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 27, 2008




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 STREETSTAMFORD,
      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 (i) 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 (ii) 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, a non-accelerated filer or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer”, and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.   Large
accelerated filer o   Accelerated
filer x
  Non-accelerated filer oSmaller reporting company o




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o  No
x




As of
November 3, 2008 the registrant had 54,191,897 shares of common stock
outstanding.










PART
I. FINANCIAL INFORMATION




Item
      1.   Financial
Statements




CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED BALANCE SHEETS


(in
thousands)











September
      27, 2008
            
            
            December
      29, 2007Assets
            
            (Unaudited)Current
      assets:Cash
      and cash equivalents
            
            $
            13,819
            
            
            $
            15,882Accounts
      receivable, net
            
            
            309,327
            
            
            
            344,634Inventories
            
            
            165,916
            
            
            
            162,908Prepaid
      and other current assets
            
            
            62,250
            
            
            
            73,358Total
      current assets
            
            
            551,312
            
            
            
            596,782Property,
      plant and equipment, net
            
            
            433,358
            
            
            
            428,341Goodwill
            
            
            681,972
            
            
            
            669,802Other
      intangible assets, net
            
            
            279,205
            
            
            
            270,622Other
      assets, net
            
            
            29,557
            
            
            
            37,175Total
      assets
            
            $
            1,975,404
            
            
            $
            2,002,722Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Current
      maturities of long-term debt
            
            $
            16,477
            
            
            $
            18,752Accounts
      payable
            
            
            181,716
            
            
            
            165,458Accrued
      compensation and related liabilities
            
            
            43,334
            
            
            
            47,153Other
      current liabilities
            
            
            90,061
            
            
            
            79,554Total
      current liabilities
            
            
            331,588
            
            
            
            310,917Long-term
      debt
            
            
            1,359,522
            
            
            
            1,425,885Deferred
      income taxes
            
            
            62,470
            
            
            
            55,181Other
      liabilities
            
            
            100,855
            
            
            
            111,413Commitments
      and contingenciesShareholders’
      equity:Preferred
      stock
            
            
            —
            
            
            
            —Common
      stock
            
            
            541
            
            
            
            537Paid-in
      capital
            
            
            267,126
            
            
            
            254,241Retained
      deficit
            
            
            (137,343
            )
            
            
            (148,939
            )Accumulated
      other comprehensive loss
            
            
            (9,355
            )
            
            
            (6,513
            )Total
      shareholders’ equity
            
            
            120,969
            
            
            
            99,326Total
      liabilities and shareholders’ equity
            
            $
            1,975,404
            
            
            $
            2,002,722




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
            
            
            Nine
      Months EndedSeptember
      27, 2008
            
            
            September
      29, 2007
            
            
            September
      27, 2008
            
            
            September
      29, 2007As
      Restated
            
            
            
            
            
            As
      RestatedNet
      sales
            
            $
            522,705
            
            
            $
            550,601
            
            
            $
            1,581,534
            
            
            $
            1,462,275Cost
      of sales
            
            
            406,908
            
            
            
            436,109
            
            
            
            1,260,612
            
            
            
            1,170,862Selling,
      general and administrative
            
            
            58,455
            
            
            
            63,650
            
            
            
            184,821
            
            
            
            168,173Amortization
      of intangible assets
            
            
            2,293
            
            
            
            2,819
            
            
            
            6,747
            
            
            
            7,245Restructuring,
      impairment and other charges
            
            
            6,873
            
            
            
            20,312
            
            
            
            22,047
            
            
            
            32,094Operating
      income
            
            
            48,176
            
            
            
            27,711
            
            
            
            107,307
            
            
            
            83,901Gain
      on sale of non-strategic business
            
            
            —
            
            
            
            (189
            )
            
            
            —
            
            
            
            (189
            )Interest
      expense, net
            
            
            26,795
            
            
            
            25,283
            
            
            
            79,948
            
            
            
            63,091Loss
      (gain) on early extinguishment of debt
            
            
            (371
            )
            
            
            51
            
            
            
            3,871
            
            
            
            9,256Other
      expense (income), net
            
            
            (695
            )
            
            
            899
            
            
            
            429
            
            
            
            2,065Income
      from continuing operations before income taxes
            
            
            22,447
            
            
            
            1,667
            
            
            
            23,059
            
            
            
            9,678Income
      tax expense (benefit)
            
            
            10,060
            
            
            
            (844
            )
            
            
            10,349
            
            
            
            2,818Income
      from continuing operations
            
            
            12,387
            
            
            
            2,511
            
            
            
            12,710
            
            
            
            6,860(Loss)
      income from discontinued operations, net of taxes
            
            
            (59
            )
            
            
            (810
            )
            
            
            (1,114
            )
            
            
            15,142Net
      income
            
            $
            12,328
            
            
            $
            1,701
            
            
            $
            11,596
            
            
            $
            22,002Income
      (loss) per share - basic:Continuing
      operations
            
            $
            0.23
            
            
            $
            0.04
            
            
            $
            0.24
            
            
            $
            0.13Discontinued
      operations
            
            
            —
            
            
            
            (0.01
            )
            
            
            (0.02
            )
            
            
            0.28Net
      income
            
            $
            0.23
            
            
            $
            0.03
            
            
            $
            0.22
            
            
            $
            0.41Income
      (loss) per share - diluted:Continuing
      operations
            
            $
            0.23
            
            
            $
            0.04
            
            
            $
            0.23
            
            
            $
            0.12Discontinued
      operations
            
            
            —
            
            
            
            (0.01
            )
            
            
            (0.02
            )
            
            
            0.28Net
      income
            
            $
            0.23
            
            
            $
            0.03
            
            
            $
            0.21
            
            
            $
            0.40Weighted
      average shares:Basic
            
            
            53,897
            
            
            
            53,572
            
            
            
            53,796
            
            
            
            53,545Diluted
            
            
            54,174
            
            
            
            54,531
            
            
            
            53,994
            
            
            
            54,614











See notes
to condensed consolidated financial statements.


2


CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(in
thousands)


(Unaudited)


Nine
      Months EndedSeptember
      27, 2008
            
            
            September
      29, 2007As
      RestatedCash
      flows from operating activities:Net
      income
            
            $
            11,596
            
            
            $
            22,002Adjustments
      to reconcile net income to net cash provided by operating
      activities:Gain
      on sale of discontinued operations, net of taxes
            
            
            —
            
            
            
            (15,962
            )Loss
      from discontinued operations, net of taxes
            
            
            1,114
            
            
            
            820Depreciation
      and amortization, excluding non-cash interest expense
            
            
            55,515
            
            
            
            46,427Non-cash
      interest expense, net
            
            
            1,305
            
            
            
            1,044Loss
      on early extinguishment of debt
            
            
            3,871
            
            
            
            9,256Stock-based
      compensation provision
            
            
            12,940
            
            
            
            7,166Non-cash
      restructuring, impairment and other charges
            
            
            5,124
            
            
            
            17,153Deferred
      income taxes
            
            
            6,709
            
            
            
            4,082Gain
      on sale of non-strategic business
            
            
            —
            
            
            
            (189
            )Gain
      on sale of assets
            
            
            (4,378
            )
            
            
            (383
            )Other
      non-cash charges, net
            
            
            6,599
            
            
            
            6,200Changes
      in operating assets and liabilities, excluding the effects of acquired
      businesses:Accounts
      receivable
            
            
            35,590
            
            
            
            (5,049
            )Inventories
            
            
            (125
            )
            
            
            (14,890
            )Accounts
      payable and accrued compensation and related liabilities
            
            
            5,718
            
            
            
            (378
            )Other
      working capital changes
            
            
            13,351
            
            
            
            (13,156
            )Other,
      net
            
            
            (5,515
            )
            
            
            (4,941
            )Net
      cash provided by continuing operating activities
            
            
            149,414
            
            
            
            59,202Net
      cash provided by discontinued operating activities
            
            
            —
            
            
            
            2,198Net
      cash provided by operating activities
            
            
            149,414
            
            
            
            61,400Cash
      flows from investing activities:Cost
      of business acquisitions, net of cash acquired
            
            
            (47,151
            )
            
            
            (627,116
            )Capital
      expenditures
            
            
            (37,782
            )
            
            
            (25,181
            )Acquisition
      payments
            
            
            (3,653
            )
            
            
            (3,653
            )Proceeds
      from sale of property, plant and equipment
            
            
            18,258
            
            
            
            4,851Proceeds
      from divestitures, net
            
            
            —
            
            
            
            226Net
      cash used in investing activities of continuing operations
            
            
            (70,328
            )
            
            
            (650,873
            )Proceeds
      from the sale of discontinued operations
            
            
            —
            
            
            
            73,628Net
      cash used in investing activities
            
            
            (70,328
            )
            
            
            (577,245
            )Cash
      flows from financing activities:Repayment
      of senior unsecured loan
            
            
            (175,000
            )
            
            
            —(Repayments)
      borrowings under revolving credit facility, net
            
            
            (65,200
            )
            
            
            92,500Repayment
      of term loans
            
            
            (5,400
            )
            
            
            (3,100
            )Repayment
      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
      of 95⁄8% senior notes
            
            
            —
            
            
            
            (10,498
            )Repayments
      of other long-term debt
            
            
            (16,535
            )
            
            
            (26,962
            )Payment
      of debt issuance costs
            
            
            (5,297
            )
            
            
            (5,906
            )Payment
      of refinancing fees, redemption premiums and expenses
            
            
            —
            
            
            
            (8,045
            )Purchase
      and retirement of common stock upon vesting of RSUs
            
            
            (1,055
            )
            
            
            (1,302
            )Tax
      liability from stock-based compensation
            
            
            (873
            )
            
            
            —Proceeds
      from issuance of 101⁄2% senior notes
            
            
            175,000
            
            
            
            —Proceeds
      from issuance of term loans
            
            
            —
            
            
            
            720,000Proceeds
      from senior unsecured loan
            
            
            —
            
            
            
            175,000Proceeds
      from issuance of other long-term debt
            
            
            11,338
            
            
            
            —Proceeds
      from exercise of stock options
            
            
            1,873
            
            
            
            300Net
      cash (used in) provided by financing activities
            
            
            (81,149
            )
            
            
            516,819Effect
      of exchange rate changes on cash and cash equivalents of continuing
      operations
            
            ­­—
            
            
            
            180Net
      (decrease) increase in cash and cash equivalents
            
            
            (2,063
            )
            
            
            1,154Cash
      and cash equivalents at beginning of period
            
            
            15,882
            
            
            
            10,558Cash
      and cash equivalents at end of period
            
            $
            13,819
            
            
            $
            11,712




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 27, 2008. The results of operations for the three and
nine month periods ended September 27, 2008 are generally not indicative of the
results to be expected for the full year. 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 29, 2007 (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 reporting periods ending on September 27, 2008 and September 29,
2007 consist of 13 weeks. Prior to fiscal 2008, the Company reported its results
as ending on the calendar quarter end.




New
Accounting Pronouncements




SFAS
157





In
September 2006, the Financial Accounting Standards Board (the “FASB”) issued
Statement of Financial Accounting Standard (“SFAS”) No. 157, Fair Value
Measurements (“SFAS 157”), which defines fair value, establishes a framework for
measuring fair value under GAAP, and expands disclosures about fair value
measurements. SFAS 157 applies under other accounting pronouncements that
require or permit fair value measurements and was effective for the Company on
December 30, 2007. However, the FASB deferred the effective date of SFAS 157
until the beginning of the Company’s 2009 fiscal year, as it relates to fair
value measurement requirements for nonfinancial assets and liabilities that are
not remeasured at fair value on a recurring basis. These include goodwill, other
nonamortizable intangible assets and unallocated purchase price for recent
acquisitions. The Company’s adoption of SFAS 157 on December 30, 2007 did not
have a material impact on its condensed consolidated financial
statements.





The fair
value framework requires the categorization of assets and liabilities into three
levels based upon the assumptions (inputs) used to price the assets or
liabilities. Level 1 provides the most reliable measure of fair value, whereas
Level 3 generally requires significant management judgment. As of September 27,
2008, the Company’s only fair valued financial item under the scope of SFAS 157
is its liability for interest rate swaps, which are based on LIBOR index inputs
and are categorized as Level 2. The Company’s interest rate swaps are valued
using discounted cash flows, as no quoted market prices exist for the specific
instruments. The primary inputs to the valuation are maturity and interest rate
yield curves, specifically three-month LIBOR, using commercially available
market sources.




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”), which permits entities to choose to measure many
financial instruments and certain other items at fair value. SFAS 159 was
effective for the Company on December 30, 2007. The Company did not elect the
fair value option for existing eligible items; therefore, SFAS 159 had no impact
on the Company’s condensed consolidated financial statements as of December 30,
2007.


4




CENVEO, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






1.
Basis of Presentation (Continued)




SFAS
141R




In
December 2007, the FASB issued SFAS No. 141R, Business Combinations (“SFAS
141R”). SFAS 141R establishes revised principles and requirements for how the
Company will recognize and measure assets and liabilities acquired in a business
combination. SFAS 141R is effective for business combinations completed on or
after the beginning of the Company’s 2009 fiscal year. The Company will adopt
SFAS 141R at the beginning of its 2009 fiscal year, as required, and is
currently evaluating the impact of such adoption on its financial
statements.




SFAS
160




In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No. 51” (“SFAS 160”).
SFAS 160 establishes accounting and reporting standards for the noncontrolling
interests in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
is effective at the beginning of the Company’s 2009 fiscal year. The Company is
currently evaluating the impact of adopting SFAS 160.




SFAS
161




In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities: an amendment of FASB Statement No. 133”
(“SFAS 161”). SFAS 161 changes the disclosure requirements for derivative
instruments and hedging activities and is effective at the beginning of the
Company’s 2009 fiscal year. The Company is currently evaluating the impact of
adopting SFAS 161.





2.  Restatement




During
the fourth quarter of 2007, senior management became aware of unsupported
accounting entries that were recorded by a plant controller who had
responsibility for two of the Company’s envelope plants. As a result, the
Company’s audit committee initiated an internal review conducted by outside
counsel under the direction of the audit committee that was completed prior to
the Form 10-K filing in March 2008 (Note 10). The review concluded that the
accounting irregularities were isolated to those two envelope plants and were
committed solely by that former plant controller.  The accounting
irregularities included the recording of unsupported journal entries to enhance
the plants’ financial results through a reduction of cost of sales and increases
to accounts receivable and inventories and decreases to accounts payable and
other current liabilities.  As a result, the Company recorded
adjustments to restate its historical condensed consolidated financial
statements for the three and nine month periods ended September 29, 2007, that
decreased operating income by approximately $2.3 million and $4.4 million,
respectively. As part of this restatement, the Company made an adjustment for an
immaterial error in its statement of cash flows.




The following tables summarize the
effects of the restatement on the line items included in the balance sheet,
statements of operations and cash flows in the Company’s Form 10-Q for the
quarter ended September 29, 2007.




Condensed
      consolidated balance sheet line items (in thousands):September
      29, 2007As
      Reported
            
            
            As
      RestatedAccounts
      receivable, net
            
            $
            345,858
            
            
            $
            344,179Inventories
            
            
            175,329
            
            
            
            172,502Prepaid
      and other current assets
            
            
            48,384
            
            
            
            49,388Total
      current assets
            
            
            585,561
            
            
            
            582,059Total
      assets
            
            
            2,025,787
            
            
            
            2,022,285Accounts
      payable
            
            
            169,846
            
            
            
            171,857Other
      current liabilities
            
            
            88,054
            
            
            
            87,413Total
      current liabilities
            
            
            334,440
            
            
            
            335,810Other
      liabilities
            
            
            97,208
            
            
            
            98,118Retained
      deficit
            
            
            (161,938
            )
            
            
            (167,720
            )Total
      shareholders' equity
            
            
            87,474
            
            
            
            81,692Total
      liabilities and shareholders' equity
            
            
            2,025,787
            
            
            
            2,022,285


5


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






2.  Restatement
(Continued)





Condensed
      consolidated statements of operations line items (in thousands, except per
      share data):Three
      Months Ended
              September
      29, 2007
            
            
            Nine
      Months Ended
              September
      29, 2007As
      Reported
            
            
            As
      Restated
            
            
            As
      Reported
            
            
            As
      RestatedCost
      of sales
            
            $
            433,774
            
            
            $
            436,109
            
            
            $
            1,166,483
            
            
            $
            1,170,862Operating
      income
            
            
            30,046
            
            
            
            27,711
            
            
            
            88,280
            
            
            
            83,901Income
      from continuing operations before taxes
            
            
            4,002
            
            
            
            1,667
            
            
            
            14,054
            
            
            
            9,678Income
      tax expense (benefit)
            
            
            160
            
            
            
            (844
            )
            
            
            4,698
            
            
            
            2,818Income
      from continuing operations
            
            
            3,842
            
            
            
            2,511
            
            
            
            9,356
            
            
            
            6,860Net
      income
            
            
            3,032
            
            
            
            1,701
            
            
            
            24,498
            
            
            
            22,002Income
      per share – basic:Continuing
      operations
            
            
            0.07
            
            
            
            0.04
            
            
            
            0.18
            
            
            
            0.13Net
      income
            
            
            0.06
            
            
            
            0.03
            
            
            
            0.46
            
            
            
            0.41Income
      per share – diluted:Continuing
      operations
            
            
            0.07
            
            
            
            0.04
            
            
            
            0.17
            
            
            
            0.12Net
      income
            
            
            0.06
            
            
            
            0.03
            
            
            
            0.45
            
            
            
            0.40




Condensed
      consolidated statement of cash flows line items (in
      thousands):Nine
      Months EndedSeptember
      29, 2007As
      Reported
            
            
            As
      RestatedNet
      income
            
            $
            24,498
            
            
            $
            22,002Accounts
      receivable
            
            
            (5,542
            )
            
            
            (5,049
            )Inventories
            
            
            (16,845
            )
            
            
            (14,890
            )Accounts
      payable and accrued compensation and related liabilities
            
            
            (2,276
            )
            
            
            (378
            )Other
      working capital changes
            
            
            (10,502
            )
            
            
            (13,156
            )Net
      cash provided by continuing operating activities
            
            
            60,006
            
            
            
            59,202Net
      cash provided by discontinued operating activities
            
            
            1,394
            
            
            
            2,198







6


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






3.
Stock-Based Compensation




Total
share-based compensation expense recognized in selling, general and
administrative expenses in the Company’s condensed consolidated statements of
operations was $6.0 million and $12.9 million for the three and nine months
ended September 27, 2008, respectively, and $2.5 million and $7.2 million for
the three and nine months ended September 29, 2007, respectively.




As of
September 27, 2008, there was approximately $35.4 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 1.8
years.




A summary
of the Company’s outstanding stock options as of and for the nine month period
ended September 27, 2008 is as follows:




Options
            
            Weighted
              Average
              Exercise
              Price
            
            
            Weighted
              Average
              Remaining
              Contractual
              Term
      (In
              Years)
            
            Aggregate
              Intrinsic
              Value(a)
              (In
              Thousands)Outstanding
      at December 29, 2007
            
            
            
            3,849,980
            
            $
            15.14Granted
            
            
            
            —
            
            
            —Exercised
            
            
            
            (209,880
            )
            
            8.93
            
            
            
            
            $
            516Forfeited
            
            
            
            (474,125
            )
            
            17.50Outstanding
      at September 27, 2008
            
            
            
            3,165,975
            
            
            15.19
            
            
            4.2
            
            $
            136Exercisable
      at September 27, 2008
            
            
            
            1,727,225
            
            
            13.98
            
            
            4.1
            
            $
            136







__________________




(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 27, 2008 or, if exercised, the exercise dates, exceeds the exercise
prices of the respective options.


7




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






3.
Stock-Based Compensation (Continued)




A summary
of the Company’s outstanding stock options as of and for the nine month period
ended September 29, 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 29, 2007
            
            
            
            3,993,855
            
            
            15.26
            
            
            5.2
            
            $
            25,435Exercisable
      at September 29, 2007
            
            
            
            1,246,355
            
            
            12.91
            
            
            5.0
            
            $
            10,875







__________________




(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 29, 2007 or, if exercised, the exercise dates, exceeds the exercise
prices of the respective options.









8




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






3.
Stock-Based Compensation (Continued)




A summary of the Company’s unvested
restricted shares and RSUs as of and for the nine month period ended September
27, 2008 is as follows:




Restricted
      Shares
            
            
            RSUsShares
            
            
            Grant
      Date
              Fair
      Value
            
            
            Shares
            
            
            Grant
      Date
              Fair
      ValueUnvested
      at December 29, 2007
            
            
            100,000
            
            
            $
            9.52
            
            
            
            1,132,150
            
            
            $
            18.36Granted
            
            
            —
            
            
            
            —
            
            
            
            1,930,410
            
            
            
            9.77Vested
            
            
            (50,000
            )
            
            
            9.52
            
            
            
            (292,400
            )
            
            
            18.02Forfeited
            
            
            —
            
            
            
            —
            
            
            
            (113,750
            )
            
            
            19.03Unvested
      at September 27, 2008
            
            
            50,000
            
            
            
            9.52
            
            
            
            2,656,410
            
            
            
            12.13




A summary
of the Company’s unvested restricted shares and RSUs as of and for the nine
month period ended September 29, 2007 is as follows:




Restricted
      Shares
            
            
            RSUsShares
            
            
            Grant
      Date
              Fair
      Value
            
            
            Shares
            
            
            Grant
      Date
              Fair
      ValueUnvested
      at January 1, 2007
            
            
            150,000
            
            
            $
            9.52
            
            
            
            607,150
            
            
            $
            19.19Granted
            
            
            —
            
            
            
            —
            
            
            
            761,750
            
            
            
            17.89Vested
            
            
            (50,000
            )
            
            
            9.52
            
            
            
            (173,900
            )
            
            
            20.55Forfeited
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Unvested
      at September 29, 2007
            
            
            100,000
            
            
            
            9.52
            
            
            
            1,195,000
            
            
            
            18.78







The total fair value of restricted
shares and RSUs which vested during the nine month period ended September 27,
2008 was $0.5 million and $2.8 million, respectively, as of the respective
vesting dates.  The total fair value of restricted shares and RSUs
which vested during the nine month period ended September 29, 2007 was $0.9
million and $3.1 million, respectively, as of the respective vesting
dates.





9


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)







4.
Acquisitions




Rex




On March
31, 2008, the Company acquired all of the stock of Rex Corporation and its
manufacturing facility (“Rex”). Rex was an independent manufacturer of premium
and high-quality packaging solutions, with annual sales of approximately $40
million prior to its acquisition by the Company. The total cash consideration in
connection with the Rex acquisition, excluding assumed debt of approximately
$7.4 million, was approximately $43.1 million, including approximately $1.0
million of related expenses. The fair values of property, plant and equipment
and other intangible assets were based on preliminary appraisals. The Rex
acquisition preliminarily resulted in $8.2 million of goodwill, all of which is
deductible for income tax purposes, and which was assigned entirely to the
Company’s commercial printing segment. The acquired identifiable intangible
assets, aggregating $13.8 million, include: (i) the Rex trademark of $9.3
million, which has been assigned an indefinite useful life due to the Company’s
intention to continue using the Rex name, Rex’s long operating history and
existing customer base and (ii) customer relationships of $4.5 million, which
are being amortized over their estimated weighted average useful lives of 13
years. Rex’s results of operations and cash flows are included in the Company’s
condensed consolidated statements of operations and cash flows from March 31,
2008. Pro forma results for the three and nine month periods ended September 27,
2008 and September 29, 2007, assuming the acquisition of Rex had been made on
December 31, 2006, have not been presented since the effect would not be
material.




Commercial
Envelope





On August
30, 2007, the Company acquired all of the stock of Commercial
Envelope.  Commercial Envelope was one of the largest envelope
manufacturers in the United States, with approximately $160 million in annual
revenues prior to its acquisition by the Company.  The total cash
consideration in connection with the Commercial Envelope acquisition, excluding
assumed debt of approximately $20.3 million, was approximately $213.3 million,
including approximately $3.8 million of related expenses.











10




CENVEO, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






4.
Acquisitions (Continued)





Purchase
Price Allocation





The
following table summarizes the final allocation of the purchase price of
Commercial Envelope to the assets acquired and liabilities assumed in the
acquisition (in thousands):




As
      of
              August
      30, 2007Current
      assets
            
            $
            42,008Property,
      plant and equipment
            
            
            36,757Goodwill
            
            
            99,719Other
      intangible assets
            
            
            87,770Other
      assets
            
            
            884Total
      assets acquired
            
            
            267,138Current
      liabilities, excluding current portion of long-term debt
            
            
            11,195Long-term
      debt, including current maturities
            
            
            20,277Deferred
      income taxes
            
            
            21,255Total
      liabilities assumed
            
            
            52,727Net
      assets acquired
            
            
            214,411Less
      cash acquired
            
            
            (1,114
            )Cost
      of Commercial Envelope acquisition, less cash acquired
            
            $
            213,297





The
Commercial Envelope acquisition resulted in $99.7 million of goodwill, none of
which is deductible for income tax purposes, and which was assigned entirely to
the Company’s envelopes, forms and labels segment. Commercial Envelope’s results
of operations and cash flows are included in the Company’s consolidated
statements of operations and cash flows from August 30, 2007.





Pro
Forma Operating Data





The
following supplemental pro forma consolidated summary operating data of the
Company for the three and nine month periods ended September 29, 2007 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 December 31, 2006 (in
thousands, except per share amounts):




Three
      Months Ended
              September
      29, 2007
            
            
            Nine
      Months Ended
              September
      29, 2007As
              Restated
            
            
            Pro
              Forma
            
            
            As
              Restated
            
            
            Pro
              FormaNet
      sales
            
            $
            550,601
            
            
            $
            575,830
            
            
            $
            1,462,275
            
            
            $
            1,563,927Operating
      income
            
            
            27,711
            
            
            
            28,400
            
            
            
            83,901
            
            
            
            96,522Income
      (loss) from continuing operations
            
            
            2,511
            
            
            
            (1,968
            )
            
            
            6,860
            
            
            
            6,596Net
      income (loss)
            
            
            1,701
            
            
            
            (2,777
            )
            
            
            22,002
            
            
            
            21,738Income
      (loss) per share – basic:Continuing
      operations
            
            
            0.04
            
            
            
            (0.04
            )
            
            
            0.13
            
            
            
            0.13Net
      income (loss)
            
            
            0.03
            
            
            
            (0.05
            )
            
            
            0.41
            
            
            
            0.41Income
      (loss) per share – diluted:Continuing
      operations
            
            
            0.04
            
            
            
            (0.04
            )
            
            
            0.12
            
            
            
            0.12Net
      income (loss)
            
            
            0.03
            
            
            
            (0.05
            )
            
            
            0.40
            
            
            
            0.40




The pro
forma information is presented for comparative purposes only and does not
purport to be indicative of the Company’s actual consolidated results of
operations had the Commercial Envelope acquisition actually been consummated as
of December 31, 2006, or of the Company’s expected future results of
operations.







11




CENVEO, INC. AND
SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






4.
Acquisitions (Continued)




ColorGraphics





On July
9, 2007, the Company acquired all of the stock of ColorGraphics. ColorGraphics
was one of the largest commercial printers in the western United States, with
annual revenues of approximately $170 million prior to its acquisition by the
Company.  ColorGraphics prints annual reports, booklets, brochures,
advertising inserts, direct mail 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 ColorGraphics acquisition resulted in $38.7 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. ColorGraphics’ results of operations and cash flows are included in the
Company’s condensed consolidated statements of operations and cash flows from
July 1, 2007. Pro forma results for the three and nine month periods ended
September 29, 2007, assuming the acquisition of ColorGraphics had been made on
December 31, 2006, have not been presented since the effect would not be
material.




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 million prior to its acquisition by the
Company. The total cash consideration in connection with the Cadmus acquisition,
excluding assumed debt of approximately $210.1 million, was approximately $248.7
million, consisting of: (i) $228.9 million of cash for all of the common stock
of Cadmus, (ii) payments of $17.7 million for vested stock options and
restricted shares of Cadmus and for change in control provisions in Cadmus’
incentive plans and (iii) $2.1 million of related expenses.




Purchase
Price Allocation




The
following table summarizes the final allocation of the purchase price of Cadmus
to the assets acquired and liabilities assumed in the acquisition (in
thousands):




As
      of
              March
      7, 2007Current
      assets
            
            $
            96,942Property,
      plant and equipment
            
            
            136,268Goodwill
            
            
            229,450Other
      intangible assets
            
            
            111,600Other
      assets
            
            
            6,856Total
      assets acquired
            
            
            581,116Current
      liabilities, excluding current portion of long-term debt
            
            
            56,868Long-term
      debt, including current maturities
            
            
            210,063Deferred
      income taxes
            
            
            7,277Other
      liabilities
            
            
            58,201Total
      liabilities assumed
            
            
            332,409Net
      assets acquired
            
            
            248,707Less
      cash acquired
            
            
            —Cost
      of Cadmus acquisition, less cash acquired
            
            $
            248,707




The
Cadmus acquisition resulted in $229.5 million of goodwill, none of which is
deductible for income tax purposes, and which was assigned entirely to the
Company’s commercial printing segment. Cadmus’ results of operations and cash
flows are included in the Company’s condensed consolidated statements of
operations and cash flows from March 7, 2007.


12


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






4.
Acquisitions (Continued)




Pro
Forma Operating Data




The
following supplemental pro forma consolidated summary operating data of the
Company for the nine month period ended September 29, 2007 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 December 31, 2006 (in thousands, except per
share amounts):





Nine
      Months EndedSeptember
      29, 2007As
              Restated
            
            
            Pro
              FormaNet
      sales
            
            $
            1,462,275
            
            
            $
            1,544,092Operating
      income
            
            
            83,901
            
            
            
            87,226Income
      from continuing operations
            
            
            6,860
            
            
            
            1,904Net
      income
            
            
            22,002
            
            
            
            17,046Income
      per share – basic:Continuing
      operations
            
            
            0.13
            
            
            
            0.04Net
      income
            
            
            0.41
            
            
            
            0.32Income
      per share – diluted:Continuing
      operations
            
            
            0.12
            
            
            
            0.03Net
      income
            
            
            0.40
            
            
            
            0.31




The pro
forma information is presented for comparative purposes only and does not
purport to be indicative of the Company’s actual consolidated results of
operations had the Cadmus acquisition actually been consummated as of December
31, 2006, or of the Company’s expected future results of
operations.




Printegra





On
February 12, 2007, the Company acquired all of the stock of Printegra, with
annual sales of approximately $90 million prior to its acquisition by the
Company. 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 final aggregate purchase
price for Printegra was approximately $78.1 million, including $0.5 million of
related expenses. Printegra’s results of operations and cash flows are included
in the Company’s condensed consolidated statements of operations and cash flows
from February 12, 2007.  Pro forma results for the nine month period
ended September 29, 2007, assuming the acquisition of Printegra had been made on
December 31, 2006, have not been presented since the effect would not be
material.




Deferred
Taxes




In
connection with the acquisition of Commercial Envelope, the Company recorded a
net deferred tax liability of $20.3 million relating to indefinite lived
intangible assets, after considering the release of $21.5 million of existing
valuation allowances against goodwill recorded.  In connection with
the acquisition of ColorGraphics and Cadmus, the Company recorded a net deferred
tax liability of $6.4 million and $1.5 million, respectively. In connection with
the acquisition of Printegra, the Company recorded a net deferred tax liability
of $7.4 million and released existing valuation allowances of a like amount
against recorded goodwill.


13


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






4.
Acquisitions (Continued)




Liabilities
Related to Exit Activities




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




Lease
              Termination
              Costs
            
            
            Employee
              Separation
              Costs
            
            
            Other
      Exit Costs
            
            
            TotalLiabilities
      recorded at December 29, 2007
            
            $
            3,453
            
            
            $
            495
            
            
            $
            351
            
            
            $
            4,299Accruals,
      net
            
            
            62
            
            
            
            1,049
            
            
            
            149
            
            
            
            1,260Payments
            
            
            (883
            )
            
            
            (1,280
            )
            
            
            (430
            )
            
            
            (2,593
            )Balance
      at September 27, 2008
            
            $
            2,632
            
            
            $
            264
            
            
            $
            70
            
            
            $
            2,966




5.
Discontinued Operations




On March
13, 2007, the Company sold its remaining 28.6% economic and voting interest in
the Supremex Index Fund (the “Fund”) for $67.2 million and recorded a pre-tax
gain of approximately $25.6 million. Income from discontinued operations for the
nine months ended September 29, 2007 includes equity income of $2.2 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
              
              
              Nine
      Months EndedSeptember
      27, 2008
              
              
              September
      29, 2007
              
              
              September
      27, 2008
              
              
              September
      29, 2007Other
      (expense) income
              
              $
              —
              
              
              $
              —
              
              
              $
              (468
              )
              
              $
              2,373Income
      tax expense
              
              
              59
              
              
              
              810
              
              
              
              646
              
              
              
              2,295Gain
      on sale of discontinued operations, net of taxes of $10,196, in the nine
      months ended September 29, 2007
              
              
              —
              
              
              
              —
              
              
              
              —
              
              
              
              15,064(Loss)
      income from discontinued operations, net of taxes
              
              
              (59
              )
              
              
              (810
              )
              
              
              (1,114
              )
              
              
              15,142




6.
Inventories




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




September
      27,
              2008
            
            
            December
      29,
              2007Raw
      materials
            
            $
            67,702
            
            
            $
            71,075Work
      in process
            
            
            32,241
            
            
            
            34,875Finished
      goods
            
            
            65,973
            
            
            
            56,958$
            165,916
            
            
            $
            162,908










14




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






7. Property, Plant and
Equipment




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






September
      27,
              2008
            
            
            December
      29,
              2007Land
      and land improvements
            
            $
            21,567
            
            
            $
            23,734Building
      and building improvements
            
            
            110,790
            
            
            
            109,673Machinery
      and equipment
            
            
            627,243
            
            
            
            577,763Furniture
      and fixtures
            
            
            12,666
            
            
            
            12,430Construction
      in progress
            
            
            13,032
            
            
            
            18,664785,298
            
            
            
            742,264Accumulated
      depreciation
            
            
            (351,940
            )
            
            
            (313,923
            )$
            433,358
            
            
            $
            428,341




In the
third quarter of 2008, the Company sold a property for net proceeds of
approximately $6.2 million and recorded a gain of approximately $1.9 million,
which is included in selling, general and administrative. In the second quarter
of 2008, the Company sold one of its envelope facilities for net proceeds
of $11.5 million and entered into an operating lease for the same facility. In
connection with the sale, the Company recorded a gain of $7.8 million, of which
$2.3 million is included in cost of sales. The remaining gain was deferred
and is being amortized on a straight-line basis over the seven year term of the
lease as a reduction to rent expense in cost of sales.




8.
Goodwill and Other Intangible Assets




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




Envelopes,
      Forms
              and
      Labels
            
            
            Commercial
              Printing
            
            
            TotalBalance
      as of December 29, 2007
            
            $
            305,025
            
            
            $
            364,777
            
            
            $
            669,802Acquisitions
            
            
            5,859
            
            
            
            6,683
            
            
            
            12,542Foreign
      currency translation
            
            
            —
            
            
            
            (372
            )
            
            
            (372
            )Balance
      as of September 27, 2008
            
            $
            310,884
            
            
            $
            371,088
            
            
            $
            681,972




Other
intangible assets are as follows (in thousands):




September
      27, 2008
            
            
            December
      29, 2007Gross
              Carrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            Net
              Carrying
              Amount
            
            
            Gross
              Carrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            Net
              Carrying
              AmountIntangible
      assets with determinable lives:Customer
      relationships
            
            $
            159,206
            
            
            $
            (27,995
            )
            
            $
            131,211
            
            
            $
            153,806
            
            
            $
            (22,303
            )
            
            $
            131,503Trademarks
      and tradenames
            
            
            21,011
            
            
            
            (3,863
            )
            
            
            17,148
            
            
            
            20,521
            
            
            
            (3,251
            )
            
            
            17,270Patents
            
            
            3,028
            
            
            
            (1,688
            )
            
            
            1,340
            
            
            
            3,028
            
            
            
            (1,487
            )
            
            
            1,541Non-compete
      agreements
            
            
            2,456
            
            
            
            (1,552
            )
            
            
            904
            
            
            
            2,316
            
            
            
            (1,336
            )
            
            
            980Other
            
            
            768
            
            
            
            (386
            )
            
            
            382
            
            
            
            768
            
            
            
            (360
            )
            
            
            408186,469
            
            
            
            (35,484
            )
            
            
            150,985
            
            
            
            180,439
            
            
            
            (28,737
            )
            
            
            151,702Intangible
      assets with indefinite lives:Trademarks
            
            
            127,500
            
            
            
            —
            
            
            
            127,500
            
            
            
            118,200
            
            
            
            —
            
            
            
            118,200Pollution
      credits
            
            
            720
            
            
            
            —
            
            
            
            720
            
            
            
            720
            
            
            
            —
            
            
            
            720Total
            
            $
            314,689
            
            
            $
            (35,484
            )
            
            $
            279,205
            
            
            $
            299,359
            
            
            $
            (28,737
            )
            
            $
            270,622









15




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






8.
Goodwill and Other Intangible Assets (Continued)




As of
September 27, 2008, the weighted average remaining amortization period for
customer relationships was 18 years, trademarks and tradenames was 25 years,
patents was five years, non-compete agreements was three years and other was 27
years.




Total
pre-tax amortization expense for the five years ending September 27, 2013 is
estimated to be as follows: $9.5 million, $9.5 million, $9.3 million, $9.2
million and $9.0 million, respectively.




9.
Long-Term Debt




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




September
      27,
              2008
            
            
            December
      29,
              2007Term
      loan, due 2013
            
            $
            709,700
            
            
            $
            715,10077⁄8%
      senior subordinated notes, due 2013
            
            
            320,000
            
            
            
            320,00083⁄8%
      senior subordinated notes, due 2014 ($104.1 million outstanding principal
      amount)
            
            
            105,978
            
            
            
            106,220101⁄2%
      senior notes, due 2016
            
            
            175,000
            
            
            
            —Senior
      unsecured loan, due 2015
            
            
            —
            
            
            
            175,000Revolving
      credit facility, due 2012
            
            
            26,000
            
            
            
            91,200Other
            
            
            39,321
            
            
            
            37,1171,375,999
            
            
            
            1,444,637Less
      current maturities
            
            
            (16,477
            )
            
            
            (18,752
            )Long-term
      debt
            
            $
            1,359,522
            
            
            $
            1,425,885




101⁄2%
Notes




On June
13, 2008, the Company issued $175.0 million aggregate principal amount of 101⁄2%
senior notes due 2016 (“101⁄2% Notes”). The 101⁄2% Notes were issued to Lehman
Brothers Commercial Paper, Inc. upon the conversion of the Company’s $175.0
million senior unsecured loan due 2015 (the “Senior Unsecured
Loan”).  The 101⁄2% Notes were then sold to qualified institutional
buyers in accordance with Rule 144A, and to certain non-U.S. persons in
accordance with Regulation S under the Securities Act of 1933. The Company did
not receive any net proceeds as a result of this transaction.




The 101⁄2%
Notes were issued pursuant to an indenture among the Company, certain guarantors
and U.S. Bank National Association, as trustee. The 101⁄2% Notes pay interest
semi-annually on February 15 and August 15, commencing August 15, 2008. The 101⁄2%
Notes have no required principal payments prior to their maturity on August 15,
2016, constitute senior unsecured obligations and are guaranteed by the Company
and substantially all of the Company’s North American
subsidiaries.  The Company can redeem the 101⁄2% Notes, in whole or in
part, on or after August 15, 2012, at redemption prices ranging from 100% to
1051⁄4%, plus accrued and unpaid interest.  In addition, at any time
prior to August 15, 2011, the Company may redeem up to 35% of the aggregate
principal amount of the notes originally issued at a redemption price of 1101⁄2%
of the principal amount thereof, plus accrued and unpaid interest with the net
cash proceeds of certain public equity offerings. Each holder of the 101⁄2% Notes
has the right to require the Company to repurchase such notes at a purchase
price of 101% of the principal amount, plus accrued and unpaid interest thereon,
upon the occurrence of certain events constituting a change in control of the
Company. The 101⁄2% Notes contain covenants, representations, and warranties
substantially similar to the Company’s existing 77⁄8% senior subordinated notes,
due 2013 (“77⁄8% Notes”) and 83⁄8% senior subordinated notes, due 2014 (“83⁄8%
Notes”), and also include a senior secured debt to consolidated cash flow
covenant.







16




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






9.  Long-Term
Debt (Continued)




Upon the
issuance of the 101⁄2% Notes and the conversion of the Senior Unsecured Loan, the
Company incurred a loss on early extinguishment of debt of $4.2 million, related
to the previously unamortized debt issuance costs. The Company capitalized debt
issuance costs of approximately $5.3 million, which are being amortized over the
remaining life of the 101⁄2% Notes.




Supplemental
Indentures




The
Company entered into supplemental indentures, dated April 16, 2008 and August
20, 2008 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. Simultaneously, the Company entered
into supplemental indentures, dated April 16, 2008 and August 20, 2008 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. Additionally, on August 20, 2008 the Company entered into
a supplemental indenture among the Company, the guarantors named therein and
U.S. Bank National Association, as trustee, pursuant to which the 101⁄2% Notes
were issued.  These supplemental indentures provide for the addition
of acquisition subsidiaries as guarantors of the 83⁄8%, 77⁄8% and 101⁄2%
Notes.




As of
September 27, 2008, the Company was in compliance with all covenants under its
debt agreements.




Interest
Rate Swaps




The
Company enters into interest rate swap agreements to hedge interest rate
exposure of notional amounts of its floating rate debt.  As of
September 27, 2008 and December 29, 2007, the Company had $595.0 million of such
interest rate swaps.  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 27, 2008, the
Company does not anticipate reclassifying any ineffectiveness into its results
of operations for the next twelve months.




10.
Restructuring, Impairment and Other 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




In 2007,
the Company 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 2007, the Company
closed its envelope plant in O’Fallon, Missouri, its forms plant in Girard,
Kansas and commercial printing plants in San Francisco, California, Seattle,
Washington, and Philadelphia, Pennsylvania and integrated these operations into
acquired and other operations.  In the first nine months of 2008, the
Company continued the implementation of cost savings initiatives throughout its
operations and closed a commercial printing plant in St. Louis, Missouri. The
Company anticipates further headcount reductions and plant
closures.  The following tables and discussion present the details of
the expenses recognized in the three and nine months ended September 27, 2008
and September 29, 2007 as a result of this plan.


17




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






10.
Restructuring, Impairment and Other Charges (Continued)




Three
months ended September 27, 2008




Restructuring
and impairment charges for the three months ended September 27, 2008 were as
follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            Corporate
            
            
            TotalEmployee
      separation costs
            
            $
            881
            
            
            $
            2,939
            
            
            $
            60
            
            
            $
            3,880Asset
      impairments
            
            
            591
            
            
            
            220
            
            
            
            —
            
            
            
            811Equipment
      moving expenses
            
            
            160
            
            
            
            156
            
            
            
            —
            
            
            
            316Lease
      termination expenses
            
            
            196
            
            
            
            210
            
            
            
            63
            
            
            
            469Multi-employer
      pension withdrawal liability
            
            
            —
            
            
            
            (236
            )
            
            
            —
            
            
            
            (236
            )Building
      clean-up and other expenses
            
            
            218
            
            
            
            712
            
            
            
            —
            
            
            
            930Total
      restructuring and impairment charges
            
            $
            2,046
            
            
            $
            4,001
            
            
            $
            123
            
            
            $
            6,170




Nine
months ended September 27, 2008




Restructuring
and impairment charges for the nine months ended September 27, 2008 were as
follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            Corporate
            
            
            TotalEmployee
      separation costs
            
            $
            1,824
            
            
            $
            5,604
            
            
            $
            290
            
            
            $
            7,718Asset
      impairments, net of gain on sale
            
            
            1,103
            
            
            
            653
            
            
            
            —
            
            
            
            1,756Equipment
      moving expenses
            
            
            232
            
            
            
            241
            
            
            
            —
            
            
            
            473Lease
      termination expenses
            
            
            617
            
            
            
            1,026
            
            
            
            63
            
            
            
            1,706Multi-employer
      pension withdrawal liability
            
            
            —
            
            
            
            (236
            )
            
            
            —
            
            
            
            (236
            )Building
      clean-up and other expenses
            
            
            612
            
            
            
            1,340
            
            
            
            —
            
            
            
            1,952Total
      restructuring and impairment charges
            
            $
            4,388
            
            
            $
            8,628
            
            
            $
            353
            
            
            $
            13,369




Three
Months Ended September 29, 2007




Restructuring
and impairment charges for the three months ended September 29, 2007 were
as follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            TotalEmployee
      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












18




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






10.
Restructuring, Impairment and Other Charges (Continued)




Nine
Months Ended September 29, 2007




Restructuring
and impairment charges for the nine months ended September 29, 2007 were as
follows (in thousands):





Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            TotalEmployee
      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




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
            
            
            TotalBalance
      at December 29, 2007
            
            $
            3,582
            
            
            $
            541
            
            
            $
            2,092
            
            
            $
            6,215Accruals,
      net
            
            
            1,706
            
            
            
            7,718
            
            
            
            (236
            )
            
            
            9,188Payments
            
            
            (1,344
            )
            
            
            (4,942
            )
            
            
            —
            
            
            
            (6,286
            )Balance
      at September 27, 2008
            
            $
            3,944
            
            
            $
            3,317
            
            
            $
            1,856
            
            
            $
            9,117




2005
Cost Savings and Restructuring Plan




In the
fourth quarter of 2007, the senior management team of Cenveo completed the
implementation of its 2005 Cost Savings and Restructuring Plan that it initiated
in September 2005, including 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 27, 2008 and September 29, 2007, as a result of this
plan.




Three
months ended September 27, 2008




Restructuring
and impairment charges for the three months ended September 27, 2008 were as
follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            Corporate
            
            
            TotalEmployee
      separation costs
            
            $
            9
            
            
            $
            (18
            )
            
            $
            19
            
            
            $
            10Asset
      impairments
            
            
            —
            
            
            
            26
            
            
            
            —
            
            
            
            26Equipment
      moving expenses
            
            
            —
            
            
            
            48
            
            
            
            —
            
            
            
            48Lease
      termination expenses
            
            
            (35
            )
            
            
            144
            
            
            
            68
            
            
            
            177Building
      clean-up and other expenses
            
            
            224
            
            
            
            194
            
            
            
            24
            
            
            
            442Total
      restructuring and impairment charges
            
            $
            198
            
            
            $
            394
            
            
            $
            111
            
            
            $
            703











19




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






10.
Restructuring, Impairment and Other Charges (Continued)




Nine
months ended September 27, 2008




Restructuring
and impairment charges for the nine months ended September 27, 2008 were as
follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            Corporate
            
            
            TotalEmployee
      separation costs
            
            $
            36
            
            
            $
            132
            
            
            $
            35
            
            
            $
            203Asset
      impairments, net of gain on sale
            
            
            —
            
            
            
            (226
            )
            
            
            —
            
            
            
            (226
            )Equipment
      moving expenses
            
            
            —
            
            
            
            510
            
            
            
            —
            
            
            
            510Lease
      termination (income) expenses
            
            
            (38
            )
            
            
            144
            
            
            
            149
            
            
            
            255Building
      clean-up and other expenses
            
            
            380
            
            
            
            894
            
            
            
            24
            
            
            
            1,298Total
      restructuring and impairment charges
            
            $
            378
            
            
            $
            1,454
            
            
            $
            208
            
            
            $
            2,040




Three
Months Ended September 29, 2007




Restructuring
and impairment charges for the three months ended September 29, 2007 were as
follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            Corporate
            
            
            TotalEmployee
      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




Nine Months Ended
September 29, 2007




Restructuring
and impairment charges for the nine months ended September 29, 2007 were as
follows (in thousands):




Envelopes,
              Forms
      and
              Labels
            
            
            Commercial
              Printing
            
            
            Corporate
            
            
            TotalEmployee
      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





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
            
            
            TotalBalance
      at December 29, 2007
            
            $
            4,793
            
            
            $
            1,163
            
            
            $
            297
            
            
            $
            6,253Accruals,
      net
            
            
            255
            
            
            
            203
            
            
            
            —
            
            
            
            458Payments
            
            
            (985
            )
            
            
            (1,302
            )
            
            
            (59
            )
            
            
            (2,346
            )Balance
      at September 27, 2008
            
            $
            4,063
            
            
            $
            64
            
            
            $
            238
            
            
            $
            4,365




Other
Charges




In
connection with the internal review conducted by outside counsel under the
direction of the Company’s audit committee, the Company incurred a non-recurring
charge in the first quarter of 2008 of approximately $6.7 million for
professional fees.






20




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






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
            
            
            Postretirement
      PlansThree
      Months Ended
            
            
            Three
      Months EndedSeptember
      27, 2008
            
            
            September
      29, 2007
            
            
            September
      27, 2008
            
            
            September
      29, 2007Service
      cost
            
            $
            120
            
            
            $
            119
            
            
            $
            —
            
            
            $
            —Interest
      cost
            
            
            2,257
            
            
            
            2,480
            
            
            
            222
            
            
            
            287Expected
      return on plan assets
            
            
            (2,656
            )
            
            
            (2,584
            )
            
            
            —
            
            
            
            —Net
      amortization and deferral
            
            
            2
            
            
            
            5
            
            
            
            —
            
            
            
            —Recognized
      net actuarial loss
            
            
            55
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      periodic pension (income) expense
            
            $
            (222
            )
            
            $
            20
            
            
            $
            222
            
            
            $
            287







Pension
      Plans
            
            
            Postretirement
      PlansNine
      Months Ended
            
            
            Nine
      Months EndedSeptember
      27, 2008
            
            
            September
      29, 2007
            
            
            September
      27, 2008
            
            
            September
      29, 2007Service
      cost
            
            $
            360
            
            
            $
            300
            
            
            $
            —
            
            
            $
            —Interest
      cost
            
            
            6,773
            
            
            
            5,621
            
            
            
            665
            
            
            
            802Expected
      return on plan assets
            
            
            (7,969
            )
            
            
            (5,954
            )
            
            
            —
            
            
            
            —Net
      amortization and deferral
            
            
            6
            
            
            
            56
            
            
            
            —
            
            
            
            —Recognized
      net actuarial loss
            
            
            166
            
            
            
            389
            
            
            
            —
            
            
            
            —Net
      periodic pension (income) expense
            
            $
            (664
            )
            
            $
            412
            
            
            $
            665
            
            
            $
            802




For the
nine months ended September 27, 2008, the Company made contributions of $6.0
million to its pension plans and postretirement plans. The Company expects to
contribute approximately $1.2 million to its pension plans and postretirement
plans for the remainder of 2008.





12.
Commitments and Contingencies





The
Company is party to various legal actions that are ordinary and incidental to
its business. While the outcome of pending legal actions cannot be predicted
with certainty, management believes the outcome of these various proceedings
will not have a material adverse effect on the Company’s consolidated financial
condition or results of operations. See Note 15 in the Form 10-K.




13.
Comprehensive Income (Loss)




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




Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      27, 2008
            
            
            September
      29, 2007
            
            
            September
      27, 2008
            
            
            September
      29, 2007Net
      income
            
            $
            12,328
            
            
            $
            1,701
            
            
            $
            11,596
            
            
            $
            22,002Other
      comprehensive income (loss):Unrealized
      gain (loss) on cash flow hedges, net of taxes
            
            
            480
            
            
            
            (8,890
            )
            
            
            9
            
            
            
            (4,960
            )Currency
      translation adjustment
            
            
            (1,361
            )
            
            
            2,318
            
            
            
            (2,851
            )
            
            
            31Comprehensive
      income (loss)
            
            $
            11,447
            
            
            $
            (4,871
            )
            
            $
            8,754
            
            
            $
            17,073




As of
September 27, 2008, the Company had a $15.7 million liability relating to
unrealized losses on cash flow hedges which is included in other liabilities in
its condensed consolidated balance sheet. In connection with the sale of its
remaining investment in the Fund on March 13, 2007, the Company reclassified
$5.5 million of currency translation adjustment into discontinued operations
from other comprehensive income.






21


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






14.  Income
per Share




Basic
income per share is computed based upon the weighted average number of common
shares outstanding for the period. Diluted income per share reflects the
potential dilution that could occur if stock options, restricted stock and RSUs
to issue common stock were exercised under the treasury stock method. The only
Company securities as of September 27, 2008 that could dilute basic income per
share for periods subsequent to September 27, 2008, that were not included in
the computation of diluted earnings per share for the three and nine months
ended September 27, 2008 are (i) outstanding stock options, which are
exercisable into 3,144,758 and 3,102,157 shares, respectively, of the Company’s
common stock and (ii) 2,450,880 and 2,572,048 shares, respectively, of
restricted stock and RSUs.




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




Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      27, 2008
            
            
            September
      29, 2007
            
            
            September
      27, 2008
            
            
            September
      29, 2007Numerator
      for basic and diluted income per shareIncome
      from continuing operations
            
            $
            12,387
            
            
            $
            2,511
            
            
            $
            12,710
            
            
            $
            6,860(Loss)
      income  from discontinued operations, net of
    taxes
            
            
            (59
            )
            
            
            (810
            )
            
            
            (1,114
            )
            
            
            15,142Net
      income
            
            $
            12,328
            
            
            $
            1,701
            
            
            $
            11,596
            
            
            $
            22,002Denominator
      weighted average common shares outstanding:Basic
      shares
            
            
            53,897
            
            
            
            53,572
            
            
            
            53,796
            
            
            
            53,545Dilutive
      effect of stock options and RSUs
            
            
            277
            
            
            
            959
            
            
            
            198
            
            
            
            1,069Diluted
      shares
            
            
            54,174
            
            
            
            54,531
            
            
            
            53,994
            
            
            
            54,614





Share
Repurchase Plan





Cenveo’s
Board of Directors authorized a $15 million share repurchase program of the
Company’s common stock (the “Share Repurchase Plan”). The Share Repurchase Plan
is effective for 12 months and may be limited or terminated at any time without
prior notice. Share repurchases under the Share Repurchase Plan may be made
through open-market and privately negotiated transactions within the governing
limits of the Company’s credit agreement and bond indentures. The timing and
actual number of shares, if any, the Company actually repurchase will depend on
a variety of factors including price, Company and/or regulatory requirements,
and market conditions.




15.
Segment Information




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




Operating
income of each segment includes substantially all costs and expenses directly
relating to the segment’s operations. Corporate expenses include general and
administrative expenses (Note 3).


22


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)




15.
Segment Information (Continued)




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






Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      27,
              2008
            
            
            September 
      29, 2007
            
            
            September
      27,
              2008
            
            
            September
      29,
              2007Net
      sales:Envelopes,
      forms and labels
            
            $
            224,616
            
            
            $
            222,671
            
            
            $
            690,630
            
            
            $
            647,074Commercial
      printing
            
            
            298,089
            
            
            
            327,930
            
            
            
            890,904
            
            
            
            815,201Total
            
            $
            522,705
            
            
            $
            550,601
            
            
            $
            1,581,534
            
            
            $
            1,462,275Operating
      income (loss):Envelopes,
      forms and labels
            
            $
            35,947
            
            
            $
            30,225
            
            
            $
            93,807
            
            
            $
            80,712Commercial
      printing
            
            
            23,056
            
            
            
            7,605
            
            
            
            47,598
            
            
            
            31,189Corporate
            
            
            (10,827
            )
            
            
            (10,119
            )
            
            
            (34,098
            )
            
            
            (28,000
            )Total
            
            $
            48,176
            
            
            $
            27,711
            
            
            $
            107,307
            
            
            $
            83,901Restructuring,
      impairment and other charges:Envelopes,
      forms and labels
            
            $
            2,244
            
            
            $
            4,134
            
            
            $
            4,766
            
            
            $
            9,808Commercial
      printing
            
            
            4,395
            
            
            
            15,996
            
            
            
            10,082
            
            
            
            21,922Corporate
            
            
            234
            
            
            
            182
            
            
            
            7,199
            
            
            
            364Total
            
            $
            6,873
            
            
            $
            20,312
            
            
            $
            22,047
            
            
            $
            32,094Net
      sales by product line:Envelopes
            
            $
            154,232
            
            
            $
            149,203
            
            
            $
            474,876
            
            
            $
            429,737Commercial
      printing
            
            
            210,737
            
            
            
            231,792
            
            
            
            622,255
            
            
            
            595,316Journals
      and periodicals
            
            
            87,026
            
            
            
            95,762
            
            
            
            267,664
            
            
            
            218,150Labels
      and business forms
            
            
            70,710
            
            
            
            73,844
            
            
            
            216,739
            
            
            
            219,072Total
            
            $
            522,705
            
            
            $
            550,601
            
            
            $
            1,581,534
            
            
            $
            1,462,275Intercompany
      sales:Envelopes,
      forms and labels to commercial printing
            
            $
            1,691
            
            
            $
            2,779
            
            
            $
            4,369
            
            
            $
            8,196Commercial
      printing to envelopes, forms and labels
            
            
            538
            
            
            
            755
            
            
            
            2,856
            
            
            
            6,045Total
            
            $
            2,229
            
            
            $
            3,534
            
            
            $
            7,225
            
            
            $
            14,241






September
      27,
              2008
            
            
            December
      29,
              2007Identifiable
      assets:Envelopes,
      forms and labels
            
            $
            809,840
            
            
            $
            833,337Commercial
      printing
            
            
            1,109,746
            
            
            
            1,105,832Corporate
            
            
            55,818
            
            
            
            63,553Total
            
            $
            1,975,404
            
            
            $
            2,002,722







23




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information




Cenveo is
a holding company (“Parent Company”) and is the ultimate parent of all Cenveo
subsidiaries. In January 2004, the Company’s wholly-owned subsidiary, Cenveo
Corporation (the “Subsidiary Issuer”), issued 77⁄8% Notes and, in connection with
the acquisition of Cadmus, assumed Cadmus’ 83⁄8% Notes (collectively the
“Subsidiary Issuer Notes”), which are fully and unconditionally guaranteed, on a
joint and several basis, by the Parent Company and substantially all of its
wholly-owned subsidiaries (the “Guarantor Subsidiaries”). The limited numbers of
remaining subsidiaries (the “Non-Guarantor Subsidiaries”) are primarily
non-U.S., indirect wholly-owned subsidiaries of the Parent Company.





Presented
below is condensed consolidating information for the Parent Company, the
Subsidiary Issuer, the Guarantor Subsidiaries and Non-Guarantor Subsidiaries for
the three and nine months ended September 27, 2008 and September 29,
2007.  The condensed consolidating financial information has been
presented to show the nature of assets held, results of operations and cash
flows of the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries
and Non-Guarantor Subsidiaries, assuming the guarantee structure of the
Subsidiary Issuer Notes was in effect at the beginning of the periods
presented.




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




24


CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING BALANCE SHEET


September
27, 2008


(in
thousands)




Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            —
            
            
            $
            8,596
            
            
            $
            678
            
            
            $
            4,545
            
            
            $
            —
            
            
            $
            13,819Accounts
      receivable, net
            
            
            —
            
            
            
            146,014
            
            
            
            158,314
            
            
            
            4,999
            
            
            
            —
            
            
            
            309,327Inventories
            
            
            —
            
            
            
            89,642
            
            
            
            75,186
            
            
            
            1,088
            
            
            
            —
            
            
            
            165,916Notes
      receivable from subsidiaries
            
            
            —
            
            
            
            38,194
            
            
            
            —
            
            
            
            —
            
            
            
            (38,194
            )
            
            
            —Prepaid
      and other current assets
            
            
            —
            
            
            
            50,545
            
            
            
            10,666
            
            
            
            1,039
            
            
            
            —
            
            
            
            62,250Total
      current assets
            
            
            —
            
            
            
            332,991
            
            
            
            244,844
            
            
            
            11,671
            
            
            
            (38,194
            )
            
            
            551,312Investment
      in subsidiaries
            
            
            120,969
            
            
            
            1,607,175
            
            
            
            4,969
            
            
            
            —
            
            
            
            (1,733,113
            )
            
            
            —Property,
      plant and equipment, net
            
            
            —
            
            
            
            166,155
            
            
            
            266,724
            
            
            
            479
            
            
            
            —
            
            
            
            433,358Goodwill
            
            
            —
            
            
            
            175,234
            
            
            
            506,738
            
            
            
            —
            
            
            
            —
            
            
            
            681,972Other
      intangible assets, net
            
            
            —
            
            
            
            9,197
            
            
            
            270,008
            
            
            
            —
            
            
            
            —
            
            
            
            279,205Other
      assets, net
            
            
            —
            
            
            
            22,719
            
            
            
            6,488
            
            
            
            350
            
            
            
            —
            
            
            
            29,557Total
      assets
            
            $
            120,969
            
            
            $
            2,313,471
            
            
            $
            1,299,771
            
            
            $
            12,500
            
            
            $
            (1,771,307
            )
            
            $
            1,975,404Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Current
      maturities of long-term debt
            
            $
            —
            
            
            $
            7,894
            
            
            $
            8,583
            
            
            $
            —
            
            
            $
            —
            
            
            $
            16,477Accounts
      payable
            
            
            —
            
            
            
            112,156
            
            
            
            66,935
            
            
            
            2,625
            
            
            
            —
            
            
            
            181,716Accrued
      compensation and related liabilities
            
            
            —
            
            
            
            25,954
            
            
            
            17,380
            
            
            
            —
            
            
            
            —
            
            
            
            43,334Other
      current liabilities
            
            
            —
            
            
            
            72,680
            
            
            
            15,707
            
            
            
            1,674
            
            
            
            —
            
            
            
            90,061Intercompany
      payable (receivable)
            
            
            —
            
            
            
            575,363
            
            
            
            (578,839
            )
            
            
            3,476
            
            
            
            —
            
            
            
            —Notes
      payable to subsidiary issuer
            
            
            —
            
            
            
            —
            
            
            
            38,194
            
            
            
            —
            
            
            
            (38,194
            )
            
            
            —Total
      current liabilities
            
            
            —
            
            
            
            794,047
            
            
            
            (432,040
            )
            
            
            7,775
            
            
            
            (38,194
            )
            
            
            331,588Long-term
      debt
            
            
            —
            
            
            
            1,334,504
            
            
            
            25,018
            
            
            
            —
            
            
            
            —
            
            
            
            1,359,522Deferred
      income tax liability (asset)
            
            
            —
            
            
            
            (3,403
            )
            
            
            66,117
            
            
            
            (244
            )
            
            
            —
            
            
            
            62,470Other
      liabilities
            
            
            —
            
            
            
            67,354
            
            
            
            33,501
            
            
            
            —
            
            
            
            —
            
            
            
            100,855Shareholders’
      equity
            
            
            120,969
            
            
            
            120,969
            
            
            
            1,607,175
            
            
            
            4,969
            
            
            
            (1,733,113
            )
            
            
            120,969Total
      liabilities and shareholders’ equity
            
            $
            120,969
            
            
            $
            2,313,471
            
            
            $
            1,299,771
            
            
            $
            12,500
            
            
            $
            (1,771,307
            )
            
            $
            1,975,404










25




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS


Three
months ended September 27, 2008


(in
thousands)





Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-
              GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedNet
      sales
            
            $
            —
            
            
            $
            245,712
            
            
            $
            271,514
            
            
            $
            5,479
            
            
            $
            —
            
            
            $
            522,705Cost
      of sales
            
            
            —
            
            
            
            196,471
            
            
            
            206,761
            
            
            
            3,676
            
            
            
            —
            
            
            
            406,908Selling,
      general and administrative
            
            
            —
            
            
            
            35,292
            
            
            
            23,056
            
            
            
            107
            
            
            
            —
            
            
            
            58,455Amortization
      of intangible assets
            
            
            —
            
            
            
            120
            
            
            
            2,173
            
            
            
            —
            
            
            
            —
            
            
            
            2,293Restructuring
      and impairment charges
            
            
            —
            
            
            
            5,316
            
            
            
            1,557
            
            
            
            —
            
            
            
            —
            
            
            
            6,873Operating
      income
            
            
            —
            
            
            
            8,513
            
            
            
            37,967
            
            
            
            1,696
            
            
            
            —
            
            
            
            48,176Interest
      expense (income), net
            
            
            —
            
            
            
            26,429
            
            
            
            403
            
            
            
            (37
            )
            
            
            —
            
            
            
            26,795Intercompany
      interest expense (income)
            
            
            —
            
            
            
            (615
            )
            
            
            615
            
            
            
            —
            
            
            
            —
            
            
            
            —Gain
      on early extinguishment of debt
            
            
            —
            
            
            
            (371
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (371
            )Other
      income, net
            
            
            —
            
            
            
            (442
            )
            
            
            (253
            )
            
            
            —
            
            
            
            —
            
            
            
            (695
            )Income
      (loss) from continuing operations before income taxes and equity in income
      of unconsolidated subsidiaries
            
            
            —
            
            
            
            (16,488
            )
            
            
            37,202
            
            
            
            1,733
            
            
            
            —
            
            
            
            22,447Income
      tax expense (benefit)
            
            
            —
            
            
            
            10,451
            
            
            
            (391
            )
            
            
            —
            
            
            
            —
            
            
            
            10,060Income
      (loss) from continuing operations before equity in income of
      unconsolidated subsidiaries
            
            
            —
            
            
            
            (26,939
            )
            
            
            37,593
            
            
            
            1,733
            
            
            
            —
            
            
            
            12,387Equity
      in income of unconsolidated subsidiaries
            
            
            12,328
            
            
            
            39,326
            
            
            
            1,733
            
            
            
            —
            
            
            
            (53,387
            )
            
            
            —Income
      (loss) from continuing operations
            
            
            12,328
            
            
            
            12,387
            
            
            
            39,326
            
            
            
            1,733
            
            
            
            (53,387
            )
            
            
            12,387Loss
      from discontinued operations, net of taxes
            
            
            —
            
            
            
            (59
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (59
            )Net
      income (loss)
            
            $
            12,328
            
            
            $
            12,328
            
            
            $
            39,326
            
            
            $
            1,733
            
            
            $
            (53,387
            )
            
            $
            12,328







26




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS


Nine
months ended September 27, 2008


(in
thousands)





Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-
              GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedNet
      sales
            
            $
            —
            
            
            $
            748,907
            
            
            $
            817,585
            
            
            $
            15,042
            
            
            $
            —
            
            
            $
            1,581,534Cost
      of sales
            
            
            —
            
            
            
            612,897
            
            
            
            637,027
            
            
            
            10,688
            
            
            
            —
            
            
            
            1,260,612Selling,
      general and administrative
            
            
            —
            
            
            
            107,988
            
            
            
            76,380
            
            
            
            453
            
            
            
            —
            
            
            
            184,821Amortization
      of intangible assets
            
            
            —
            
            
            
            343
            
            
            
            6,404
            
            
            
            —
            
            
            
            —
            
            
            
            6,747Restructuring,
      impairment and other charges
            
            
            —
            
            
            
            19,767
            
            
            
            2,280
            
            
            
            —
            
            
            
            —
            
            
            
            22,047Operating
      income
            
            
            —
            
            
            
            7,912
            
            
            
            95,494
            
            
            
            3,901
            
            
            
            —
            
            
            
            107,307Interest
      expense (income), net
            
            
            —
            
            
            
            78,679
            
            
            
            1,331
            
            
            
            (62
            )
            
            
            —
            
            
            
            79,948Intercompany
      interest expense (income)
            
            
            —
            
            
            
            (1,712
            )
            
            
            1,712
            
            
            
            —
            
            
            
            —
            
            
            
            —Loss
      on early extinguishment of debt
            
            
            —
            
            
            
            3,871
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            3,871Other
      expense, net
            
            
            —
            
            
            
            140
            
            
            
            289
            
            
            
            —
            
            
            
            —
            
            
            
            429Income
      (loss) from continuing operations before income taxes and equity in income
      of unconsolidated subsidiaries
            
            
            —
            
            
            
            (73,066
            )
            
            
            92,162
            
            
            
            3,963
            
            
            
            —
            
            
            
            23,059Income
      tax expense
            
            
            —
            
            
            
            6,241
            
            
            
            4,108
            
            
            
            —
            
            
            
            —
            
            
            
            10,349Income
      (loss) from continuing operations before equity in income of
      unconsolidated subsidiaries
            
            
            —
            
            
            
            (79,307
            )
            
            
            88,054
            
            
            
            3,963
            
            
            
            —
            
            
            
            12,710Equity
      in income of unconsolidated subsidiaries
            
            
            11,596
            
            
            
            92,017
            
            
            
            3,963
            
            
            
            —
            
            
            
            (107,576
            )
            
            
            —Income
      (loss) from continuing operations
            
            
            11,596
            
            
            
            12,710
            
            
            
            92,017
            
            
            
            3,963
            
            
            
            (107,576
            )
            
            
            12,710Loss
      from discontinued operations, net of taxes
            
            
            —
            
            
            
            (1,114
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,114
            )Net
      income (loss)
            
            $
            11,596
            
            
            $
            11,596
            
            
            $
            92,017
            
            
            $
            3,963
            
            
            $
            (107,576
            )
            
            $
            11,596









27





CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)




CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS


Nine
months ended September 27, 2008


(in
thousands)




Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-
              GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedCash
      flows from operating activities:Net
      cash provided by operating activities
            
            $
            12,940
            
            
            $
            5,114
            
            
            $
            128,873
            
            
            $
            2,487
            
            
            $
            —
            
            
            $
            149,414Cash
      flows from investing activities:Cost
      of business acquisitions, net of cash acquired
            
            
            —
            
            
            
            (47,151
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (47,151
            )Capital
      expenditures
            
            
            —
            
            
            
            (18,172
            )
            
            
            (19,610
            )
            
            
            —
            
            
            
            —
            
            
            
            (37,782
            )Acquisition
      payments
            
            
            —
            
            
            
            (3,653
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (3,653
            )Proceeds
      from sale of property, plant and equipment
            
            
            —
            
            
            
            17,944
            
            
            
            314
            
            
            
            —
            
            
            
            —
            
            
            
            18,258Intercompany
      note
            
            
            —
            
            
            
            1,914
            
            
            
            —
            
            
            
            —
            
            
            
            (1,914
            )
            
            
            —Net cash used in investing activities of continuing
    operations
            
            
            —
            
            
            
            (49,118
            )
            
            
            (19,296
            )
            
            
            —
            
            
            
            (1,914
            )
            
            
            (70,328
            )Cash
      flows from financing activities:Repayment of senior unsecured loan
            
            
            —
            
            
            
            (175,000
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (175,000
            )Repayments
      under revolving credit facility, net
            
            
            —
            
            
            
            (65,200
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (65,200
            )Repayment
      of term loans
            
            
            —
            
            
            
            (5,400
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (5,400
            )Repayments
      of other long-term debt
            
            
            —
            
            
            
            (1,710
            )
            
            
            (14,825
            )
            
            
            —
            
            
            
            —
            
            
            
            (16,535
            )Payment
      of debt issuance costs
            
            
            —
            
            
            
            (5,297
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (5,297
            )Purchase
      and retirement of common stock upon vesting of RSUs
            
            
            (1,055
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,055
            )Tax
      liability from stock compensation
            
            
            (873
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (873
            )Proceeds
      from issuance of 101⁄2% senior
      notes
            
            
            —
            
            
            
            175,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            175,000Proceeds
      from issuance of other long-term debt
            
            
            —
            
            
            
            5,338
            
            
            
            6,000
            
            
            
            —
            
            
            
            —
            
            
            
            11,338Proceeds
      from exercise of stock options
            
            
            1,873
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            1,873Intercompany
      note
            
            
            —
            
            
            
            —
            
            
            
            (1,914
            )
            
            
            —
            
            
            
            1,914
            
            
            
            —Intercompany
      advances
            
            
            (12,885
            )
            
            
            111,778
            
            
            
            (99,042
            )
            
            
            149
            
            
            
            —
            
            
            
            —Net
      cash (used in) provided by financing activities
            
            
            (12,940
            )
            
            
            39,509
            
            
            
            (109,781
            )
            
            
            149
            
            
            
            1,914
            
            
            
            (81,149
            )Effect
      of exchange rate changes on cash and cash equivalents of continuing
      operations
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —Net
      (decrease) increase in cash and cash equivalents
            
            
            —
            
            
            
            (4,495
            )
            
            
            (204
            )
            
            
            2,636
            
            
            
            —
            
            
            
            (2,063
            )Cash
      and cash equivalents at beginning of period
            
            
            —
            
            
            
            13,091
            
            
            
            882
            
            
            
            1,909
            
            
            
            —
            
            
            
            15,882Cash
      and cash equivalents at end of period
            
            $
            —
            
            
            $
            8,596
            
            
            $
            678
            
            
            $
            4,545
            
            
            $
            —
            
            
            $
            13,819




28




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING BALANCE SHEET


December
29, 2007


(in
thousands)




Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedAssetsCurrent
      assets:Cash
      and cash equivalents
            
            $
            —
            
            
            $
            13,091
            
            
            $
            882
            
            
            $
            1,909
            
            
            $
            —
            
            
            $
            15,882Accounts
      receivable, net
            
            
            —
            
            
            
            164,815
            
            
            
            175,746
            
            
            
            4,073
            
            
            
            —
            
            
            
            344,634Inventories
            
            
            —
            
            
            
            89,259
            
            
            
            72,782
            
            
            
            867
            
            
            
            —
            
            
            
            162,908Notes
      receivable from subsidiaries
            
            
            —
            
            
            
            40,108
            
            
            
            —
            
            
            
            —
            
            
            
            (40,108
            )
            
            
            —Prepaid
      and other current assets
            
            
            —
            
            
            
            57,484
            
            
            
            15,160
            
            
            
            714
            
            
            
            —
            
            
            
            73,358Total
      current assets
            
            
            —
            
            
            
            364,757
            
            
            
            264,570
            
            
            
            7,563
            
            
            
            (40,108
            )
            
            
            596,782Investment
      in subsidiaries
            
            
            99,326
            
            
            
            1,461,662
            
            
            
            2,058
            
            
            
            —
            
            
            
            (1,563,046
            )
            
            
            —Property,
      plant and equipment, net
            
            
            —
            
            
            
            173,103
            
            
            
            254,378
            
            
            
            860
            
            
            
            —
            
            
            
            428,341Goodwill
            
            
            —
            
            
            
            175,220
            
            
            
            494,582
            
            
            
            —
            
            
            
            —
            
            
            
            669,802Other
      intangible assets, net
            
            
            —
            
            
            
            9,512
            
            
            
            261,110
            
            
            
            —
            
            
            
            —
            
            
            
            270,622Other
      assets, net
            
            
            —
            
            
            
            22,949
            
            
            
            13,833
            
            
            
            393
            
            
            
            —
            
            
            
            37,175Total
      assets
            
            $
            99,326
            
            
            $
            2,207,203
            
            
            $
            1,290,531
            
            
            $
            8,816
            
            
            $
            (1,603,154
            )
            
            $
            2,002,722Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Current
      maturities of long-term debt
            
            $
            —
            
            
            $
            8,769
            
            
            $
            9,983
            
            
            $
            —
            
            
            $
            —
            
            
            $
            18,752Accounts
      payable
            
            
            —
            
            
            
            98,111
            
            
            
            65,130
            
            
            
            2,217
            
            
            
            —
            
            
            
            165,458Accrued
      compensation and related liabilities
            
            
            —
            
            
            
            23,792
            
            
            
            23,361
            
            
            
            —
            
            
            
            —
            
            
            
            47,153Other
      current liabilities
            
            
            —
            
            
            
            57,845
            
            
            
            20,495
            
            
            
            1,214
            
            
            
            —
            
            
            
            79,554Intercompany
      payable (receivable)
            
            
            —
            
            
            
            479,191
            
            
            
            (482,518
            )
            
            
            3,327
            
            
            
            —
            
            
            
            —Notes
      payable to subsidiary issuer
            
            
            —
            
            
            
            —
            
            
            
            40,108
            
            
            
            —
            
            
            
            (40,108
            )
            
            
            —Total
      current liabilities
            
            
            —
            
            
            
            667,708
            
            
            
            (323,441
            )
            
            
            6,758
            
            
            
            (40,108
            )
            
            
            310,917Long-term
      debt
            
            
            —
            
            
            
            1,400,620
            
            
            
            25,265
            
            
            
            —
            
            
            
            —
            
            
            
            1,425,885Deferred
      income tax liability (asset)
            
            
            —
            
            
            
            (17,162
            )
            
            
            72,343
            
            
            
            —
            
            
            
            —
            
            
            
            55,181Other
      liabilities
            
            
            —
            
            
            
            56,711
            
            
            
            54,702
            
            
            
            —
            
            
            
            —
            
            
            
            111,413Shareholders’
      equity
            
            
            99,326
            
            
            
            99,326
            
            
            
            1,461,662
            
            
            
            2,058
            
            
            
            (1,563,046
            )
            
            
            99,326Total
      liabilities and shareholders’ equity
            
            $
            99,326
            
            
            $
            2,207,203
            
            
            $
            1,290,531
            
            
            $
            8,816
            
            
            $
            (1,603,154
            )
            
            $
            2,002,722







29




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS


Three
months ended September 29, 2007


(in
thousands)




Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-
              GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedNet
      sales
            
            $
            —
            
            
            $
            288,397
            
            
            $
            258,643
            
            
            $
            3,561
            
            
            $
            —
            
            
            $
            550,601Cost
      of sales
            
            
            —
            
            
            
            235,897
            
            
            
            197,456
            
            
            
            2,756
            
            
            
            —
            
            
            
            436,109Selling,
      general and administrative
            
            
            —
            
            
            
            39,385
            
            
            
            24,138
            
            
            
            127
            
            
            
            —
            
            
            
            63,650Amortization
      of intangible assets
            
            
            —
            
            
            
            1,194
            
            
            
            1,625
            
            
            
            —
            
            
            
            —
            
            
            
            2,819Restructuring
      and impairment charges
            
            
            —
            
            
            
            20,252
            
            
            
            60
            
            
            
            —
            
            
            
            —
            
            
            
            20,312Operating
      income (loss)
            
            
            —
            
            
            
            (8,331
            )
            
            
            35,364
            
            
            
            678
            
            
            
            —
            
            
            
            27,711Gain
      on sale of business
            
            
            —
            
            
            
            (189
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (189
            )Interest
      expense (income), net
            
            
            —
            
            
            
            24,830
            
            
            
            454
            
            
            
            (1
            )
            
            
            —
            
            
            
            25,283Intercompany
      interest expense (income)
            
            
            —
            
            
            
            (687
            )
            
            
            687
            
            
            
            —
            
            
            
            —
            
            
            
            —Loss
      on early extinguishment of debt
            
            
            —
            
            
            
            —
            
            
            
            51
            
            
            
            —
            
            
            
            —
            
            
            
            51Other
      expense, net
            
            
            —
            
            
            
            244
            
            
            
            539
            
            
            
            116
            
            
            
            —
            
            
            
            899Income
      (loss) from continuing operations before income taxes and equity in income
      of unconsolidated subsidiaries
            
            
            —
            
            
            
            (32,529
            )
            
            
            33,633
            
            
            
            563
            
            
            
            —
            
            
            
            1,667Income
      tax (benefit) expense
            
            
            —
            
            
            
            (1,458
            )
            
            
            614
            
            
            
            —
            
            
            
            —
            
            
            
            (844
            )Income
      (loss) from continuing operations before equity in income of
      unconsolidated subsidiaries
            
            
            —
            
            
            
            (31,071
            )
            
            
            33,019
            
            
            
            563
            
            
            
            —
            
            
            
            2,511Equity
      in income of unconsolidated
              subsidiaries
            
            
            1,701
            
            
            
            33,582
            
            
            
            563
            
            
            
            —
            
            
            
            (35,846
            )
            
            
            —Income
      (loss) from continuing operations
            
            
            1,701
            
            
            
            2,511
            
            
            
            33,582
            
            
            
            563
            
            
            
            (35,846
            )
            
            
            2,511Loss
      from discontinued operations, net of taxes
            
            
            —
            
            
            
            (810
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (810
            )Net
      income (loss)
            
            $
            1,701
            
            
            $
            1,701
            
            
            $
            33,582
            
            
            $
            563
            
            
            $
            (35,846
            )
            
            $
            1,701




30




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING STATEMENT OF OPERATIONS


Nine
months ended September 29, 2007


(in
thousands)




Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-
              GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedNet
      sales
            
            $
            —
            
            
            $
            887,015
            
            
            $
            567,667
            
            
            $
            7,593
            
            
            $
            —
            
            
            $
            1,462,275Cost
      of sales
            
            
            —
            
            
            
            726,897
            
            
            
            437,981
            
            
            
            5,984
            
            
            
            —
            
            
            
            1,170,862Selling,
      general and administrative
            
            
            —
            
            
            
            119,363
            
            
            
            48,508
            
            
            
            302
            
            
            
            —
            
            
            
            168,173Amortization
      of intangible assets
            
            
            —
            
            
            
            3,633
            
            
            
            3,612
            
            
            
            —
            
            
            
            —
            
            
            
            7,245Restructuring
      and impairment charges
            
            
            —
            
            
            
            32,019
            
            
            
            75
            
            
            
            —
            
            
            
            —
            
            
            
            32,094Operating
      income
            
            
            —
            
            
            
            5,103
            
            
            
            77,491
            
            
            
            1,307
            
            
            
            —
            
            
            
            83,901Gain
      on sale of business
            
            
            —
            
            
            
            (189
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (189
            )Interest
      expense (income), net
            
            
            —
            
            
            
            61,997
            
            
            
            1,096
            
            
            
            (2
            )
            
            
            —
            
            
            
            63,091Intercompany
      interest expense (income)
            
            
            —
            
            
            
            (2,061
            )
            
            
            2,061
            
            
            
            —
            
            
            
            —
            
            
            
            —Loss
      on early extinguishment of debt
            
            
            —
            
            
            
            9,186
            
            
            
            70
            
            
            
            —
            
            
            
            —
            
            
            
            9,256Other
      expense, net
            
            
            —
            
            
            
            898
            
            
            
            969
            
            
            
            198
            
            
            
            —
            
            
            
            2,065Income (loss)
      from continuing operations before income taxes and equity in income of
      unconsolidated subsidiaries
            
            
            —
            
            
            
            (64,728
            )
            
            
            73,295
            
            
            
            1,111
            
            
            
            —
            
            
            
            9,678Income
      tax expense
            
            
            —
            
            
            
            213
            
            
            
            2,605
            
            
            
            —
            
            
            
            —
            
            
            
            2,818Income (loss)
      from continuing operations before equity in income of unconsolidated
      subsidiaries
            
            
            —
            
            
            
            (64,941
            )
            
            
            70,690
            
            
            
            1,111
            
            
            
            —
            
            
            
            6,860Equity
      in income of unconsolidated
              subsidiaries
            
            
            22,002
            
            
            
            71,801
            
            
            
            1,111
            
            
            
            —
            
            
            
            (94,914
            )
            
            
            —Income
      (loss) from continuing operations
            
            
            22,002
            
            
            
            6,860
            
            
            
            71,801
            
            
            
            1,111
            
            
            
            (94,914
            )
            
            
            6,860Income
      from discontinued operations, net of taxes
            
            
            —
            
            
            
            15,142
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            15,142Net
      income (loss)
            
            $
            22,002
            
            
            $
            22,002
            
            
            $
            71,801
            
            
            $
            1,111
            
            
            $
            (94,914
            )
            
            $
            22,002









31




CENVEO,
INC. AND SUBSIDIARIES


NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)






16.
Condensed Consolidating Financial Information (Continued)





CENVEO,
INC. AND SUBSIDIARIES


CONDENSED
CONSOLIDATING STATEMENT OF CASH FLOWS


Nine
months ended September 29, 2007


(in
thousands)




Parent
            
            
            Subsidiary
            
            
            Guarantor
            
            
            Non-
              GuarantorCompany
            
            
            Issuer
            
            
            Subsidiaries
            
            
            Subsidiaries
            
            
            Eliminations
            
            
            ConsolidatedCash
      flows from operating activities:Net
      cash provided by (used in) continuing operating activities
            
            $
            7,166
            
            
            $
            13,428
            
            
            $
            36,149
            
            
            $
            2,459
            
            
            $
            —
            
            
            $
            59,202Net
      cash provided by discontinued operating activities
            
            
            —
            
            
            
            2,198
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            2,198Net
      cash provided by (used in) operating activities
            
            
            7,166
            
            
            
            15,626
            
            
            
            36,149
            
            
            
            2,459
            
            
            
            —
            
            
            
            61,400Cash
      flows from investing activities:Cost
      of business acquisitions, net of cash acquired
            
            
            —
            
            
            
            (627,116
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (627,116
            )Capital
      expenditures
            
            
            —
            
            
            
            (12,195
            )
            
            
            (12,986
            )
            
            
            —
            
            
            
            —
            
            
            
            (25,181
            )Intercompany
      note
            
            
            —
            
            
            
            1,902
            
            
            
            —
            
            
            
            —
            
            
            
            (1,902
            )
            
            
            —Acquisition
      payments
            
            
            —
            
            
            
            (3,653
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (3,653
            )Proceeds
      from sale of property, plant and equipment
            
            
            —
            
            
            
            4,844
            
            
            
            7
            
            
            
            —
            
            
            
            —
            
            
            
            4,851Proceeds
      from divestitures, net
            
            
            —
            
            
            
            226
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            226Net
      cash used in investing activities of continuing operations
            
            
            —
            
            
            
            (635,992
            )
            
            
            (12,979
            )
            
            
            —
            
            
            
            (1,902
            )
            
            
            (650,873
            )Proceeds
      from the sale of discontinued operations
            
            
            —
            
            
            
            73,628
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            73,628Net
      cash used in investing activities
            
            
            —
            
            
            
            (562,364
            )
            
            
            (12,979
            )
            
            
            —
            
            
            
            (1,902
            )
            
            
            (577,245
            )Cash
      flows from financing activities:Borrowings
      under revolving credit facility, net
            
            
            —
            
            
            
            92,500
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            92,500Repayment
      of term loans
            
            
            —
            
            
            
            (3,100
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (3,100
            )Repayment
      of term loan B
            
            
            —
            
            
            
            (324,188
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (324,188
            )Repayment
      of Cadmus revolving senior bank credit facility
            
            
            —
            
            
            
            (70,100
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (70,100
            )Repayment
      of 83⁄8% senior
      subordinated notes
            
            
            —
            
            
            
            (20,880
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (20,880
            )Repayment
      of 95⁄8% senior
      notes
            
            
            —
            
            
            
            (10,498
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (10,498
            )Repayments
      of other long-term debt
            
            
            —
            
            
            
            (3,320
            )
            
            
            (23,642
            )
            
            
            —
            
            
            
            —
            
            
            
            (26,962
            )Payment
      of debt issuance costs
            
            
            —
            
            
            
            (5,906
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (5,906
            )Payment
      of refinancing fees, redemption premiums and expenses
            
            
            —
            
            
            
            (8,045
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (8,045
            )Proceeds
      from issuance of term loans
            
            
            —
            
            
            
            720,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            720,000Proceeds
      from senior unsecured loan
            
            
            —
            
            
            
            175,000
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            175,000Proceeds
      from exercise of stock options
            
            
            300
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            300Purchase
      and retirement of common stock upon vesting of RSUs
            
            
            (1,302
            )
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            —
            
            
            
            (1,302
            )Intercompany
      note
            
            
            —
            
            
            
            —
            
            
            
            (1,902
            )
            
            
            —
            
            
            
            1,902
            
            
            
            —Intercompany
      advances
            
            
            (6,164
            )
            
            
            6,954
            
            
            
            611
            
            
            
            (1,401
            )
            
            
            —
            
            
            
            —Net
      cash provided by (used in) financing activities
            
            
            (7,166
            )
            
            
            548,417
            
            
            
            (24,933
            )
            
            
            (1,401
            )
            
            
            1,902
            
            
            
            516,819Effect
      of exchange rate changes on cash and cash equivalents of continuing
      operations
            
            
            —
            
            
            
            —
            
            
            
            180
            
            
            
            —
            
            
            
            —
            
            
            
            180Net
      increase (decrease) in cash and cash equivalents
            
            
            —
            
            
            
            1,679
            
            
            
            (1,583
            )
            
            
            1,058
            
            
            
            —
            
            
            
            1,154Cash
      and cash equivalents at beginning of period
            
            
            —
            
            
            
            8,655
            
            
            
            1,903
            
            
            
            —
            
            
            
            —
            
            
            
            10,558Cash
      and cash equivalents at end of period
            
            $
            —
            
            
            $
            10,334
            
            
            $
            320
            
            
            $
            1,058
            
            
            $
            —
            
            
            $
            11,712





32




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 29, 2007. Item 7 of our 2007 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 27, 2008.




Forward-Looking
Statements




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




Factors
that could cause actual results to differ materially from management’s
expectations include, without limitation: (i) our substantial indebtedness could
impair our financial condition and prevent us from fulfilling our business
obligations; (ii) our ability to service or refinance our debt; (iii) the terms
of our indebtedness imposing significant restrictions on our operating and
financial flexibility; (iv) limitations on additional borrowings that are
available to us that could further exacerbate our risk exposure from debt; (v)
our ability to successfully integrate acquisitions; (vi) intense competition in
our industry; (vii) the absence of long-term customer agreements in our
industry, subjecting our business to quarterly and cyclical fluctuations; (viii)
factors affecting the U.S. postal services impacting demand for our products;
(ix) the availability of the Internet and other electronic media affecting
demand for our products; (x) increases in paper costs and decreases in its
availability; (xi) our labor relations; (xii) compliance with environmental
rules and regulations; and (xiii) dependence on key management personnel. 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 U.S. Securities and Exchange
Commission, which we refer to as the SEC.




Business
Overview




We are
one of the largest diversified printing companies in North America. Our broad
portfolio of products includes envelope, form, and label manufacturing,
commercial printing and packaging and publisher offerings. We operate from a
global network of approximately 78 printing and manufacturing, content
management and distribution facilities, which we refer to as manufacturing
facilities, serving a diverse base of customers.




We
operate our business in two complementary segments: envelopes, forms and labels
and commercial printing.




Envelopes,
Forms and Labels




Our
envelopes, forms and labels segment operates approximately 38 manufacturing
facilities, primarily in North America, and primarily specializes in the design,
manufacturing, printing and fulfillment of: (i) custom and direct mail envelopes
developed for the advertising, billing and remittance needs of a variety of
customers, including financial services companies; (ii) custom labels and
specialty forms sold through an extensive network of resale distributors for
industries including food and beverage, manufacturing and pharmacy chains; and
(iii) stock envelopes, labels and business forms generally sold to independent
distributors, office-product suppliers and office-product retail
chains.  In 2007 we grew our envelopes, forms and labels business with
the acquisition of Commercial Envelope Manufacturing Co. Inc., which we refer to
as Commercial Envelope, and PC Ink Corp., which we refer to as
Printegra.




On August
30, 2007, we acquired all of the stock of Commercial Envelope, one of the
largest envelope manufacturers in the United States.  Prior to our
acquisition, Commercial Envelope had annual revenues of approximately $160
million.  The acquisition of Commercial Envelope increased our market
share in the U.S. envelope market.


33




On
February 12, 2007, we acquired all of the stock of Printegra, a leading producer
of printed business communication documents, labels and envelopes regularly used
by small and large businesses.  Prior to our acquisition, Printegra
had annual revenues of approximately $90 million.  With the
acquisition of Printegra, we expanded our offerings of short-run documents,
labels and envelope products.  Additionally, the acquisition
facilitates access for Printegra’s historical customer base to our extensive
product offerings.




Commercial
Printing




Our
commercial printing segment operates approximately 40 manufacturing facilities
in the United States, Canada, the Caribbean Basin and Asia and primarily offers
print, design, content management, fulfillment and distribution offerings,
including: (i) high-end color printing of a wide range of premium products for
major national and regional customers; (ii) general commercial products for
regional and local customers; (iii) scientific, technical and medical, which we
refer to as STM, journals and special interest and trade magazines for
non-profit organizations, educational institutions and specialty publishers; and
(iv) specialty packaging and high quality promotional materials for
multinational consumer products companies. In the second quarter of 2008, we
grew our commercial printing business with the acquisition of Rex Corporation
and its manufacturing facility, which we refer to as Rex. In 2007, we completed
two commercial printing acquisitions: Madison/Graham ColorGraphics, Inc., which
we refer to as ColorGraphics, and Cadmus Communications Corporation, which we
refer to as Cadmus.




On March
31, 2008, we acquired all of the stock of Rex, an independent manufacturer of
premium and high-quality packaging solutions. Prior to our acquisition, Rex had
annual revenues of approximately $40 million.




On July
9, 2007, we acquired all of the stock of ColorGraphics, which was one of the
largest commercial printers in the western United States.  Prior to
our acquisition, ColorGraphics had annual revenues of approximately $170
million.  ColorGraphics produces printed annual reports, booklets,
brochures, advertising inserts, direct mail and other corporate communication
materials.




On March
7, 2007, we acquired all of the stock of Cadmus. Cadmus is one of the world’s
largest providers of content management and printing to STM journal publishers,
one of the largest periodicals printers in North America and a leading provider
of specialty packaging and promotional printing products.  Prior to
our acquisition, Cadmus had annual revenues of approximately $450
million.




Consolidated
Operating Results




Management’s
Discussion and Analysis of Financial Condition and Results of Operations
includes an overview of our condensed consolidated results for the three and
nine month periods ended September 27, 2008 followed by a discussion of the
results of each of our reportable segments for the same periods. See Note 2 of
our condensed consolidated financial statements included herein. Our results for
the three and nine month periods ended September 27, 2008 include the operating
results of Rex from March 31, 2008. Our results for the three and nine month
periods ended September 29, 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 these acquisitions occurred during the first and third quarters of 2007,
their results are not included for a full nine month period in
2007.  In addition, Commercial Envelope is included in our results of
operations for only a portion of the three months ended September 29, 2007 and
Rex is not included in our results of operations in 2007.




A summary
of our condensed consolidated statements of operations is presented below. The
summary presents reported net sales and operating income. See Segment Operations
below for a summary of net sales and operating income of our reportable segments
that we use internally to assess our operating performance. Our fiscal quarters
end on the Saturday closest to the last day of the calendar month so that each
quarter has the same number of days and 13 full weeks. The reporting periods
ending on September 27, 2008 and September 29, 2007 consist of 13
weeks.


34




Three
      Months Ended
            
            
            Nine
      Months EndedSeptember
      27,
              2008
            
            
            September
      29,
              2007
            
            
            September
      27,
              2008
            
            
            September
      29,
              2007(in
      thousands, except
              per
      share amounts)
            
            
            (in
      thousands, except
              per
      share amounts)Net
      sales
            
            $
            522,705
            
            
            $
            550,601
            
            
            $
            1,581,534
            
            
            $
            1,462,275Operating
      income (loss):Envelopes,
      forms and labels
            
            
            35,947
            
            
            
            30,225
            
            
            
            93,807
            
            
            
            80,712Commercial
      printing
            
            
            23,056
            
            
            
            7,605
            
            
            
            47,598
            
            
            
            31,189Corporate
            
            
            (10,827
            )
            
            
            (10,119
            )
            
            
            (34,098
            )
            
            
            (28,000
            )Total
      operating income
            
            
            48,176
            
            
            
            27,711
            
            
            
            107,307
            
            
            
            83,901Gain
      on sale of non-strategic business
            
            
            —
            
            
            
            (189
            )
            
            
            —
            
            
            
            (189
            )Interest
      expense, net
            
            
            26,795
            
            
            
            25,283
            
            
            
            79,948
            
            
            
            63,091Loss
      (gain) on early extinguishment of debt
            
            
            (371
            )
            
            
            51
            
            
            
            3,871
            
            
            
            9,256Other
      expense (income), net
            
            
            (695
            )
            
            
            899
            
            
            
            429
            
            
            
            2,065Income
      from continuing operations before income taxes
            
            
            22,447
            
            
            
            1,667
            
            
            
            23,059
            
            
            
            9,678Income
      tax expense (benefit)
            
            
            10,060
            
            
            
            (844
            )
            
            
            10,349
            
            
            
            2,818Income
      from continuing operations
            
            
            12,387
            
            
            
            2,511
            
            
            
            12,710
            
            
            
            6,860(Loss)
      income from discontinued operations, net of taxes
            
            
            (59
            )
            
            
            (810
            )
            
            
            (1,114
            )
            
            
            15,142Net
      income
            
            $
            12,328
            
            
            $
            1,701
            
            
            $
            11,596
            
            
            $
            22,002Income
      (loss) per share—basic:Continuing
      operations
            
            $
            0.23
            
            
            $
            0.04
            
            
            $
            0.24
            
            
            $
            0.13Discontinued
      operations
            
            
            —
            
            
            
            (0.01
            )
            
            
            (0.02
            )
            
            
            0.28Net
      income
            
            $
            0.23
            
            
            $
            0.03
            
            
            $
            0.22
            
            
            $
            0.41Income
      (loss) per share—diluted:Continuing
      operations
            
            $
            0.23
            
            
            $
            0.04
            
            
            $
            0.23
            
            
            $
            0.12Discontinued
      operations
            
            
            —
            
            
            
            (0.01
            )
            
            
            (0.02
            )
            
            
            0.28Net
      income
            
            $
            0.23
            
            
            $
            0.03
            
            
            $
            0.21
            
            
            $
            0.40




Net
Sales




Net sales
decreased $27.9 million in the third quarter of 2008, as compared to the third
quarter of 2007. This decrease was primarily due to lower sales from our
commercial printing segment of $29.8 million, primarily as a result of lower
volumes due to general economic conditions and plant closures, partially offset
by price increases net of changes in product mix and the $7.7 million of sales
generated from the integration of Rex, which was not included in our results in
the third quarter of 2007. Net sales for the nine months ended September 27,
2008 increased $119.3 million, as compared to the nine months ended September
29, 2007. This increase was primarily due to the $239.7 million of sales
generated from the integration of Rex and the 2007 Acquisitions into our
operations, for which Rex was not included in our results in the first nine
months of 2007 and the 2007 Acquisitions were included in our results for less
than a full nine month period in 2007. This increase was partially offset by
lower sales from our commercial printing and envelopes, forms and labels
segments of $87.7 million and $32.7 million, respectively, primarily due to
plant closures and lower volumes due to general economic conditions, partially
offset by price increases net of changes in product mix. See Segment Operations
below for a more detailed discussion of the primary factors affecting the change
in our net sales by reportable segment.




Operating
Income




Operating
income increased $20.5 million in the third quarter of 2008, as compared to the
third quarter of 2007. This increase was primarily due to (i) decreased
restructuring and impairment charges of $13.4 million, (ii) lower selling,
general and administrative expenses of $5.2 million primarily due to our cost
savings programs and (iii) increased gross margins of $1.3 million primarily due
to the acquisition of Rex, which was not included in our results in the third
quarter of 2007 and Commercial Envelope, which was included in our results for
only a portion of the third quarter of 2007 and our cost savings programs,
offset in part by higher manufacturing costs primarily due to material price
increases and higher distribution costs and lower gross margins due to plant
closures.






35




Operating
income for the nine months ended September 27, 2008 increased $23.4 million, as
compared to the nine months ended September 29, 2007. This increase was
primarily due to (i) increased gross margins of $29.5 million primarily due to
the acquisition of Rex and the 2007 Acquisitions, for which Rex, was not
included in our results in 2007 and for which the 2007 Acquisitions were
included in our results for less than a full nine month period in 2007 and our
cost savings programs, offset in part by higher manufacturing costs primarily
due to material price increases and higher distribution costs and lower gross
margins due to plant closures, and (ii) decreased restructuring, impairment and
other charges of $10.0 million. This increase was partially offset by higher
selling, general and administrative expenses of $16.6 million primarily due to
the acquisition of Rex and the 2007 Acquisitions, for which Rex, was not
included in our results in 2007 and for which the 2007 Acquisitions were
included in our results for less than a full nine month period in 2007, offset
in part by our cost savings programs. See Segment Operations below for a more
detailed discussion of the primary factors for our changes in operating income
by reportable segment.





Interest Expense. Interest
expense increased $1.5 million to $26.8 million in the third quarter of 2008, as
compared to $25.3 million in the third quarter of 2007, primarily due to the
additional debt we incurred to finance the Rex and Commercial Envelope
acquisitions, partially offset by lower interest rates. Interest expense in the
third quarter of 2008 reflected average outstanding debt of approximately $1.4
billion and a weighted average interest rate of 7.3%, as compared to average
outstanding debt of approximately $1.3 billion and a weighted average interest
rate of 7.5% in the third quarter of 2007.





Interest
expense increased $16.9 million to $79.9 million during the first nine months of
2008, from $63.1 million in the first nine months of 2007, primarily due to
additional debt incurred to finance acquisitions, offset in part by lower
interest rates. Interest expense in the first nine months of 2008 reflected
average outstanding debt of approximately $1.4 billion and a weighted average
interest rate of 7.2%, compared to the average outstanding debt of approximately
$1.1 billion and a weighted average interest rate of 7.5% during the first nine
months of 2007.




Loss on Early Extinguishment of
Debt.  We incurred a loss on the early extinguishment of debt
of $3.9 million in the first nine months of 2008. This loss primarily resulted
from the conversion of the $175.0 million senior unsecured loan due 2015, which
we refer to as the Senior Unsecured Loan, and the issuance of the $175.0 million
101⁄2% senior notes, due 2016, which we refer to as the 101⁄2% Notes in the second
quarter of 2008.




We
recorded a loss on early extinguishment of debt of approximately $9.3 million in
the first nine months of 2007. This loss resulted from retiring our remaining
95⁄8% senior notes due 2012, which we refer to as the 95⁄8% Notes in the second
quarter of 2007 and the refinancing of our existing $525 million senior secured
credit facilities, which we refer to as the Credit Facilities and as a result of
the tender offer for and repayment of $20.9 million of Cadmus’ 83⁄8% Senior
Subordinated Notes due 2014, which we refer to as the 83⁄8% Notes in the first
quarter of 2007.




Income
Taxes




Three
      Months Ended
              
              
              Nine
      Months EndedSeptember
      27, 2008
              
              
              September
      29, 2007
              
              
              September
      27, 2008
              
              
              September
      29, 2007(in
      thousands)
              
              
              (in
      thousands)Income
      tax expense (benefit) for U.S. operations
              
              $
              9,955
              
              
              $
              (628
              )
              
              $
              9,959
              
              
              $
              2,337Income
      tax expense (benefit) for foreign operations
              
              
              105
              
              
              
              (216
              )
              
              
              390
              
              
              
              481Income
      tax expense (benefit)
              
              $
              10,060
              
              
              $
              (844
              )
              
              $
              10,349
              
              
              $
              2,818Effective
      income tax rate
              
              
              44.8
              %
              
              
              (50.6)
              %
              
              
              44.9
              %
              
              
              29.1
              %




Our
income tax expense primarily relates to our domestic operations. Our effective
tax rate for all periods in 2008 and 2007 was higher than the federal statutory
rate, primarily due to state taxes and other permanent items.




We assess
the recoverability of our deferred tax assets and, based upon this assessment,
record a valuation allowance against the 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 our valuation allowance. As of September 27,
2008, the total valuation allowance on our net U.S. deferred tax assets was
approximately $30.8 million. There is
a reasonable possibility that within the next twelve months we may decrease
our liability for uncertain tax positions by approximately $6.8 million due to
the expiration of certain statute of limitations.







36




Income (Loss) from Discontinued
Operations, Net of Taxes. Income from discontinued operations, net of
taxes, in the nine months ended September 29, 2007 included a $15.1 million
gain, net of taxes of $10.2 million, on the sale of our remaining interest in
the Supremex Index Fund, which we refer to as the Fund, on March 13, 2007 and
equity income related to our retained interest of the Fund from January 1, 2007
through March 13, 2007.




Segment
Operations




Our Chief
Executive Officer monitors the performance of the ongoing operations of our two
reportable segments. We assess performance based on net sales and operating
income. The summaries of net sales and operating income of our two reportable
segments are presented below.




Envelopes,
Forms and Labels


Three
      Months Ended
                
                
                Nine
      Months EndedSeptember
      27, 2008
                
                
                September
      29, 2007
                
                
                September
      27, 2008
                
                
                September
      29, 2007(in
      thousands)
                
                
                (in
      thousands)Segment
      net sales
                
                $
                224,616
                
                
                $
                222,671
                
                
                $
                690,630
                
                
                $
                647,074Segment
      operating income
                
                $
                35,947
                
                
                $
                30,225
                
                
                $
                93,807
                
                
                $
                80,712Operating
      income margin
                
                
                16.0
                %
                
                
                13.6
                %
                
                
                13.6
                %
                
                
                12.5
                %Restructuring
      and impairment charges
                
                $
                2,244
                
                
                $
                4,134
                
                
                $
                4,766
                
                
                $
                9,808


Segment
Net Sales





Segment
net sales for our envelopes, forms and labels segment increased $1.9 million, or
0.9%, in the third quarter of 2008, as compared to the third quarter of 2007.
This increase was primarily due to (i) the $12.8 million of sales generated from
the integration of Commercial Envelope into our operations in 2008, including
the impact of sales changes for work transitioned in from other legacy plants,
as Commercial Envelope was included in our results for only a portion of the
third quarter of 2007, and (ii) higher sales of approximately $10.7 million,
primarily due to price increases, including material price increases that are
generally passed onto our envelope customers, net of changes in product mix.
This increase was offset in part by lower sales volume of approximately $21.6
million, primarily due to general economic conditions which have had a
significant impact on the high color direct mail envelope business and the
closing of plants in connection with the integration of Printegra into our
operations.





Segment
net sales for our envelopes, forms and labels segment increased $43.6 million,
or 6.7%, for the first nine months of 2008, as compared to the first nine months
of 2007. This increase was primarily due to (i) the $76.4 million of sales
generated from the integration of Commercial Envelope and Printegra into our
operations in 2008, including the impact of sales changes for work transitioned
into these acquired operations from other legacy plants, as Printegra and
Commercial Envelope were included in our results for less than a full nine month
period in 2007 and (ii) higher sales of approximately $28.3 million, primarily
due to price increases, including material price increases that are generally
passed onto our envelope customers, net of changes in product mix. This increase
was offset in part by lower sales volume of approximately $61.1 million,
primarily due to general economic conditions which have had a significant impact
on the high color direct mail envelope business and the closing of plants in
connection with the integration of Printegra and Commercial Envelope into our
operations.




Segment
Operating Income




Segment
operating income for our envelopes, forms and labels segment increased $5.7
million, or 18.9%, in the third quarter of 2008, as compared to the third
quarter of 2007. This increase was primarily due to (i) increased gross margins
of $3.5 million, primarily due to the Commercial Envelope acquisition, which was
included for only a portion of the third quarter of 2007 and our cost savings
programs, offset in part by higher material costs primarily due to material
price increases and higher distribution costs, (ii) decreased restructuring and
impairment charges of $1.9 million and lower selling, general and administrative
expenses of $0.9 million primarily due to our cost reduction programs, offset in
part by the Commercial Envelope acquisition, which was included in our results
for less than a full three month period in 2007. This increase was partially
offset by higher amortization expense of $0.6 million primarily due to the
Commercial Envelope acquisition.




Segment
operating income for our envelopes, forms and labels segment increased $13.1
million, or 16.2%, for the first nine months of 2008, as compared to the first
nine months of 2007. This increase was primarily due to






37




(i)
increased gross margins of $16.8 million primarily due to the acquisition of
Commercial Envelope and Printegra, which were included in our results for less
than a full nine month period in 2007 and our cost savings programs, offset in
part by higher material costs primarily due to material price increases and
higher distribution costs and (ii) decreased restructuring and impairment
charges of $5.0 million. This increase was partially offset by (i) higher
selling, general and administrative expenses of $6.8 million primarily due to
the acquisition of Commercial Envelope and Printegra, which were included in our
results for less than a nine month period in 2007, offset in part by our cost
reduction programs and (ii) higher amortization expense of $1.9 million
primarily due to the acquisition of Commercial Envelope and
Printegra.




Commercial
Printing




Three
      Months Ended
                  
                  
                  Nine
      Months EndedSeptember
      27, 2008
                  
                  
                  September
      29, 2007
                  
                  
                  September
      27, 2008
                  
                  
                  September
      29, 2007(in
      thousands)
                  
                  
                  (in
      thousands)Segment
      net sales
                  
                  $
                  298,089
                  
                  
                  $
                  327,930
                  
                  
                  $
                  890,904
                  
                  
                  $
                  815,201Segment
      operating income
                  
                  $
                  23,056
                  
                  
                  $
                  7,605
                  
                  
                  $
                  47,598
                  
                  
                  $
                  31,189Operating
      income margin
                  
                  
                  7.7
                  %
                  
                  
                  2.3
                  %
                  
                  
                  5.3
                  %
                  
                  
                  3.8
                  %Restructuring
      and impairment charges
                  
                  $
                  4,395
                  
                  
                  $
                  15,996
                  
                  
                  $
                  10,082
                  
                  
                  $
                  21,922
  Segment
Net Sales




Segment
net sales for our commercial printing segment decreased $29.8 million, or 9.1%,
in the third quarter of 2008, as compared to the third quarter of 2007. This
decrease was primarily due to lower sales (i) of approximately $11.5 million
resulting from plant closures in 2007 and (ii) of approximately $26.0 million
from pricing pressures, volume declines and changes in product mix, primarily
due to general economic conditions, offset in part by higher sales due to
material price increases. This decrease was partially offset by $7.7 million of
sales generated from the integration of Rex into our operations in 2008, as Rex
was not included in our results in the third quarter of 2007.




Segment
net sales for our commercial printing segment increased $75.7 million, or 9.3%,
in the first nine months of 2008, as compared to the first nine months of 2007.
This increase was primarily due to the $163.4 million of sales generated from
the integration of Rex, ColorGraphics and Cadmus into our operations in 2008,
including the impact of sales changes for work transitioned into these acquired
operations from other legacy plants, including two plants we closed in 2007, as
Rex was not included in our results in the first nine months of 2007 and Cadmus
and ColorGraphics were included in our results for less than a full nine month
period in 2007. This increase was partially offset by lower sales (i) of
approximately $39.8 million resulting from other plant closures in 2007 and (ii)
of approximately $47.9 million from pricing pressures, volume declines and
changes in product mix, primarily due to general economic conditions, offset in
part by higher sales due to material price increases and foreign currency
fluctuations.




Segment
Operating Income




Segment
operating income for our commercial printing segment increased $15.5 million, or
203.2%, in the third quarter of 2008, as compared to the third quarter of 2007.
This increase was primarily due to (i) decreased restructuring and impairment
charges of $11.6 million (ii) lower selling, general and administrative expenses
of $6.0 million, primarily due to our cost savings programs, offset in part by
the Rex acquisition, which was not included in our results in the third quarter
of 2007 and (iii) lower amortization expense of $1.1 million. This increase was
offset in part by decreased gross margins of $3.2 million, primarily due to
higher manufacturing costs due to material price increases and higher
distribution costs and lower gross margins due to plant closures, offset in part
by gross margins generated by Rex, as Rex was not included in our results in the
third quarter of 2007.




Segment
operating income for our commercial printing segment increased $16.4 million, or
52.6%, in the first nine months of 2008, as compared to the first nine months of
2007. This increase was primarily due to (i) lower restructuring and impairment
charges of $11.8 million, (ii) increased gross margins of $9.1 million,
primarily due to the acquisition of Rex, ColorGraphics and Cadmus, as Rex was
not included in our results in the first nine months of 2007 and for which
Cadmus and ColorGraphics were included in our results for less than a full nine
month period in 2007, offset in part by higher manufacturing costs due to
material price increases and higher distribution costs and lower gross margins
due to plant closures and (iii) lower amortization expense of $2.4 million. This
increase was offset in part by higher selling, general and administrative
expenses of $6.9 million, primarily due to the acquisition of Rex, ColorGraphics
and Cadmus, as Rex was not included in our results in the first nine months of
2007 and for which Cadmus and ColorGraphics were included in our results for
less than a full nine month period in 2007, offset in part by our cost savings
programs.







38




Corporate Expenses.Corporate
expenses include the costs of running our corporate headquarters. Corporate
expenses in the third quarter of 2008 were slightly higher than the third
quarter of 2007. Corporate expenses were higher in the nine months ended
September 27, 2008, as compared to the nine months ended September 29, 2007,
primarily due to the $6.7 million non-recurring charge incurred for professional
fees in connection with the internal review conducted by our audit
committee.




Restructuring, Impairment and Other
Charges. In the fourth quarter of 2007, we completed our cost savings and
restructuring plan initiated in September 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, in 2007 we implemented cost savings and integration
initiatives related to the 2007 Acquisitions and anticipate substantially
completing the integration of those operations in 2009.  As of
September 27, 2008, our total restructuring liability was $16.4
million.




In the
third quarter of 2008, we incurred $6.9 million of restructuring and impairment
charges, which included $3.9 million of employee separation costs, asset
impairment charges of $0.8 million, equipment moving expenses of $0.4 million,
lease termination expenses of $0.6 million, the decrease of a pension withdrawal
liability of $(0.2) million and building clean-up and other expenses of $1.4
million. During the nine months ended September 27, 2008, we incurred $22.0
million of restructuring, impairment and other charges, which included a $6.7
million non-recurring charge for professional fees related to the internal
review initiated by our audit committee, $7.9 million of employee separation
costs, asset impairment charges, net of $1.5 million, equipment moving expenses
of $1.0 million, lease termination expenses of $2.0 million, the decrease of a
pension withdrawal liability of $(0.2) million and building clean-up and other
expenses of $3.2 million.




In the
third quarter of 2007, we incurred $20.3 million of restructuring and impairment
charges, which included $4.5 million of employee separation costs, asset
impairment charges, net of $7.0 million, equipment moving expenses of $1.1
million, lease termination expenses of $5.2 million, and building clean-up and
other expenses of $2.5 million. During the nine months ended September 29, 2007,
we incurred $32.1 million of restructuring and impairment charges, which
included $8.5 million of employee separation costs, asset impairment charges,
net of $10.3 million, equipment moving expenses of $2.2 million, lease
termination expenses of $5.1 million, a pension withdrawal liability of $1.8
million and building clean-up and other expenses of $4.3 million.




Liquidity
and Capital Resources




Net Cash Provided by Continuing
Operating Activities. Net cash provided by continuing operating
activities was $149.4 million in the first nine months of 2008, which was
primarily due to net income adjusted for non-cash items of $100.4 million and a
decrease in our working capital of $54.5 million. The decrease in our working
capital primarily resulted from a decrease in receivables primarily due to the
timing of sales and collections from our customers, the timing of interest
payments on our debt and an increase in accounts payable primarily due to the
timing of payments to our vendors, offset in part by lower accrued compensation
and other related liabilities due to headcount reductions.




Net cash
provided by continuing operating activities was $59.2 million in the first nine
months of 2007, which was primarily due to net income adjusted for non-cash
items of $97.6 million, offset in part by an increase in our working capital of
$33.5 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.




Net Cash Provided by Discontinued
Operating Activities. Represents the net cash dividends from the Fund
through March 13, 2007.




Net Cash Used in Investing
Activities. Net cash used in investing activities was $70.3 million in
the first nine months of 2008, primarily resulting from the cost of business
acquisitions of $47.2 million, primarily for Rex and capital expenditures of
$37.8 million, offset in part by $18.3 million of cash proceeds from the sale of
property, plant and equipment.




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.






39


Net Cash (Used in) Provided by
Financing Activities. Net cash used in financing activities was $81.1
million in the first nine months of 2008, primarily resulting from the
conversion of our $175.0 million Senior Unsecured Loan, net repayments of our
revolving credit facility of $65.2 million, payments of our other long-term debt
of $16.5 million, our term loans of $5.4 million and $5.3 million for debt
issuance costs on the issuance of our 101⁄2% Notes, which was offset in part by
the proceeds from the issuance of our $175.0 million 101⁄2% Notes and $11.3
million of borrowings of our other long-term debt.




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 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.




Long-Term Debt. Our total
outstanding long-term debt, including current maturities, was approximately $1.4
billion at September 27, 2008, a decrease of $68.6 million from December 29,
2007. This decrease was primarily due to cash flows provided by operating
activities and proceeds from the sale of assets. As of September 27, 2008,
approximately 89% of our outstanding debt was subject to fixed interest rates.
From time to time we may seek to retire our outstanding debt through open market
purchases, privately negotiated transactions or otherwise. Such repurchases, if
any, will depend on prevailing market conditions, our liquidity requirements,
contractual restrictions and other factors. As of November 3, 2008, we had
approximately $102.6 million of borrowing availability under our revolving
credit facility.




101⁄2%
Notes




On June
13, 2008, we issued $175.0 million 101⁄2% Notes to Lehman Brothers Commercial
Paper, Inc. upon the conversion of our $175.0 million Senior Unsecured
Loan.  The 101⁄2% Notes were then sold to qualified institutional buyers
in accordance with Rule 144A, and to certain non-U.S. persons in accordance with
Regulation S under the Securities Act of 1933.  We did not receive any
net proceeds as a result of this transaction.




The 101⁄2%
Notes were issued pursuant to an indenture among us, certain guarantors and U.S.
Bank National Association, as trustee. The 101⁄2% Notes pay interest semi-annually
on February 15 and August 15, commencing August 15, 2008. The 101⁄2% Notes have no
required principal payments prior to their maturity on August 15,
2016.  The 101⁄2% Notes constitute senior unsecured obligations and are
guaranteed by us and substantially all of our North American subsidiaries. We
can redeem the 101⁄2% Notes, in whole or in part, on or after August 15, 2012, at
redemption prices ranging from 100% to 1051⁄4%, plus accrued and unpaid interest.
In addition, at any time prior to August 15, 2011, we may redeem up to 35% of
the aggregate principal amount of the notes originally issued at a redemption
price of 1101⁄2% of the principal amount thereof, plus accrued and unpaid interest
with the net cash proceeds of certain public equity offerings. Each holder of
the 101⁄2% Notes has the right to require us to repurchase such notes at a
purchase price of 101% of the principal amount, plus accrued and unpaid interest
thereon, upon the occurrence of certain events constituting a change in control.
The 101⁄2% Notes contains covenants, representations, and warranties substantially
similar to our existing 77⁄8% Senior Subordinated Notes, due 2013, which we refer
to as the 77⁄8% Notes, and our 83⁄8% Notes, and also include a senior secured debt
to consolidated cash flow covenant.




Supplemental
Indentures




We
entered into supplemental indentures, dated April 16, 2008 and August 20, 2008
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. Simultaneously, we entered into supplemental
indentures, dated April 16, 2008 and August 20, 2008 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.
Additionally, on August 20, 2008 we entered into a supplemental indenture among
us, the guarantors named therein and U.S. Bank National Association, as trustee,
pursuant to which the 101⁄2% Notes were issued.  These supplemental
indentures provide for the addition of acquisition subsidiaries as guarantors of
the 83⁄8%, 77⁄8% and 101⁄2% Notes.




Interest
Rate Swaps




We
currently have interest rate swap agreements to hedge interest rate exposure of
$595.0 million of our notional floating rate debt.






40


As of
September 27, 2008, we were in compliance with all covenants under our debt
agreements.




As of
September 27, 2008, we had outstanding letters of credit of approximately $18.4
million related to performance and payment guarantees. Based on our experience
with these arrangements, we do not believe that any obligations that may arise
will be significant.




Our
current credit ratings are as follows:




Rating
      Agency
            
            Corporate
                Rating
            
            Amended
              Credit
      Facilities
            
            101⁄2%
                Notes
            
            77⁄8%
                Notes
            
            83⁄8%
                Notes
            
            Last
      UpdateStandard
      & Poor’s
            
            BB-
            
            BB+
            
            BB-
            
            B
            
            B
            
            October
      2008Moody’s
            
            B1
            
            Ba2
            
            B2
            
            B3
            
            B3
            
            June
      2008




The terms
of our existing debt do not have any rating triggers that impact our funding. We
do not believe that our current ratings will impact our ability to raise
additional capital. 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 for the next 12 months;
however, this cannot be assured.





Share Repurchase Plan. Our
Board of Directors authorized a $15 million share repurchase program of our
common stock, which we refer to as the Share Repurchase Plan. The Share
Repurchase Plan is effective for 12 months and may be limited or terminated at
any time without prior notice. Share repurchases under the Share Repurchase Plan
may be made through open-market and privately negotiated transactions within the
governing limits of our credit agreement and bond indentures. The timing and
actual number of shares, if any, that we actually repurchase will depend on a
variety of factors including price, Cenveo and/or regulatory requirements,
and market conditions.




Off-Balance Sheet
Arrangements. It is not our business practice to enter into off-balance
sheet arrangements. Accordingly, as of September 27, 2008, we do not have any
off-balance sheet arrangements.




Guarantees. In connection with the
disposition of certain operations, we have indemnified the purchasers for
certain contingencies as of the date of disposition. We have accrued the
estimated probable cost of these contingencies.




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. In addition, several envelope market segments and
certain segments of the direct mail market have historically experienced
seasonality with a higher percentage of volume of products sold to these markets
occurring during the fourth quarter of the calendar year. This seasonality is
due to the increase in sales to the direct mail market related to holiday
purchases. As a result of these seasonal variations, some of our operations
operate at or near capacity at certain times throughout the year.




New
Accounting Pronouncements




We are
required to adopt certain new accounting pronouncements. See Note 1 to our
condensed consolidated financial statements included herein.




Available
Information




Our
Internet address is: www.cenveo.com. We make available free of charge through
our website our 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 SEC. 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.





41





Item
3.  Quantitative and Qualitative Disclosures About Market Risk




We are
exposed to market risks such as changes in interest and foreign currency
exchange rates, which may adversely affect results of operations and financial
position. Risks from interest rate fluctuations and changes in foreign currency
exchange rates are managed 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 on this debt is LIBOR plus a margin. At
September 27, 2008, we had variable rate debt outstanding of $156.5 million,
after considering our interest rate swaps. A 1% increase in LIBOR on debt
outstanding subject to variable interest rates would increase our annual
interest expense by approximately $1.6 million.




We have
foreign operations, primarily in Canada, and thus are exposed to market risk for
changes in foreign currency exchange rates. For the three months ended September
27, 2008, a uniform 10% strengthening of the U.S. dollar relative to the local
currency of our foreign operations would have resulted in a decrease in sales
and operating income of approximately $2.1 million and $0.1 million,
respectively. For the nine months ended September 27, 2008, a uniform 10%
strengthening of the U.S. dollar relative to the local currency of our foreign
operations would have resulted in a decrease in sales and operating income of
approximately $6.5 million and $0.4 million, respectively. The effects of
foreign currency exchange rates on future results would also be impacted by
changes in sales levels or local currency prices.




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 concluded that our disclosure controls and procedures were
effective as of September 27, 2008 in order to provide reasonable assurance that
information required to be disclosed by the Company in its filings under the
Exchange Act was recorded, processed, summarized and reported within the time
periods specified in the rules and forms of the Securities and Exchange
Commission.




Changes
in Internal Control over Financial Reporting




There
were no changes in our internal control over financial reporting during the
quarter ended September 27, 2008 that have materially affected or are reasonably
likely to materially affect, our internal control over financial
reporting.




Inherent
Limitations on Effectiveness of Controls




Our
management, including our Chief Executive Officer and our Chief Financial
Officer, does not expect that our disclosure controls or our internal control
over financial reporting will prevent or detect all errors and all fraud. A
control system, no matter how well designed and operated, can provide only
reasonable, not absolute, assurance that the control system’s objectives will be
met. Our disclosure controls and procedures are designed to provide reasonable
assurance of achieving their objectives. The design of a control system must
reflect the fact that there are resource constraints, and the benefits of
controls must be considered relative to their costs. Further, because of the
inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that misstatements due to error or fraud will not
occur or that all control issues and instances of fraud, if any, within the
Company have been detected. These inherent limitations include the realities
that judgments in decision-making can be faulty and that breakdowns can occur
because of simple errors or mistakes. Controls can also be circumvented by the
individual acts of some persons, by collusion of two or more people, or by
management override of 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 29, 2007, 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.















43




Item
6.  Exhibits


Exhibit
              Number
            
            
            Description2.1
            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 March 31,
      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 March 31,
  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, 2007.3.5*
            Registration
      Statement on Form S-8 dated September 11, 2008 registering shares under
      the Cenveo, Inc. 2007 Long-Term Equity Incentive Plan, and filed with the
      Securities & Exchange Commission on September 11,
  2008.3.6*
            Registration
      Statement on Form S-8 dated September 11, 2008 de-registering shares under
      the Cenveo, Inc. 2001 Long-Term Equity Incentive Plan, and filed with the
      Securities & Exchange Commission on September 11,
  2008.4.1
            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% 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.


44




Exhibit
              Number
            Description4.5
            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—incorporated by reference to Exhibit 4.6 to registrant’s quarterly
      report on Form 10-Q for the quarter ended September 29,
    2007.4.7
            Sixth
      Supplemental Indenture, dated as of April 16, 2008 among Cenveo
      Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein
      and U.S. Bank National Association, as Trustee, to the Indenture dated as
      of February 4, 2004 relating to the 77⁄8% Senior Subordinated Notes due
      2013—incorporated by reference to Exhibit 4.7 to registrant’s quarterly
      report on Form 10-Q for the quarter ended June 28,
2008.4.8*
            Seventh
      Supplemental Indenture, dated as of August 20, 2008 among Cenveo
      Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein
      and U.S. Bank National Association, as Trustee, to the Indenture dated as
      of February 4, 2004 relating to the 77⁄8% Senior Subordinated Notes due
      2013.4.9
            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,
      2004.4.10
            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,
      2004.4.11
            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, 2005.4.12
            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,
  2006.4.13
            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.






45




Exhibit
              Number
            Description





4.14
            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,
2007.4.15
            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—incorporated by reference to Exhibit 4.13 to registrant’s
      quarterly report on Form 10-Q for the quarter ended September 29,
      2007.4.16
            Sixth
      Supplemental Indenture, dated as of November 7, 2007, to the Indenture
      dated as of June 15, 2004, among Cenveo Corporation (as successor to
      Cadmus Communications Corporation), the Guarantors named therein and U.S.
      Bank National Association (successor to Wachovia Bank, National
      Association), as Trustee, relating to the 83⁄8% Senior Subordinated Notes
      due 2014—incorporated by reference to Exhibit 4.12 to registrant’s annual
      report on Form 10-K for the year ended December 29,
  2007.4.17
            Seventh
      Supplemental Indenture, dated as of April 16, 2008, to the Indenture dated
      as of June 15, 2004, among Cenveo Corporation (as successor to Cadmus
      Communications Corporation), the Guarantors named therein and U.S. Bank
      National Association (successor to Wachovia Bank, National Association),
      as Trustee, relating to the 83⁄8% Senior Subordinated Notes due
      2014—incorporated by reference to Exhibit 4.16 to registrant’s quarterly
      report on Form 10-Q for the quarter ended June 28,
2008.4.18*
            Eighth
      Supplemental Indenture, dated as of August 20, 2008, to the Indenture
      dated as of June 15, 2004, among Cenveo Corporation (as successor to
      Cadmus Communications Corporation), the Guarantors named therein and U.S.
      Bank National Association (successor to Wachovia Bank, National
      Association), as Trustee, relating to the 83⁄8% Senior Subordinated Notes
      due 2014.4.19
            Indenture,
      dated as of June 13, 2008, between Cenveo Corporation and U.S. Bank
      National Association, as Trustee, relating to the 101⁄2% Notes of Cenveo
      Corporation—incorporated by reference to Exhibit 4.1 to registrant’s
      current report on Form 8-K dated (date of earliest event reported) June 9,
      2008, filed June 13, 2008.4.20
            Guarantee
      by Cenveo, Inc. and the other guarantors named therein relating to the
      101⁄2% Notes of Cenveo Corporation—incorporated by reference to Exhibit 4.2
      to registrant’s current report on Form 8-K dated (date of earliest event
      reported) June 9, 2008, filed June 13, 2008.4.21*
            First
      Supplemental Indenture, dated as of August 20, 2008, to the Indenture of
      June 13, 2008 between Cenveo Corporation and U.S. Bank National
      Association, as Trustee, relating to the 101⁄2% Notes of Cenveo
      Corporation.





4.22
            Registration
      Rights Agreement dated as June 13, 2008, among Cenveo Corporation, Cenveo
      Inc., the other guarantors named therein and Lehman Brothers
      Inc.—incorporated by reference to Exhibit 10.1 to registrant’s current
      report on Form 8-K dated (date of earliest event reported) June 9, 2008,
      filed June 13, 2008.31.1*
            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.






46




Exhibit
              Number
            Description32.1*
            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.





47




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 5, 2008.







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)