            
            
            1,575Net
                cash used in investing activities of continuing operations
            
            
            (650,873
            )
            
            (62,222
            )Proceeds
                from the sale of discontinued operations
            
            
            73,628
            
            
            211,529Capital
                expenditures for discontinued operations
            
            
            —
            
            
            (632
            )Net
                cash provided by investing activities of discontinued
                operations
            
            
            73,628
            
            
            210,897Net
                cash (used in) provided by investing activities
            
            
            (577,245
            )
            
            148,675Cash
                flows from financing activities:Proceeds
                from issuance of Term Loans
            
            
            720,000
            
            
            325,000Proceeds
                from Unsecured Loan
            
            
            175,000
            
            
            —Borrowings
                under Revolving Credit Facility, net
            
            
            92,500
            
            
            40,000Proceeds
                from exercise of stock options
            
            
            300
            
            
            1,860Repayment
                of Term Loan B
            
            
            (324,188
            )
            
            —Repayment
                of Cadmus revolving senior bank credit facility
            
            
            (70,100
            )
            
            —Repayment
                of 83⁄8% Senior Subordinated Notes
            
            
            (20,880
            )
            
            —Repayment
                of95⁄8% Senior
                Notes
            
            
            (10,498
            )
            
            (339,502
            )Repayment
                of Term Loans
            
            
            (3,100
            )
            
            —Repayments
                of senior secured revolving credit facility
            
            
            —
            
            
            (123,931
            )Repayments
                of other long-term debt
            
            
            (26,962
            )
            
            (12,265
            )Payment
                of refinancing fees, redemption premiums and expenses
            
            
            (8,045
            )
            
            (26,142
            )Payment
                of debt issuance costs
            
            
            (5,906
            )
            
            (3,770
            )Purchase
                and retirement of common stock upon vesting of RSUs
            
            
            (1,302
            )
            
            —Net
                cash provided by (used in) financing activities
            
            
            516,819
            
            
            (138,750
            )Effect
                of exchange rate changes on cash and cash equivalents of continuing
                operations
            
            
            180
            
            
            (2
            )Net
                increase (decrease) in cash and cash equivalents
            
            
            1,154
            
            
            (193
            )Cash
                and cash equivalents at beginning of year
            
            
            10,558
            
            
            1,035Cash
                and cash equivalents at end of quarter
            
            $
            11,712
            
            $
            842




See
      notes to condensed consolidated financial statements.


3




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**


**(Unaudited)**




**1.
      Basis of Presentation**




The
      accompanying unaudited condensed consolidated financial statements (the
“Financial Statements”) of Cenveo, Inc. and 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 (the “SEC”) and,
      therefore, do not include all information and footnotes necessary for a fair
      presentation of financial position, results of operations and cash flows in
      conformity with accounting principles generally accepted in the United States
      of
      America (“GAAP”). In the opinion of the Company, however, the Financial
      Statements contain all adjustments, consisting only of normal recurring
      adjustments, necessary to present fairly the Company’s financial position,
      results of operations and cash flows as of and for the three and nine month
      periods ended September 30, 2007. The results of operations for the three and
      nine month periods ended September 30, 2007 are generally not indicative of
      the
      results to be expected for the full year, primarily due to the Company’s
      acquisition of Cadmus Communications Corporation (“Cadmus”) and PC Ink Corp.
      (“Printegra”) in the first quarter of 2007 and of Madison/Graham ColorGraphics,
      Inc. (“ColorGraphics”) and Commercial Envelope  Manufacturing Co.,
      Inc. (“Commercial Envelope”) in the third quarter of 2007 (Note 3), the increase
      in the Company’s outstanding debt as a result of such acquisitions (Note 9), and
      seasonality. 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, 2006
      (the “Form 10-K”).




It
      is the Company’s practice to close its quarters on the Saturday closest to the
      last day of the calendar quarter so that each quarter has the same number of
      days and 13 full weeks. The Financial Statements and other financial information
      in this report are presented using a calendar convention. The reporting periods,
      which consist of 13 weeks ended on September 29, 2007 and September 30, 2006,
      are reported as ending on September 30, 2007 and 2006, respectively, since
      the
      effect of a reporting period not ending on these dates is not
      material.




Beginning
      in the fourth quarter of 2006, the financial results of Supremex, Inc. and
      certain other assets (“Supremex”) sold were accounted for as a discontinued
      operation, resulting in the Company’s historical condensed consolidated
      statements of operations and statements of cash flows being reclassified to
      reflect such discontinued operation separately from continuing operations (Notes
      4 and 12).




*New
      Accounting Pronouncements*




*FIN
      48*




Effective
      January 1, 2007, the Company adopted Financial Accounting Standards Board
      (“FASB”) Financial Interpretation No. 48, *Accounting for Uncertainty in
      Income Taxes (an interpretation of FASB Statement No. 109*) (“FIN 48”). FIN
      48 clarifies the accounting for uncertainty in income taxes recognized in the
      financial statements by prescribing a recognition threshold and measurement
      attribute for the financial statement recognition and measurement of a tax
      position taken or expected to be taken on a tax return. As a result of the
      adoption of FIN 48, the Company did not record an adjustment to its liability
      for unrecognized income tax benefits or retained deficit. As of January 1,
      2007,
      the Company had approximately $10.8 million of unrecognized tax benefits, of
      which approximately $0.4 million will reduce its effective tax rate if
      recognized. As of September 30, 2007, the Company had approximately $18.2
      million of unrecognized tax benefits. The Company does not believe that it
      is
      reasonably possible that its unrecognized tax benefits will change significantly
      in the next twelve months. The Company has elected to recognize interest and
      penalties related to uncertain tax positions in income tax expense. As of
      September 30, 2007, the Company had approximately $4.7 million of accrued
      interest and penalties related to uncertain tax positions.


4




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**1.
      Basis of Presentation (Continued)**




The
      Internal Revenue Service (“IRS”) has reviewed the Company’s federal income tax
      returns through 2002. The Company’s federal income tax returns for tax years
      after 2003 remain subject to examination by the IRS. The various states in
      which
      the Company is subject to income tax are generally open for the tax years after
      2003. In Canada, the Company remains subject to audit for tax years after 2002.
      The Company does not believe that the outcome of any examination will have
      a
      material impact on its condensed consolidated financial statements.




*EITF
      06-3*




Effective
      January 1, 2007, the Company adopted Emerging Issues Task Force Issue No. 06-3,
      *How Taxes Collected from Customers and Remitted to Governmental Authorities
      should be Presented in the Income Statement - That is, Gross versus Net
      Presentation* (“EITF 06-3”). The task force concluded that either method is
      acceptable; however, if taxes are reported on a gross basis (included in sales)
      a company should disclose those amounts, if significant. The Company records
      sales net of applicable sales tax. The adoption of EITF 06-3 did not have a
      significant effect on the Company’s condensed consolidated statements of
      operations.




*SFAS
      157*




In
      September 2006, the FASB issued Statement of Financial Accounting Standard
      (“SFAS”) No. 157, *Fair Value Measurements* (“SFAS 157”). SFAS 157
      defines fair value, establishes a framework for measuring fair value in GAAP
      and
      expands disclosures about fair value measurement. SFAS 157 is effective for
      the
      Company beginning on January 1, 2008. The Company is currently evaluating the
      potential effect SFAS 157 may have on its condensed consolidated financial
      statements.




*SFAS
      159*




In
      February 2007, the FASB issued SFAS No. 159, *Fair Value Option for Financial
      Assets and Financial Liabilities-Including an amendment of FASB Statement No.
      115* (“SFAS 159”). SFAS 159 permits entities to choose to measure many
      financial instruments and certain other items at fair value. The objective
      is to
      improve financial reporting by providing entities with the opportunity to
      mitigate volatility in reported earnings caused by measuring related assets
      and
      liabilities differently without having to apply complex hedge accounting
      provisions. SFAS 159 is expected to expand the use of fair value measurement,
      which is consistent with the FASB’s long-term measurement objectives for
      accounting for financial instruments. SFAS 159 is effective for the Company
      beginning on January 1, 2008. The Company is currently evaluating the potential
      effect SFAS 159 may have on its condensed consolidated financial
      statements.




**2.
      Stock-Based Compensation**





The
      Company’s 2007 Long-Term Equity Incentive Plan (the “2007 Plan”) was approved in
      May 2007 and authorizes the issuance of 2,000,000 shares of the Company’s common
      stock, no more than 1,500,000 of which may be issued with respect to restricted
      shares, restricted share units ("RSUs") or other stock-based awards. Any shares
      not used for these awards may be used for awards of stock options and stock
      appreciation rights. In addition, the plan authorizes cash performance awards.
      Upon approval of the 2007 Plan, the Company ceased making awards under its
      prior
      equity plans, including the Company’s 2001 Long-Term Equity Incentive Plan.
      Unused shares previously authorized under prior plans have been rolled over
      into
      the 2007 Plan and increase the total number of shares authorized for issuance
      under the 2007 Plan.





The
      Company’s outstanding unvested stock options have maximum contractual terms of
      up to ten years, principally vest ratably over four years and were granted
      at
      exercise prices equal to the market


5




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**2.
      Stock-Based Compensation (Continued)**





price
      of the Company’s common stock on the date of grant. The Company’s outstanding
      stock options are exercisable into shares of the Company’s common stock. The
      Company’s outstanding restricted shares vest ratably over four years. The
      Company has no outstanding stock appreciation rights. The Company’s outstanding
      RSUs principally vest ratably over four years. Upon vesting, RSUs convert into
      shares of the Company’s common stock.




Total
      share-based compensation expense recognized in selling, general and
      administrative expenses in the Company’s condensed consolidated statements of
      operations was $2.5 million and $1.4 million for the three months ended
      September 30, 2007 and 2006, respectively, and $7.2 million and $3.4 million
      for
      the nine months ended September 30, 2007 and 2006, respectively.




As
      of September 30, 2007, there was approximately $40.3 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.




A
      summary of the Company’s outstanding stock options as of and for the nine-month
      period ended September 30, 2007 is as follows:




**Options**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price**
            
            
            **Weighted**
              **Average**
              **Remaining**
              **Contractual**
              **Term
                (In**
              **Years)**
            
            **Aggregate**
              **Intrinsic**
              **Value(a)**
              **(In**
              **Thousands)**Outstanding
                at January 1, 2007
            
            
            
            3,326,780
            
            $
            14.71Granted
            
            
            
            780,000
            
            
            17.89Exercised
            
            
            
            (32,925)
            
            
            9.10
            
            
            
            
            $
            439Forfeited
            
            
            
            (80,000)
            
            
            20.55Outstanding
                at September 30, 2007
            
            
            
            3,993,855
            
            
            15.26
            
            
            5.2
            
            $
            25,435Exercisable
                at September 30, 2007
            
            
            
            1,246,355
            
            
            12.91
            
            
            5.0
            
            $
            10,875







A
      summary of the Company’s outstanding stock options as of and for the nine-month
      period ended September 30, 2006 is as follows:


**Options**
              
              **Weighted**
                **Average**
                **Exercise**
                **Price**
              
              
              **Weighted**
                **Average**
                **Remaining**
                **Contractual**
                **Term
                  (In**
                **Years)**
              
              **Aggregate**
                **Intrinsic**
                **Value(a)**
                **(In**
                **Thousands)**Outstanding
                  at January 1, 2006
              
              
              
              2,365,961
              
              $
              8.97Granted
              
              
              
              1,570,000
              
              
              20.55Exercised
              
              
              
              (310,147
              )
              
              5.99
              
              
              
              
              $
              3,217Forfeited
              
              
              
              (278,367
              )
              
              9.21Outstanding
                  at September 30, 2006
              
              
              
              3,347,447
              
              
              14.66
              
              
              6.0
              
              $
              16,668Exercisable
                  at September 30, 2006
              
              
              
              481,197
              
              
              8.98
              
              
              5.3
              
              $
              4,752
 __________________




(a)  
      Intrinsic value for purposes of this table represents the amount by which the
      fair value of the underlying stock, based on the respective market prices at
      September 30, 2007 or, if exercised, the exercise dates, exceeds the exercise
      prices of the respective options.




The
      weighted-average grant date fair value of stock options granted during the
      nine-month period ended September 30, 2007, at exercise prices equal to the
      market price of the stock on the grant date,




6




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**2.
      Stock-Based Compensation (Continued)**




was
      $6.31 calculated under the Black-Scholes Model with the weighted-average
      assumptions set forth as follows:




Risk-free
                interest
                rate
            
            4.05
            %Expected
                option life in
                years
            
            4.25Expected
                volatility
            
            0.363Expected
                dividend yield
            
            0.0
            %




The
      weighted-average grant date fair value of stock options granted during the
      nine-month period ended September 30, 2006, at exercise prices equal to the
      market price of the stock on the grant date, was $9.56 calculated under the
      Black-Scholes Model with the weighted-average assumptions set forth as
      follows:




Risk-free
                interest
                rate
            
            4.75
            %Expected
                option life in
                years
            
            4.27Expected
                volatility
            
            0.516Expected
                dividend yield
            
            0.0
            %




The
      risk-free
      interest rate represents the U.S. Treasury Bond constant maturity yield
      approximating the expected option life of stock options granted during the
      period. The expected option life represents the period of time that the stock
      options granted during the period are expected to be outstanding, based on
      the
      mid-point between the vesting date and contractual expiration date of the
      option. The expected volatility is based on the historical market price
      volatility of the Company’s common stock for the expected term of the options,
      adjusted for expected mean reversion.




A
      summary of the Company’s unvested
      restricted shares and RSUs as of and for the nine-month period ended September
      30, 2007 is as follows:




**Restricted
                Shares**
            
            
            **RSUs****Shares**
            
            
            **Grant
                Date**
              **Fair
                Value**
            
            
            **Shares**
            
            
            **Grant
                Date**
              **Fair
                Value**Unvested
                at January 1, 2007
            
            
            
            150,000
            
            $
            9.52
            
            
            607,150
            
            $
            19.19Granted
            
            
            
            —
            
            
            —
            
            
            761,750
            
            
            17.89Vested
            
            
            
            (50,000
            )
            
            —
            
            
            (173,900
            )
            
            20.55Forfeited
            
            
            
            —
            
            
            —
            
            
            —
            
            
            —Unvested
                at September 30, 2007
            
            
            
            100,000
            
            
            9.52
            
            
            1,195,000
            
            
            18.78


A
      summary of the Company’s unvested
      restricted shares and RSUs as of and for the nine-month period ended September
      30, 2006 is as follows:




**Restricted
                Shares**
            
            
            **RSUs****Shares**
            
            
            **Grant
                Date**
              **Fair
                Value**
            
            
            **Shares**
            
            
            **Grant
                Date**
              **Fair
                Value**Unvested
                at January 1, 2006
            
            
            
            200,000
            
            $
            9.52
            
            
            236,600
            
            $
            9.61Granted
            
            
            
            —
            
            
            —
            
            
            532,150
            
            
            20.55Vested
            
            
            
            (50,000
            )
            
            9.52
            
            
            (25,000
            )
            
            9.52Forfeited
            
            
            
            —
            
            
            —
            
            
            (20,000
            )
            
            9.52Unvested
                at September 30, 2006
            
            
            
            150,000
            
            
            9.52
            
            
            723,750
            
            
            16.28




The
      total fair value of restricted
      shares and RSUs which vested during the nine-month period ended September 30,
      2007 was $0.9 million and $3.1 million, respectively, as of the respective
      vesting


7




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**2.
      Stock-Based Compensation (Continued)**




dates.  The
      total fair value of restricted shares and RSUs which vested during the
      nine-month period ended September 30, 2006 was $1.0 million and $0.5 million,
      respectively, as of the respective vesting dates.




The
      Black-Scholes Model has limitations
      on its effectiveness including that it was developed for use in estimating
      the
      fair value of traded options which have no vesting restrictions and are fully
      transferable and that the model requires the use of parameters, such as stock
      price volatility that must be estimated from historical data. The Company’s
      stock option awards to employees have characteristics significantly different
      from those of traded options and differences in parameter estimation
      methodologies can materially affect fair value estimates.




**3.
      Business Acquisitions**




*Commercial
      Envelope*




On
      August 30, 2007, the Company
      acquired of all of the stock of Commercial Envelope.  Commercial
      Envelope is one of the largest envelope manufacturers in the United States,
      with
      approximately $160 million in annual revenues.  The total cash
      consideration in connection with the Commercial Envelope acquisition, excluding
      assumed debt of approximately $20.3 million, was approximately $218.0 million,
      including approximately $3.8 million of related expenses. The Company financed
      the acquisition of Commercial Envelope with a new $175 million senior unsecured
      loan and borrowings under its existing credit facilities (Note 9).





The
      following table summarizes, on a preliminary basis, the allocation of the
      purchase price of Commercial Envelope to the assets acquired and liabilities
      assumed in the acquisition and remains subject to finalization (in
      thousands):




*Preliminary
      Purchase Price Allocation*


**As
                of**
              **August
                30, 2007**Current
                assets
            
            $
            42,796Property,
                plant and equipment
            
            
            36,757Goodwill
            
            
            101,831Other
                intangible assets
            
            
            87,770Other
                assets
            
            
            929Total
                assets acquired
            
            
            270,083Current
                liabilities, excluding current portion of long-term debt
            
            
            9,357Long-term
                debt, including current maturities
            
            
            20,277Deferred
                income taxes
            
            
            21,329Total
                liabilities assumed
            
            
            50,963Net
                assets acquired
            
            
            219,120Less
                cash acquired
            
            
            (1,114
            )Cost
                of Commercial Envelope acquisition, less cash acquired
            
            $
            218,006





The
      Commercial Envelope acquisition preliminarily resulted in $101.8 million of
      goodwill (Note 8), none of which is deductible for income tax purposes, and
      which was assigned entirely to the Company’s envelopes, forms and labels
      segment. Such goodwill reflects the substantial value of Commercial Envelope’s
      historical envelope business. Goodwill also reflects the Company’s
      expectation


8




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**3.
      Business Acquisitions (Continued)**




of
      being able to grow the Commercial Envelope business and improve its operating
      efficiencies through economies of scale.  The acquired identifiable
      intangible assets, aggregating $87.8 million, include: (1) the Commercial
      Envelope trademark of $51.4 million, which has been assigned an indefinite
      life
      due to its strong brand recognition, the Company’s intention to continue using
      the Commercial Envelope name, including rebranding our existing commercial
      envelope operations with the Commercial Envelope name, the long operating
      history of Commercial Envelope, its existing customer base and its significant
      market position; (2) customer relationships of $36.0 million, which are being
      amortized over their estimated weighted average useful lives of 15 years; and
      (3) covenants not to compete of $0.4 million are amortizable over their
      estimated useful lives of five years (Note 8).  The Company also
      acquired favorable leases of $0.5 million, which are being amortized as an
      increase to rent expense over their weighted average useful term of
      approximately five years. Each of the above amounts, including the amounts
      in the above table, represents the estimated fair value of the respective
      property, plant and equipment and other intangible assets, as determined in
      accordance with a preliminary independent appraisal. Commercial Envelope’s
      results of operations and cash flows have been included in the Company’s
      condensed consolidated statements of operations and cash flows from the August
      30, 2007 acquisition date, and are not included for the three and nine months
      ended September 30, 2006.




*Pro
      Forma Operating Data*





The
      following supplemental pro forma condensed consolidated summary operating data
      of the Company for each of the periods presented herein has been prepared by
      adjusting the historical data as set forth in the accompanying condensed
      consolidated statements of operations to give effect to the Commercial Envelope
      acquisition as if it had been consummated as of the beginning of each respective
      year (in thousands, except per share amounts):




**Three
                Months Ended**
              **September
                30,****2007**
            
            **2006****As**
              **Reported**
            
            **Pro**
              **Forma**
            
            **As**
              **Reported**
            
            **Pro**
              **Forma**Net
                sales
            
            $
            550,601
            
            $
            576,148
            
            $
            383,868
            
            $
            424,533Operating
                income
            
            
            30,046
            
            
            33,143
            
            
            25,028
            
            
            30,619Income
                from continuing operations
            
            
            3,842
            
            
            3,531
            
            
            9,290
            
            
            9,565Net
                income
            
            
            3,032
            
            
            2,721
            
            
            11,616
            
            
            11,891Income
                (loss) per share – basic:Continuing
                operations
            
            $
            0.07
            
            $
            0.06
            
            $
            0.18
            
            $
            0.18Discontinued
                operations
            
            
            (0.01
            )
            
            (0.01
            )
            
            0.04
            
            
            0.04Net
                income
            
            $
            0.06
            
            $
            0.05
            
            $
            0.22
            
            $
            0.22Income
                (loss) per share – diluted:Continuing
                operations
            
            $
            0.07
            
            $
            0.06
            
            $
            0.17
            
            $
            0.18Discontinued
                operations
            
            
            (0.01
            )
            
            (0.01
            )
            
            0.04
            
            
            0.04Net
                income
            
            $
            0.06
            
            $
            0.05
            
            $
            0.21
            
            $
            0.22







9


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**3.
      Business Acquisitions (Continued)**





**Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006****As**
              **Reported**
            
            **Pro**
              **Forma**
            
            **As**
              **Reported**
            
            **Pro**
              **Forma**Net
                sales
            
            $
            1,462,275
            
            $
            1,566,875
            
            $
            1,127,049
            
            $
            1,246,359Operating
                income
            
            
            88,280
            
            
            100,872
            
            
            40,568
            
            
            54,319Income
                (loss) from continuing operations
            
            
            9,356
            
            
            8,685
            
            
            (45,360
            )
            
            (46,182
            )Net
                income
            
            
            24,498
            
            
            23,826
            
            
            90,723
            
            
            89,901Income
                (loss) per share – basic:Continuing
                operations
            
            $
            0.18
            
            $
            0.16
            
            $
            (0.85
            )
            $
            (0.86
            )Discontinued
                operations
            
            
            0.28
            
            
            0.28
            
            
            2.55
            
            
            2.55Net
                income
            
            $
            0.46
            
            $
            0.44
            
            $
            1.70
            
            $
            1.69Income
                (loss) per share – diluted:Continuing
                operations
            
            $
            0.17
            
            $
            0.16
            
            $
            (0.85
            )
            $
            (0.86
            )Discontinued
                operations
            
            
            0.28
            
            
            0.28
            
            
            2.55
            
            
            2.55Net
                income
            
            $
            0.45
            
            $
            0.44
            
            $
            1.70
            
            $
            1.69




The
      pro forma 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 Commercial
      Envelope acquisition actually been consummated as of the beginning of each
      of
      the respective periods noted above, or of the Company’s expected future results
      of operations.




*ColorGraphics*




On
      July 9, 2007, the Company acquired
      all of the stock of ColorGraphics.  ColorGraphics is one of the
      largest commercial printers in the western United States, with approximately
      $170 million in annual revenues.  ColorGraphics produces high quality
      annual reports, car books, catalogs and other corporate communication
      materials.  The total cash consideration in connection with the
      ColorGraphics acquisition, excluding assumed debt of approximately $28.6
      million, was approximately $71.7 million, including approximately $0.9 million
      of related expenses. The fair values of property, plant and equipment and other
      intangible assets were determined in accordance with a preliminary independent
      appraisal. The ColorGraphics acquisition preliminarily resulted in $38.9 million
      of goodwill, of which approximately $2.1 million is deductible for income tax
      purposes, and which was assigned entirely to the Company’s commercial printing
      segment. The acquired identifiable intangible assets, aggregating $22.0 million,
      include: (1) customer relationships of $2.6 million, which are being amortized
      over their estimated weighted average useful lives of 11 years; (2) the
      ColorGraphics trademark of $18.8 million, which has been assigned an indefinite
      useful life due to the Company’s intention to continue using the ColorGraphics
      name, and the long operating history, existing customer base and significant
      market position of ColorGraphics; and (3) a non-compete agreement of $0.6
      million which is amortizable over its estimated useful life of 3 years (Note
      8).  The Company financed the acquisition of ColorGraphics with its
      existing credit facilities (Note 9).




ColorGraphics’
results
      of operations
      and cash flows have been included in the accompanying condensed consolidated
      statements of operations and cash flows from July 1, 2007, and are not included
      for the three and nine months ended September 30, 2006. Pro forma results for
      the nine month period ended September 30, 2007 and the three and nine month
      periods ended September 30, 2006, assuming the acquisition of ColorGraphics
      had
      been made on January 1, 2006, have not been presented since the effect was
      not
      material.


10




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**3.
      Business Acquisitions (Continued)**







*Cadmus*




On
      March 7, 2007, the Company acquired all of the stock of Cadmus for $24.75 per
      share, by merging an indirect wholly owned subsidiary of Cenveo with and into
      Cadmus. As a result, Cadmus became an indirect wholly owned subsidiary of
      Cenveo. Following the merger, Cadmus was merged into Cenveo Corporation, a
      direct wholly owned subsidiary of the Company. Cadmus is one of the world’s
      largest providers of content management and print offerings to scientific,
      technical and medical journal publishers, one of the largest periodicals
      printers in North America, and a leading provider of specialty packaging and
      promotional printing products, with annual sales of approximately $450.0
      million. The total cash consideration in connection with the Cadmus acquisition,
      excluding assumed debt of approximately $210.1 million, was approximately $249.3
      million, consisting of: (1) $228.9 million in cash for all of the common stock
      of Cadmus, (2) payments of $18.3 million for vested stock options and restricted
      shares of Cadmus and for change in control provisions in Cadmus’ incentive plans
      and (3) $2.1 million of related expenses.




The
      common stock of Cadmus, which traded on the NASDAQ Global Market under the
      symbol “CDMS”, ceased trading and was delisted following the
      acquisition.




In
      connection with the Cadmus acquisition, the Company refinanced its existing
      indebtedness and $70.1 million of Cadmus debt (Note 9).




The
      following table summarizes, on a preliminary basis, the allocation of the
      purchase price of Cadmus to the assets acquired and liabilities assumed in
      the
      acquisition and remains subject to finalization (in thousands):




*Preliminary
      Purchase Price Allocation*


**As
                of**
              **March
                7, 2007**Current
                assets
            
            $
            92,504Property,
                plant and equipment
            
            
            135,194Goodwill
            
            
            246,136Other
                intangible assets
            
            
            111,600Other
                assets
            
            
            6,235Total
                assets acquired
            
            
            591,669Current
                liabilities, excluding current portion of long-term debt
            
            
            67,626Long-term
                debt, including current maturities
            
            
            210,063Deferred
                income taxes
            
            
            20,134Other
                liabilities
            
            
            44,528Total
                liabilities assumed
            
            
            342,351Net
                assets acquired
            
            
            249,318Less
                cash acquired
            
            
            —Cost
                of Cadmus acquisition, less cash acquired
            
            $
            249,318





The
      Cadmus acquisition preliminarily resulted in $246.1 million of goodwill (Note
      8), none of which is deductible for income tax purposes, and which was assigned
      entirely to the Company’s commercial printing segment. Such goodwill reflects
      the substantial value of Cadmus’ historically profitable journal, periodicals
      and specialty packaging printing business. Goodwill also reflects the Company’s
      expectation of being able to grow Cadmus’ business and improve its operating
      efficiencies through economies of scale. The acquired identifiable intangible
      assets, aggregating $111.6 million,


11




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**3.
      Business Acquisitions (Continued)**





include:
      (1) the Cadmus trademark of $48.0 million, which has been assigned an indefinite
      life due to its strong brand recognition, the Company’s intention to continue
      using the Cadmus name, the long operating history of Cadmus, its existing
      customer base and its significant market position, and (2) customer
      relationships of $63.6 million, which are being amortized. The Company also
      acquired unfavorable leases of $3.2 million, which are being amortized as a
      reduction to rent expense. Each of the above amounts, including the amounts
      in
      the above table, represents the estimated fair value of the respective property,
      plant and equipment and other intangible assets, as determined in
      accordance with a preliminary independent appraisal. The acquired customer
      relationships have an estimated weighted average amortization period of
      approximately 20 years, and the unfavorable leases have an estimated weighted
      average amortization period of approximately 11 years (Note 8).




Cadmus’
      results of operations and cash flows have been included in the Company’s
      condensed consolidated statements of operations and cash flows from the March
      7,
      2007 acquisition date and are not included for the three and nine months ended
      September 30, 2006.




*Pro
      Forma Operating Data*




The
      following supplemental pro forma condensed consolidated summary operating data
      of the Company for each of the periods presented herein has been prepared by
      adjusting the historical data as set forth in the accompanying condensed
      consolidated statements of operations to give effect to the Cadmus acquisition
      as if it had been consummated as of the beginning of each respective year (in
      thousands, except per share amounts):







**Nine
                Months Ended**
              **September
                30, 2007****As**
              **Reported**
            
            **Pro**
              **Forma**Net
                sales
            
            $
            1,462,275
            
            $
            1,544,092Operating
                income
            
            
            88,280
            
            
            89,671Income
                from continuing operations
            
            
            9,356
            
            
            3,918Net
                income
            
            
            24,498
            
            
            19,060Income
                per share – basic:Continuing
                operations
            
            $
            0.18
            
            $
            0.08Discontinued
                operations
            
            
            0.28
            
            
            0.28Net
                income
            
            $
            0.46
            
            $
            0.36Income
                per share  – diluted:Continuing
                operations
            
            $
            0.17
            
            $
            0.07Discontinued
                operations
            
            
            0.28
            
            
            0.28Net
                income
            
            $
            0.45
            
            $
            0.35







12




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**






**3.
      Business Acquisitions (Continued)**




**Three
                Months Ended**
              **September
                30, 2006**
            
            **Nine
                Months Ended**
              **September
                30, 2006****As**
              **Reported**
            
            **Pro**
              **Forma**
            
            **As**
              **Reported**
            
            **Pro**
              **Forma**Net
                sales
            
            $
            383,868
            
            $
            491,176
            
            $
            1,127,049
            
            $
            1,464,175Operating
                income
            
            
            25,028
            
            
            29,367
            
            
            40,568
            
            
            42,928Income
                (loss) from continuing operations
            
            
            9,290
            
            
            6,779
            
            
            (45,360
            )
            
            (50,506
            )Net
                income
            
            
            11,616
            
            
            9,170
            
            
            90,723
            
            
            85,642Income
                (loss) per share – basic:Continuing
                operations
            
            $
            0.18
            
            $
            0.13
            
            $
            (0.85
            )
            $
            (0.94
            )Discontinued
                operations
            
            
            0.04
            
            
            0.04
            
            
            2.55
            
            
            2.55Net
                income
            
            $
            0.22
            
            $
            0.17
            
            $
            1.70
            
            $
            1.61Income
                (loss) per share – diluted:Continuing
                operations
            
            $
            0.17
            
            $
            0.13
            
            $
            (0.85
            )
            $
            (0.94
            )Discontinued
                operations
            
            
            0.04
            
            
            0.04
            
            
            2.55
            
            
            2.55Net
                income
            
            $
            0.21
            
            $
            0.17
            
            $
            1.70
            
            $
            1.61




The
      pro forma 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 Cadmus acquisition actually been consummated as of the
      beginning of each of the respective periods noted above, or of the Company’s
      expected future results of operations.




*Printegra*





On
      February 12, 2007, the Company acquired of all of the stock of Printegra, with
      annual sales of approximately $90 million. Printegra produces printed business
      communication documents regularly consumed by small and large businesses,
      including laser cut sheets, envelopes, business forms, security documents and
      labels. The aggregate purchase price for Printegra was approximately $78.1
      million, which included $0.5 million of related fees. The fair values of
      property, plant and equipment and other intangible assets were determined in
      accordance with a preliminary independent appraisal. The Printegra acquisition
      preliminarily resulted in $37.7 million of goodwill, of which approximately
      $4.4
      million is deductible for income tax purposes, and which was assigned entirely
      to the Company’s envelopes, forms and labels segment. The acquired identifiable
      intangible assets, aggregating $27.7 million, include: (1) customer
      relationships of $21.7 million, which are being amortized over their estimated
      weighted average useful lives of 25 years; and (2) trademarks of $6.0 million,
      which are being amortized over their estimated weighted average useful lives
      of
      approximately 17 years (Note 8).




Printegra’s
      results of operations and cash flows have been included in the accompanying
      condensed consolidated statements of operations and cash flows from the February
      12, 2007 acquisition date, and are not included for the three and nine months
      ended September 30, 2006. Pro forma results for the three and nine month periods
      ended September 30, 2007 and 2006, assuming the acquisition of Printegra had
      been made on January 1, 2006, have not been presented since the effect was
      not
      material.




*Deferred
      Taxes*




In
      connection with the acquisition of Commercial Envelope, the Company recorded
      a
      net deferred tax liability of $21.3 million relating to indefinite lived
      intangible assets, after considering the release of $22.4 million of existing
      valuation allowances against goodwill recorded.  In connection with
      the acquisition of ColorGraphics, the Company recorded a net deferred tax
      liability of $7.0 million.  The acquisition of Cadmus resulted in an
      increase to the Company’s deferred tax liabilities of


13


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**







**3.
      Business Acquisitions (Continued)**




approximately
      $20.1 million relating to indefinite lived intangible assets. In connection
      with
      the acquisition of Printegra, the Company recorded a net deferred tax liability
      of $8.6 million and released existing valuation allowances of a like amount
      against goodwill recorded, in accordance with SFAS No. 109, *Accounting for
      Income Taxes*.




*Liabilities
      Related to Exit Activities*




In
      connection with the above acquisitions, the Company recorded liabilities in
      the
      purchase price allocation in connection with its preliminary plan to exit
      certain activities. A summary of the activity recorded for these liabilities
      is
      as follows (in thousands):




**Lease**
              **Termination**
              **Costs**
            
            **Employee**
              **Separation**
              **Costs**
            
            **Other
                Exit Costs**
            
            **Total**Liabilities
                recorded at January 1, 2007
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Accruals,
                net
            
            
            5,479
            
            
            6,856
            
            
            1,360
            
            
            13,695Payments
            
            
            (653
            )
            
            (5,871
            )
            
            (1,360
            )
            
            (7,884
            )Balance
                at September 30, 2007
            
            $
            4,826
            
            $
            985
            
            $
            —
            
            $
            5,811




*Operating
      Lease Commitments*




In
      connection with the above acquisitions, the Company’s obligation for future
      minimum rental payments for non-cancelable operating leases, as set forth in
      the
      Form 10-K, increased by approximately $83.3 million, which are estimated to
      be
      payable over the five years ending September 30, 2012 and thereafter as follows:
      $12.4 million, $12.0 million, $10.9 million, $8.5 million, $7.5 million and
      thereafter $32.0 million.




**4.
      Discontinued Operations**




On
      March 31, 2006, the Company sold to the Supremex Income Fund (the “Fund”) its
      entire interest in Supremex, retained a 36.5% economic and voting interest
      in
      the Fund and recorded a $124.1 million pre-tax gain. The acquisition agreement
      pursuant to which the Company sold Supremex on March 31, 2006 to the Fund
      contains representations and warranties regarding the business that was sold
      that are customary for transactions of this nature.  The acquisition
      agreement also required the Company to provide specified indemnities (subject
      to
      agreed-upon limitations) including, without limitation: (i) an indemnity in
      the
      event that its representations and warranties in the acquisition agreement
      were
      inaccurate: (ii) an indemnity regarding certain inquiries by the Canadian
      Competition Bureau: and (iii) an indemnity for certain
      contingencies.  The Company does not believe that the foregoing
      representations, warranties and related indemnities will result in the Company
      making any material payments to the Fund.




During
      the second quarter of 2006, the Company sold 2.5 million units in the Fund
      relating to the underwriter’s exercise of an over-allotment option and recorded
      a pre-tax gain of $9.3 million, and recorded a pre-tax gain of $1.4 million
      relating to the collection of a receivable on the above March 31, 2006 sale.
      Income from discontinued operations includes the results of operations of
      Supremex from January 1, 2006 to March 31, 2006. Other income from discontinued
      operations represents equity income related to the Company’s retained interest
      in the Fund.




On
      March 13, 2007, the Company sold its remaining 28.6% economic and voting
      interest in the Fund for net proceeds of $67.2 million and recorded a pre-tax
      gain of approximately $26.3 million. Income from discontinued operations for
      the
      nine months ended September 30, 2007 also includes


14




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**






**4.
      Discontinued Operations (Continued)**




equity
      income of $1.5 million related to the Company’s retained interest in the Fund
      from January 1, 2007 through the March 13, 2007 date of sale.




The
      following table summarizes certain statement of operations data for discontinued
      operations (in thousands):




**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            **2007**
            
            **2006**Net
                sales
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            41,391Operating
                income
            
            
            —
            
            
            —
            
            
            —
            
            
            8,838Other
                income
            
            
            —
            
            
            2,623
            
            
            1,475
            
            
            4,911Income
                tax expense
            
            
            810
            
            
            297
            
            
            2,295
            
            
            4,097Gain
                on sale of discontinued operations, net of taxes of $10,196 and $8,420
                in
                the nine-months ended September 30, 2007 and 2006,
                respectively
            
            
            —
            
            
            —
            
            
            15,962
            
            
            126,353Income
                (loss) from discontinued operations, net of taxes
            
            
            (810
            )
            
            2,326
            
            
            15,142
            
            
            136,083




**5.
      Other Divestitures**




During
      the first quarter of 2006, the Company sold a small non-strategic commercial
      printing business in Bloomfield Hills, Michigan and recorded a loss on sale
      of
      non-strategic business of $0.7 million.




During
      the second quarter of 2006, the Company sold a small non-strategic business
      located in Somerville, Massachusetts for proceeds of $2.6 million and recorded
      a
      loss on sale of $1.1 million. From October 1, 2006 through December 31, 2006,
      the Company sold one small non-strategic commercial printing business located
      in
      Memphis, Tennessee.




The
      following table summarizes the net sales and operating income of all of the
      businesses that were sold during 2006, which are included in the condensed
      consolidated statements of operations (in thousands):




**Three
                Months Ended**
              **September
                30, 2006**
            
            
            
            **Nine
                Months Ended**
              **September
                30, 2006**Net
                sales
            
            $
            1,398
            
            
            
            $
            8,550Operating
                income (loss)
            
            
            53
            
            
            
            
            (1,316
            )




The
      dispositions of these non-strategic businesses were not accounted for as
      discontinued operations in the condensed consolidated financial statements
      because the Company has continuing involvement with these entities, migration
      of
      cash flows to other Cenveo locations has occurred, or the operations are not
      material.


15


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**6.
      Inventories**




Inventories
      by major category are as follows (in thousands):




**September
                30,**
              **2007**
            
            **December
                31,**
              **2006**Raw
                materials
            
            $
            70,664
            
            $
            28,247Work
                in process
            
            
            44,208
            
            
            21,638Finished
                goods
            
            
            60,457
            
            
            42,521$
            175,329
            
            $
            92,406




**7.
      Property, Plant and Equipment**




Property,
                plant and equipment are as follows (in
                thousands):




**September
                30,**
              **2007**
            
            **December
                31,**
              **2006**Land
                and land improvements
            
            $
            22,513
            
            $
            13,562Buildings
                and building improvements
            
            
            106,809
            
            
            80,740Machinery
                and equipment
            
            
            572,915
            
            
            437,910Furniture
                and fixtures
            
            
            12,452
            
            
            10,771Construction
                in progress
            
            
            17,736
            
            
            6,974732,425
            
            
            549,957Accumulated
                depreciation
            
            
            (294,155
            )
            
            (298,854
            )Property,
                plant and equipment, net
            
            $
            438,270
            
            $
            251,103




**8.
      Goodwill and Other Intangible Assets**




The
      changes in the carrying amount of goodwill by reportable segment (Note 14)
      are
      as follows (in thousands):




**Envelopes,
                Forms**
              **and
                Labels**
            
            **Commercial**
              **Printing**
            
            **Total**Balance
                as of December 31, 2006
            
            $
            165,672
            
            $
            92,464
            
            $
            258,136Acquisitions
            
            
            139,545
            
            
            286,513
            
            
            426,058Foreign
                currency translation
            
            
            —
            
            
            979
            
            
            979Balance
                as of September 30, 2007
            
            $
            305,217
            
            $
            379,956
            
            $
            685,173









16




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**8.
      Goodwill and Other Intangible Assets (Continued)**




Other
      intangible assets are as follows (in thousands):




**September
                30, 2007**
            
            **December
                31, 2006****Gross**
              **Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Amount**
            
            **Gross**
              **Carrying**
              **Amount**
            
            **Accumulated**
              **Amortization**
            
            **Net**
              **Carrying**
              **Amount**Intangible
                assets with determinable lives:Customer
                relationships
            
            $
            153,806
            
            $
            (19,415
            )
            $
            134,391
            
            $
            29,906
            
            $
            (13,001
            )
            $
            16,905Trademarks
                and tradenames
            
            
            20,521
            
            
            (3,039
            )
            
            17,482
            
            
            14,551
            
            
            (2,487
            )
            
            12,064Patents
            
            
            3,028
            
            
            (1,419
            )
            
            1,609
            
            
            3,028
            
            
            (1,218
            )
            
            1,810Non-compete
                agreements
            
            
            2,620
            
            
            (1,640
            )
            
            980
            
            
            1,640
            
            
            (1,591
            )
            
            49Other
            
            
            768
            
            
            (360
            )
            
            408
            
            
            768
            
            
            (331
            )
            
            437180,743
            
            
            (25,873
            )
            
            154,870
            
            
            49,893
            
            
            (18,628
            )
            
            31,265Intangible
                assets with indefinite lives:Trademarks
            
            
            118,200
            
            
            —
            
            
            118,200
            
            
            —
            
            
            —
            
            
            —Pollution
                credits
            
            
            720
            
            
            —
            
            
            720
            
            
            720
            
            
            —
            
            
            720118,920
            
            
            —
            
            
            118,920
            
            
            720
            
            
            —
            
            
            720Total
            
            $
            299,663
            
            $
            (25,873
            )
            $
            273,790
            
            $
            50,613
            
            $
            (18,628
            )
            $
            31,985




As
      of September 30, 2007, the weighted average remaining amortization period for
      customer relationships was 19 years, trademarks and tradenames was 27 years,
      patents was six years, non-compete agreements was four years and other was
      27
      years.




Total
      pre-tax amortization expense for the five years ending September 30, 2012 is
      estimated to be as follows:  $9.9 million, $8.8 million, $8.8 million,
      $8.6 million and $8.5 million, respectively.




**9.
      Long-Term Debt**




Long-term
      debt is as follows (in thousands):




**September
                30,**
              **2007**
            
            **December
                31,**
              **2006**Term
                Loans due 2013
            
            $
            716,900
            
            $
            324,18877⁄8%
                Senior Subordinated Notes due 2013
            
            
            320,000
            
            
            320,00083⁄8%
                Senior Subordinated Notes due 2014 ($104.1 million outstanding principal
                amount)
            
            
            106,301
            
            
            —Senior
                Unsecured Loan due 2015
            
            
            175,000
            
            
            —95⁄8%
                Senior Notes due 2012
            
            
            —
            
            
            10,498Revolving
                Credit Facility due 2012
            
            
            108,000
            
            
            15,500Other
            
            
            39,208
            
            
            5,1091,465,409
            
            
            675,295Less
                current maturities
            
            
            (17,937
            )
            
            (7,513
            )Long-term
                debt
            
            $
            1,447,472
            
            $
            667,782







17




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**9.
      Long-Term Debt (Continued)**




*Senior
      Unsecured Loan*





On
      August 30, 2007, the Company borrowed $175.0 million under a new eight-year
      unsecured loan facility (the “Senior Unsecured Loan”) with a group of lenders.
      Proceeds from the Senior Unsecured Loan along with borrowings from the Company’s
      $200.0 million six-year revolving credit facility (the “Revolving Credit
      Facility”) and available cash were used to fund the acquisition of Commercial
      Envelope (Note 3), including retiring certain acquired debt and to pay certain
      fees and expenses incurred in connection with the acquisition. The Senior
      Unsecured Loan has a floating interest rate based on LIBOR plus 4.5%, which
      was
      9.6% on September 30, 2007. The interest rate increases by 0.5% quarterly
      beginning on January 1, 2008 up to a maximum interest rate of
      11.5%.  The Senior Unsecured Loan provides for the conversion by the
      lenders into senior or senior subordinated exchange notes (the “Exchange Notes”)
      of the Company similar to the existing indenture relating to the Company’s
      $320.0 million 77⁄8% Senior Subordinated Notes due 2013 (the “77⁄8% Notes”) or a
      substantially similar indenture.  If the Senior Unsecured Loan is
      converted, the Exchange Notes will bear a fixed rate of interest based on market
      conditions at the time of conversion.  The Senior Unsecured Loan
      contains covenants, representations, and warranties substantially similar to
      the
      Company’s existing $925.0 million senior secured credit facilities (the “Amended
      Credit Facilities”) and includes provisions for an underwriting/purchase
      agreement and a registration rights agreement relating to the resale of the
      Exchange Notes. The Company capitalized debt issuance costs of approximately
      $4.6 million, which are being amortized over the remaining life of the Senior
      Unsecured Loan.




*Term
      Loans*




On
      July 9, 2007, the Company increased the then outstanding balance of its
      seven-year term loan facility due 2013 (the “Term Loan C”) and the delayed-draw
      term loan facility (collectively with the Term Loan C, the “Term Loans”) that
      are part of the Amended Credit Facilities by borrowing an incremental $100.0
      million on the existing financial terms and financial covenants. Proceeds from
      this borrowing along with available cash were used to fund the acquisition
      of
      ColorGraphics (Note 3), including retiring certain acquired debt and to pay
      certain fees and expenses incurred in connection with the acquisition. The
      Company capitalized debt issuance costs of approximately $0.3 million, which
      are
      being amortized over the remaining life of the Term Loans.




*2007
      Debt Amendment and Refinancing*




On
      March 7, 2007, in connection with the Cadmus acquisition (Note 3), the Company
      amended and refinanced its $525.0 million senior secured credit facilities
      (the
“Credit Facilities”). The Credit Facilities, established in June 2006, were
      comprised of the Revolving Credit Facility and a $325.0 million seven-year
      term
      loan facility (the “Term Loan B”). The Credit Facilities were amended by
      increasing the overall borrowing availability from $525.0 million to $925.0
      million to create the Amended Credit Facilities, allowing the Company to: (1)
      retire the Term Loan B, (2) acquire Cadmus, including retiring and extinguishing
      the Cadmus revolving senior bank credit facility, which had an outstanding
      balance of $70.1 million, using the Revolving Credit Facility and $600.0 million
      Term Loan C, and (3) retire any and/or all of the Cadmus 83⁄8% senior subordinated
      notes due 2014 (the “83⁄8% Notes”) using a $125.0 million delayed-draw term loan
      facility. Several customary financial covenants within the Amended Credit
      Facilities, including maximum consolidated leverage ratio and minimum
      consolidated interest coverage ratio, were modified to provide for the
      incremental funded debt levels and larger company operations. The Amended Credit
      Facilities are secured by substantially all of the Company’s assets. The Company
      capitalized debt issuance costs of approximately $0.9 million, which are being
      amortized over the remaining life of the Amended Credit Facilities. In
      connection with the Amended Credit Facilities, the Company recorded a loss
      on
      early extinguishment of debt of $8.4


18




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**9.
      Long-Term Debt (Continued)**




million,
      which includes $6.7 million of related fees and the write-off of $1.7 million
      of
      unamortized debt issuance costs.




*Interest
      Rate Swaps*




In
      March and July 2007, the Company entered into interest rate swap agreements
      to
      hedge interest rate exposure of an additional $125.0 million and $200.0 million,
      respectively, notional amounts of floating rate debt, increasing the Company’s
      total hedge of its interest rate exposure of notional floating rate debt to
      $545.0 million. The Company’s hedges of interest rate risk were designated and
      documented at inception as cash flow hedges and are evaluated for effectiveness
      at least quarterly. Effectiveness of the hedges is calculated by comparing
      the
      fair value of the derivatives to hypothetical derivatives that would be a
      perfect hedge of floating rate debt. The accounting for gains and losses
      associated with changes in the fair value of cash flow hedges and the effect
      on
      the Company’s condensed consolidated financial statements will depend on whether
      the hedge is highly effective in achieving offsetting changes in fair value
      of
      cash flows of the liability hedged. As of September 30, 2007, the Company does
      not anticipate reclassifying any ineffectiveness into its results of operations
      for the next twelve months.




*Cadmus
      Debt*




On
      March 5, 2007, the Company commenced a cash tender offer and consent
      solicitation (the “Cadmus Tender Offer”) for any and all of the outstanding 83⁄8%
      Notes at total consideration equal to 101.5% of outstanding principal plus
      any
      accrued and unpaid interest thereon for 83⁄8% Notes validly tendered and not
      withdrawn by March 16, 2007. Interest on the 83⁄8% Notes is payable semi-annually
      on June 15 and December 15 with no required principal payments prior to maturity
      on June 15, 2014. In connection with the acquisition of Cadmus, the Company
      recorded a $2.8 million increase to the value of the 83⁄8% Notes to record them at
      their fair value (Note 3), which is being amortized over the life of the 83⁄8%
      Notes.




On
      March 19, 2007, the Company accepted for purchase and paid approximately $20.9
      million for the 83⁄8% Notes tendered in the Cadmus Tender Offer, using $20.0
      million of delayed-draw term loan funding under the Amended Credit Facilities
      and cash on hand. In connection with the 83⁄8% Notes tendered, the Company
      recorded a loss on early extinguishment of debt of approximately $0.3 million,
      which included $0.8 million of tender premiums and tender-related expenses
      and
      the write-off of $0.5 million of the fair value increase to the 83⁄8% Notes
      recorded in connection with the Cadmus acquisition. The merger of Cadmus into
      Cenveo was a “change of control” of Cadmus under the 83⁄8% Notes indenture. On
      March 23, 2007 and in connection with the foregoing change of control, the
      Company extended the scheduled expiration of the Cadmus Tender Offer until
      April
      18, 2007, modified the offer to purchase each 83⁄8% Note tendered for a price
      equal to 101.0% of outstanding principal plus any accrued and unpaid interest,
      and waived certain consent-related conditions (the “Change of Control Offer”).
      On April 23, 2007, the Company settled payment on all 83⁄8% Notes tendered under
      the Change of Control Offer, and terminated the remaining amount of the
      delayed-draw term loan facility under the Amended Credit
      Facilities.




*Supplemental
      Indentures*




The
      Company entered into supplemental indentures, dated March 7, 2007, July 9,
      2007
      and August 30, 2007 to the indenture dated June 15, 2004, among Cadmus, each
      of
      the subsidiary guarantors (as defined therein) and U.S. Bank National
      Association ****(as successor trustee to Wachovia Bank,
      National Association), as trustee, pursuant to which the 83⁄8% Notes were issued.
      These supplemental indentures provide for, among other things, the assumption
      by
      the Company of the obligations of Cadmus under the 83⁄8% Notes and such indenture
      and the addition of: (1) other U.S. subsidiaries of


19




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**9.
      Long-Term Debt (Continued)**




the
      Company, (2) ColorGraphics and its subsidiary and (3) Commercial Envelope and
      its subsidiaries as guarantors of these notes. Simultaneously, the Company
      entered into supplemental indentures, dated March 7, 2007, July 9, 2007 and
      August 30, 2007 to the indenture dated February 4, 2004 among the Company,
      the
      guarantors named therein and U.S. Bank National Association, as trustee,
      pursuant to which the Company’s 77⁄8% Notes were issued. These supplemental
      indentures provide for, among other things, the addition of: (1) the U.S.
      subsidiaries of Cadmus, (2) ColorGraphics and its subsidiary and (3) Commercial
      Envelope and its subsidiaries as guarantors of the 77⁄8% Notes.




*Other
      Debt*




Other
      debt includes approximately $37.2 million of equipment loans assumed in the
      acquisition of Cadmus, ColorGraphics and Commercial Envelope of which $24.0
      million have variable interest rates with an average interest rate of 6.4%
      and
      $13.2 million with an average fixed rate of 4.9%, as of September 30,
      2007.




*95⁄8%
      Senior Notes*




On
      May 4, 2007, the Company retired the remaining $10.5 million of its 95⁄8% Senior
      Notes due 2012 for 104.813% of the principal amount plus accrued interest,
      which
      was funded with its Revolving Credit Facility.  In connection with the
      retirement of the 95⁄8% Senior Notes, the Company recorded a loss on early
      extinguishment of debt of $0.5 million, representing premiums paid.




As
      of September 30, 2007, the Company was in compliance with all covenants under
      its debt agreements.




**10.
      Restructuring and Impairment Charges**




The
      Company has two cost savings plans,
      the 2007 Cost Savings and Integration Plan and the 2005 Cost Savings and
      Restructuring Plan.




*2007
      Cost Savings and Integration Plan*




The
      Company has formulated its preliminary cost savings and integration plan related
      to its acquisition of Commercial Envelope, ColorGraphics, Cadmus and Printegra.
      In connection with the implementation of this plan, during the third quarter
      of
      2007, the Company closed its envelope plant in O’Fallon, Missouri and closed
      commercial printing plants in San Francisco, California and Seattle, Washington
      and integrated these operations into acquired and other Company
      operations.  In the second quarter of 2007 the Company closed its
      forms plant in Girard, Kansas and closed its Philadelphia, Pennsylvania
      commercial printing plant and integrated these operations into acquired and
      other Company operations. The following tables and discussion present the
      details of the expenses recognized in the three and nine months ended September
      30, 2007 as a result of this plan.


20




**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**10.
      Restructuring and Impairment Charges (Continued)**




***Three
      Months Ended September 30, 2007***




Restructuring
      and impairment charges for the three months ended September 30, 2007 were as
      follows (in thousands):




**Envelopes,**
              **Forms
                and**
              **Labels**
            
            **Commercial**
              **Printing**
            
            **Total**Employee
                separation costs
            
            $
            1,513
            
            $
            1,293
            
            $
            2,806Asset
                impairments
            
            
            1,139
            
            
            2,721
            
            
            3,860Equipment
                moving expenses
            
            
            386
            
            
            670
            
            
            1,056Lease
                termination expenses
            
            
            21
            
            
            4,710
            
            
            4,731Building
                clean-up and other expenses
            
            
            406
            
            
            846
            
            
            1,252Total
                restructuring and impairment charges
            
            $
            3,465
            
            $
            10,240
            
            $
            13,705




**Envelopes,
      Forms and Labels.** The envelopes, forms and labels segment closed an
      envelope plant in O’Fallon, Missouri during the third quarter of 2007 in
      connection with the integration of Commercial Envelope. As a result of this
      closure and the Girard, Kansas plant closure in the second quarter of 2007,
      the
      segment recorded employee separation costs of $1.5 million related to workforce
      reductions, asset impairment charges of $1.1 million related to equipment taken
      out of service, equipment moving expenses of $0.4 million for the redeployment
      of equipment, and building clean-up and other related expenses of $0.4
      million.




**Commercial
      Printing.** The commercial printing segment closed plants in Seattle,
      Washington and in San Francisco, California during the third quarter of 2007,
      in
      connection with the integration of ColorGraphics. As a result of these closures
      and the Philadelphia, Pennsylvania closure in the second quarter of 2007, the
      segment recorded employee separation costs of $1.3 million related to workforce
      reductions, asset impairment charges of $2.7 million related to equipment taken
      out of service, equipment moving expenses of $0.7 million for the redeployment
      of equipment, lease termination expenses of $4.7 million, and building clean-up
      and other related expenses of $0.8 million.





***Nine
      Months Ended September 30, 2007***




Restructuring
      and impairment charges for the nine months ended September 30, 2007 are as
      follows (in thousands):




**Envelopes,**
              **Forms
                and**
              **Labels**
            
            **Commercial**
              **Printing**
            
            **Total**Employee
                separation costs
            
            $
            2,106
            
            $
            2,203
            
            $
            4,309Asset
                impairments
            
            
            3,834
            
            
            3,758
            
            
            7,592Equipment
                moving expenses
            
            
            603
            
            
            670
            
            
            1,273Lease
                termination expenses
            
            
            21
            
            
            4,710
            
            
            4,731Multi-employer
                pension withdrawal liability
            
            
            —
            
            
            1,800
            
            
            1,800Building
                clean-up and other expenses
            
            
            620
            
            
            859
            
            
            1,479Total
                restructuring and impairment charges
            
            $
            7,184
            
            $
            14,000
            
            $
            21,184





**Envelopes,
      Forms and Labels.** As a result of the above closures, the envelopes,
      forms and labels segment recorded employee separation costs of $2.1 million
      related to workforce reductions, asset impairment charges of $3.8 million
      related to equipment taken out of service, equipment moving expenses of $0.6
      million for the redeployment of equipment, and building clean-up and other
      related expenses of $0.6 million.


21


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**10.
      Restructuring and Impairment Charges (Continued)**





**Commercial
      Printing.** As a result of the above closures, the commercial printing
      segment recorded employee separation costs of $2.2 million related to workforce
      reductions,  asset impairment charges of $3.8 million related to
      equipment taken out of service, equipment moving expenses of $0.7 million for
      the redeployment of equipment, lease termination expenses of $4.7 million,
      a
      pension withdrawal liability of $1.8 million and building clean-up and other
      related expenses of $0.9 million.




A
      summary of the activity charged to the restructuring liabilities as a result
      of
      the 2007 cost savings and integration plan is as follows (in
      thousands):







**Lease**
              **Termination**
              **Costs**
            
            **Employee**
              **Separation**
              **Costs**
            
            **Pension**
              **Withdrawal**
              **Liabilities**
            
            **Total**Balance
                at December 31, 2006
            
            $
            —
            
            $
            —
            
            $
            —
            
            $
            —Accruals,
                net
            
            
            4,731
            
            
            4,309
            
            
            1,800
            
            
            10,840Payments
            
            
            (99
            )
            
            (2,771
            )
            
            —
            
            
            (2,870
            )Balance
                at September 30, 2007
            
            $
            4,632
            
            $
            1,538
            
            $
            1,800
            
            $
            7,970




*2005
      Cost Savings and Restructuring Plan*




In
      September 2005, the senior management team of Cenveo implemented a cost savings
      and restructuring plan that included the consolidation of the Company’s
      purchasing activities and manufacturing platform, corporate and field human
      resources reductions, streamlining information technology infrastructure and
      eliminating all discretionary spending. The following tables and discussion
      present the details of the expenses recognized in the three and nine months
      ended September 30, 2007 and 2006, as a result of this plan.




***Three
      Months Ended September 30, 2007***




Restructuring
      and impairment charges for the three months ended September 30, 2007 were as
      follows (in thousands):




**Envelopes,**
              **Forms
                and**
              **Labels**
            
            **Commercial**
              **Printing**
            
            **Corporate**
            
            **Total**Employee
                separation costs
            
            $
            441
            
            $
            1,171
            
            $
            87
            
            $
            1,699Asset
                impairments, net of gain on sale
            
            
            157
            
            
            3,028
            
            
            —
            
            
            3,185Equipment
                moving expenses
            
            
            —
            
            
            2
            
            
            —
            
            
            2Lease
                termination expenses
            
            
            23
            
            
            414
            
            
            31
            
            
            468Building
                clean-up and other expenses
            
            
            48
            
            
            1,141
            
            
            64
            
            
            1,253Total
                restructuring and impairment charges
            
            $
            669
            
            $
            5,756
            
            $
            182
            
            $
            6,607




**Envelopes,
      Forms and Labels.** The envelopes, forms and labels segment incurred
      employee separation costs of $0.4 million related to workforce reductions and
      asset impairment charges of $0.2 million related to equipment taken out of
      service in connection with the Company’s cost savings programs.




**Commercial
      Printing.** The commercial printing segment closed plants in Houston,
      Texas and Indianapolis, Indiana during the third quarter of 2007. As a result
      of
      these closures, the segment recorded employee separation costs of $1.2 million
      related to workforce reductions, asset impairment charges of $3.0 million
      related to equipment taken out of service, lease termination expenses of $0.4
      million and building clean-up and other expenses of $1.1
      million.


22


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**10.
      Restructuring and Impairment Charges (Continued)**




***Nine
      Months Ended September 30, 2007***




Restructuring
      and impairment charges for the nine months ended September 30, 2007 were as
      follows (in thousands):




**Envelopes,**
              **Forms
                and**
              **Labels**
            
            **Commercial**
              **Printing**
            
            **Corporate**
            
            **Total**Employee
                separation costs
            
            $
            1,790
            
            $
            2,163
            
            $
            188
            
            $
            4,141Asset
                impairments, net of gain on sale
            
            
            (341
            )
            
            3,041
            
            
            —
            
            
            2,700Equipment
                moving expenses
            
            
            761
            
            
            140
            
            
            —
            
            
            901Lease
                termination expenses
            
            
            79
            
            
            163
            
            
            88
            
            
            330Building
                clean-up and other expenses
            
            
            335
            
            
            2,415
            
            
            88
            
            
            2,838Total
                restructuring and impairment charges
            
            $
            2,624
            
            $
            7,922
            
            $
            364
            
            $
            10,910




**Envelopes,
      Forms and Labels.** The envelopes, forms and labels segment incurred
      employee separation costs of $1.8 million related to workforce reductions,
      asset
      impairment charges related to equipment taken out of service, net of gain on
      sale, of $(0.3) million, equipment moving expenses of $0.8 million for the
      redeployment of equipment, lease termination expenses of $0.1 million and
      building clean-up and other expenses of $0.3 million related to locations that
      were closed in 2006.




**Commercial
      Printing.** As a result of plant closures in 2007, the commercial
      printing segment incurred employee separation costs of $2.2 million related
      to
      workforce reductions, asset impairment charges of $3.0 million related to
      equipment taken out of service, equipment moving expenses of $0.1 million,
      lease
      termination expenses of $0.2 million and building clean-up and other expenses
      of
      $2.4 million.




***Three
      Months Ended September 30, 2006***




Restructuring
      and impairment charges for the three months ended September 30, 2006 were as
      follows (in thousands):


**Envelopes,**
                **Forms
                  and**
                **Labels**
              
              **Commercial**
                **Printing**
              
              **Corporate**
              
              **Total**Employee
                  separation costs
              
              $
              955
              
              $
              1,430
              
              $
              99
              
              $
              2,484Asset
                  impairments, net of gain on sale
              
              
              (1,665
              )
              
              703
              
              
              —
              
              
              (962
              )Equipment
                  moving expenses
              
              
              1,216
              
              
              244
              
              
              —
              
              
              1,460Lease
                  termination (income) expense
              
              
              —
              
              
              (156
              )
              
              33
              
              
              (123
              )Building
                  clean-up and other expenses
              
              
              498
              
              
              1,445
              
              
              (100
              )
              
              1,843Total
                  restructuring and impairment charges
              
              $
              1,004
              
              $
              3,666
              
              $
              32
              
              $
              4,702
  **Envelopes,
          Forms and Labels.**The envelopes, forms and labels segment incurred
          employee separation costs of $1.0 million related to workforce reductions,
          asset
          impairment charges related to equipment taken out of service, net of gain
          on
          sale, of $(1.7) million, equipment moving expenses of $1.2 million for
          the
          redeployment of equipment and building clean-up and other expenses of $0.5
          million related to the four locations that were closed in the second quarter
          of
          2006 and from cost savings initiatives at other
          locations.




**Commercial
      Printing.**In connection with five plant closures during the first nine
      months of 2006 and from cost savings initiatives at other locations, the
      commercial print segment incurred employee


23


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**10.
      Restructuring and Impairment Charges (Continued)**




separation
      costs of $1.4 million related to workforce reductions, asset impairment charges
      of $0.7 million for equipment taken out of service, equipment moving expenses
      of
      $0.2 million for the redeployment of equipment, lease termination income of
      $(0.2) million and $1.4 million of building clean-up and other
      expenses.




***Nine
      Months Ended September 30, 2006***




Restructuring
      and impairment charges for the nine months ended September 30, 2006 were as
      follows (in thousands):




**Envelopes,**
              **Forms
                and**
              **Labels**
            
            **Commercial**
              **Printing**
            
            **Corporate**
            
            **Total**Employee
                separation costs
            $
            5,897
            
            $
            11,042
            
            $
            1,201
            
            $
            18,140Asset
                impairments, net of gain on sale
            
            2,215
            
            
            1,259
            
            
            —
            
            
            3,474Equipment
                moving expenses
            
            3,823
            
            
            1,304
            
            
            —
            
            
            5,127Lease
                termination expenses
            
            2,032
            
            
            1,725
            
            
            (306
            )
            
            3,451Building
                clean-up and other expenses
            
            1,035
            
            
            4,263
            
            
            (100
            )
            
            5,198Total
                restructuring and impairment charges
            $
            15,002
            
            $
            19,593
            
            $
            795
            
            $
            35,390




**Envelopes,
      Forms and Labels.**The envelopes, forms and labels segment closed six
      manufacturing plants and an office location during the first nine months of
      2006. As a result of these closures, locations closed in the fourth quarter
      of
      2005 and cost savings initiatives at other locations, the segment recorded
      employee separation costs of $5.9 million related to workforce reductions,
      asset
      impairment charges related to equipment taken out of service of $2.2 million,
      net of the gain on sale of a facility of $1.9 million, and equipment moving
      expenses of $3.8 million. In addition, the segment recorded lease termination
      expenses of $2.0 million, representing the net present value of costs that
      are
      not expected to be recovered over the remaining terms of three leased facilities
      no longer in use, and building clean-up and other expenses of $1.0
      million.




**Commercial
      Printing.**In connection with the commercial printing segment’s five
      plant closures during the first nine months of 2006, locations closed in the
      fourth quarter of 2005 and cost savings initiatives at other locations, the
      segment recorded employee separation costs of $11.0 million related to workforce
      reductions, asset impairment charges of $1.3 million related to equipment taken
      out of service, equipment moving expenses of $1.3 million, lease termination
      expenses of $1.7 million representing the net present value of costs that are
      not expected to be recovered over the remaining terms of leased facilities
      no
      longer in use and building clean-up and other expenses of $4.3
      million.




**Corporate.**  The
      Company incurred employee separation costs of $1.2 million and recorded lease
      termination income of $0.3 million resulting from adjusting its estimate of
      the
      net present value of the cost of the lease that is not expected to be recovered
      over its remaining life, upon subleasing its former corporate
      headquarters.







24


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**10.
      Restructuring and Impairment Charges (Continued)**







A
      summary of the activity charged to the restructuring liabilities as a result
      of
      the 2005 cost savings and restructuring plan is as follows (in
      thousands):




**Lease**
              **Termination**
              **Costs**
            
            **Employee**
              **Separation**
              **Costs**
            
            **Pension**
              **Withdrawal**
              **Liabilities**
            
            **Total**Balance
                at December 31, 2006
            
            $
            5,541
            
            $
            1,427
            
            $
            642
            
            $
            7,610Accruals,
                net
            
            
            330
            
            
            4,141
            
            
            —
            
            
            4,471Payments
            
            
            (1,477
            )
            
            (4,095
            )
            
            (282
            )
            
            (5,854
            )Balance
                at September 30, 2007
            
            $
            4,394
            
            $
            1,473
            
            $
            360
            
            $
            6,227




**11.
      Pension Plans**




The
      components of the net periodic pension expense for the Company’s pension plans
      and other postretirement benefit plans are as follows (in
      thousands):





**Pension
                Plans**
              **Three
                Months Ended**
              **September
                30,**
            
            **Postretirement
                Plans**
              **Three
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            **2007**Service
                cost
            $
            119
            
            $
            42
            
            $
            —Interest
                cost
            
            2,679
            
            
            317
            
            
            39Expected
                return on plan assets
            
            (2,584
            )
            
            (176
            )
            
            —Net
                amortization and deferral
            
            5
            
            
            69
            
            
            —Contributions
                to multi-employer plans
            
            —
            
            
            —
            
            
            —Net
                periodic pension expense
            $
            219
            
            $
            252
            
            $
            39**Pension
                Plans**
              **Nine
                Months Ended**
              **September
                30,**
            
            **Postretirement
                Plans**
              **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            **2007**Service
                cost
            $
            300
            
            $
            126
            
            $
            —Interest
                cost
            
            6,335
            
            
            909
            
            
            88Expected
                return on plan assets
            
            (5,954
            )
            
            (528
            )
            
            —Net
                amortization and deferral
            
            56
            
            
            207
            
            
            —Contributions
                to multi-employer plans
            
            389
            
            
            —
            
            
            —Net
                periodic pension expense
            $
            1,126
            
            $
            714
            
            $
            88




For
      the nine months ended September 30, 2007, the Company made contributions of
      $8.6
      million to its pension plans and postretirement plans. The Company expects
      to
      contribute $0.3 million to its pension plans and postretirement plans for the
      remainder of 2007.




*Cadmus
      Pension and Other Postretirement Plans*




In
      connection with the acquisition of Cadmus, the Company assumed certain defined
      benefit pension plans, including participation in one multi-employer retirement
      plan that provides defined benefits to associates covered by two collective
      bargaining agreements. The Company also assumed certain nonqualified, nonfunded
      supplemental pension plans for certain key executives. For these supplemental
      plans, the Company maintains certain life insurance policies on former key
      executives, which are intended to defray costs and obligations under such plans.
      All such defined benefit plans provide benefit payments using formulas based
      on
      an associate’s compensation and length of service, or stated amounts for each
      year of service. Prior to the Company’s acquisition of Cadmus, the
      benefits


25


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**11.
      Pension Plans  (Continued)**




under
      the Cadmus pension plans, except for one plan, were frozen to mitigate the
      volatility in pension expense and required cash contributions expected in future
      years. The Cadmus pension plans were under-funded by approximately $34.1 million
      as of the acquisition date (Note 3).




Cadmus
      also maintained separate postretirement benefit plans (medical and life
      insurance) for certain of its former associates. Certain Cadmus associates
      are
      eligible for retiree medical coverage for themselves and their spouses if they
      retire on or after reaching age 55 with ten or more years of service. Benefits
      differ depending upon the date of retirement. The Cadmus postretirement plans
      were under-funded by approximately $2.7 million as of the acquisition date
      (Note
      3).





**12.
      Comprehensive Income (Loss)**




A
      summary of comprehensive income (loss) is as follows (in
      thousands):





**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            **2007**
            
            **2006**Net
                income
            $
            3,032
            
            $
            11,616
            
            $
            24,498
            
            $
            90,723Other
                comprehensive income (loss):Minimum
                pension liability adjustment
            
            —
            
            
            —
            
            
            —
            
            
            6,004Unrealized
                losses on cash flow hedges
            
            (8,890
            )
            
            (3,373
            )
            
            (4,960
            )
            
            (3,598
            )Currency
                translation adjustment
            
            2,318
            
            
            (198
            )
            
            31
            
            
            (15,060
            )Comprehensive
                income (loss)
            $
            (3,540
            )
            $
            8,045
            
            $
            19,569
            
            $
            78,069




In
      connection with the sale of its remaining investment in the Fund on March 13,
      2007 (Note 4), the Company reclassified $5.5 million of currency translation
      adjustment into discontinued operations from other comprehensive income. In
      connection with the sale of Supremex, the Company reclassified into discontinued
      operations from other comprehensive income $6.0 million of a minimum pension
      liability adjustment and $14.3 million of currency translation adjustment in
      the
      first quarter of 2006 and $1.7 million of currency translation adjustment in
      connection with the sale of units in the Fund relating to the underwriter’s
      exercise of an over-allotment option in the second quarter of 2006 (Note
      4).




**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
      reflects the potential dilution that could occur if options, restricted stock
      and RSUs to issue common stock were exercised under the treasury stock method.
      The only Company securities as of September 30, 2007 that could dilute basic
      income per share for periods subsequent to September 30, 2007 are: (1)
      outstanding stock options, which are exercisable into 3,993,855 shares of the
      Company’s common stock and (2) 1,295,000 shares of restricted stock and
      RSUs.


26


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**13.
      Income (Loss) per Share (Continued)**




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




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            **2007**
            
            **2006**Numerator
                for basic and diluted income (loss) per share:Income
                (loss) from continuing operations
            $
            3,842
            
            $
            9,290
            
            $
            9,356
            
            $
            (45,360
            )Income
                (loss) from discontinued operations, net of taxes
            
            (810
            )
            
            2,326
            
            
            15,142
            
            
            136,083Net
                income
            $
            3,032
            
            $
            11,616
            
            $
            24,498
            
            $
            90,723Denominator
                weighted average common shares outstanding:Basic
                shares
            
            53,572
            
            
            53,342
            
            
            53,545
            
            
            53,237Dilutive
                effect of stock options and RSUs
            
            959
            
            
            847
            
            
            1,069
            
            
            —Diluted
                shares
            
            54,531
            
            
            54,189
            
            
            54,614
            
            
            53,237Income
                (loss) per share - basic:Continuing
                operations
            $
            0.07
            
            $
            0.18
            
            $
            0.18
            
            $
            (0.85
            )Discontinued
                operations
            
            (0.01
            )
            
            0.04
            
            
            0.28
            
            
            2.55Net
                income
            $
            0.06
            
            $
            0.22
            
            $
            0.46
            
            $
            1.70Income
                (loss) per share - diluted:Continuing
                operations
            $
            0.07
            
            $
            0.17
            
            $
            0.17
            
            $
            (0.85
            )Discontinued
                operations
            
            (0.01
            )
            
            0.04
            
            
            0.28
            
            
            2.55Net
                income
            $
            0.06
            
            $
            0.21
            
            $
            0.45
            
            $
            1.70









**14.
      Segment Information**




The
      Company operates in two segments: the envelope, forms and labels segment and
      the
      commercial printing segment. The
      envelopes, forms and labels segment specializes in the design, manufacturing,
      printing and fulfillment of: (1) custom and direct mail envelopes developed
      for
      the advertising, billing and remittance needs of a variety of customers,
      including financial services companies; (2) custom labels and specialty forms
      sold through an extensive network of resale distributors for industries
      including food and beverage, manufacturing and pharmacy chains; and (3)
      stock envelopes, labels and business forms generally sold to independent
      distributors, office-products suppliers and office-products retail
      chains.  The commercial printing segment provides print, design,
      content management, fulfillment and distribution offerings, including: (1)
      high-end printed materials, which includes a wide range of premium products
      for
      major national and regional customers; (2) general commercial printing products
      for regional and local customers; (3) scientific, technical and medical journals
      and special interest and trade magazines for non-profit organizations,
      educational institutions and specialty publishers; and (4) specialty packaging
      and high quality promotional materials for multinational consumer products
      companies.




Operating
      income of each segment includes all costs and expenses directly relating to
      the
      segment’s
      operations. Corporate expenses include general and administrative expenses
      (Note
      2).















27


**CENVEO,
      INC. AND SUBSIDIARIES**


**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)**




**14.
      Segment Information (Continued)**




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


**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            **2007**
            
            **2006**Net
                sales:Envelopes,
                forms and labels
            $
            222,671
            
            $
            198,804
            
            $
            647,074
            
            $
            578,559Commercial
                printing
            
            327,930
            
            
            185,064
            
            
            815,201
            
            
            548,490Total
            $
            550,601
            
            $
            383,868
            
            $
            1,462,275
            
            $
            1,127,04938
            
            
            
            85,1Operating
                income (loss):Envelopes,
                forms and labels
            $
            32,560
            
            $
            25,774
            
            $
            85,091
            
            $
            59,525Commercial
                printing
            
            7,605
            
            
            6,583
            
            
            31,189
            
            
            789Corporate
            
            (10,119
            )
            
            (7,329
            )
            
            (28,000
            )
            
            (19,746
            )Total
            $
            30,046
            
            $
            25,028
            
            $
            88,280
            
            $
            40,568Restructuring
                and impairment charges:Envelopes,
                forms and labels
            $
            4,134
            
            $
            1,004
            
            $
            9,808
            
            $
            15,002Commercial
                printing
            
            15,996
            
            
            3,666
            
            
            21,922
            
            
            19,593Corporate
            
            182
            
            
            32
            
            
            364
            
            
            795Total
            $
            20,312
            
            $
            4,702
            
            $
            32,094
            
            $
            35,390150Net
                sales by product line:Envelopes
            $
            149,203
            
            $
            145,463
            
            $
            429,737
            
            $
            434,306Commercial
                printing
            
            231,792
            
            
            184,319
            
            
            595,316
            
            
            546,423Journals
                and periodicals
            
            95,762
            
            
            —
            
            
            218,150
            
            
            —Labels
                and business forms
            
            73,844
            
            
            54,086
            
            
            219,072
            
            
            146,320Total
            $
            550,601
            
            $
            383,868
            
            $
            1,462,275
            
            $
            1,127,049Intercompany
                sales:Envelopes,
                forms and labels to commercial printing
            $
            2,779
            
            $
            3,067
            
            $
            8,196
            
            $
            9,462Commercial
                printing to envelopes, forms and labels
            
            755
            
            
            3,219
            
            
            6,045
            
            
            11,117Total
            $
            3,534
            
            $
            6,286
            
            $
            14,241
            
            $
            20,579**September
                30,**
              **2007**
            
            **December
                31,****2006**Identifiable
                assets:Envelopes,
                forms and labels
            $
            827,494
            
            $
            496,379Commercial
                printing
            
            1,129,189
            
            
            393,954Corporate
            
            69,104
            
            
            111,617Total
            $
            2,025,787
            
            $
            1,001,950


28




**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 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, 2006. Item 7 of our 2006 Annual Report
      on
      Form 10-K, which we refer to as our Form 10-K, describes the application of
      our
      critical accounting policies, for which there have been no significant changes
      as of September 30, 2007. During the first quarter of 2007, we acquired PC
      Ink
      Corp., which we refer to as Printegra, and Cadmus Communications Corporation,
      which we refer to as Cadmus. During the third quarter of 2007, we acquired
      Madison/Graham ColorGraphics, Inc., which we refer to as ColorGraphics, and
      Commercial Envelope Manufacturing Co., Inc., which we refer to as Commercial
      Envelope. See “Acquisitions” and “Long-Term Debt” below.




**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: (1) our substantial indebtedness
      impairing our financial condition and limiting our ability to incur additional
      debt; (2) the terms of our indebtedness imposing significant restrictions on
      our
      operating and financial flexibility; (3) the potential to incur additional
      indebtedness, further exacerbating the above factors; (4) cross default
      provisions in our indebtedness, which could cause all of our debt to become
      due
      and payable as a result of a default under an unrelated debt instrument; (5)
      our
      ability to successfully integrate acquisitions; (6) intense competition in
      our
      industry; (7) the absence of long-term customer agreements in our industry,
      subjecting our business to fluctuations; (8) factors affecting the U.S. postal
      services impacting demand for our products; (9) increases in paper costs and
      decreases in its availability; (10) our history of losses from continuing
      operations and the ability to return to consistent profitability; (11) the
      availability of the Internet and other electronic media affecting demand for
      our
      products; (12) our labor relations; (13) compliance with environmental rules
      and
      regulations; (14) dependence on key management personnel; and (15) general
      economic, business and labor conditions. This list of factors is not exhaustive,
      and new factors may emerge or changes to the foregoing factors may occur that
      would impact the Company’s business. Additional information regarding these and
      other factors can be found elsewhere in this report and in our other filings
      with the SEC.




**Business
      Overview**




We
      are a leading provider of print and visual communications and are currently
      the
      third largest diversified printing company in North America.




**Acquisitions.**
      On February 12, 2007, we acquired Printegra, a leading producer of printed
      business communication documents, labels and envelopes regularly used by small
      and large businesses. With the acquisition of Printegra, we have expanded our
      product offerings to our existing base of


29




customers to
      include short-run documents, labels and envelope products. Additionally,
      Printegra’s
      customer base is now able to access our broad offering of products. Printegra’s
      results of operations are included within our envelopes, forms and labels
      segment results since the date of the acquisition. See Note 3 to the condensed
      consolidated financial statements included herein.




On
      March 7, 2007, we acquired Cadmus, one of the world’s largest providers of
      content management and printing to scientific, technical and medical journal
      publishers; one of the largest periodicals printers in North America and a
      leading provider of specialty packaging and promotional printing. This
      acquisition is resulting in significant economies of scale from our increased
      volume of business that enables us to purchase raw materials, primarily paper,
      ink and other supplies, on more favorable terms and helps ensure better
      availability of these materials in tight markets. The results of operations
      of
      Cadmus are included within our commercial printing segment results since the
      date of the acquisition. See Note 3 to the condensed consolidated financial
      statements included herein.





We
      acquired ColorGraphics on July 9, 2007. ColorGraphics produces printed annual
      reports, booklets, brochures, advertising inserts, direct mail and other
      corporate communication materials. ColorGraphics’ four
      strategically-located commercial printing facilities on the West Coast of the
      United States are being integrated with our existing West Coast operations
      to
      form what we believe is the premier West Coast commercial printer.
      ColorGraphics’ results of operations from July 1, 2007 are included within our
      commercial printing segment results. See Note 3 to the condensed consolidated
      financial statements included herein.





On
      August 30, 2007, we acquired Commercial Envelope, one of the largest envelope
      manufacturers in the United States*.*Commercial Envelope operates five
      strategically-located manufacturing facilities, which produces over 45 million
      envelopes per day.  The acquisition of Commercial Envelope has
      increased our market share in the U.S. envelope market and is creating operating
      efficiencies as we integrate our envelope operations.  Commercial
      Envelope’s results of operations are included within our envelopes, forms and
      labels business since the date of acquisition. See Note 3 to the condensed
      consolidated financial statements included herein.




**Business
      Segments.** We operate our businesses in two complementary reportable
      segments: envelopes, forms and labels and commercial printing. Our broad
      portfolio of product offerings is provided through a network of over 70
      production, fulfillment and distribution facilities, which we refer to as
      manufacturing facilities, primarily throughout North America.




**Envelopes,
      Forms and Labels.** Our envelopes, forms and labels segment specializes
      in the design, manufacturing, printing and fulfillment of: (1) custom and direct
      mail envelopes developed for the advertising, billing and remittance needs
      of a
      variety of customers, including financial services companies; (2) custom labels
      and specialty forms sold through an extensive network of resale distributors
      for
      industries including food and beverage, manufacturing and pharmacy chains;
      and
      (3) stock envelopes, labels and business forms generally sold to independent
      distributors, office-products suppliers and office-products retail
      chains.




**Commercial
      Printing.** Our commercial printing segment provides print, design,
      content management, fulfillment and distribution offerings, including: (1)
      high-end printed materials, which includes a wide range of premium products
      for
      major national and regional customers; (2) general commercial printing products
      for regional and local customers; (3) scientific, technical and medical journals
      and special interest and trade magazines for non-profit organizations,
      educational institutions and specialty publishers; and (4) specialty packaging
      and high quality promotional materials for multinational consumer products
      companies.




**Consolidated
      Operating Results**




Management’s
      Discussion and Analysis of Financial Condition and Results of Operations
      includes an overview of our consolidated results for the three and nine month
      periods ended September 30,


30




2007,
      followed by a discussion of the results of each of our business segments for
      the
      same period. Our results for the three and nine month periods ended September
      30, 2007 include the operating results of Printegra, Cadmus, ColorGraphics
      and
      Commercial Envelope, which we refer to as the 2007 Acquisitions, subsequent
      to
      their respective acquisition dates, except for ColorGraphics which is included
      in our operating results from July 1, 2007. Since Commercial Envelope’s results
      are not included for the full quarter ended September 30, 2007 and the 2007
      Acquisitions results are not included for a full nine month period in 2007,
      we
      expect that our net sales and operating income in future quarters and next
      year
      will increase. See Note 3 to the condensed consolidated financial statements
      included herein.




Beginning
      in the fourth quarter of 2006, the financial results of Supremex Inc., and
      certain other assets, which we refer to as Supremex, have been accounted for
      as
      a discontinued operation, resulting in our historical condensed consolidated
      statements of operations and statements of cash flows being reclassified to
      reflect such discontinued operations separately from continuing operations.
      On
      March 13, 2007, we completed the sale of our remaining 28.6% economic and voting
      interest in the Supremex Income Fund, which we refer to as the Fund. See Note
      4
      to the condensed consolidated financial statements included
      herein.


31




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.
      Division net sales excludes sales of divested operations. Our fiscal quarters
      end on the Saturday closest to the last day of the calendar month so that each
      quarter has the same number of days and 13 full weeks. The financial statements
      and other financial information in this report are presented using a calendar
      convention. The reporting periods, which consist of 13 weeks ended on September
      29, 2007 and September 30, 2006, are reported as ending on September 30, 2007
      and 2006, respectively, since the effect of a reporting period not ending on
      these dates is not material.


**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            
            **2006**
            
            
            **2007**
            
            
            **2006****(in
                thousands, except**
              **per
                share amounts)**
            
            
            **(in
                thousands, except**
              **per
                share amounts)**Division
                net sales
            
            $
            550,601
            
            
            $
            382,470
            
            
            $
            1,462,275
            
            
            $
            1,118,499Divested
                operations
            
            
            —
            
            
            
            1,398
            
            
            
            —
            
            
            
            8,550Net
                sales
            
            $
            550,601
            
            
            $
            383,868
            
            
            $
            1,462,275
            
            
            $
            1,127,049Operating
                income (expense):Envelopes,
                forms and labels
            
            $
            32,560
            
            
            $
            25,774
            
            
            $
            85,091
            
            
            $
            59,525Commercial
                printing
            
            
            7,605
            
            
            
            6,583
            
            
            
            31,189
            
            
            
            789Corporate
            
            
            (10,119
            )
            
            
            (7,329
            )
            
            
            (28,000
            )
            
            
            (19,746
            )Total
                operating income
            
            
            30,046
            
            
            
            25,028
            
            
            
            88,280
            
            
            
            40,568(Gain)
                loss on sale of non-strategic businesses
            
            
            (189
            )
            
            
            —
            
            
            
            (189
            )
            
            
            1,849Interest
                expense, net
            
            
            25,283
            
            
            
            13,939
            
            
            
            63,091
            
            
            
            47,013Loss
                on early extinguishment of debt
            
            
            51
            
            
            
            —
            
            
            
            9,256
            
            
            
            32,744Other
                (income) expense, net
            
            
            899
            
            
            
            102
            
            
            
            2,068
            
            
            
            (382
            )Income
                (loss) from continuing operations before income taxes
            
            
            4,002
            
            
            
            10,987
            
            
            
            14,054
            
            
            
            (40,656
            )Income
                tax expense
            
            
            160
            
            
            
            1,697
            
            
            
            4,698
            
            
            
            4,704Income
                (loss) from continuing operations
            
            
            3,842
            
            
            
            9,290
            
            
            
            9,356
            
            
            
            (45,360
            )Income
                (loss) from discontinued operations, net of taxes
            
            
            (810
            )
            
            
            2,326
            
            
            
            15,142
            
            
            
            136,083Net
                income
            
            $
            3,032
            
            
            $
            11,616
            
            
            $
            24,498
            
            
            $
            90,723Income
                (loss) per share - basic:Continuing
                operations
            
            $
            0.07
            
            
            $
            0.18
            
            
            $
            0.18
            
            
            $
            (0.85
            )Discontinued
                operations
            
            
            (0.01
            )
            
            
            0.04
            
            
            
            0.28
            
            
            
            2.55Net
                income
            
            $
            0.06
            
            
            $
            0.22
            
            
            $
            0.46
            
            
            $
            1.70Income
                (loss) per share - diluted:Continuing
                operations
            
            $
            0.07
            
            
            $
            0.17
            
            
            $
            0.17
            
            
            $
            (0.85
            )Discontinued
                operations
            
            
            (0.01
            )
            
            
            0.04
            
            
            
            0.28
            
            
            
            2.55Net
                income
            
            $
            0.06
            
            
            $
            0.21
            
            
            $
            0.45
            
            
            $
            1.70




**Net
      Sales**




Net
      sales increased $166.7 million in the third quarter of 2007, as compared to
      the
      third quarter of 2006. This increase was primarily due to the $195.5 million
      of
      sales generated by the 2007 Acquisitions in the third quarter of 2007, which
      includes the impact of sales changes for work transitioned primarily from the
      two plants that we closed as a result of the ColorGraphics acquisition, with
      no
      corresponding amounts in the third quarter of 2006. This increase was offset
      in
      part by lower sales from our envelopes, forms and labels segment of $13.1
      million and from $15.6 million of lower sales from our commercial printing
      segment. See Segment Operations below for a detailed discussion of the primary
      factors affecting the change in our net sales by reportable
      segment.


32




Net
      sales for the nine months ended September 30, 2007 increased $335.2 million,
      as
      compared to the nine months ended September 30, 2006. This increase was
      primarily due to the $406.0 million of sales generated by the 2007 Acquisitions
      in the first nine months of 2007, with no corresponding amounts in the first
      nine months of 2006 and the additional sales generated by Rx Label Technology
      Corporation, which we refer to as Rx, in 2007, since it was not included in
      our
      results for a full nine month period in 2006.  This increase was
      offset in part by lower sales from our commercial printing segment of $42.0
      million and lower sales from our envelopes, forms and labels segment of $28.8
      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 $5.0 million in the third quarter of 2007, as compared to
      the
      third quarter of 2006. This increase was primarily due to $13.6 million of
      operating income generated by the 2007 Acquisitions in the third quarter of
      2007
      and their integration into our operations, with no corresponding amounts in
      the
      third quarter of 2006, and $9.8 million of increased operating income primarily
      resulting from our cost savings initiatives. These increases were partially
      offset by increased restructuring and impairment charges of $15.6 million
      primarily related to the integration of the 2007 Acquisitions and plant
      closures. See Segment Operations below for a more detailed discussion of the
      primary factors for our changes in operating income by reportable
      segment.




Operating
      income for the nine months ended September 30, 2007 increased $47.7 million,
      as
      compared to the nine months ended September 30, 2006. This increase was
      primarily due to $27.6 million of operating income generated by the 2007
      Acquisitions in the nine months ended of 2007 with no corresponding amounts
      in
      the first nine months of 2006, and the additional operating income generated
      by
      Rx since it was not included in our results for a full nine month period in
      2006, $25.1 million of increased operating income primarily resulting from
      our
      cost savings initiatives. See Segment Operations below for a more detailed
      discussion of the primary factors for our changes in operating income by
      reportable segment.




**Loss
      on Sale of Non-Strategic Businesses.**During the nine months ended
      September 30, 2006, we sold two small non-strategic commercial printing
      businesses and recorded a $1.8 million loss on sale.




**Interest
      Expense, Net.** Interest expense increased $11.3 million to $25.3 million
      in the third quarter of 2007, as compared to $13.9 million in the third quarter
      of 2006, primarily due to the additional debt we incurred to finance the 2007
      Acquisitions. This increase was offset in part by lower interest expense
      resulting from reduced interest rates from amending and refinancing our senior
      credit facilities in March 2007. Interest expense in the third quarter of 2007
      reflects average outstanding debt of approximately $1.3 billion and a weighted
      average interest rate of 7.5%, as compared to average outstanding debt of $706.5
      million and a weighted average interest rate of 7.7% in the third quarter of
      2006.





Interest
      expense increased $16.1 million to $63.1 million during the first nine months
      of
      2007, as compared to $47.0 million in the first nine months of 2006, primarily
      due to the additional debt we incurred to finance the 2007 Acquisitions. This
      increase was offset in part by lower interest expense resulting from reduced
      interest rates amending and refinancing our senior credit facilities in March
      2007.  Interest expense in the first nine months of 2007 reflects
      average outstanding debt of $1.1 billion and a weighted average interest rate
      of
      7.5%, compared to the average outstanding debt of $733.7 million and a weighted
      average interest rate of 8.3% during the first nine months of 2006.





We
      expect higher interest expense for the remainder of 2007 due to our increased
      debt level resulting from the 2007 Acquisitions. See Long-Term Debt below and
      Note 9 to the condensed consolidated financial statements included
      herein.




**Loss
      on Early Extinguishment of Debt.**  In May 2007, we retired our
      remaining 95⁄8% Senior Notes due 2012, which we refer to as the 95⁄8% Senior Notes,
      and incurred a loss on early extinguishment of debt of approximately $0.5
      million. On March 7, 2007, in connection with the Cadmus acquisition
      and




33


the
      refinancing of our existing $525 million senior secured credit facilities,
      which
      we refer to as the Amended Credit Facilities, we incurred a loss on early
      extinguishment of debt of approximately $8.4 million. In addition, as a result
      of the tender offer for and repayment on March 19, 2007 of $20.9 million of
      Cadmus’ 83⁄8% Senior Subordinated Notes due 2014, which we refer to as the 83⁄8%
      Notes, we recorded a loss on early extinguishment of debt of approximately
      $0.3
      million. See Long-Term Debt below and Note 9 to the condensed consolidated
      financial statements included herein.




In
      June 2006, we incurred a $32.7 million loss on early extinguishment of debt
      related to our debt refinancing. See Long-Term Debt below and Note 9 to the
      condensed consolidated financial statements included herein.




**Income
      Taxes**




**Three
                Months Ended**
              **September
                30,**
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            
            **2007**
            
            **2006****(in
                thousands)**
            
            
            
            **(in
                thousands)**Income
                tax expense for U.S. operations
            $
            376
            
            $
            1,680
            
            
            $
            4,217
            
            $
            4,638Income
                tax expense for foreign operations
            
            (216
            )
            
            17
            
            
            
            481
            
            
            66Income
                tax expense
            $
            160
            
            $
            1,697
            
            
            $
            4,698
            
            $
            4,704Effective
                income tax rate
            
            4.0
            %
            
            15.4
            %
            
            
            33.4
            %
            
            (11.6
            )%




In
      the third quarter of 2007 and 2006, we had income tax expense of $0.2 million
      and $1.7 million, respectively, which primarily relates to taxes on our domestic
      operations. Our effective tax rate in the third quarter of 2007, was lower
      than
      the statutory rate, primarily due to the decrease in income tax expense
      resulting from the finalization of our 2006 income tax returns.




In
      each of the nine month periods ended September 30, 2007 and 2006, we had income
      tax expense of $4.7 million which primarily relates to taxes on our domestic
      operations.  Our effective tax rate in the nine months ended September
      30, 2007, was lower than the statutory rate primarily due to the decrease in
      income tax expense resulting from the finalization of our 2006 income tax
      returns.




We
      assess the recoverability of our deferred tax assets and, based upon this
      assessment, record a valuation allowance against deferred tax assets to the
      extent recoverability does not satisfy the more likely than not recognition
      criteria in Statement of Financial Accounting Standards No. 109, Accounting
      for
      Income Taxes. We consider our recent operating results and anticipated future
      taxable income in assessing the need for a valuation allowance. As of September
      30, 2007, the total valuation allowance on our net U.S. deferred tax assets
      was
      approximately $63.2 million.




**Income
      (Loss) from Discontinued Operations, Net of Taxes.** Income from
      discontinued operations for the nine months ended September 30, 2007, includes
      the $16.0 million gain on sale of our remaining interest in the Fund on March
      13, 2007 and equity income related to our retained interest in the Fund from
      January 1, 2007 through March 13, 2007. Income from discontinued operations
      for
      the quarter ended September 30, 2006 includes equity income pertaining to our
      retained interest in the Fund. Discontinued operations for the nine months
      ended
      September 30, 2006 primarily represents the revenues and expenses of Supremex
      and certain other assets sold to the Fund on March 31, 2006 and does not include
      an allocation of interest expense on our debt.  The 2006 nine month
      results include the gain on the sale of Supremex and certain other assets of
      $126.4 million. In 2006, the results of discontinued operations are for the
      period from January 1, 2006 to March 31, 2006, the date of the sale, and include
      equity income from April 1, 2006 through September 30, 2006 pertaining to our
      retained interest. See Note 4 to the condensed consolidated financial statements
      included herein.




**Segment
      Operations**




Our
      Chief Executive Officer monitors the performance of the ongoing operations
      of
      our two reportable segments. We assess performance based on division net sales
      and operating income. The summaries of net sales of our two segments are
      presented to show each segment without the net sales


34




of
      divested operations, as applicable, and to show the operating income of each
      reportable segment. See Note 14 to the condensed consolidated financial
      statements included herein.




**Restructuring
      and Impairment Charges.** We continue to execute on our cost savings and
      restructuring plan initiated in 2005, including the consolidation of purchasing
      activities, the rationalization of our manufacturing platform, corporate and
      field human resources reductions, implementation of company-wide purchasing
      initiatives and streamlining of information technology infrastructure. In
      addition, we are implementing cost savings and integration initiatives related
      to the 2007 Acquisitions and anticipate substantially completing the integration
      of those operations by early 2008. See Note 10 to the condensed consolidated
      financial statements included herein. As of September 30, 2007, our total
      restructuring liability was $20.0 million.




During
      the three months ended September 30, 2007, we incurred $20.3 million of
      restructuring and impairment charges, which included $4.5 million of employee
      separation costs, $7.0 million of asset impairment charges, equipment moving
      expenses of $1.1 million, lease termination expenses of $5.2 million, and other
      exit costs of $2.5 million. During the nine months ended September 30, 2007,
      we
      incurred $32.2 million of restructuring and impairment charges, which included
      $8.5 million of employee separation costs, $10.3 million of asset impairment
      charges, net, equipment moving expenses of $2.2 million, a pension withdrawal
      liability of $1.8 million, lease termination expenses of $5.1 million, and
      other
      exit costs of $4.3 million. We anticipate additional restructuring and
      impairment charges in the fourth quarter of 2007.




During
      the three months ended September 30, 2006, we incurred $4.7 million of
      restructuring and impairment charges, which included $2.5 million of employee
      separation costs, $1.0 million of income related to asset impairments primarily
      resulting from the gain on sale of a facility of $1.9 million, equipment moving
      expenses of $1.5 million, and other exit costs of $1.7 million. During the
      nine
      months ended September 30, 2006, we incurred $35.4 million of restructuring
      and
      impairment charges, which included $18.1 million of employee separation costs,
      $3.5 million of asset impairments net of the gain on sale of a facility of
      $1.9
      million, equipment moving expenses of $5.1 million, lease termination expenses
      of $3.5 million and other exit costs of $5.2 million.




**Envelopes,
      Forms and Labels**


**Three
                  Months Ended**
                **September
                  30,**
              
              **Nine
                  Months Ended**
                **September
                  30,****2007**
              
              **2006**
              
              
              **2007**
              
              **2006****(in
                  thousands)**
              
              
              
              **(in
                  thousands)**Segment
                  net sales
              $
              222,671
              
              $
              198,804
              
              
              $
              647,074
              
              $
              578,559Segment
                  operating income
              $
              32,560
              
              $
              25,774
              
              
              $
              85,091
              
              $
              59,525Operating
                  income margin
              
              14.6
              %
              
              13.0
              %
              
              
              13.2
              %
              
              10.3
              %Restructuring
                  and impairment charges
              $
              4,134
              
              $
              1,004
              
              
              $
              9,808
              
              $
              15,002


**Segment
      Net Sales**





Segment
      net sales for our envelopes, forms and labels segment increased $23.9 million,
      or 12.0%, in the third quarter of 2007, as compared to the same period in 2006.
      This increase was primarily due to the $37.0 million of sales generated by
      Commercial Envelope and Printegra in 2007, with no corresponding amounts in
      the
      third quarter of 2006. This increase was offset in part by: (1) lower sales
      volume of approximately $7.0 million primarily from our envelope operations
      due
      to the reorganization and closing of operations and the retirement of older
      less
      efficient assets to maximize profitability, a decline in the overall market
      due
      in part to the U.S. Postal Service’s rate increases in the middle of the second
      quarter of 2007, the closure of a forms plant in connection with the integration
      of Printegra’s operations, and an overall decline in traditional documents
      business, mainly as a result of customers’ improved ability to print high
      quality documents on their own, offset in part by higher sales volume from
      the
      office product retail superstore market due to a shift toward generic products
      from custom products and (2) lower pricing and product mix of approximately
      $6.1
      million, primarily from the office product retail superstore market due to
      a
      shift toward generic products from custom products.


35





Segment
      net sales for our envelopes, forms and labels segment increased $68.5 million,
      or 11.8%, in the first nine months of 2007, as compared to the same period
      in
      2006. This increase was primarily due to $97.3 million of sales generated by
      Commercial Envelope and Printegra in 2007, with no corresponding amounts in
      the
      first nine months of 2006 and additional sales generated by Rx, which was not
      included in our results for a full nine month period in 2006. This increase
      was
      offset in part by: (1) lower sales volume of approximately $21.2 million,
      primarily from our envelope operations due to the reorganization and closing
      of
      operations and the retirement of less efficient assets to maximize
      profitability,  a decline in the overall market  due in part
      to the U.S. Postal Service’s rate increases in the middle of the second quarter
      of 2007, the closure of a forms plant in connection with the integration of
      Printegra’s operations, and an overall decline in the traditional documents
      business, mainly as a result of customers’ improved ability to print high
      quality documents on their own, offset in part by higher sales volume from
      the office product retail superstore market due to a shift toward generic
      products from custom products, and (2) lower pricing and product mix of
      approximately $7.6 million, primarily from our envelope operations and the
      office product retail superstore market due to a shift toward generic products,
      offset in part by improvement in the product mix from our documents operation
      to
      higher value added products.




**Segment
      Operating Income**




Segment
      operating income for our envelopes, forms and labels segment increased $6.8
      million, or 26.3%, in the third quarter of 2007, as compared to 2006. This
      increase was primarily due to $4.0 million of operating income generated by
      Commercial Envelope and Printegra in 2007, with no corresponding amounts in
      the
      third quarter of 2006, a $4.0 million increase in gross margin and reduced
      selling, general and administrative expenses of $1.9 million from plant
      consolidations and other cost reduction programs. These increases were partially
      offset by increased restructuring and impairment charges of $3.1 million
      primarily due to the costs of two plant closures during 2007 resulting from
      the
      integration of the Commercial Envelope and Printegra acquisitions.




Segment
      operating income for our envelopes, forms and labels segment increased $25.6
      million, or 43.0%, in the first nine months of 2007, as compared to 2006. This
      increase was primarily due to $10.6 million of operating income generated by
      Commercial Envelope and Printegra in 2007, with no corresponding amounts in
      the
      first nine months of 2006 and additional operating income generated by Rx since
      it was not included in our results for a full nine month period in 2006, reduced
      selling, general and administrative expenses of  $9.1 million and
      increased gross margins of $0.7 million from plant consolidations and other
      cost
      reduction programs and reduced restructuring and impairment charges of $5.2
      million.




**Commercial
      Printing**





**Three
                Months Ended**
              **September
                30,**
            
            
            **Nine
                Months Ended**
              **September
                30,****2007**
            
            **2006**
            
            
            **2007**
            
            **2006****(in
                thousands)**
            
            
            
            **(in
                thousands)**Segment
                net sales
            $
            327,930
            
            $
            185,064
            
            
            $
            815,201
            
            $
            548,490Divested
                operations
            
            —
            
            
            (1,398
            )
            
            
            —
            
            
            (8,550
            )Division
                net sales
            $
            327,930
            
            $
            183,666
            
            
            $
            815,201
            
            $
            539,940Segment
                operating income
            $
            7,605
            
            $
            6,583
            
            
            $
            31,189
            
            $
            789Operating
                income margin
            
            2.3
            %
            
            3.6
            %
            
            
            3.8
            %
            
            0.1
            %Restructuring
                and impairment charges
            $
            15,996
            
            $
            3,666
            
            
            $
            21,922
            
            $
            19,593Operating
                income (loss) from divested operations
            $
            —
            
            $
            53
            
            
            $
            —
            
            $
            (1,316
            )









**Division
      Net Sales**


Division
        net sales for our commercial printing segment increased $144.3 million, or
        78.5%, in the third quarter of 2007, as compared to 2006. This increase was
        primarily due to the $158.5 million of


36


sales generated by ColorGraphics and Cadmus in 2007, including
      the impact of sales changes for work transitioned primarily from two plants
      that
      we closed as a result of the ColorGraphics acquisition, with no corresponding
      amounts in the third quarter of 2006. This increase was offset by the impact
      of
      closed plants in 2007 and 2006 of approximately $7.4 million and lower sales
      due
      to pricing and product mix, partially offset by increased sales volume, paper
      price increases and foreign currency fluctuations.


Division
        net sales for our commercial print segment increased $275.3 million, or 51.0%,
        in the first nine months of 2007, as compared to 2006. This increase was
        primarily due to the $308.7 million of sales generated by ColorGraphics and
        Cadmus in 2007, including the impact of sales changes for work transitioned
        primarily from two plants that we closed as a result of the ColorGraphics
        acquisition, with no corresponding amounts in the first nine months of 2006.
        This increase was offset by the impact of closed plants in 2007 and 2006
        of
        approximately $26.6 million and lower sales due to pricing and product mix
        and
        lower sales volume, partially offset by paper price increases and foreign
        currency fluctuations.


**Segment
      Operating Income**




Segment
      operating income for our commercial printing segment increased $1.0 million,
      or
      15.5%, in the third quarter of 2007, as compared to 2006. This increase was
      primarily due to $9.6 million of operating income generated by ColorGraphics
      and
      Cadmus during 2007, with no corresponding amounts in 2006 and improved gross
      margins of approximately $2.0 million and reduced selling, general and
      administrative expenses of approximately $1.7 million from our cost reduction
      programs. These increases were offset in part by higher restructuring and
      impairment charges of $12.3 million, primarily from the closure of four
      commercial printing plants during the third quarter of 2007, substantially
      due
      to the integration of the ColorGraphics and Cadmus acquisitions.




Segment
      operating income for our
      commercial printing segment increased $30.4 million, or 3,853% in the first
      nine
      months of 2007, as compared to the same period in 2006. This increase was
      primarily due to: (1) $17.0 million of operating income generated by
      ColorGraphics and Cadmus during 2007, with no corresponding amounts in 2006,
      (2)
      improved gross margins of approximately $7.3 million and reduced selling,
      general and administrative expenses of $4.6 million from our cost reduction
      programs at our ongoing operations, and (3) reduced costs of approximately
      $3.8
      million from plants we closed or divested in 2006.  These increases
      were partially offset by increased restructuring and impairment charges of
      $2.3
      million.




**Corporate
      Expenses**




Corporate
      expenses include the costs of running our corporate headquarters. Corporate
      expenses were higher for the three and nine months ended September 30, 2007,
      as
      compared to the three and nine months ended September 30, 2006, primarily due
      to
      increased compensation expense, including the expense recorded under Statement
      of Financial Accounting Standards No. 123(R), Share-Based Payment and the
      increased cost of certain back-office functions due in part to our recent
      acquisitions. See Note 2 to the condensed consolidated financial statements
      included herein.




**Liquidity
      and Capital Resources**




**Net
      Cash Provided by (Used in) Continuing Operating Activities.** Net cash
      provided by continuing operating activities was $60.0 million in the first
      nine
      months of 2007, which was primarily due to net income adjusted for non-cash
      items of $100.1 million, offset in part by an increase in our working capital
      of
      $35.2 million. The increase in our working capital primarily resulted from
      an
      increase in inventories primarily due to the timing of work performed for our
      customers, an increase in receivables primarily due to the timing of
      collections and a decrease in amounts owed to customers primarily due to the
      timing of payments, partially offset by the timing of interest payments on
      our
      debt.


37









Net
      cash used in continuing operating activities was $16.5 million in the first
      nine
      months of 2006, which was primarily due to an increase in our working capital
      of
      $44.3 million, offset in part by net income adjusted for non-cash items of
      $33.6
      million. The increase in our working capital primarily resulted from the timing
      of payments to our vendors.




**Net
      Cash Provided by Discontinued Operating Activities.** Represents the net
      cash provided from the cash dividends received from the Fund and the operations
      of Supremex through March 31, 2006.




**Net
      Cash (Used in) Provided by Investing Activities.** Net cash used in
      investing activities was $577.2 million in the first nine months of 2007,
      primarily resulting from the $627.1 million cost of the 2007 Acquisitions and
      capital expenditures of $25.2 million, offset in part by $73.6 million of cash
      proceeds from the sale of our remaining interest in the Fund.




Net
      cash provided by investing activities was $148.7 million in the first nine
      months of 2006, primarily resulting from the cash proceeds of $211.5 million
      from the sale of our majority interest in Supremex, offset in part by the $49.4
      million acquisition cost of Rx and capital expenditures of $15.7
      million.




**Net
      Cash Provided by (Used in) Financing Activities.** Net cash provided by
      financing activities was $516.8 million in the first nine months of 2007,
      primarily due to our debt-financed acquisitions of Cadmus, ColorGraphics and
      Commercial Envelope and our refinancing (see Long-Term Debt below) using
      proceeds from our Term Loans of $720.0 million, a $175.0 million Senior
      Unsecured Loan and net borrowings under our Revolving Credit Facility of $92.5
      million, offset in part by the repayment of: (i) our Term Loan B of $324.2
      million, (ii) the Cadmus revolving senior bank credit facility of $70.1 million,
      (iii) $20.9 million of our 83⁄8% Notes, (iv) $10.5 million of our 95⁄8% Senior
      Notes, (v) $3.1 million of Term Loans, and (vi) $27.0 million of other long-term
      debt and $8.0 million of payments of refinancing fees, redemption premiums
      and
      expenses on the extinguishment of debt and $5.9 million of debt issuance cost
      payments in connection with our debt refinancing and the issuance of
      debt.




Net
      cash used in financing activities was $138.8 million in the first nine months
      of
      2006, primarily resulting from (i) the repayment of $123.9 million of our senior
      secured credit facility and other debt of $12.1 million with proceeds from
      the
      sale of Supremex and other assets, (ii) the repayment of $339.5 million of
      our
      95⁄8% Senior Notes and the payment of $26.1 million of redemption premiums and
      expenses and $3.8 million of debt issuance costs in connection with our debt
      refinancing, which were offset in part by the proceeds from the issuance of
      our
      Term Loans of $325.0 million and (iii) net borrowings under our Revolving Credit
      Facility of $40.0 million, which was used to fund our acquisition of
      Rx.




**Long-Term
      Debt.** Our total outstanding long-term debt, including current
      maturities, was approximately $1.47 billion at September 30, 2007, an increase
      of $790.1 million from December 31, 2006. This increase was primarily due to
      the
      debt-financed 2007 Acquisitions. As of September 30, 2007, approximately 67%
      of
      our outstanding debt was subject to fixed interest rates. See the remainder
      of
      this Long-Term Debt section below and Notes 3 and 9 to the condensed
      consolidated financial statements included herein.




*Senior
      Unsecured Loan*





On
      August 30, 2007, we borrowed $175.0 million under a new eight-year unsecured
      term loan facility, which we refer to as the Senior Unsecured Loan, with a
      group
      of lenders. Proceeds from the Senior Unsecured Loan along with borrowings from
      the $200.0 million six-year revolving credit facility, which we refer to as
      the
      Revolving Credit Facility, and available cash were used to fund the acquisition
      of Commercial Envelope, including retiring certain acquired debt, and to pay
      certain fees and expenses incurred in connection with the acquisition. The
      Senior Unsecured Loan has a floating interest rate based on LIBOR plus 4.5%,
      which was 9.6% on September 30, 2007.  The interest rate increases
      0.5% quarterly beginning January 2008 up to a maximum interest rate of 11.5%.
      The Senior Unsecured Loan provides for the conversion by the lenders into senior
      or senior subordinated exchange notes, which we refer to as the Exchange Notes,
      similar to the existing indenture relating to the Company’s


38




$320.0
      million 77⁄8% Senior Subordinated Notes due 2013, which we refer to as the 77⁄8%
      Notes, or a substantially similar indenture.  If the Senior Unsecured
      Loan is converted, the Exchange Notes will bear a fixed rate of interest based
      on market conditions at the time of conversion.  The Senior Unsecured
      Loan contains covenants, representations, and warranties substantially similar
      to our existing $925.0 million senior secured credit facilities, which we refer
      to as the Amended Credit Facilities, and includes provisions for an
      underwriting/purchase agreement and a registration rights agreement relating
      to
      the resale of the Exchange Notes.




*Term
      Loans*




On
      July 9, 2007, we increased our then outstanding balance of our seven-year term
      loan facility due 2013, which we refer to as the Term Loan C, and the
      delayed-draw term loan facility (collectively with the Term Loan C, which we
      refer to as the Term Loans), that are part of the Amended Credit Facilities
      by
      borrowing an incremental $100.0 million on the existing financial terms and
      financial covenants.  Proceeds from this borrowing along with
      available cash were used to fund the acquisition of ColorGraphics, including
      retiring certain acquired debt, and to pay certain fees and expenses incurred
      in
      connection with the acquisition.




*2007
      Debt Amendment and Refinancing*




On
      March 7, 2007, in connection with the Cadmus acquisition, we amended and
      refinanced our $525.0 million senior secured credit facilities, which we refer
      to as the Credit Facilities. The Credit Facilities, established in September
      2006, were comprised of the Revolving Credit Facility, and a $325.0 million
      seven-year term loan facility, which we refer to as the Term Loan B. The Credit
      Facilities were amended by increasing the overall borrowing availability from
      $525.0 million to $925.0 million to create the Amended Credit Facilities,
      allowing us to: (1) retire the Term Loan B, (2) acquire Cadmus, including
      retiring and extinguishing the Cadmus revolving senior bank credit facility
      which had an outstanding balance of $70.1 million, using the Revolving Credit
      Facility and a $600.0 million, Term Loan C, and (3) retire any and/or all of
      the
      Cadmus 83⁄8% senior subordinated notes due 2014, which we refer to as the 83⁄8%
      Notes,  tendered to us using a $125.0 million delayed-draw term loan
      facility. Several of the customary financial covenants within the Amended Credit
      Facilities, including maximum consolidated leverage ratio and minimum
      consolidated interest coverage ratio, were modified to provide for the
      incremental funded debt levels and larger company operations. The Amended Credit
      Facilities are secured by substantially all of our assets.




*Interest
      Rate Swaps*




In
      March and July 2007, we entered into interest rate swap agreements to hedge
      interest rate exposure of an additional $125.0 million and $200.0 million,
      respectively, notional amounts of floating rate debt, increasing our total
      hedge
      of our interest rate exposure of notional floating rate debt to $545.0 million.
      Our hedges of interest rate risk were designated and documented at inception
      as
      cash flow hedges and are evaluated for effectiveness at least
      quarterly.  Effectiveness of the hedges is calculated by comparing the
      fair value of the derivatives to hypothetical derivatives that would be a
      perfect hedge of floating rate debt. The accounting for gains and losses
      associated with changes in the fair value of cash flow hedges and the effect
      on
      our condensed consolidated financial statements will depend on whether the
      hedge
      is highly effective in achieving offsetting changes in fair value of cash flows
      of the liability hedged. As of September 30, 2007, we do not anticipate
      reclassifying any ineffectiveness into our results of operations for the
      next twelve months.




*Cadmus
      Debt*




On
      March 5, 2007, we commenced a cash tender offer and consent solicitation, which
      we refer to as the Cadmus Tender Offer, for any and all of the outstanding
      83⁄8%
      Notes at total consideration equal to 101.5% of outstanding principal plus
      any
      accrued and unpaid interest thereon for 83⁄8% Notes validly tendered and not
      withdrawn by March 16, 2007. Interest on the 83⁄8% Notes is payable semi-annually
      on June 15 and December 15 with no required principal payments prior to maturity
      on June 15, 2014. In connection with the acquisition of Cadmus, we recorded
      a
      $2.8 million increase to the


39




value
      of the 83⁄8% Notes to record them at their fair value, which is being amortized
      over the life of the 83⁄8% Notes.




On
      March 19, 2007, we accepted for purchase and paid approximately $20.9 million
      for the 83⁄8% Notes tendered in the Cadmus Tender Offer, using $20.0 million of
      delayed-draw term loan funding under the Amended Credit Facilities and cash
      on
      hand. The merger of Cadmus into Cenveo was a “change of control” of Cadmus under
      the 83⁄8% Notes indenture. On March 23, 2007 and in connection with the foregoing
      change of control, we extended the scheduled expiration of the Cadmus Tender
      Offer until April 18, 2007, modified the offer to purchase each 83⁄8% Note
      tendered for a price equal to 101.0% of outstanding principal plus any accrued
      and unpaid interest, and waived certain consent-related conditions, which we
      refer to as the Change of Control Offer. On April 23, 2007, we settled payment
      on all 83⁄8% Notes tendered under the Change of Control Offer, and terminated the
      remaining amount of the delayed-draw term loan facility under the Amended Credit
      Facilities.




*Supplemental
      Indentures*




We
      entered into supplemental indentures, dated March 7, 2007, July 9, 2007 and
      August 30, 2007 to the indenture dated June 15, 2004, among Cadmus, each of
      the
      subsidiary guarantors (as defined therein) and U.S. Bank National Association
      (as successor trustee to Wachovia Bank, National Association), as trustee,
      pursuant to which the 83⁄8% Notes were issued. These supplemental indentures
      provide for, among other things, the assumption by us of the obligations of
      Cadmus under the 83⁄8% Notes and such indenture and the addition
      of:  (1) other U.S. subsidiaries of ours, (2) ColorGraphics and its
      subsidiary and (3) Commercial Envelope and its subsidiaries as guarantors of
      these notes. Simultaneously, we entered into supplemental indentures, dated
      March 7, 2007, July 9, 2007 and August 30, 2007, to the indenture dated February
      4, 2004 among us, the guarantors named therein and U.S. Bank National
      Association, as trustee, pursuant to which our 77⁄8% Notes were issued. These
      supplemental indentures provide for, among other things, the addition of: (1)
      the U.S. subsidiaries of Cadmus, (2) ColorGraphics and its subsidiary and (3)
      Commercial Envelope and its subsidiaries as guarantors of the 77⁄8%
      Notes.




*Other
      Debt*




Other
      debt included approximately $37.2 million of equipment loans assumed in the
      acquisition of Cadmus, ColorGraphics and Commercial Envelope of which $24.0
      million have variable interest rates with an average interest rate of 6.4%
      and
      $13.2 million with an average fixed rate of 4.9%, as of September 30,
      2007.




*95⁄8%
      Senior Notes*




On
      May 4, 2007, we retired the remaining $10.5 million of our 9*5⁄8*% Senior
      Notes due 2012 for 104.813% of the principal amount plus accrued interest,
      which
      was funded with our Revolving Credit Facility. In connection with the retirement
      of the 9*5⁄8*% Senior Notes, we recorded a loss on early extinguishment of
      debt of $0.5 million, representing premiums paid.




As
      of September 30, 2007, we were in compliance with all covenants under our debt
      agreements.




On
      September 30, 2007 we had outstanding letters of credit of approximately $25.4
      million and a de minimis amount of surety bonds 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. We extinguished
      an outstanding letter of credit of approximately $0.8 million in connection
      with
      the debt we retired on April 2, 2007.




Our
      current credit ratings are as follows:




**Rating
                  Agency**
            
            **Corporate**
                **Rating**
            
            **Amended**
                **Credit
                  Facilities**
            
            **77⁄8%**
                **Notes**
            
            **83⁄8%**
                **Notes**
            
            **Last
                  Update**Standard
                & Poor’s
            
            B+
            
            BB
            
            B-
            
            B-
            
            September
                2007Moody’s
            
            B1
            
            Ba2
            
            B3
            
            B3
            
            September
                2007







40




The
      terms of our existing debt do not have any rating triggers that impact our
      funding. In connection with our acquisition of Commercial Envelope, and after
      their review of financing details related to the acquisition, the rating
      agencies increased the ratings of the Credit Facilities by one level. We do
      not
      believe that our current ratings will impact our ability to raise additional
      capital, should such funds be needed. We expect that internally generated cash
      flows and the financing available under our Amended Credit Facilities will
      be
      sufficient to fund our working capital needs and short-term growth; however,
      this cannot be assured.




**Contractual
      Obligations.** Contractual obligations disclosed in our Form 10-K
      increased by approximately $1.29 billion as a result of our acquisitions of
      Printegra, Cadmus, ColorGraphics and Commercial Envelope as follows: outstanding
      long-term debt approximately $787.9 million, expected future cash interest
      payments on the long-term debt approximately $341.1 million and additional
      lease
      commitments by approximately $83.3 million. See Notes 3 and 9 to the condensed
      consolidated financial statements included herein.




**Off-Balance
      Sheet Arrangements.** It is not our business practice to enter into
      off-balance sheet arrangements. Accordingly, as of September 30, 2007, we do
      not
      have any off-balance sheet arrangements.




**Seasonality**




Our
      commercial printing plants experience seasonal variations. Revenues from annual
      reports are generally concentrated from February through April. Revenues
      associated with consumer publications, such as holiday catalogs and automobile
      brochures, tend to be concentrated from July through October. Revenues
      associated with the educational and scholarly market and promotional materials
      tend to decline in the summer. As a result of these seasonal variations, some
      of
      our commercial printing operations operate at or near capacity at certain times
      throughout the year.




In
      addition, several envelope market segments and certain segments of the direct
      mail market experience seasonality with a higher percentage of volume of
      products sold to these markets occurring during the fourth quarter of the year.
      This seasonality is due to the increase in sales to the direct mail market
      related to holiday purchases.




**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
      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
      Securities and Exchange Commission. In addition, our earnings conference calls
      are archived for replay on our website and presentations to securities analysts
      are also included on our website.




**Legal
      Proceedings**




From
      time to time, we are involved in litigation that we consider to be ordinary
      and
      incidental to our business. While the outcome of pending legal actions cannot
      be
      predicted with certainty, we believe the outcome of these proceedings will
      not
      have a material adverse effect on our consolidated financial position, results
      of operations or liquidity.





**Item
      3. Quantitative and
      Qualitative Disclosures About Market Risk**




We
      are exposed to market risks such as changes in interest rates, which may
      adversely affect results of our operations and our financial position. Risks
      from interest rate fluctuations are managed


41




through
      normal operating and financing activities. We do not utilize derivatives for
      speculative purposes.




Exposure
      to market risk from changes in interest rates relates primarily to our variable
      rate debt obligations. The interest rate on such debt is based on the London
      Interbank Offered Rate or LIBOR plus a margin. At September 30, 2007, we had
      variable rate debt outstanding of approximately $478.9 million, for which the
      interest rate was not fixed through a cash flow hedge. A 1% increase in LIBOR
      on
      debt outstanding subject to variable interest rates would increase our annual
      interest expense and reduce our pre-tax income by approximately $4.8
      million.




**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
      (the “Exchange Act”)) as of the end of the period covered by this quarterly
      report. Based on that evaluation, our Chief Executive Officer and our Chief
      Financial Officer have concluded that, as of the end of such period, our
      disclosure controls and procedures were effective to provide reasonable
      assurance that information required to be disclosed by us in the reports that
      we
      file or submit 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 made during
      our
      most recent fiscal quarter that 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 error 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.


42




**PART
      II. OTHER INFORMATION**




**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, 2006, 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.





**Item
        6. **Exhibits****


**Exhibit**
              **Number**
            
            
            **Description**2.1
            Agreement
                of Merger dated as of December 26, 2006 among Cenveo, Inc., Mouse
                Acquisition Corp. and Cadmus Communications Corporation—incorporated by
                reference to Exhibit 2.1 to registrant’s current report on Form 8-K filed
                December 27, 2006.2.2
            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 September
                30, 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 September 30,
                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 and
                U.S. Bank
                National Association, as Trustee, and Form of Senior Subordinated
                Note and
                Guarantee relating to Mail-Well I Corporation’s 77⁄8% 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,
                2003.4.2
            Registration
                Rights Agreement dated February 4, 2004, between Mail-Well I Corporation
                and Credit Suisse First Boston, as Initial Purchaser, relating to
                Mail-Well I Corporation’s 77⁄8% Senior Subordinated Notes due
                2013—incorporated by reference to Exhibit 4.6 to registrant’s annual
                report on Form 10-K for the year ended December 31,
                2003.4.3
            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 77⁄8% Senior Subordinated Notes due 2013—incorporated
                by reference to Exhibit 4.2 to registrant’s current report on Form 8-K
                filed June 27, 2006.4.4
            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
                77⁄8%


43





**Exhibit**
              **Number**
            
            
            **Description**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,
                2007.4.5
            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 77⁄8% 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, 2007.4.6*
            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 77⁄8% Senior Subordinated Notes due
                2013.4.7
            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 83⁄8% 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,
                2004.4.8
            Registration
                Rights Agreement, dated June 15, 2004, among Cadmus Communications
                Corporation, the Guarantors named therein and Wachovia Capital Markets,
                LLC and Banc of America Securities LLC on behalf of the Initial
                Purchasers, relating to the 83⁄8% Senior Subordinated Notes due
                2014—incorporated by reference to Exhibit 4.10 to Cadmus Communications
                Corporation’s registration statement on Form S-4 filed August 24,
                2004.4.9
            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 and Wachovia Bank, National Association,
                as
                Trustee, relating to the 83⁄8% 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, 2005.4.10
            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
                83⁄8%
                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 June 30, 2006, filed September 13,
                2006.4.11
            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 83⁄8% 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,
                2007.4.12
            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 83⁄8% 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.


44





**Exhibit**
              **Number**
            
            **Description**4.13*
            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 83⁄8% Senior Subordinated Notes
                due 2014.10.1
            Credit
                Agreement Supplement, dated as of July 9, 2007, to Credit Agreement
                dated
                as of June 21, 2006, among Cenveo Corporation, Cenveo, Inc., Bank
                of
                America, N.A., as Administrative Agent, and the other lenders party
                thereto—incorporated by reference to Exhibit 10.2 to registrant’s
                quarterly report on Form 10-Q for the quarter ended June 30,
                2007.10.2*
            Employment
                Agreement, dated as of July 11, 2007, between the registrant and
                Mark
                Hiltwein.10.3*
            Loan
                Agreement, dated as of August 30, 2007, among Cenveo Corporation,
                Cenveo,
                Inc., Lehman Commercial Paper Inc., as Administrative Agent, the
                lenders
                party thereto and Lehman Brothers Inc., as Sole Lead Arranger and
                Sole
                Book Manager.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 Mark S. Hiltwein, Chief Financial Officer, pursuant to Section
                302 of
                the Sarbanes-Oxley Act of 2002.32.1*
            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.







*Filed
      herewith.












45




**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, in the City of Stamford, State
      of
      Connecticut, on November 8, 2007.







CENVEO,
                INC.By:
            /s/
                ROBERT
                G. BURTON,
                SR.Robert
                G. Burton, Sr.Chairman
                and Chief Executive Officer(Principal
                Executive Officer)By:
            /s/
                MARK
                S. HILTWEINMark
                S. HiltweinChief
                Financial Officer(Principal
                Financial Officer andPrincipal
                Accounting Officer)







46