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, 2008March 28, 2009
Commission file number 1-12551
CENVEO, INC.
(Exact name of Registrant as specified in its charter.)
COLORADO | 84-1250533 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| |
ONE CANTERBURY GREEN 201 BROAD STREET | |
STAMFORD, CT | 06901 |
(Address of principal executive offices) | (Zip Code) |
| |
203-595-3000 |
(Registrant’s telephone number, including area code) |
Indicate by check mark whether the registrant (i)(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (ii)(2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o 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 o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of November 3, 2008May 4, 2009 the registrant had 54,191,89754,606,238 shares of common stock outstanding.
PART I. FINANCIAL INFORMATION
| Item 1. Financial Statements |
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
| | September 27, 2008 | | | December 29, 2007 | | | March 28, 2009 | | | January 3, 2009 | |
Assets | | (Unaudited) | | | | | | | | | | |
Current assets: | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 13,819 | | | $ | 15,882 | | | $ | 10,207 | | | $ | 10,444 | |
Accounts receivable, net | | | 309,327 | | | | 344,634 | | | | 249,998 | | | | 270,145 | |
Inventories | | | 165,916 | | | | 162,908 | | | | 149,653 | | | | 159,569 | |
Prepaid and other current assets | | | 62,250 | | | | 73,358 | | | | 68,544 | | | | 74,890 | |
Total current assets | | | 551,312 | | | | 596,782 | | | | 478,402 | | | | 515,048 | |
| | | | | | | | | | | | | | | | |
Property, plant and equipment, net | | | 433,358 | | | | 428,341 | | | | 409,831 | | | | 420,457 | |
Goodwill | | | 681,972 | | | | 669,802 | | | | 311,183 | | | | 311,183 | |
Other intangible assets, net | | | 279,205 | | | | 270,622 | | | | 274,628 | | | | 276,944 | |
Other assets, net | | | 29,557 | | | | 37,175 | | | | 27,401 | | | | 28,482 | |
Total assets | | $ | 1,975,404 | | | $ | 2,002,722 | | | $ | 1,501,445 | | | $ | 1,552,114 | |
| | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | |
Liabilities and Shareholders’ Deficit | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | 16,477 | | | $ | 18,752 | | | $ | 16,481 | | | $ | 24,314 | |
Accounts payable | | | 181,716 | | | | 165,458 | | | | 181,422 | | | | 174,435 | |
Accrued compensation and related liabilities | | | 43,334 | | | | 47,153 | | | | 32,953 | | | | 37,319 | |
Other current liabilities | | | 90,061 | | | | 79,554 | | | | 83,553 | | | | 88,870 | |
Total current liabilities | | | 331,588 | | | | 310,917 | | | | 314,409 | | | | 324,938 | |
| | | | | | | | | | | | | | | | |
Long-term debt | | | 1,359,522 | | | | 1,425,885 | | | | 1,244,741 | | | | 1,282,041 | |
Deferred income taxes | | | 62,470 | | | | 55,181 | | | | 25,955 | | | | 26,772 | |
Other liabilities | | | 100,855 | | | | 111,413 | | | | 137,717 | | | | 139,318 | |
Commitments and contingencies | | | | | | | | | | | | | | | | |
Shareholders’ equity: | | | | | | | | | |
Shareholders’ deficit: | | | | | | | | | |
Preferred stock | | | — | | | | — | | | | — | | | | — | |
Common stock | | | 541 | | | | 537 | | | | 545 | | | | 542 | |
Paid-in capital | | | 267,126 | | | | 254,241 | | | | 274,852 | | | | 271,821 | |
Retained deficit | | | (137,343 | ) | | | (148,939 | ) | | | (451,277 | ) | | | (446,966 | ) |
Accumulated other comprehensive loss | | | (9,355 | ) | | | (6,513 | ) | | | (45,497 | ) | | | (46,352 | ) |
Total shareholders’ equity | | | 120,969 | | | | 99,326 | | |
Total liabilities and shareholders’ equity | | $ | 1,975,404 | | | $ | 2,002,722 | | |
Total shareholders’ deficit | | | | (221,377 | ) | | | (220,955 | ) |
Total liabilities and shareholders’ deficit | | | $ | 1,501,445 | | | $ | 1,552,114 | |
See notes to condensed consolidated financial statements.
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(Unaudited)(unaudited)
| | Three Months Ended | | | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
| | | | | As Restated | | | | | | As Restated | |
Net sales | | $ | 522,705 | | | $ | 550,601 | | | $ | 1,581,534 | | | $ | 1,462,275 | |
Cost of sales | | | 406,908 | | | | 436,109 | | | | 1,260,612 | | | | 1,170,862 | |
Selling, general and administrative | | | 58,455 | | | | 63,650 | | | | 184,821 | | | | 168,173 | |
Amortization of intangible assets | | | 2,293 | | | | 2,819 | | | | 6,747 | | | | 7,245 | |
Restructuring, impairment and other charges | | | 6,873 | | | | 20,312 | | | | 22,047 | | | | 32,094 | |
Operating income | | | 48,176 | | | | 27,711 | | | | 107,307 | | | | 83,901 | |
Gain on sale of non-strategic business | | | — | | | | (189 | ) | | | — | | | | (189 | ) |
Interest expense, net | | | 26,795 | | | | 25,283 | | | | 79,948 | | | | 63,091 | |
Loss (gain) on early extinguishment of debt | | | (371 | ) | | | 51 | | | | 3,871 | | | | 9,256 | |
Other expense (income), net | | | (695 | ) | | | 899 | | | | 429 | | | | 2,065 | |
Income from continuing operations before income taxes | | | 22,447 | | | | 1,667 | | | | 23,059 | | | | 9,678 | |
Income tax expense (benefit) | | | 10,060 | | | | (844 | ) | | | 10,349 | | | | 2,818 | |
Income from continuing operations | | | 12,387 | | | | 2,511 | | | | 12,710 | | | | 6,860 | |
(Loss) income from discontinued operations, net of taxes | | | (59 | ) | | | (810 | ) | | | (1,114 | ) | | | 15,142 | |
Net income | | $ | 12,328 | | | $ | 1,701 | | | $ | 11,596 | | | $ | 22,002 | |
Income (loss) per share - basic: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.23 | | | $ | 0.04 | | | $ | 0.24 | | | $ | 0.13 | |
Discontinued operations | | | — | | | | (0.01 | ) | | | (0.02 | ) | | | 0.28 | |
Net income | | $ | 0.23 | | | $ | 0.03 | | | $ | 0.22 | | | $ | 0.41 | |
Income (loss) per share - diluted: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.23 | | | $ | 0.04 | | | $ | 0.23 | | | $ | 0.12 | |
Discontinued operations | | | — | | | | (0.01 | ) | | | (0.02 | ) | | | 0.28 | |
Net income | | $ | 0.23 | | | $ | 0.03 | | | $ | 0.21 | | | $ | 0.40 | |
Weighted average shares: | | | | | | | | | | | | | | | | |
Basic | | | 53,897 | | | | 53,572 | | | | 53,796 | | | | 53,545 | |
Diluted | | | 54,174 | | | | 54,531 | | | | 53,994 | | | | 54,614 | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
Net sales | | $ | 412,100 | | | $ | 534,328 | |
Cost of sales | | | 348,316 | | | | 436,298 | |
Selling, general and administrative | | | 52,515 | | | | 63,126 | |
Amortization of intangible assets | | | 2,316 | | | | 2,175 | |
Restructuring, impairment and other charges | | | 8,732 | | | | 9,749 | |
Operating income | | | 221 | | | | 22,980 | |
Interest expense, net | | | 22,545 | | | | 26,978 | |
Gain on early extinguishment of debt | | | (17,642 | ) | | | — | |
Other expense, net | | | 35 | | | | 461 | |
Loss from continuing operations before income taxes | | | (4,717 | ) | | | (4,459 | ) |
Income tax benefit | | | (530 | ) | | | (1,716 | ) |
Loss from continuing operations | | | (4,187 | ) | | | (2,743 | ) |
Loss from discontinued operations, net of taxes | | | (124 | ) | | | (656 | ) |
Net loss | | $ | (4,311 | ) | | $ | (3,399 | ) |
Loss per share – basic and diluted: | | | | | | | | |
Continuing operations | | $ | (0.08 | ) | | $ | (0.05 | ) |
Discontinued operations | | | — | | | | (0.01 | ) |
Net loss | | $ | (0.08 | ) | | $ | (0.06 | ) |
Weighted average shares: | | | | | | | | |
Basic and diluted | | | 54,352 | | | | 53,715 | |
See notes to condensed consolidated financial statements.
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)(unaudited)
| | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | |
| | | | | As Restated | |
Cash flows from operating activities: | | | | | | |
Net income | | $ | 11,596 | | | $ | 22,002 | |
Adjustments 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 | | | | 820 | |
Depreciation and amortization, excluding non-cash interest expense | | | 55,515 | | | | 46,427 | |
Non-cash interest expense, net | | | 1,305 | | | | 1,044 | |
Loss on early extinguishment of debt | | | 3,871 | | | | 9,256 | |
Stock-based compensation provision | | | 12,940 | | | | 7,166 | |
Non-cash restructuring, impairment and other charges | | | 5,124 | | | | 17,153 | |
Deferred income taxes | | | 6,709 | | | | 4,082 | |
Gain on sale of non-strategic business | | | — | | | | (189 | ) |
Gain on sale of assets | | | (4,378 | ) | | | (383 | ) |
Other non-cash charges, net | | | 6,599 | | | | 6,200 | |
Changes 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 | | | | 59,202 | |
Net cash provided by discontinued operating activities | | | — | | | | 2,198 | |
Net cash provided by operating activities | | | 149,414 | | | | 61,400 | |
Cash 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 | | | | 4,851 | |
Proceeds from divestitures, net | | | — | | | | 226 | |
Net cash used in investing activities of continuing operations | | | (70,328 | ) | | | (650,873 | ) |
Proceeds from the sale of discontinued operations | | | — | | | | 73,628 | |
Net 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 | ) | | | 92,500 | |
Repayment 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 8⅜% senior subordinated notes | | | — | | | | (20,880 | ) |
Repayment of 9⅝% 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 10½% senior notes | | | 175,000 | | | | — | |
Proceeds from issuance of term loans | | | — | | | | 720,000 | |
Proceeds from senior unsecured loan | | | — | | | | 175,000 | |
Proceeds from issuance of other long-term debt | | | 11,338 | | | | — | |
Proceeds from exercise of stock options | | | 1,873 | | | | 300 | |
Net cash (used in) provided by financing activities | | | (81,149 | ) | | | 516,819 | |
Effect of exchange rate changes on cash and cash equivalents of continuing operations | | — | | | | 180 | |
Net (decrease) increase in cash and cash equivalents | | | (2,063 | ) | | | 1,154 | |
Cash and cash equivalents at beginning of period | | | 15,882 | | | | 10,558 | |
Cash and cash equivalents at end of period | | $ | 13,819 | | | $ | 11,712 | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
Cash flows from operating activities: | | | | | | |
Net loss | | $ | (4,311 | ) | | $ | (3,399 | ) |
Adjustments to reconcile net loss to net cash provided by operating activities: | | | | | | | | |
Loss from discontinued operations, net of taxes | | | 124 | | | | 656 | |
Depreciation and amortization, excluding non-cash interest expense | | | 17,450 | | | | 18,013 | |
Non-cash interest expense, net | | | 485 | | | | 390 | |
Gain on early extinguishment of debt | | | (17,642 | ) | | | — | |
Stock-based compensation provision | | | 3,462 | | | | 2,692 | |
Non-cash restructuring, impairment and other charges | | | 3,334 | | | | 3,456 | |
Deferred income taxes | | | (1,154 | ) | | | (1,775 | ) |
Gain on sale of assets | | | (47 | ) | | | (294 | ) |
Other non-cash charges, net | | | 1,556 | | | | 3,140 | |
Changes in operating assets and liabilities: | | | | | | | | |
Accounts receivable | | | 19,329 | | | | 35,195 | |
Inventories | | | 9,040 | | | | (10,106 | ) |
Accounts payable and accrued compensation and related liabilities | | | 4,051 | | | | (3,442 | ) |
Other working capital changes | | | 2,268 | | | | 12,955 | |
Other, net | | | (1,527 | ) | | | (3,050 | ) |
Net cash provided by operating activities | | | 36,418 | | | | 54,431 | |
Cash flows from investing activities: | | | | | | | | |
Capital expenditures | | | (9,150 | ) | | | (9,097 | ) |
Proceeds from sale of property, plant and equipment | | | 363 | | | | 348 | |
Net cash used in investing activities | | | (8,787 | ) | | | (8,749 | ) |
Cash flows from financing activities: | | | | | | | | |
Repayment of term loans | | | (19,328 | ) | | | (1,800 | ) |
Repayment of 8⅜% senior subordinated notes | | | (18,959 | ) | | | — | |
Repayment of 10½% senior notes | | | (3,250 | ) | | | — | |
Repayment of 7⅞% senior subordinated notes | | | (3,125 | ) | | | — | |
Repayments of other long-term debt | | | (2,242 | ) | | | (1,806 | ) |
Purchase and retirement of common stock upon vesting of RSUs | | | (431 | ) | | | — | |
Payment of fees on early extinguishment of debt | | | (94 | ) | | | — | |
(Repayments) borrowings under revolving credit facility, net | | | 19,750 | | | | (45,200 | ) |
Proceeds from exercise of stock options | | | — | | | | 288 | |
Net cash used in financing activities | | | (27,679 | ) | | | (48,518 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | (189 | ) | | | 9 | |
Net decrease in cash and cash equivalents | | | (237 | ) | | | (2,827 | ) |
Cash and cash equivalents at beginning of year | | | 10,444 | | | | 15,882 | |
Cash and cash equivalents at end of quarter | | $ | 10,207 | | | $ | 13,055 | |
See notes to condensed consolidated financial statements.
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 periodsperiod ended September 27, 2008.March 28, 2009. The results of operations for the three and nine month periodsperiod ended September 27, 2008March 28, 2009 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, 2007January 3, 2009 (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.quarter. The reporting periods ending on September 27,March 28, 2009 and March 29, 2008 and September 29, 2007 consist of 12 and 13 weeks. Prior to fiscal 2008, the Company reported its results as ending on the calendar quarter end.weeks, respectively.
New Accounting Pronouncements
SFAS 157
In September 2006,Effective January 4, 2009, the Financial Accounting Standards Board (the “FASB”) issuedCompany adopted Statement of Financial Accounting StandardStandards (“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.
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 January 4, 2009 for the beginning ofCompany. In accordance with the Company’s 2009 fiscal year. The Company will adopttransition guidance in SFAS 141R, at the beginningCompany recorded a charge in the fourth quarter of 2008 to write-off acquisition-related costs. Acquisition-related costs are included in selling, general and administrative expenses in its 2009 fiscal year, as required, and is currently evaluatingcondensed consolidated statement of operations. SFAS 141R did not have a material impact on the impactCompany’s condensed consolidated statement of such adoption on its financial statements.operations for the three months ended March 28, 2009.
SFAS 160
In December 2007,Effective January 4, 2009, the FASB issuedCompany adopted 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 ofhad no impact on the Company’s 2009 fiscal year. The Company is currently evaluating the impact of adopting SFAS 160.condensed consolidated financial statements at January 4, 2009.
SFAS 161
In March 2008,Effective January 4, 2009, the FASB issuedCompany adopted 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 atactivities. SFAS 161 had no impact on 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.at January 4, 2009.
2. Stock-Based Compensation
The following tables summarizeCompany did not issue any form of stock-based compensation in the effectsfirst quarter of 2009. The only changes to the Company’s stock-based compensation awards from the amounts presented as of January 3, 2009 were the vesting of 445,063 restricted stock units for shares of the restatement onCompany’s common stock and the line items includedcancellation or forfeiture of 20,000 stock options and 13,098 restricted share units.
Total stock-based compensation expense recognized in selling, general and administrative expenses in the balance sheet,Company’s condensed consolidated statements of operations was $3.5 million and cash flows in the Company’s Form 10-Q$2.7 million for the quarterthree months ended SeptemberMarch 28, 2009 and March 29, 2007.2008, respectively.
Condensed consolidated balance sheet line items (in thousands): | |
| | | |
| | September 29, 2007 | |
| | As Reported | | | As Restated | |
Accounts receivable, net | | $ | 345,858 | | | $ | 344,179 | |
Inventories | | | 175,329 | | | | 172,502 | |
Prepaid and other current assets | | | 48,384 | | | | 49,388 | |
Total current assets | | | 585,561 | | | | 582,059 | |
Total assets | | | 2,025,787 | | | | 2,022,285 | |
| | | | | | | | |
Accounts payable | | | 169,846 | | | | 171,857 | |
Other current liabilities | | | 88,054 | | | | 87,413 | |
Total current liabilities | | | 334,440 | | | | 335,810 | |
Other liabilities | | | 97,208 | | | | 98,118 | |
Retained deficit | | | (161,938 | ) | | | (167,720 | ) |
Total shareholders' equity | | | 87,474 | | | | 81,692 | |
Total liabilities and shareholders' equity | | | 2,025,787 | | | | 2,022,285 | |
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, 2007 | |
| | As Reported | | | As Restated | | | As Reported | | | As Restated | |
Cost of sales | | $ | 433,774 | | | $ | 436,109 | | | $ | 1,166,483 | | | $ | 1,170,862 | |
Operating income | | | 30,046 | | | | 27,711 | | | | 88,280 | | | | 83,901 | |
Income from continuing operations before taxes | | | 4,002 | | | | 1,667 | | | | 14,054 | | | | 9,678 | |
Income tax expense (benefit) | | | 160 | | | | (844 | ) | | | 4,698 | | | | 2,818 | |
Income from continuing operations | | | 3,842 | | | | 2,511 | | | | 9,356 | | | | 6,860 | |
Net income | | | 3,032 | | | | 1,701 | | | | 24,498 | | | | 22,002 | |
Income per share – basic: | | | | | | | | | | | | | | | | |
Continuing operations | | | 0.07 | | | | 0.04 | | | | 0.18 | | | | 0.13 | |
Net income | | | 0.06 | | | | 0.03 | | | | 0.46 | | | | 0.41 | |
Income per share – diluted: | | | | | | | | | | | | | | | | |
Continuing operations | | | 0.07 | | | | 0.04 | | | | 0.17 | | | | 0.12 | |
Net income | | | 0.06 | | | | 0.03 | | | | 0.45 | | | | 0.40 | |
3. Inventories
Condensed consolidated statement of cash flows line items (in thousands): | |
| | | |
| | Nine Months Ended | |
| | September 29, 2007 | |
| | As Reported | | | As Restated | |
Net income | | $ | 24,498 | | | $ | 22,002 | |
Accounts 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 | | | | 59,202 | |
Net cash provided by discontinued operating activities | | | 1,394 | | | | 2,198 | |
Inventories by major category are as follows (in thousands): | | March 28, 2009 | | | January 3, 2009 | |
Raw materials | | $ | 63,166 | | | $ | 67,236 | |
Work in process | | | 22,734 | | | | 27,011 | |
Finished goods | | | 63,753 | | | | 65,322 | |
| | $ | 149,653 | | | $ | 159,569 | |
4. Property, Plant and Equipment
| Property, plant and equipment are as follows (in thousands): |
| | March 28, 2009 | | | January 3, 2009 | |
Land and land improvements | | $ | 21,412 | | | $ | 21,421 | |
Buildings and building improvements | | | 111,142 | | | | 111,208 | |
Machinery and equipment | | | 618,256 | | | | 622,929 | |
Furniture and fixtures | | | 12,772 | | | | 12,589 | |
Construction in progress | | | 16,229 | | | | 14,558 | |
| | | 779,811 | | | | 782,705 | |
Accumulated depreciation | | | (369,980 | ) | | | (362,248 | ) |
| | $ | 409,831 | | | $ | 420,457 | |
5. Other Intangible Assets
Other intangible assets are as follows (in thousands):
| | March 28, 2009 | | | January 3, 2009 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Intangible assets with determinable lives: | | | | | | | | | | | | | | | | | | |
Customer relationships | | $ | 159,206 | | | $ | (31,825 | ) | | $ | 127,381 | | | $ | 159,206 | | | $ | (29,875 | ) | | $ | 129,331 | |
Trademarks and tradenames | | | 21,011 | | | | (4,307 | ) | | | 16,704 | | | | 21,011 | | | | (4,089 | ) | | | 16,922 | |
Patents | | | 3,028 | | | | (1,817 | ) | | | 1,211 | | | | 3,028 | | | | (1,755 | ) | | | 1,273 | |
Non-compete agreements | | | 2,456 | | | | (1,712 | ) | | | 744 | | | | 2,456 | | | | (1,634 | ) | | | 822 | |
Other | | | 768 | | | | (400 | ) | | | 368 | | | | 768 | | | | (392 | ) | | | 376 | |
| | | 186,469 | | | | (40,061 | ) | | | 146,408 | | | | 186,469 | | | | (37,745 | ) | | | 148,724 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | | | | | | | | | |
Trademarks | | | 127,500 | | | | — | | | | 127,500 | | | | 127,500 | | | | — | | | | 127,500 | |
Pollution credits | | | 720 | | | | — | | | | 720 | | | | 720 | | | | — | | | | 720 | |
Total | | $ | 314,689 | | | $ | (40,061 | ) | | $ | 274,628 | | | $ | 314,689 | | | $ | (37,745 | ) | | $ | 276,944 | |
As of March 28, 2009, the weighted average remaining amortization period for customer relationships was 17 years, trademarks and tradenames was 24 years, patents was five years, non-compete agreements was three years and other was 27 years.
Total pre-tax amortization expense for each of the five years in the period ending March 29, 2014 is estimated to be as follows: $9.5 million, $9.4 million, $9.3 million, $9.1 million and $8.9 million, respectively.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Long-Term Debt
Long-term debt is as follows (in thousands):
| | March 28, 2009 | | | January 3, 2009 | |
Term loan, due 2013 | | $ | 688,572 | | | $ | 707,900 | |
7⅞% senior subordinated notes, due 2013 | | | 298,370 | | | | 303,370 | |
10½% senior notes, due 2016 | | | 170,000 | | | | 175,000 | |
8⅜% senior subordinated notes, due 2014 ($39.6 million and $72.3 million outstanding principal amount as of March 28, 2009 and January 3, 2009, respectively) | | | 40,268 | | | | 73,581 | |
Revolving credit facility, due 2012 | | | 27,750 | | | | 8,000 | |
Other | | | 36,262 | | | | 38,504 | |
| | | 1,261,222 | | | | 1,306,355 | |
Less current maturities | | | (16,481 | ) | | | (24,314 | ) |
Long-term debt | | $ | 1,244,741 | | | $ | 1,282,041 | |
Extinguishments
During the first quarter of 2009, the Company purchased in the open market and retired principal amounts of approximately $32.7 million, $5.0 million and $5.0 million of its 8⅜% senior subordinated notes due 2014 (the “8⅜% Notes”), 10½% senior notes due 2016 (the “10½% Notes”) and 7⅞% senior subordinated notes due 2013 (the “7⅞% Notes”), respectively, for approximately $19.0 million, $3.3 million and $3.1 million, respectively, plus accrued and unpaid interest. In connection with these repurchases, the Company recorded gains on early extinguishment of debt of $17.6 million, which included the write-off of $0.6 million of fair value increase related to the 8⅜% Notes, $0.2 million of previously unamortized debt issuance costs and fees paid of $0.1 million. These open market purchases were made within permitted restricted payment limits under the Company’s debt agreements.
From March 29, 2009 through April 8, 2009, the Company purchased in the open market and retired principal amounts of approximately $7.4 million of its 8⅜% Notes and approximately $2.1 million of its 7⅞% Notes for approximately $4.1 million and $1.2 million, respectively, plus accrued and unpaid interest. In connection with these purchases, the Company will record gains on early extinguishment of debt of approximately $4.3 million during the second quarter of 2009. These open market purchases were made within permitted restricted payment limits under the Company’s debt agreements at the time of purchase.
Debt Compliance and Amendment of Amended Credit Facilities
The Company’s revolving credit facility due 2012 (the “Revolving Credit Facility”), and its term loans and delayed-draw term loans due 2013 (the “Term Loans” and collectively with the Revolving Credit Facility the “Amended Credit Facilities”), contain two financial covenants that must be complied with: a minimum consolidated interest coverage ratio (“Interest Coverage Covenant”) and a maximum consolidated leverage ratio (“Leverage Covenant”). The Company was in compliance with all debt agreement covenants as of March 28, 2009.
On April 24, 2009, the Company amended its Amended Credit Facilities with the consent of the lenders thereunder, which included, among other things, modifications to the Leverage Covenant and the Interest Coverage Covenant. The Company’s Leverage Covenant, which it must be in pro forma compliance with at all times, has been increased through March 31, 2010, and then proceeds to step down through the end of the term of the Amended Credit Facilities. The Company’s Interest Coverage Covenant, which it must be in compliance with on a quarterly basis, has been reduced through December 31, 2009, and then proceeds to step up through the end of the term of the Amended Credit Facilities. Additionally, the calculations of the two financial covenants discussed above have been modified to permit the adding back of certain amounts.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. Long-Term Debt (Continued)
3. Stock-Based Compensation
Total share-based compensation expense recognizedAs conditions to the amendment, the Company agreed, among other things, to increase the pricing on all outstanding Revolving Credit Facility balances and Term Loans to include interest at the three-month London Interbank Offered Rate (LIBOR) plus a spread ranging from 400 basis points to 450 basis points, depending on the quarterly Leverage Covenant then in selling, generaleffect. Previously, the Company’s LIBOR borrowing spread under the Revolving Credit Facility ranged from 175 basis points to 200 basis points, based upon the Leverage Covenant, and administrative expensesthe LIBOR borrowing spread on the Term Loans was 200 basis points. Further, the amendment: (i) reduces the Revolving Credit Facility from $200.0 million to $172.5 million; (ii) increases the unfunded commitment fee paid to revolving credit lenders from 50 basis points to 75 basis points; (iii) eliminates the Company’s ability to request a $300.0 million incremental term loan facility; (iv) limits new unsecured debt and debt assumed from acquisitions; (v) eliminates the restricted payments basket while leverage exceeds certain thresholds; (vi) requires that certain additional financial information be delivered; (vii) lowers the annual amount that can be spent on capital expenditures; and (viii) increases certain mandatory prepayments. An amendment fee of 50 basis points was paid to all consenting lenders who approved the amendment. Except as provided 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 summaryamendment, all other provisions of the Company’s outstanding stock options as ofAmended Credit Facilities remain in full force 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 | | $ | 15.14 | | | | | | | |
Granted | | | | — | | | — | | | | | | | |
Exercised | | | | (209,880 | ) | | 8.93 | | | | | $ | 516 | |
Forfeited | | | | (474,125 | ) | | 17.50 | | | | | | | |
Outstanding at September 27, 2008 | | | | 3,165,975 | | | 15.19 | | | 4.2 | | $ | 136 | |
Exercisable at September 27, 2008 | | | | 1,727,225 | | | 13.98 | | | 4.1 | | $ | 136 | |
effect.
__________________
(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.
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 | | $ | 14.71 | | | | | | | |
Granted | | | | 780,000 | | | 17.89 | | | | | | | |
Exercised | | | | (32,925 | ) | | 9.10 | | | | | $ | 439 | |
Forfeited | | | | (80,000 | ) | | 20.55 | | | | | | | |
Outstanding at September 29, 2007 | | | | 3,993,855 | | | 15.26 | | | 5.2 | | $ | 25,435 | |
Exercisable 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.
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 | | | RSUs | |
| | Shares | | | Grant Date Fair Value | | | Shares | | | Grant Date Fair Value | |
Unvested at December 29, 2007 | | | 100,000 | | | $ | 9.52 | | | | 1,132,150 | | | $ | 18.36 | |
Granted | | | — | | | | — | | | | 1,930,410 | | | | 9.77 | |
Vested | | | (50,000 | ) | | | 9.52 | | | | (292,400 | ) | | | 18.02 | |
Forfeited | | | — | | | | — | | | | (113,750 | ) | | | 19.03 | |
Unvested 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 | | | RSUs | |
| | Shares | | | Grant Date Fair Value | | | Shares | | | Grant Date Fair Value | |
Unvested at January 1, 2007 | | | 150,000 | | | $ | 9.52 | | | | 607,150 | | | $ | 19.19 | |
Granted | | | — | | | | — | | | | 761,750 | | | | 17.89 | |
Vested | | | (50,000 | ) | | | 9.52 | | | | (173,900 | ) | | | 20.55 | |
Forfeited | | | — | | | | — | | | | — | | | | — | |
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.
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.
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, 2007 | |
Current assets | | $ | 42,008 | |
Property, plant and equipment | | | 36,757 | |
Goodwill | | | 99,719 | |
Other intangible assets | | | 87,770 | |
Other assets | | | 884 | |
Total assets acquired | | | 267,138 | |
Current liabilities, excluding current portion of long-term debt | | | 11,195 | |
Long-term debt, including current maturities | | | 20,277 | |
Deferred income taxes | | | 21,255 | |
Total liabilities assumed | | | 52,727 | |
Net assets acquired | | | 214,411 | |
Less 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, 2007 | |
| | As Restated | | | Pro Forma | | | As Restated | | | Pro Forma | |
Net sales | | $ | 550,601 | | | $ | 575,830 | | | $ | 1,462,275 | | | $ | 1,563,927 | |
Operating income | | | 27,711 | | | | 28,400 | | | | 83,901 | | | | 96,522 | |
Income (loss) from continuing operations | | | 2,511 | | | | (1,968 | ) | | | 6,860 | | | | 6,596 | |
Net income (loss) | | | 1,701 | | | | (2,777 | ) | | | 22,002 | | | | 21,738 | |
Income (loss) per share – basic: | | | | | | | | | | | | | | | | |
Continuing operations | | | 0.04 | | | | (0.04 | ) | | | 0.13 | | | | 0.13 | |
Net income (loss) | | | 0.03 | | | | (0.05 | ) | | | 0.41 | | | | 0.41 | |
Income (loss) per share – diluted: | | | | | | | | | | | | | | | | |
Continuing operations | | | 0.04 | | | | (0.04 | ) | | | 0.12 | | | | 0.12 | |
Net 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.
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, 2007 | |
Current assets | | $ | 96,942 | |
Property, plant and equipment | | | 136,268 | |
Goodwill | | | 229,450 | |
Other intangible assets | | | 111,600 | |
Other assets | | | 6,856 | |
Total assets acquired | | | 581,116 | |
Current liabilities, excluding current portion of long-term debt | | | 56,868 | |
Long-term debt, including current maturities | | | 210,063 | |
Deferred income taxes | | | 7,277 | |
Other liabilities | | | 58,201 | |
Total liabilities assumed | | | 332,409 | |
Net assets acquired | | | 248,707 | |
Less 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.
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 Ended | |
| | September 29, 2007 | |
| | As Restated | | | Pro Forma | |
Net sales | | $ | 1,462,275 | | | $ | 1,544,092 | |
Operating income | | | 83,901 | | | | 87,226 | |
Income from continuing operations | | | 6,860 | | | | 1,904 | |
Net income | | | 22,002 | | | | 17,046 | |
Income per share – basic: | | | | | | | | |
Continuing operations | | | 0.13 | | | | 0.04 | |
Net income | | | 0.41 | | | | 0.32 | |
Income per share – diluted: | | | | | | | | |
Continuing operations | | | 0.12 | | | | 0.03 | |
Net 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.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. Acquisitions (Continued)
Liabilities Related to Exit Activities
The Company recorded liabilitiesabove amendment 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 | | | Total | |
Liabilities recorded at December 29, 2007 | | $ | 3,453 | | | $ | 495 | | | $ | 351 | | | $ | 4,299 | |
Accruals, net | | | 62 | | | | 1,049 | | | | 149 | | | | 1,260 | |
Payments | | | (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 Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
| | $ | — | | | $ | — | | | $ | (468 | ) | | $ | 2,373 | |
| | | 59 | | | | 810 | | | | 646 | | | | 2,295 | |
| | | | | | | | | | | | | | | | |
Gain 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, 2007 | |
Raw materials | | $ | 67,702 | | | $ | 71,075 | |
Work in process | | | 32,241 | | | | 34,875 | |
Finished goods | | | 65,973 | | | | 56,958 | |
| | $ | 165,916 | | | $ | 162,908 | |
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, 2007 | |
Land and land improvements | | $ | 21,567 | | | $ | 23,734 | |
Building and building improvements | | | 110,790 | | | | 109,673 | |
Machinery and equipment | | | 627,243 | | | | 577,763 | |
Furniture and fixtures | | | 12,666 | | | | 12,430 | |
Construction in progress | | | 13,032 | | | | 18,664 | |
| | | 785,298 | | | | 742,264 | |
Accumulated 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 2008,2009, 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 | | | Total | |
Balance as of December 29, 2007 | | $ | 305,025 | | | $ | 364,777 | | | $ | 669,802 | |
Acquisitions | | | 5,859 | | | | 6,683 | | | | 12,542 | |
Foreign 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, 2007 | |
| | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | | | Gross Carrying Amount | | | Accumulated Amortization | | | Net Carrying Amount | |
Intangible assets with determinable lives: | | | | | | | | | | | | | | | | | | |
Customer relationships | | $ | 159,206 | | | $ | (27,995 | ) | | $ | 131,211 | | | $ | 153,806 | | | $ | (22,303 | ) | | $ | 131,503 | |
Trademarks and tradenames | | | 21,011 | | | | (3,863 | ) | | | 17,148 | | | | 20,521 | | | | (3,251 | ) | | | 17,270 | |
Patents | | | 3,028 | | | | (1,688 | ) | | | 1,340 | | | | 3,028 | | | | (1,487 | ) | | | 1,541 | |
Non-compete agreements | | | 2,456 | | | | (1,552 | ) | | | 904 | | | | 2,316 | | | | (1,336 | ) | | | 980 | |
Other | | | 768 | | | | (386 | ) | | | 382 | | | | 768 | | | | (360 | ) | | | 408 | |
| | | 186,469 | | | | (35,484 | ) | | | 150,985 | | | | 180,439 | | | | (28,737 | ) | | | 151,702 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Intangible assets with indefinite lives: | | | | | | | | | | | | | | | | | | | | | | | | |
Trademarks | | | 127,500 | | | | — | | | | 127,500 | | | | 118,200 | | | | — | | | | 118,200 | |
Pollution credits | | | 720 | | | | — | | | | 720 | | | | 720 | | | | — | | | | 720 | |
Total | | $ | 314,689 | | | $ | (35,484 | ) | | $ | 279,205 | | | $ | 299,359 | | | $ | (28,737 | ) | | $ | 270,622 | |
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, 2007 | |
Term loan, due 2013 | | $ | 709,700 | | | $ | 715,100 | |
7⅞% senior subordinated notes, due 2013 | | | 320,000 | | | | 320,000 | |
8⅜% senior subordinated notes, due 2014 ($104.1 million outstanding principal amount) | | | 105,978 | | | | 106,220 | |
10½% senior notes, due 2016 | | | 175,000 | | | | — | |
Senior unsecured loan, due 2015 | | | — | | | | 175,000 | |
Revolving credit facility, due 2012 | | | 26,000 | | | | 91,200 | |
Other | | | 39,321 | | | | 37,117 | |
| | | 1,375,999 | | | | 1,444,637 | |
Less current maturities | | | (16,477 | ) | | | (18,752 | ) |
Long-term debt | | $ | 1,359,522 | | | $ | 1,425,885 | |
10½% Notes
On June 13, 2008, the Company issued $175.0 million aggregate principal amount of 10½% senior notes due 2016 (“10½% Notes”). The 10½% 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 10½% 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 10½% Notes were issued pursuant to an indenture among the Company, certain guarantors and U.S. Bank National Association, as trustee. The 10½% Notes pay interest semi-annually on February 15 and August 15, commencing August 15, 2008. The 10½% 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 10½% Notes, in whole or in part, on or after August 15, 2012, at redemption prices ranging from 100% to 105¼%, 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 110½% of the principal amount thereof, plus accrued and unpaid interest with the net cash proceeds of certain public equity offerings. Each holder of the 10½% 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 10½% Notes contain covenants, representations, and warranties substantially similar to the Company’s existing 7⅞% senior subordinated notes, due 2013 (“7⅞% Notes”) and 8⅜% senior subordinated notes, due 2014 (“8⅜% Notes”), and also include a senior secured debt to consolidated cash flow covenant.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. Long-Term Debt (Continued)
Upon the issuance of the 10½% Notes and the conversion of the Senior Unsecured Loan, the Company incurredwill incur a loss on early extinguishment of debt of $4.2approximately $5.0 million, relatedof which approximately $3.9 million relates to fees paid to consenting lenders and approximately $1.1 million relates to the write-off of previously unamortized debt issuance costs. TheIn addition, the Company capitalized debt issuancewill capitalize approximately $3.4 million of third party costs of approximately $5.3 million, which are being amortizedand fees paid to consenting lenders and amortize them over the remaining life of the 10½% Notes.Amended Credit Facilities.
Supplemental Indentures
The Company entered into supplemental indentures, dated April 16, 2008Interest Rate 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 8⅜% 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 7⅞% 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 10½% Notes were issued. These supplemental indentures provide for the addition of acquisition subsidiaries as guarantors of the 8⅜%, 7⅞% and 10½% Notes.
As of September 27, 2008, the Company was in compliance with all covenants under its debt agreements.
Forward Starting 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, 2008March 28, 2009 and December 29, 2007,January 3, 2009, 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 dependdepends 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,March 28, 2009, 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,In June 2009, $220.0 million of 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.$595.0 million interest rate swap agreements will mature. In the first nine monthsfourth quarter of 2008, the Company continuedentered into $75.0 million of forward starting interest rate swaps to partially replace these maturing swap agreements.
The Company’s interest rate swaps are valued using discounted cash flows, as no quoted market prices exist for the implementation of cost savings initiatives throughout its operationsspecific instruments. The primary inputs to the valuation are maturity and closed a commercial printing plant in St. Louis, Missouri.interest rate yield curves, specifically three-month LIBOR, using commercially available market sources. The Company anticipates further headcount reductions and plant closures.interest rate swaps are categorized as Level 2 under SFAS No. 157, Fair value Measurements (“SFAS 157”). The following tables and discussion presenttable below presents the detailsfair value of the expenses recognized in the three and nine months ended September 27, 2008 and September 29, 2007 as a result of this plan.Company’s interest rate swaps (in thousands):
| | March 28, 2009 | | | January 3, 2009 | |
| | | | | | |
Current Liabilities: | | | | | | |
Interest Rate Swaps | | $ | 2,394 | | | $ | 4,483 | |
Long-Term Liabilities: | | | | | | | | |
Interest Rate Swaps | | | 21,930 | | | | 23,180 | |
Forward Starting Swaps | | | 1,512 | | | | 943 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10.7. Restructuring, Impairment and Other Charges (Continued)
Three months ended September 27, 2008The Company has one active and two residual cost savings plans: (i) the 2009 Cost Savings and Restructuring Plan and (ii) the 2007 Cost Savings and Integration Plan and the 2005 Cost Savings and Restructuring Plan.
2009 Cost Savings and Restructuring Plan
In the first quarter of 2009, the Company developed and implemented a cost savings and restructuring plan to reduce its operating costs and realign its manufacturing platform in order to compete effectively during the current economic downturn. Accordingly, in the first quarter of 2009, the Company implemented cost savings initiatives throughout its operations and closed three envelope plants in Deer Park, New York, Boone, Iowa and Carlstadt, New Jersey, as well as one commercial printing plant in Easton, Maryland and consolidated their operations into other existing operations. As a result of these actions in the first quarter of 2009, the Company reduced headcount by approximately 400. The following tables present the details of the expenses recognized as a result of this plan.
2009 Activity
Restructuring and impairment charges for the three months ended September 27, 2008March 28, 2009 were as follows (in thousands):
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | 881 | | | $ | 2,939 | | | $ | 60 | | | $ | 3,880 | |
Asset impairments | | | 591 | | | | 220 | | | | — | | | | 811 | |
Equipment moving expenses | | | 160 | | | | 156 | | | | — | | | | 316 | |
Lease termination expenses | | | 196 | | | | 210 | | | | 63 | | | | 469 | |
Multi-employer pension withdrawal liability | | | — | | | | (236 | ) | | | — | | | | (236 | ) |
Building clean-up and other expenses | | | 218 | | | | 712 | | | | — | | | | 930 | |
Total restructuring and impairment charges | | $ | 2,046 | | | $ | 4,001 | | | $ | 123 | | | $ | 6,170 | |
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Total | |
Employee separation costs | | $ | 1,999 | | | $ | 3,194 | | | $ | 5,193 | |
Asset impairments | | | 2,571 | | | | 147 | | | | 2,718 | |
Equipment moving expenses | | | 133 | | | | 18 | | | | 151 | |
Lease termination expenses | | | — | | | | 184 | | | | 184 | |
Building clean-up and other expenses | | | 7 | | | | 187 | | | | 194 | |
Total restructuring and impairment charges | | $ | 4,710 | | | $ | 3,730 | | | $ | 8,440 | |
Nine months ended September 27, 2008
Restructuring and impairment chargesA summary of the activity charged to the restructuring liabilities for the nine months ended September 27, 2008 were2009 Cost Savings and Restructuring Plan is as follows (in thousands):
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | 1,824 | | | $ | 5,604 | | | $ | 290 | | | $ | 7,718 | |
Asset impairments, net of gain on sale | | | 1,103 | | | | 653 | | | | — | | | | 1,756 | |
Equipment moving expenses | | | 232 | | | | 241 | | | | — | | | | 473 | |
Lease termination expenses | | | 617 | | | | 1,026 | | | | 63 | | | | 1,706 | |
Multi-employer pension withdrawal liability | | | — | | | | (236 | ) | | | — | | | | (236 | ) |
Building clean-up and other expenses | | | 612 | | | | 1,340 | | | | — | | | | 1,952 | |
Total restructuring and impairment charges | | $ | 4,388 | | | $ | 8,628 | | | $ | 353 | | | $ | 13,369 | |
| | Lease Termination Costs | | | Employee Separation Costs | | | Other Exit Costs | | | Total | |
Balance at January 3, 2009 | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Accruals, net | | | 184 | | | | 5,193 | | | | 345 | | | | 5,722 | |
Payments | | | — | | | | (875 | ) | | | (244 | ) | | | (1,119 | ) |
Balance at March 28, 2009 | | $ | 184 | | | $ | 4,318 | | | $ | 101 | | | $ | 4,603 | |
Three Months Ended September 29, 2007 Cost Savings and Integration Plan
The following tables present the details of the expenses recognized as a result of this plan.
2009 Activity
Restructuring and impairment charges for the three months ended September 29, 2007March 28, 2009 were as follows (in thousands):
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Total | |
Employee separation costs | | $ | 1,513 | | | $ | 1,293 | | | $ | 2,806 | |
Asset impairments | | | 1,139 | | | | 2,721 | | | | 3,860 | |
Equipment moving expenses | | | 386 | | | | 670 | | | | 1,056 | |
Lease termination expenses | | | 21 | | | | 4,710 | | | | 4,731 | |
Building clean-up and other expenses | | | 406 | | | | 846 | | | | 1,252 | |
Total restructuring and impairment charges | | $ | 3,465 | | | $ | 10,240 | | | $ | 13,705 | |
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | 61 | | | $ | 82 | | | $ | 29 | | | $ | 172 | |
Asset impairments, net of gain on sale | | | — | | | | 17 | | | | — | | | | 17 | |
Equipment moving expenses | | | — | | | | 8 | | | | — | | | | 8 | |
Lease termination expenses | | | 13 | | | | 54 | | | | 3 | | | | 70 | |
Building clean-up and other expenses | | | 8 | | | | 192 | | | | 18 | | | | 218 | |
Total restructuring and impairment charges | | $ | 82 | | | $ | 353 | | | $ | 50 | | | $ | 485 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10.7. Restructuring, Impairment and Other Charges (Continued)
Nine Months Ended September 29, 20072008 Activity
Restructuring and impairment charges for the ninethree months ended SeptemberMarch 29, 20072008 were as follows (in thousands):
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Total | |
Employee separation costs | | $ | 2,106 | | | $ | 2,203 | | | $ | 4,309 | |
Asset impairments | | | 3,834 | | | | 3,758 | | | | 7,592 | |
Equipment moving expenses | | | 603 | | | | 670 | | | | 1,273 | |
Lease termination expenses | | | 21 | | | | 4,710 | | | | 4,731 | |
Multi-employer pension withdrawal liability | | | — | | | | 1,800 | | | | 1,800 | |
Building clean-up and other expenses | | | 620 | | | | 859 | | | | 1,479 | |
Total restructuring and impairment charges | | $ | 7,184 | | | $ | 14,000 | | | $ | 21,184 | |
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Total | |
Employee separation costs | | $ | 813 | | | $ | 730 | | | $ | 1,543 | |
Asset impairments | | | 152 | | | | — | | | | 152 | |
Equipment moving expenses | | | 48 | | | | 67 | | | | 115 | |
Lease termination expenses | | | 294 | | | | — | | | | 294 | |
Building clean-up and other expenses | | | 155 | | | | 228 | | | | 383 | |
Total restructuring and impairment charges | | $ | 1,462 | | | $ | 1,025 | | | $ | 2,487 | |
A summary of the activity charged to the restructuring liabilities as a result offor the 2007 Cost Savings and Integration Plan is as follows (in thousands):
| | Lease Termination Costs | | | Employee Separation Costs | | | Pension Withdrawal Liabilities | | | Total | |
Balance at December 29, 2007 | | $ | 3,582 | | | $ | 541 | | | $ | 2,092 | | | $ | 6,215 | |
Accruals, net | | | 1,706 | | | | 7,718 | | | | (236 | ) | | | 9,188 | |
Payments | | | (1,344 | ) | | | (4,942 | ) | | | — | | | | (6,286 | ) |
Balance at September 27, 2008 | | $ | 3,944 | | | $ | 3,317 | | | $ | 1,856 | | | $ | 9,117 | |
| | Lease Termination Costs | | | Employee Separation Costs | | | Pension Withdrawal Liabilities | | | Total | |
Balance at January 3, 2009 | | $ | 3,589 | | | $ | 1,975 | | | $ | 1,800 | | | $ | 7,364 | |
Accruals, net | | | 70 | | | | 172 | | | | — | | | | 242 | |
Payments | | | (434 | ) | | | (1,218 | ) | | | — | | | | (1,652 | ) |
Balance at March 28, 2009 | | $ | 3,225 | | | $ | 929 | | | $ | 1,800 | | | $ | 5,954 | |
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, 20082009 Activity
Restructuring and impairment charges (income) for the three months ended September 27, 2008March 28, 2009 were as follows (in thousands):
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | 9 | | | $ | (18 | ) | | $ | 19 | | | $ | 10 | |
Asset impairments | | | — | | | | 26 | | | | — | | | | 26 | |
Equipment moving expenses | | | — | | | | 48 | | | | — | | | | 48 | |
Lease termination expenses | | | (35 | ) | | | 144 | | | | 68 | | | | 177 | |
Building clean-up and other expenses | | | 224 | | | | 194 | | | | 24 | | | | 442 | |
Total restructuring and impairment charges | | $ | 198 | | | $ | 394 | | | $ | 111 | | | $ | 703 | |
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
Asset impairments | | | — | | | | — | | | | — | | | | — | |
Equipment moving expenses | | | — | | | | — | | | | — | | | | — | |
Lease termination expenses | | | (41 | ) | | | 20 | | | | 67 | | | | 46 | |
Building clean-up and other expenses | | | 5 | | | | (244 | ) | | | — | | | | (239 | ) |
Total restructuring and impairment charges (income) | | $ | (36 | ) | | $ | (224 | ) | | $ | 67 | | | $ | (193 | ) |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10.7. 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 | | | Total | |
Employee separation costs | | $ | 36 | | | $ | 132 | | | $ | 35 | | | $ | 203 | |
Asset impairments, net of gain on sale | | | — | | | | (226 | ) | | | — | | | | (226 | ) |
Equipment moving expenses | | | — | | | | 510 | | | | — | | | | 510 | |
Lease termination (income) expenses | | | (38 | ) | | | 144 | | | | 149 | | | | 255 | |
Building clean-up and other expenses | | | 380 | | | | 894 | | | | 24 | | | | 1,298 | |
Total restructuring and impairment charges | | $ | 378 | | | $ | 1,454 | | | $ | 208 | | | $ | 2,040 | |
Three Months Ended September 29, 2007Activity
Restructuring and impairment charges for the three months ended SeptemberMarch 29, 20072008 were as follows (in thousands):
| | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | 441 | | | $ | 1,171 | | | $ | 87 | | | $ | 1,699 | |
Asset impairments, net of gain on sale | | | 157 | | | | 3,028 | | | | — | | | | 3,185 | |
Equipment moving expenses | | | — | | | | 2 | | | | — | | | | 2 | |
Lease termination expenses | | | 23 | | | | 414 | | | | 31 | | | | 468 | |
Building clean-up and other expenses | | | 48 | | | | 1,141 | | | | 64 | | | | 1,253 | |
Total 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 | | | Total | | | Envelopes, Forms and Labels | | | Commercial Printing | | | Corporate | | | Total | |
Employee separation costs | | $ | 1,790 | | | $ | 2,163 | | | $ | 188 | | | $ | 4,141 | | | $ | 13 | | | $ | 122 | | | $ | 68 | | | $ | 203 | |
Asset impairments, net of gain on sale | | | (341 | ) | | | 3,041 | | | | — | | | | 2,700 | | | | — | | | | (476 | ) | | | — | | | | (476 | ) |
Equipment moving expenses | | | 761 | | | | 140 | | | | — | | | | 901 | | | | — | | | | 322 | | | | — | | | | 322 | |
Lease termination expenses | | | 79 | | | | 163 | | | | 88 | | | | 330 | | | | 32 | | | | — | | | | 34 | | | | 66 | |
Building clean-up and other expenses | | | 335 | | | | 2,415 | | | | 88 | | | | 2,838 | | | | 148 | | | | 361 | | | | — | | | | 509 | |
Total restructuring and impairment charges | | $ | 2,624 | | | $ | 7,922 | | | $ | 364 | | | $ | 10,910 | | | $ | 193 | | | $ | 329 | | | $ | 102 | | | $ | 624 | |
A summary of the activity charged to the restructuring liabilities as a result offor the 2005 Cost Savings and Restructuring Plan is as follows (in thousands):
| | Lease Termination Costs | | | Employee Separation Costs | | | Pension Withdrawal Liabilities | | | Total | |
Balance at December 29, 2007 | | $ | 4,793 | | | $ | 1,163 | | | $ | 297 | | | $ | 6,253 | |
Accruals, net | | | 255 | | | | 203 | | | | — | | | | 458 | |
Payments | | | (985 | ) | | | (1,302 | ) | | | (59 | ) | | | (2,346 | ) |
Balance at September 27, 2008 | | $ | 4,063 | | | $ | 64 | | | $ | 238 | | | $ | 4,365 | |
| | Lease Termination Costs | | | Employee Separation Costs | | | Pension Withdrawal Liabilities | | | Total | |
Balance at January 3, 2009 | | $ | 3,877 | | | $ | — | | | $ | 208 | | | $ | 4,085 | |
Accruals, net | | | 46 | | | | — | | | | — | | | | 46 | |
Payments | | | (948 | ) | | | — | | | | (29 | ) | | | (977 | ) |
Balance at March 28, 2009 | | $ | 2,975 | | | $ | — | | | $ | 179 | | | $ | 3,154 | |
Other Charges
In connection with the internal review conducted by outside counsel under the direction of the Company’s audit committee in the first quarter of 2008, the Company incurred a non-recurring charge in the first quarter of 2008 of approximately $6.7 million for professional fees.
Liabilities Related to Exit Activities from Acquisitions
The Company recorded liabilities in the purchase price allocation in connection with its plans to exit certain activities of prior year acquisitions. A summary of the activity recorded for these liabilities is as follows (in thousands):
| | Lease Termination Costs | |
Balance at January 3, 2009 | | $ | 2,264 | |
Accruals, net | | | — | |
Payments | | | (134 | ) |
Balance at March 28, 2009 | | $ | 2,130 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11.8. 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 Plans | |
| | Three Months Ended | | | Three Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
Service cost | | $ | 120 | | | $ | 119 | | | $ | — | | | $ | — | |
Interest cost | | | 2,257 | | | | 2,480 | | | | 222 | | | | 287 | |
Expected 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 and Postretirement Plans | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
Service cost | | $ | 99 | | | $ | 119 | |
Interest cost | | | 2,493 | | | | 2,581 | |
Expected return on plan assets | | | (1,926 | ) | | | (2,685 | ) |
Net amortization and deferral | | | — | | | | 2 | |
Recognized net actuarial loss | | | 588 | | | | 56 | |
Net periodic pension expense | | $ | 1,254 | | | $ | 73 | |
| | Pension Plans | | | Postretirement Plans | |
| | Nine Months Ended | | | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
Service cost | | $ | 360 | | | $ | 300 | | | $ | — | | | $ | — | |
Interest cost | | | 6,773 | | | | 5,621 | | | | 665 | | | | 802 | |
Expected 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 | |
Interest cost on projected benefit obligation includes $0.2 million and $0.3 million related to the Company’s postretirement plans in the three months ended March 28, 2009 and March 29, 2008, respectively.
For the ninethree months ended September 27, 2008,March 28, 2009, the Company made contributions of $6.0$1.2 million to its pension plans and postretirement plans. The Company expects to contribute approximately $1.2$6.1 million to its pension plans and postretirement plans for the remainder of 2008.2009.
12.9. 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.
13.10. Comprehensive Income (Loss)Loss
A summary of comprehensive income (loss)loss is as follows (in thousands):
| | Three Months Ended | | | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
Net income | | $ | 12,328 | | | $ | 1,701 | | | $ | 11,596 | | | $ | 22,002 | |
Other 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 | ) | | | 31 | |
Comprehensive income (loss) | | $ | 11,447 | | | $ | (4,871 | ) | | $ | 8,754 | | | $ | 17,073 | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
Net loss | | $ | (4,311 | ) | | $ | (3,399 | ) |
Other comprehensive income (loss): | | | | | | | | |
Unrealized gain (loss) on cash flow hedges | | | 1,555 | | | | (9,359 | ) |
Currency translation adjustment | | | (700 | ) | | | (1,250 | ) |
Comprehensive loss | | $ | (3,456 | ) | | $ | (14,008 | ) |
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.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. Income11. Loss per Share
Basic incomeloss per share is computed based upon the weighted average number of common shares outstanding for the period. Diluted incomeloss per share reflects the potential dilution that could occur if stock options, restricted stock and RSUsrestricted share units (“RSUs”) to issue common stock were exercised under the treasury stock method. The only Company securities as of September 27, 2008March 28, 2009 that could dilute basic incomeloss per share for periods subsequent to September 27, 2008,March 28, 2009 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 3,102,1572,901,975 shares respectively, of the Company’s common stock and (ii) 2,450,880 and 2,572,0482,122,628 shares respectively, of restricted stock and RSUs.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. Loss per Share (Continued)
The following table sets forth the computation of basic and diluted incomeloss per share for the periods ended (in thousands, except per share data):
| | Three Months Ended | | | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
Numerator for basic and diluted income per share | | | | | | | | | | | | |
Income from continuing operations | | $ | 12,387 | | | $ | 2,511 | | | $ | 12,710 | | | $ | 6,860 | |
(Loss) income from discontinued operations, net of taxes | | | (59 | ) | | | (810 | ) | | | (1,114 | ) | | | 15,142 | |
Net income | | $ | 12,328 | | | $ | 1,701 | | | $ | 11,596 | | | $ | 22,002 | |
| | | | | | | | | | | | | | | | |
Denominator weighted average common shares outstanding: | | | | | | | | | | | | | | | | |
Basic shares | | | 53,897 | | | | 53,572 | | | | 53,796 | | | | 53,545 | |
Dilutive effect of stock options and RSUs | | | 277 | | | | 959 | | | | 198 | | | | 1,069 | |
Diluted 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. | | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
Numerator for basic and diluted loss per share: | | | | | | |
Loss from continuing operations | | $ | 4,187 | | | $ | 2,743 | |
Loss from discontinued operations, net of taxes | | | 124 | | | | 656 | |
Net loss | | $ | 4,311 | | | $ | 3,399 | |
| | | | | | | | |
Denominator weighted average common shares outstanding: | | | | | | | | |
Basic and diluted shares | | | 54,352 | | | | 53,715 | |
| | | | | | | | |
Loss per share – basic and diluted: | | | | | | | | |
Continuing operations | | $ | 0.08 | | | $ | 0.05 | |
Discontinued operations | | | — | | | | 0.01 | |
Net loss | | $ | 0.08 | | | $ | 0.06 | |
| | | | | | | | |
15.12. Segment Information
The Company operates in two segments: the envelopes, forms and labels segment and the commercial printing.printing segment. The envelopes, forms and labels segment specializes in the design, manufacturing printing and fulfillmentprinting 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-productoffice-products suppliers and office-productoffice-products retail chains. The commercial printing segment provides print, design and 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 productproducts companies.
Operating income of each segment includes substantially all costs and expenses directly relatingrelated to the segment’s operations. Corporate expenses include corporate general and administrative expenses (Note 3)2).
Corporate identifiable assets primarily consist of cash and cash equivalents, deferred financing fees, deferred tax assets and other assets.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15.12. Segment Information (Continued)
The following tables present certain segment information (in thousands):
| | Three Months Ended | | | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
Net sales: | | | | | | | | | | | | | | | | |
Envelopes, forms and labels | | $ | 224,616 | | | $ | 222,671 | | | $ | 690,630 | | | $ | 647,074 | |
Commercial printing | | | 298,089 | | | | 327,930 | | | | 890,904 | | | | 815,201 | |
Total | | $ | 522,705 | | | $ | 550,601 | | | $ | 1,581,534 | | | $ | 1,462,275 | |
| | | | | | | | | | | | | | | | |
Operating income (loss): | | | | | | | | | | | | | | | | |
Envelopes, forms and labels | | $ | 35,947 | | | $ | 30,225 | | | $ | 93,807 | | | $ | 80,712 | |
Commercial printing | | | 23,056 | | | | 7,605 | | | | 47,598 | | | | 31,189 | |
Corporate | | | (10,827 | ) | | | (10,119 | ) | | | (34,098 | ) | | | (28,000 | ) |
Total | | $ | 48,176 | | | $ | 27,711 | | | $ | 107,307 | | | $ | 83,901 | |
| | | | | | | | | | | | | | | | |
Restructuring, impairment and other charges: | | | | | | | | | | | | | | | | |
Envelopes, forms and labels | | $ | 2,244 | | | $ | 4,134 | | | $ | 4,766 | | | $ | 9,808 | |
Commercial printing | | | 4,395 | | | | 15,996 | | | | 10,082 | | | | 21,922 | |
Corporate | | | 234 | | | | 182 | | | | 7,199 | | | | 364 | |
Total | | $ | 6,873 | | | $ | 20,312 | | | $ | 22,047 | | | $ | 32,094 | |
| | | | | | | | | | | | | | | | |
Net sales by product line: | | | | | | | | | | | | | | | | |
Envelopes | | $ | 154,232 | | | $ | 149,203 | | | $ | 474,876 | | | $ | 429,737 | |
Commercial printing | | | 210,737 | | | | 231,792 | | | | 622,255 | | | | 595,316 | |
Journals and periodicals | | | 87,026 | | | | 95,762 | | | | 267,664 | | | | 218,150 | |
Labels and business forms | | | 70,710 | | | | 73,844 | | | | 216,739 | | | | 219,072 | |
Total | | $ | 522,705 | | | $ | 550,601 | | | $ | 1,581,534 | | | $ | 1,462,275 | |
| | | | | | | | | | | | | | | | |
Intercompany sales: | | | | | | | | | | | | | | | | |
Envelopes, forms and labels to commercial printing | | $ | 1,691 | | | $ | 2,779 | | | $ | 4,369 | | | $ | 8,196 | |
Commercial printing to envelopes, forms and labels | | | 538 | | | | 755 | | | | 2,856 | | | | 6,045 | |
Total | | $ | 2,229 | | | $ | 3,534 | | | $ | 7,225 | | | $ | 14,241 | |
| | September 27, 2008 | | | December 29, 2007 | |
Identifiable assets: | | | | | | |
Envelopes, forms and labels | | $ | 809,840 | | | $ | 833,337 | |
Commercial printing | | | 1,109,746 | | | | 1,105,832 | |
Corporate | | | 55,818 | | | | 63,553 | |
Total | | $ | 1,975,404 | | | $ | 2,002,722 | |
| | Three Months Ended | |
| | March 28, 2009 | | | | March 29, 2008 | |
Net sales: | | | | | | | |
Envelopes, forms and labels | | $ | 182,431 | | | | $ | 238,137 | |
Commercial printing | | | 229,669 | | | | | 296,191 | |
Total | | $ | 412,100 | | | | $ | 534,328 | |
| | | | | | | | | |
Operating income (loss): | | | | | | | | | |
Envelopes, forms and labels | | $ | 8,406 | | | | $ | 25,626 | |
Commercial printing | | | 1,430 | | | | | 11,278 | |
Corporate | | | (9,615 | ) | | | | (13,924 | ) |
Total | | $ | 221 | | | | $ | 22,980 | |
| | | | | | | | | |
Restructuring, impairment and other charges: | | | | | | | | | |
Envelopes, forms and labels | | $ | 4,756 | | | | $ | 1,655 | |
Commercial printing | | | 3,859 | | | | | 1,354 | |
Corporate | | | 117 | | | | | 6,740 | |
Total | | $ | 8,732 | | | | $ | 9,749 | |
| | | | | | | | 150 | |
Net sales by product line: | | | | | | | | | |
Envelopes | | $ | 126,675 | | | | $ | 165,668 | |
Commercial printing | | | 155,775 | | | | | 201,405 | |
Journals and periodicals | | | 73,333 | | | | | 93,845 | |
Labels and business forms | | | 56,317 | | | | | 73,410 | |
Total | | $ | 412,100 | | | | $ | 534,328 | |
Intercompany sales: | | | | | | | | | |
Envelopes, forms and labels to commercial printing | | $ | 1,367 | | | | $ | 1,234 | |
Commercial printing to envelopes, forms and labels | | | 540 | | | | | 1,514 | |
Total | | $ | 1,907 | | | | $ | 2,748 | |
| | | | | | | | | |
| | March 28, 2009 | | | | January 3, 2009 | |
Identifiable assets: | | | | | | | | | |
Envelopes, forms and labels | | $ | 601,180 | | | | $ | 624,760 | |
Commercial printing | | | 837,310 | | | | | 863,224 | |
Corporate | | | 62,955 | | | | | 64,130 | |
Total | | $ | 1,501,445 | | | | | 1,552,114 | |
| | | | | | | | | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16.13. Condensed Consolidating Financial Information
Cenveo is a holding company (“Parent Company”) and, which is the ultimate parent of all Cenveo subsidiaries. In January 2004, the Parent Company’s wholly-ownedwholly owned subsidiary, Cenveo Corporation (the “Subsidiary Issuer”), issued 7⅞% Notes and, in connection with the acquisition of Cadmus Communications Corporation (“Cadmus”), assumed Cadmus’ 8⅜% Notes (collectively the(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 financial information for the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and Non-Guarantor Subsidiaries for the three and nine months ended September 27, 2008March 28, 2009 and SeptemberMarch 29, 2007.2008. 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.
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-Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 8,596 | | | $ | 678 | | | $ | 4,545 | | | $ | — | | | $ | 13,819 | |
Accounts receivable, net | | | — | | | | 146,014 | | | | 158,314 | | | | 4,999 | | | | — | | | | 309,327 | |
Inventories | | | — | | | | 89,642 | | | | 75,186 | | | | 1,088 | | | | — | | | | 165,916 | |
Notes receivable from subsidiaries | | | — | | | | 38,194 | | | | — | | | | — | | | | (38,194 | ) | | | — | |
Prepaid and other current assets | | | — | | | | 50,545 | | | | 10,666 | | | | 1,039 | | | | — | | | | 62,250 | |
Total current assets | | | — | | | | 332,991 | | | | 244,844 | | | | 11,671 | | | | (38,194 | ) | | | 551,312 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment in subsidiaries | | | 120,969 | | | | 1,607,175 | | | | 4,969 | | | | — | | | | (1,733,113 | ) | | | — | |
Property, plant and equipment, net | | | — | | | | 166,155 | | | | 266,724 | | | | 479 | | | | — | | | | 433,358 | |
Goodwill | | | — | | | | 175,234 | | | | 506,738 | | | | — | | | | — | | | | 681,972 | |
Other intangible assets, net | | | — | | | | 9,197 | | | | 270,008 | | | | — | | | | — | | | | 279,205 | |
Other assets, net | | | — | | | | 22,719 | | | | 6,488 | | | | 350 | | | | — | | | | 29,557 | |
Total assets | | $ | 120,969 | | | $ | 2,313,471 | | | $ | 1,299,771 | | | $ | 12,500 | | | $ | (1,771,307 | ) | | $ | 1,975,404 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 7,894 | | | $ | 8,583 | | | $ | — | | | $ | — | | | $ | 16,477 | |
Accounts payable | | | — | | | | 112,156 | | | | 66,935 | | | | 2,625 | | | | — | | | | 181,716 | |
Accrued compensation and related liabilities | | | — | | | | 25,954 | | | | 17,380 | | | | — | | | | — | | | | 43,334 | |
Other current liabilities | | | — | | | | 72,680 | | | | 15,707 | | | | 1,674 | | | | — | | | | 90,061 | |
Intercompany 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 | ) | | | 331,588 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | — | | | | 1,334,504 | | | | 25,018 | | | | — | | | | — | | | | 1,359,522 | |
Deferred income tax liability (asset) | | | — | | | | (3,403 | ) | | | 66,117 | | | | (244 | ) | | | — | | | | 62,470 | |
Other liabilities | | | — | | | | 67,354 | | | | 33,501 | | | | — | | | | — | | | | 100,855 | |
Shareholders’ equity | | | 120,969 | | | | 120,969 | | | | 1,607,175 | | | | 4,969 | | | | (1,733,113 | ) | | | 120,969 | |
Total liabilities and shareholders’ equity | | $ | 120,969 | | | $ | 2,313,471 | | | $ | 1,299,771 | | | $ | 12,500 | | | $ | (1,771,307 | ) | | $ | 1,975,404 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16.13. Condensed Consolidating Financial Information (Continued)
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONSBALANCE SHEET
Three months ended September 27, 2008March 28, 2009
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 245,712 | | | $ | 271,514 | | | $ | 5,479 | | | $ | — | | | $ | 522,705 | |
Cost of sales | | | — | | | | 196,471 | | | | 206,761 | | | | 3,676 | | | | — | | | | 406,908 | |
Selling, general and administrative | | | — | | | | 35,292 | | | | 23,056 | | | | 107 | | | | — | | | | 58,455 | |
Amortization of intangible assets | | | — | | | | 120 | | | | 2,173 | | | | — | | | | — | | | | 2,293 | |
Restructuring and impairment charges | | | — | | | | 5,316 | | | | 1,557 | | | | — | | | | — | | | | 6,873 | |
Operating income | | | — | | | | 8,513 | | | | 37,967 | | | | 1,696 | | | | — | | | | 48,176 | |
Interest expense (income), net | | | — | | | | 26,429 | | | | 403 | | | | (37 | ) | | | — | | | | 26,795 | |
Intercompany 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 | | | | — | | | | 22,447 | |
Income tax expense (benefit) | | | — | | | | 10,451 | | | | (391 | ) | | | — | | | | — | | | | 10,060 | |
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries | | | — | | | | (26,939 | ) | | | 37,593 | | | | 1,733 | | | | — | | | | 12,387 | |
Equity 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 | ) | | | 12,387 | |
Loss from discontinued operations, net of taxes | | | — | | | | (59 | ) | | | — | | | | — | | | | — | | | | (59 | ) |
Net income (loss) | | $ | 12,328 | | | $ | 12,328 | | | $ | 39,326 | | | $ | 1,733 | | | $ | (53,387 | ) | | $ | 12,328 | |
| | Parent | | | Subsidiary | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 5,040 | | | $ | 634 | | | $ | 4,533 | | | $ | — | | | $ | 10,207 | |
Accounts receivable, net | | | — | | | | 124,066 | | | | 119,627 | | | | 6,305 | | | | — | | | | 249,998 | |
Inventories | | | — | | | | 81,209 | | | | 67,018 | | | | 1,426 | | | | — | | | | 149,653 | |
Notes receivable from subsidiaries | | | — | | | | 39,213 | | | | — | | | | — | | | | (39,213 | ) | | | — | |
Prepaid and other current assets | | | — | | | | 54,658 | | | | 11,671 | | | | 2,215 | | | | — | | | | 68,544 | |
Total current assets | | | — | | | | 304,186 | | | | 198,950 | | | | 14,479 | | | | (39,213 | ) | | | 478,402 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment in subsidiaries | | | (221,377 | ) | | | 1,385,122 | | | | 8,739 | | | | — | | | | (1,172,484 | ) | | | — | |
Property, plant and equipment, net | | | — | | | | 162,143 | | | | 247,294 | | | | 394 | | | | — | | | | 409,831 | |
Goodwill | | | — | | | | 29,245 | | | | 281,938 | | | | — | | | | — | | | | 311,183 | |
Other intangible assets, net | | | — | | | | 8,988 | | | | 265,640 | | | | — | | | | — | | | | 274,628 | |
Other assets, net | | | — | | | | 21,172 | | | | 5,903 | | | | 326 | | | | — | | | | 27,401 | |
Total assets | | $ | (221,377 | ) | | $ | 1,910,856 | | | $ | 1,008,464 | | | $ | 15,199 | | | $ | (1,211,697 | ) | | $ | 1,501,445 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity (Deficit) | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 8,466 | | | $ | 8,015 | | | $ | — | | | $ | — | | | $ | 16,481 | |
Accounts payable | | | — | | | | 107,481 | | | | 72,142 | | | | 1,799 | | | | — | | | | 181,422 | |
Accrued compensation and related liabilities | | | — | | | | 20,596 | | | | 12,357 | | | | — | | | | — | | | | 32,953 | |
Other current liabilities | | | — | | | | 66,963 | | | | 15,574 | | | | 1,016 | | | | — | | | | 83,553 | |
Intercompany payable (receivable) | | | — | | | | 691,345 | | | | (695,793 | ) | | | 4,448 | | | | — | | | | — | |
Notes payable to issuer | | | — | | | | — | | | | 39,213 | | | | — | | | | (39,213 | ) | | | — | |
Total current liabilities | | | — | | | | 894,851 | | | | (548,492 | ) | | | 7,263 | | | | (39,213 | ) | | | 314,409 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | — | | | | 1,223,619 | | | | 21,122 | | | | — | | | | — | | | | 1,244,741 | |
Deferred income tax liability (asset) | | | — | | | | (59,585 | ) | | | 86,343 | | | | (803 | ) | | | — | | | | 25,955 | |
Other liabilities | | | — | | | | 73,348 | | | | 64,369 | | | | — | | | | — | | | | 137,717 | |
Shareholders’ equity (deficit) | | | (221,377 | ) | | | (221,377 | ) | | | 1,385,122 | | | | 8,739 | | | | (1,172,484 | ) | | | (221,377 | ) |
Total liabilities and shareholders’ equity (deficit) | | $ | (221,377 | ) | | $ | 1,910,856 | | | $ | 1,008,464 | | | $ | 15,199 | | | $ | (1,211,697 | ) | | $ | 1,501,445 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16.13. Condensed Consolidating Financial Information (Continued)
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NineFor the three months ended September 27, 2008
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 748,907 | | | $ | 817,585 | | | $ | 15,042 | | | $ | — | | | $ | 1,581,534 | |
Cost of sales | | | — | | | | 612,897 | | | | 637,027 | | | | 10,688 | | | | — | | | | 1,260,612 | |
Selling, general and administrative | | | — | | | | 107,988 | | | | 76,380 | | | | 453 | | | | — | | | | 184,821 | |
Amortization of intangible assets | | | — | | | | 343 | | | | 6,404 | | | | — | | | | — | | | | 6,747 | |
Restructuring, impairment and other charges | | | — | | | | 19,767 | | | | 2,280 | | | | — | | | | — | | | | 22,047 | |
Operating income | | | — | | | | 7,912 | | | | 95,494 | | | | 3,901 | | | | — | | | | 107,307 | |
Interest expense (income), net | | | — | | | | 78,679 | | | | 1,331 | | | | (62 | ) | | | — | | | | 79,948 | |
Intercompany interest expense (income) | | | — | | | | (1,712 | ) | | | 1,712 | | | | — | | | | — | | | | — | |
Loss on early extinguishment of debt | | | — | | | | 3,871 | | | | — | | | | — | | | | — | | | | 3,871 | |
Other expense, net | | | — | | | | 140 | | | | 289 | | | | — | | | | — | | | | 429 | |
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries | | | — | | | | (73,066 | ) | | | 92,162 | | | | 3,963 | | | | — | | | | 23,059 | |
Income tax expense | | | — | | | | 6,241 | | | | 4,108 | | | | — | | | | — | | | | 10,349 | |
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries | | | — | | | | (79,307 | ) | | | 88,054 | | | | 3,963 | | | | — | | | | 12,710 | |
Equity 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 | ) | | | 12,710 | |
Loss 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 | |
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, 2008March 28, 2009
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 12,940 | | | $ | 5,114 | | | $ | 128,873 | | | $ | 2,487 | | | $ | — | | | $ | 149,414 | |
Cash 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 | | | | — | | | | — | | | | 18,258 | |
Intercompany 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 10½% senior notes | | | — | | | | 175,000 | | | | — | | | | — | | | | — | | | | 175,000 | |
Proceeds from issuance of other long-term debt | | | — | | | | 5,338 | | | | 6,000 | | | | — | | | | — | | | | 11,338 | |
Proceeds from exercise of stock options | | | 1,873 | | | | — | | | | — | | | | — | | | | — | | | | 1,873 | |
Intercompany 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 | | | | — | | | | 15,882 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 8,596 | | | $ | 678 | | | $ | 4,545 | | | $ | — | | | $ | 13,819 | |
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 194,866 | | | $ | 212,442 | | | $ | 4,792 | | | $ | — | | | $ | 412,100 | |
Cost of sales | | | — | | | | 166,643 | | | | 178,831 | | | | 2,842 | | | | — | | | | 348,316 | |
Selling, general and administrative | | | — | | | | 31,384 | | | | 21,028 | | | | 103 | | | | — | | | | 52,515 | |
Amortization of intangible assets | | | — | | | | 101 | | | | 2,215 | | | | — | | | | — | | | | 2,316 | |
Restructuring, impairment and other charges | | | — | | | | 4,229 | | | | 4,503 | | | | — | | | | — | | | | 8,732 | |
Operating income (loss) | | | — | | | | (7,491 | ) | | | 5,865 | | | | 1,847 | | | | — | | | | 221 | |
Interest expense (income), net | | | — | | | | 22,235 | | | | 336 | | | | (26 | ) | | | — | | | | 22,545 | |
Intercompany interest expense (income) | | | — | | | | (284 | ) | | | 284 | | | | — | | | | — | | | | — | |
Gain on early extinguishment of debt | | | — | | | | (17,642 | ) | | | — | | | | — | | | | — | | | | (17,642 | ) |
Other (income) expense, net | | | — | | | | 248 | | | | 54 | | | | (267 | ) | | | — | | | | 35 | |
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries | | | — | | | | (12,048 | ) | | | 5,191 | | | | 2,140 | | | | — | | | | (4,717 | ) |
Income tax expense (benefit) | | | — | | | | (2,362 | ) | | | 1,778 | | | | 54 | | | | — | | | | (530 | ) |
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries | | | — | | | | (9,686 | ) | | | 3,413 | | | | 2,086 | | | | — | | | | (4,187 | ) |
Equity in income of unconsolidated subsidiaries | | | (4,311 | ) | | | 5,499 | | | | 2,086 | | | | — | | | | (3,274 | ) | | | — | |
Income (loss) from continuing operations | | | (4,311 | ) | | | (4,187 | ) | | | 5,499 | | | | 2,086 | | | | (3,274 | ) | | | (4,187 | ) |
Loss from discontinued operations, net of taxes | | | — | | | | (124 | ) | | | — | | | | — | | | | — | | | | (124 | ) |
Net income (loss) | | $ | (4,311 | ) | | $ | (4,311 | ) | | $ | 5,499 | | | $ | 2,086 | | | $ | (3,274 | ) | | $ | (4,311 | ) |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16.13. Condensed Consolidating Financial Information (Continued)
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEETSTATEMENT OF CASH FLOWS
December 29, 2007For the three months ended March 28, 2009
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 13,091 | | | $ | 882 | | | $ | 1,909 | | | $ | — | | | $ | 15,882 | |
Accounts receivable, net | | | — | | | | 164,815 | | | | 175,746 | | | | 4,073 | | | | — | | | | 344,634 | |
Inventories | | | — | | | | 89,259 | | | | 72,782 | | | | 867 | | | | — | | | | 162,908 | |
Notes receivable from subsidiaries | | | — | | | | 40,108 | | | | — | | | | — | | | | (40,108 | ) | | | — | |
Prepaid and other current assets | | | — | | | | 57,484 | | | | 15,160 | | | | 714 | | | | — | | | | 73,358 | |
Total current assets | | | — | | | | 364,757 | | | | 264,570 | | | | 7,563 | | | | (40,108 | ) | | | 596,782 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment in subsidiaries | | | 99,326 | | | | 1,461,662 | | | | 2,058 | | | | — | | | | (1,563,046 | ) | | | — | |
Property, plant and equipment, net | | | — | | | | 173,103 | | | | 254,378 | | | | 860 | | | | — | | | | 428,341 | |
Goodwill | | | — | | | | 175,220 | | | | 494,582 | | | | — | | | | — | | | | 669,802 | |
Other intangible assets, net | | | — | | | | 9,512 | | | | 261,110 | | | | — | | | | — | | | | 270,622 | |
Other assets, net | | | — | | | | 22,949 | | | | 13,833 | | | | 393 | | | | — | | | | 37,175 | |
Total assets | | $ | 99,326 | | | $ | 2,207,203 | | | $ | 1,290,531 | | | $ | 8,816 | | | $ | (1,603,154 | ) | | $ | 2,002,722 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ Equity | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 8,769 | | | $ | 9,983 | | | $ | — | | | $ | — | | | $ | 18,752 | |
Accounts payable | | | — | | | | 98,111 | | | | 65,130 | | | | 2,217 | | | | — | | | | 165,458 | |
Accrued compensation and related liabilities | | | — | | | | 23,792 | | | | 23,361 | | | | — | | | | — | | | | 47,153 | |
Other current liabilities | | | — | | | | 57,845 | | | | 20,495 | | | | 1,214 | | | | — | | | | 79,554 | |
Intercompany 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 | ) | | | 310,917 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | — | | | | 1,400,620 | | | | 25,265 | | | | — | | | | — | | | | 1,425,885 | |
Deferred income tax liability (asset) | | | — | | | | (17,162 | ) | | | 72,343 | | | | — | | | | — | | | | 55,181 | |
Other liabilities | | | — | | | | 56,711 | | | | 54,702 | | | | — | | | | — | | | | 111,413 | |
Shareholders’ equity | | | 99,326 | | | | 99,326 | | | | 1,461,662 | | | | 2,058 | | | | (1,563,046 | ) | | | 99,326 | |
Total liabilities and shareholders’ equity | | $ | 99,326 | | | $ | 2,207,203 | | | $ | 1,290,531 | | | $ | 8,816 | | | $ | (1,603,154 | ) | | $ | 2,002,722 | |
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) operating activities | | $ | 3,462 | | | $ | (5,730 | ) | | $ | 38,636 | | | $ | 50 | | | $ | — | | | $ | 36,418 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | — | | | | (4,258 | ) | | | (4,892 | ) | | | — | | | | — | | | | (9,150 | ) |
Intercompany note | | | — | | | | (18 | ) | | | — | | | | — | | | | 18 | | | | — | |
Proceeds from sale of property, plant and equipment | | | — | | | | 1 | | | | 362 | | | | — | | | | — | | | | 363 | |
Net cash (used in) provided by investing activities | | | — | | | | (4,275 | ) | | | (4,530 | ) | | | — | | | | 18 | | | | (8,787 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Repayment of term loans | | | — | | | | (19,328 | ) | | | — | | | | — | | | | — | | | | (19,328 | ) |
Repayment of 8⅜% senior subordinated notes | | | — | | | | (18,959 | ) | | | — | | | | — | | | | — | | | | (18,959 | ) |
Repayment of 10½% senior notes | | | — | | | | (3,250 | ) | | | — | | | | — | | | | — | | | | (3,250 | ) |
Repayment of 7⅞% senior subordinated notes | | | — | | | | (3,125 | ) | | | — | | | | — | | | | — | | | | (3,125 | ) |
Repayments of other long-term debt | | | — | | | | (155 | ) | | | (2,087 | ) | | | — | | | | — | | | | (2,242 | ) |
Purchase and retirement of common stock upon vesting of RSUs | | | (431 | ) | | | — | | | | — | | | | — | | | | — | | | | (431 | ) |
Payment of fees on early extinguishment of debt | | | — | | | | (94 | ) | | | — | | | | — | | | | — | | | | (94 | ) |
(Repayments) borrowings under revolving credit facility, net | | | — | | | | 19,750 | | | | — | | | | — | | | | — | | | | 19,750 | |
Intercompany note | | | — | | | | — | | | | 18 | | | | — | | | | (18 | ) | | | — | |
Intercompany advances | | | (3,031 | ) | | | 35,491 | | | | (32,456 | ) | | | (4 | ) | | | — | | | | — | |
Net cash (used in) provided by financing activities | | | (3,462 | ) | | | 10,330 | | | | (34,525 | ) | | | (4 | ) | | | (18 | ) | | | (27,679 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | — | | | | (189 | ) | | | — | | | | (189 | ) |
Net (decrease) increase in cash and cash equivalents | | | — | | | | 325 | | | | (419 | ) | | | (143 | ) | | | — | | | | (237 | ) |
Cash and cash equivalents at beginning of year | | | — | | | | 4,715 | | | | 1,053 | | | | 4,676 | | | | — | | | | 10,444 | |
Cash and cash equivalents at end of quarter | | $ | — | | | $ | 5,040 | | | $ | 634 | | | $ | 4,533 | | | $ | — | | | $ | 10,207 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Condensed Consolidating Financial Information (Continued)
16.
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING BALANCE SHEET
January 3, 2009
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non-Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Assets | | | | | | | | | | | | | | | | | | |
Current assets: | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | | $ | 4,715 | | | $ | 1,053 | | | $ | 4,676 | | | $ | — | | | $ | 10,444 | |
Accounts receivable, net | | | — | | | | 127,634 | | | | 137,746 | | | | 4,765 | | | | — | | | | 270,145 | |
Inventories | | | — | | | | 86,219 | | | | 72,149 | | | | 1,201 | | | | — | | | | 159,569 | |
Notes receivable from subsidiaries | | | — | | | | 39,195 | | | | — | | | | — | | | | (39,195 | ) | | | — | |
Prepaid and other current assets | | | — | | | | 62,961 | | | | 9,879 | | | | 2,050 | | | | — | | | | 74,890 | |
Total current assets | | | — | | | | 320,724 | | | | 220,827 | | | | 12,692 | | | | (39,195 | ) | | | 515,048 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Investment in subsidiaries | | | (220,955 | ) | | | 1,380,326 | | | | 7,063 | | | | — | | | | (1,166,434 | ) | | | — | |
Property, plant and equipment, net | | | — | | | | 165,140 | | | | 254,841 | | | | 476 | | | | — | | | | 420,457 | |
Goodwill | | | — | | | | 29,245 | | | | 281,938 | | | | — | | | | — | | | | 311,183 | |
Other intangible assets, net | | | — | | | | 9,089 | | | | 267,855 | | | | — | | | | — | | | | 276,944 | |
Other assets, net | | | — | | | | 21,936 | | | | 6,205 | | | | 341 | | | | — | | | | 28,482 | |
Total assets | | $ | (220,955 | ) | | $ | 1,926,460 | | | $ | 1,038,729 | | | $ | 13,509 | | | $ | (1,205,629 | ) | | $ | 1,552,114 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Liabilities and Shareholders’ (Deficit) Equity | | | | | | | | | | | | | | | | | | | | | | | | |
Current liabilities: | | | | | | | | | | | | | | | | | | | | | | | | |
Current maturities of long-term debt | | $ | — | | | $ | 15,956 | | | $ | 8,358 | | | $ | — | | | $ | — | | | $ | 24,314 | |
Accounts payable | | | — | | | | 99,150 | | | | 73,402 | | | | 1,883 | | | | — | | | | 174,435 | |
Accrued compensation and related liabilities | | | — | | | | 21,311 | | | | 16,008 | | | | — | | | | — | | | | 37,319 | |
Other current liabilities | | | — | | | | 74,653 | | | | 13,302 | | | | 915 | | | | — | | | | 88,870 | |
Intercompany payable (receivable) | | | — | | | | 658,885 | | | | (663,337 | ) | | | 4,452 | | | | — | | | | — | |
Notes payable to issuer | | | — | | | | — | | | | 39,195 | | | | — | | | | (39,195 | ) | | | — | |
Total current liabilities | | | — | | | | 869,955 | | | | (513,072 | ) | | | 7,250 | | | | (39,195 | ) | | | 324,938 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Long-term debt | | | — | | | | 1,259,175 | | | | 22,866 | | | | — | | | | — | | | | 1,282,041 | |
Deferred income tax liability (asset) | | | — | | | | (56,500 | ) | | | 84,076 | | | | (804 | ) | | | — | | | | 26,772 | |
Other liabilities | | | — | | | | 74,785 | | | | 64,533 | | | | — | | | | — | | | | 139,318 | |
Shareholders’ (deficit) equity | | | (220,955 | ) | | | (220,955 | ) | | | 1,380,326 | | | | 7,063 | | | | (1,166,434 | ) | | | (220,955 | ) |
Total liabilities and shareholders’ (deficit) equity | | $ | (220,955 | ) | | $ | 1,926,460 | | | $ | 1,038,729 | | | $ | 13,509 | | | $ | (1,205,629 | ) | | $ | 1,552,114 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13. Condensed Consolidating Financial Information (Continued)
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
ThreeFor the three months ended SeptemberMarch 29, 20072008
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 288,397 | | | $ | 258,643 | | | $ | 3,561 | | | $ | — | | | $ | 550,601 | |
Cost of sales | | | — | | | | 235,897 | | | | 197,456 | | | | 2,756 | | | | — | | | | 436,109 | |
Selling, general and administrative | | | — | | | | 39,385 | | | | 24,138 | | | | 127 | | | | — | | | | 63,650 | |
Amortization of intangible assets | | | — | | | | 1,194 | | | | 1,625 | | | | — | | | | — | | | | 2,819 | |
Restructuring and impairment charges | | | — | | | | 20,252 | | | | 60 | | | | — | | | | — | | | | 20,312 | |
Operating income (loss) | | | — | | | | (8,331 | ) | | | 35,364 | | | | 678 | | | | — | | | | 27,711 | |
Gain on sale of business | | | — | | | | (189 | ) | | | — | | | | — | | | | — | | | | (189 | ) |
Interest expense (income), net | | | — | | | | 24,830 | | | | 454 | | | | (1 | ) | | | — | | | | 25,283 | |
Intercompany interest expense (income) | | | — | | | | (687 | ) | | | 687 | | | | — | | | | — | | | | — | |
Loss on early extinguishment of debt | | | — | | | | — | | | | 51 | | | | — | | | | — | | | | 51 | |
Other expense, net | | | — | | | | 244 | | | | 539 | | | | 116 | | | | — | | | | 899 | |
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries | | | — | | | | (32,529 | ) | | | 33,633 | | | | 563 | | | | — | | | | 1,667 | |
Income tax (benefit) expense | | | — | | | | (1,458 | ) | | | 614 | | | | — | | | | — | | | | (844 | ) |
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries | | | — | | | | (31,071 | ) | | | 33,019 | | | | 563 | | | | — | | | | 2,511 | |
Equity 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 | ) | | | 2,511 | |
Loss from discontinued operations, net of taxes | | | — | | | | (810 | ) | | | — | | | | — | | | | — | | | | (810 | ) |
Net income (loss) | | $ | 1,701 | | | $ | 1,701 | | | $ | 33,582 | | | $ | 563 | | | $ | (35,846 | ) | | $ | 1,701 | |
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 260,292 | | | $ | 269,624 | | | $ | 4,412 | | | $ | — | | | $ | 534,328 | |
Cost of sales | | | — | | | | 218,786 | | | | 214,254 | | | | 3,258 | | | | — | | | | 436,298 | |
Selling, general and administrative | | | — | | | | 36,468 | | | | 26,507 | | | | 151 | | | | — | | | | 63,126 | |
Amortization of intangible assets | | | — | | | | 111 | | | | 2,064 | | | | — | | | | — | | | | 2,175 | |
Restructuring, impairment and other charges | | | — | | | | 9,708 | | | | 41 | | | | — | | | | — | | | | 9,749 | |
Operating income (loss) | | | — | | | | (4,781 | ) | | | 26,758 | | | | 1,003 | | | | — | | | | 22,980 | |
Interest expense, net | | | — | | | | 26,560 | | | | 437 | | | | (19 | ) | | | — | | | | 26,978 | |
Intercompany interest expense (income) | | | — | | | | (944 | ) | | | 944 | | | | — | | | | — | | | | — | |
Other expense, net | | | — | | | | 186 | | | | 275 | | | | — | | | | — | | | | 461 | |
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries | | | — | | | | (30,583 | ) | | | 25,102 | | | | 1,022 | | | | — | | | | (4,459 | ) |
Income tax expense (benefit) | | | — | | | | (3,823 | ) | | | 2,107 | | | | — | | | | — | | | | (1,716 | ) |
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries | | | — | | | | (26,760 | ) | | | 22,995 | | | | 1,022 | | | | — | | | | (2,743 | ) |
Equity in income of unconsolidated subsidiaries | | | (3,399 | ) | | | 24,017 | | | | 1,022 | | | | — | | | | (21,640 | ) | | | — | |
Income (loss) from continuing operations | | | (3,399 | ) | | | (2,743 | ) | | | 24,017 | | | | 1,022 | | | | (21,640 | ) | | | (2,743 | ) |
Loss from discontinued operations, net of taxes | | | — | | | | (656 | ) | | | — | | | | — | | | | — | | | | (656 | ) |
Net income (loss) | | $ | (3,399 | ) | | $ | (3,399 | ) | | $ | 24,017 | | | $ | 1,022 | | | $ | (21,640 | ) | | $ | (3,399 | ) |
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- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Net sales | | $ | — | | | $ | 887,015 | | | $ | 567,667 | | | $ | 7,593 | | | $ | — | | | $ | 1,462,275 | |
Cost of sales | | | — | | | | 726,897 | | | | 437,981 | | | | 5,984 | | | | — | | | | 1,170,862 | |
Selling, general and administrative | | | — | | | | 119,363 | | | | 48,508 | | | | 302 | | | | — | | | | 168,173 | |
Amortization of intangible assets | | | — | | | | 3,633 | | | | 3,612 | | | | — | | | | — | | | | 7,245 | |
Restructuring and impairment charges | | | — | | | | 32,019 | | | | 75 | | | | — | | | | — | | | | 32,094 | |
Operating income | | | — | | | | 5,103 | | | | 77,491 | | | | 1,307 | | | | — | | | | 83,901 | |
Gain on sale of business | | | — | | | | (189 | ) | | | — | | | | — | | | | — | | | | (189 | ) |
Interest expense (income), net | | | — | | | | 61,997 | | | | 1,096 | | | | (2 | ) | | | — | | | | 63,091 | |
Intercompany interest expense (income) | | | — | | | | (2,061 | ) | | | 2,061 | | | | — | | | | — | | | | — | |
Loss on early extinguishment of debt | | | — | | | | 9,186 | | | | 70 | | | | — | | | | — | | | | 9,256 | |
Other expense, net | | | — | | | | 898 | | | | 969 | | | | 198 | | | | — | | | | 2,065 | |
Income (loss) from continuing operations before income taxes and equity in income of unconsolidated subsidiaries | | | — | | | | (64,728 | ) | | | 73,295 | | | | 1,111 | | | | — | | | | 9,678 | |
Income tax expense | | | — | | | | 213 | | | | 2,605 | | | | — | | | | — | | | | 2,818 | |
Income (loss) from continuing operations before equity in income of unconsolidated subsidiaries | | | — | | | | (64,941 | ) | | | 70,690 | | | | 1,111 | | | | — | | | | 6,860 | |
Equity 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 | ) | | | 6,860 | |
Income from discontinued operations, net of taxes | | | — | | | | 15,142 | | | | — | | | | — | | | | — | | | | 15,142 | |
Net income (loss) | | $ | 22,002 | | | $ | 22,002 | | | $ | 71,801 | | | $ | 1,111 | | | $ | (94,914 | ) | | $ | 22,002 | |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16.13. Condensed Consolidating Financial Information (Continued)
CENVEO, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NineFor the three months ended SeptemberMarch 29, 20072008
(in thousands)
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | |
Net cash provided by (used in) continuing operating activities | | $ | 7,166 | | | $ | 13,428 | | | $ | 36,149 | | | $ | 2,459 | | | $ | — | | | $ | 59,202 | |
Net cash provided by discontinued operating activities | | | — | | | | 2,198 | | | | — | | | | — | | | | — | | | | 2,198 | |
Net cash provided by (used in) operating activities | | | 7,166 | | | | 15,626 | | | | 36,149 | | | | 2,459 | | | | — | | | | 61,400 | |
Cash 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 | | | | — | | | | — | | | | 4,851 | |
Proceeds from divestitures, net | | | — | | | | 226 | | | | — | | | | — | | | | — | | | | 226 | |
Net 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 | | | | — | | | | — | | | | — | | | | 73,628 | |
Net 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 | | | | — | | | | — | | | | — | | | | 92,500 | |
Repayment 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 8⅜% senior subordinated notes | | | — | | | | (20,880 | ) | | | — | | | | — | | | | — | | | | (20,880 | ) |
Repayment of 9⅝% 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 | | | | — | | | | — | | | | — | | | | 720,000 | |
Proceeds from senior unsecured loan | | | — | | | | 175,000 | | | | — | | | | — | | | | — | | | | 175,000 | |
Proceeds from exercise of stock options | | | 300 | | | | — | | | | — | | | | — | | | | — | | | | 300 | |
Purchase 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 | | | | 516,819 | |
Effect of exchange rate changes on cash and cash equivalents of continuing operations | | | — | | | | — | | | | 180 | | | | — | | | | — | | | | 180 | |
Net increase (decrease) in cash and cash equivalents | | | — | | | | 1,679 | | | | (1,583 | ) | | | 1,058 | | | | — | | | | 1,154 | |
Cash and cash equivalents at beginning of period | | | — | | | | 8,655 | | | | 1,903 | | | | — | | | | — | | | | 10,558 | |
Cash and cash equivalents at end of period | | $ | — | | | $ | 10,334 | | | $ | 320 | | | $ | 1,058 | | | $ | — | | | $ | 11,712 | |
| | Parent | | | Subsidiary | | | Guarantor | | | Non- Guarantor | | | | | | | |
| | Company | | | Issuer | | | Subsidiaries | | | Subsidiaries | | | Eliminations | | | Consolidated | |
Cash flows from operating activities: | | | | | | | | | | | | | | | | | | |
Net cash provided by operating activities | | $ | 2,692 | | | $ | 13,903 | | | $ | 37,668 | | | $ | 168 | | | $ | — | | | $ | 54,431 | |
Cash flows from investing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Intercompany note | | | — | | | | 683 | | | | — | | | | — | | | | (683 | ) | | | — | |
Capital expenditures | | | — | | | | (1,712 | ) | | | (7,385 | ) | | | — | | | | — | | | | (9,097 | ) |
Proceeds from sale of property, plant and equipment | | | — | | | | 195 | | | | 153 | | | | — | | | | — | | | | 348 | |
Net cash used in investing activities | | | — | | | | (834 | ) | | | (7,232 | ) | | | — | | | | (683 | ) | | | (8,749 | ) |
Cash flows from financing activities: | | | | | | | | | | | | | | | | | | | | | | | | |
Repayments under revolving credit facility, net | | | — | | | | (45,200 | ) | | | — | | | | — | | | | — | | | | (45,200 | ) |
Proceeds from exercise of stock options | | | 288 | | | | — | | | | — | | | | — | | | | — | | | | 288 | |
Repayments of term loans | | | — | | | | (1,800 | ) | | | — | | | | — | | | | — | | | | (1,800 | ) |
Repayments of other long-term debt | | | — | | | | (97 | ) | | | (1,709 | ) | | | — | | | | — | | | | (1,806 | ) |
Intercompany note | | | — | | | | — | | | | (683 | ) | | | — | | | | 683 | | | | — | |
Intercompany advances | | | (2,980 | ) | | | 29,630 | | | | (26,841 | ) | | | 191 | | | | — | | | | — | |
Net cash (used in) provided by financing activities | | | (2,692 | ) | | | (17,467 | ) | | | (29,233 | ) | | | 191 | | | | 683 | | | | (48,518 | ) |
Effect of exchange rate changes on cash and cash equivalents | | | — | | | | — | | | | 9 | | | | — | | | | — | | | | 9 | |
Net (decrease) increase in cash and cash equivalents | | | — | | | | (4,398 | ) | | | 1,212 | | | | 359 | | | | — | | | | (2,827 | ) |
Cash and cash equivalents at beginning of year | | | — | | | | 13,091 | | | | 882 | | | | 1,909 | | | | — | | | | 15,882 | |
Cash and cash equivalents at end of quarter | | $ | — | | | $ | 8,693 | | | $ | 2,094 | | | $ | 2,268 | | | $ | — | | | $ | 13,055 | |
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,January 3, 2009, which we refer to as our 2008 Form 10-K. Item 7 of our 2008 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of September 27, 2008.March 28, 2009.
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) a decline of our consolidated or individual reporting units operating performance as a result of the current economic environment could affect the results of our operations and financial position, including the impairment of our goodwill and other long-lived assets; (ii) our substantial indebtedness could impair our financial condition and prevent us from fulfilling our business obligations; (ii)(iii) our ability to service or refinance our debt; (iii)(iv) the terms of our indebtedness imposing significant restrictions on our operating and financial flexibility; (iv) limitations on(v) additional borrowings that are available to us that could further exacerbate our risk exposure from debt; (v)(vi) our ability to successfully integrate acquisitions; (vi)(vii) intense competition in our industry; (vii)(viii) the absence of long-term customer agreements in our industry, subjecting our business to quarterly and cyclical fluctuations; (viii)(ix) factors affecting the U.S. postal services impacting demand for our products; (ix)(x) the availability of the Internet and other electronic media affecting demand for our products; (x)(xi) increases in paper costs and decreases in its availability; (xi)(xii) our labor relations; (xii)(xiii) compliance with environmental rules and regulations; and (xiii)(xiv) 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’sour 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 third largest diversified printing companiescompany 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 7870 printing and manufacturing, content management and distribution facilities, which we refer to as manufacturing facilities, serving a diverse base of over 100,000 customers. Since current management took over in late 2005, we have consolidated and closed plants, centralized and leveraged our purchasing spend, sought operational efficiencies and reduced corporate and field staff. In addition, we have made investments in our businesses through acquisition of highly complementary companies and capital expenditures, while also divesting non-strategic businesses.
We operate our business in two complementary segments: envelopes, forms and labels and commercial printing.
Envelopes, Forms and Labels
We are a leading North American direct mail envelope manufacturer, a leading forms and labels provider, and the largest North American prescription labels manufacturer for the retail pharmacy chains. Our envelopes, forms and labels segment represented approximately 44% of our net sales for the three months ended March 28, 2009. The segment operates approximately 3830 manufacturing facilities primarily in North America and primarily specializes in the design, manufacturing and 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. | · | direct mail and customized envelopes for advertising, billing and remittance; |
| · | custom labels and specialty forms; and |
| · | stock envelopes, labels and business forms. |
On February 12, 2007, we acquired allOur envelopes, forms and labels segment serves customers ranging from Fortune 50 companies to middle market and small companies serving niche markets. We offer direct mail products used for customer solicitations and custom envelopes used for billing and remittance by end users including banks, brokerage firms and credit card companies in addition to a broad group of the stockother customers in varying industries. We manufacture and print customized envelopes used as inserts within wholesale and retail product catalogs. We print a diverse line of Printegra, a leading producer of printed business communication documents,custom labels and envelopes regularly used byspecialty forms for a broad range of industries including manufacturing, warehousing, packaging, food and beverage, and health and beauty, which we sell through an extensive network of resale distributors. We produce a diverse line of custom products for our small and mid-size business forms and labels customers, including both traditional and specialty forms and labels for use with desktop PCs and laser printers. Our printed office products include business documents, specialty documents and short-run secondary labels, which are made of paper or film affixed with pressure sensitive adhesive and are used for mailing, messaging, bar coding and other applications by large businesses. Prior to our acquisition, Printegra had annual revenuesthrough smaller-sized customers across a wide spectrum of approximately $90 million. Withindustries. We produce pressure-sensitive prescription labels for the acquisitionretail pharmacy chain market. We also produce a broad line of Printegra, we expanded our offerings of short-run documents,stock envelopes, labels and envelope products. Additionally,traditional business forms that are sold through independent distributors, contract stationers, national catalogs for the acquisition facilitates access for Printegra’s historical customer base to our extensive product offerings.office products market and office products superstores.
Commercial Printing
OurWe are one of the leading commercial printing segment operates approximately 40 manufacturing facilitiescompanies in North America and one of the United States, Canada, the Caribbean Basinlargest providers of editorial, content processing 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)production assistance to scientific, technical and medical publishers, 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.publishers. In the second quarter of 2008, we grewadded to 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$40.0 million. Our commercial printing segment represented approximately 56% of our net sales for the three months ended March 28, 2009. The segment operates approximately 40 manufacturing facilities in the United States, Canada, Latin America and Asia and provides one-stop print, design and content management offerings, including:
| · | high-end color printing of a wide range of premium products for national and regional customers; |
| · | general commercial printing for regional and local customers; |
| · | STM publishers and special interest and trade magazines for not-for-profit organizations, educational institutions and specialty publishers; and |
| · | specialty packaging and high quality promotional materials for multinational consumer products companies. |
On July 9, 2007, we acquired allOur commercial printing segment primarily serves the consumer products, pharmaceutical, financial services, publishing and telecommunications industries, with customers ranging from Fortune 50 companies to middle market and small companies operating in niche markets. We provide a wide array of the stock of ColorGraphics, which was one of the largest commercial printers in the western United States. Priorprint offerings to our acquisition, ColorGraphics had annual revenuescustomers including electronic prepress, digital asset archiving, direct-to-plate technology, high-quality color printing on web and sheet-fed presses and digital printing. The broad array of approximately $170 million. ColorGraphics produces printedcommercial printing products we produce also includes annual reports, booklets,car brochures, advertising inserts, direct mail products, specialty packaging, journals and otherspecialized periodicals, advertising literature, corporate communication materials.
On March 7, 2007,identity materials, financial printing, books, directories, calendars, brand marketing materials, catalogs, and maps. In our journal and specialty magazine business, we acquired all of the stock of Cadmus. Cadmus is one of the world’s largest providers ofoffer complete solutions, including editing, content processing, content management, electronic peer review, production and printing to STM journal publishers, one of the largest periodicals printers in North America and a leading provider ofreprint marketing. Our primary customers for our specialty packaging and promotional printing products. Prior to our acquisition, Cadmus had annual revenues of approximately $450 million.products are pharmaceutical, apparel, technology and other large multi-national consumer product companies.
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 periodsperiod ended September 27, 2008March 28, 2009 followed by a discussion of the results of each of our reportablereported segments for the same periods. See Note 2 of our condensed consolidated financial statements included herein.period. Our results for the three and nine month periodsperiod ended September 27,March 29, 2008 did not include the operating results of Rex from March 31, 2008. Our results forRex.
In the three and nine month periods ended September 29, 2007 includefirst quarter of 2009, the operatingeconomic downturn that accelerated in the second half of 2008 continued to significantly impact the results of Printegra, Cadmus, ColorGraphicsour operations. Our commercial printing segment experienced volume declines as compared to the prior year in substantially all of the markets we serve primarily due to the economic downturn and Commercial Envelope, whichexcess capacity and intense pricing pressures. Our envelopes, forms and labels segment experienced volume declines as compared to the prior year primarily due to the economic downturn and our financial services customers who historically reached targeted customers via our direct mail capabilities suspending this practice. In order to compete effectively in this current environment, we refercontinue to as the 2007 Acquisitions, subsequent to their respective acquisition dates, except for ColorGraphics, which is includedfocus on improving productivity and creating operating efficiencies by reducing our costs. For example, in our operating results from July 1, 2007. Since these acquisitions occurred during the first quarter of 2009, we reduced our employee headcount by approximately 400 primarily resulting from the closure of three envelope plants and third quarters of 2007, their results are not included for a full nine month period in 2007. In addition, Commercial Envelope is included incommercial printing plant and consolidating them into existing operations.
The current U.S. and global economic conditions have affected and, most likely, will continue to affect our results of operations and financial position. These uncertainties about future economic conditions in a very challenging environment make it more difficult for only a portionus to forecast our future operating results. We are pursuing additional cost savings opportunities in an effort to mitigate the impacts of the three months ended September 29, 2007current economic conditions. As a result, we are developing plans for additional plant closures and/or consolidations and Rexemployee headcount reductions to ensure our cost structure is not included inaligned with our results of operations in 2007.estimated net sales.
A summary of our condensed consolidated statements of operations is presented below. The summary presents reported net sales and operating income.income (loss). See Segment Operations below for a summary of net sales and operating income (loss) of our reportableoperating 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.month. The reporting periods in this report consist of the 12 weeks ending on September 27, 2008March 28, 2009 and Septemberthe 13 weeks ending on March 29, 2007 consist of 13 weeks.2008.
| | Three Months Ended | | | Nine Months Ended | |
| | September 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 | | | $ | 1,462,275 | |
Operating income (loss): | | | | | | | | | | | | | | | | |
Envelopes, forms and labels | | | 35,947 | | | | 30,225 | | | | 93,807 | | | | 80,712 | |
Commercial printing | | | 23,056 | | | | 7,605 | | | | 47,598 | | | | 31,189 | |
Corporate | | | (10,827 | ) | | | (10,119 | ) | | | (34,098 | ) | | | (28,000 | ) |
Total operating income | | | 48,176 | | | | 27,711 | | | | 107,307 | | | | 83,901 | |
Gain on sale of non-strategic business | | | — | | | | (189 | ) | | | — | | | | (189 | ) |
Interest expense, net | | | 26,795 | | | | 25,283 | | | | 79,948 | | | | 63,091 | |
Loss (gain) on early extinguishment of debt | | | (371 | ) | | | 51 | | | | 3,871 | | | | 9,256 | |
Other expense (income), net | | | (695 | ) | | | 899 | | | | 429 | | | | 2,065 | |
Income from continuing operations before income taxes | | | 22,447 | | | | 1,667 | | | | 23,059 | | | | 9,678 | |
Income tax expense (benefit) | | | 10,060 | | | | (844 | ) | | | 10,349 | | | | 2,818 | |
Income from continuing operations | | | 12,387 | | | | 2,511 | | | | 12,710 | | | | 6,860 | |
(Loss) income from discontinued operations, net of taxes | | | (59 | ) | | | (810 | ) | | | (1,114 | ) | | | 15,142 | |
Net income | | $ | 12,328 | | | $ | 1,701 | | | $ | 11,596 | | | $ | 22,002 | |
Income (loss) per share—basic: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.23 | | | $ | 0.04 | | | $ | 0.24 | | | $ | 0.13 | |
Discontinued operations | | | — | | | | (0.01 | ) | | | (0.02 | ) | | | 0.28 | |
Net income | | $ | 0.23 | | | $ | 0.03 | | | $ | 0.22 | | | $ | 0.41 | |
| | | | | | | | | | | | | | | | |
Income (loss) per share—diluted: | | | | | | | | | | | | | | | | |
Continuing operations | | $ | 0.23 | | | $ | 0.04 | | | $ | 0.23 | | | $ | 0.12 | |
Discontinued operations | | | — | | | | (0.01 | ) | | | (0.02 | ) | | | 0.28 | |
Net income | | $ | 0.23 | | | $ | 0.03 | | | $ | 0.21 | | | $ | 0.40 | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
| | (in thousands, except per share amounts) |
Net sales | | $ | 412,100 | | | $ | 534,328 | |
Operating income (loss): | | | | | | | | |
Envelopes, forms and labels | | | 8,406 | | | | 25,626 | |
Commercial printing | | | 1,430 | | | | 11,278 | |
Corporate | | | (9,615 | ) | | | (13,924 | ) |
Total operating income | | | 221 | | | | 22,980 | |
Interest expense, net | | | 22,545 | | | | 26,978 | |
Gain on early extinguishment of debt | | | (17,642 | ) | | | — | |
Other expense, net | | | 35 | | | | 461 | |
Loss from continuing operations before income taxes | | | (4,717 | ) | | | (4,459 | ) |
Income tax benefit | | | (530 | ) | | | (1,716 | ) |
Loss from continuing operations | | | (4,187 | ) | | | (2,743 | ) |
Loss from discontinued operations, net of taxes | | | (124 | ) | | | (656 | ) |
Net loss | | $ | (4,311 | ) | | $ | (3,399 | ) |
Loss per share−basic and diluted: | | | | | | | | |
Continuing operations | | $ | (0.08 | ) | | $ | (0.05 | ) |
Discontinued operations | | | — | | | | (0.01 | ) |
Net loss | | $ | (0.08 | ) | | $ | (0.06 | ) |
Net Sales
Net sales decreased $27.9$122.2 million in the thirdfirst quarter of 2008,2009, as compared to the thirdfirst quarter of 2007. This decrease was primarily2008, due to lower sales from our commercial printing segment of $29.8$66.5 million primarily as a resultand from our envelopes, forms and labels segment of lower volumes$55.7 million. These decreases were primarily due to general economic conditionshaving one less week in the first quarter of 2009, as compared to the first quarter of 2008, and plant closures, partially offset by price increases net ofvolume declines, pricing pressures and 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 tocurrent 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 $20.5decreased $22.8 million in the thirdfirst quarter of 2008,2009, as compared to the thirdfirst quarter of 2007.2008. This increasedecrease was primarily due to (i) decreased restructuringdecreases in operating income from our envelopes, forms and impairment chargeslabels segment of $13.4$17.2 million (ii) lower selling, general and administrative expensesfrom our commercial printing segment of $5.2 million primarily due to our cost savings programs and (iii) increased gross margins of $1.3 million$9.8 million. These declines were primarily due to the acquisition of Rex, which was not included in our results infact that the thirdfirst quarter of 2007 and Commercial Envelope, which was included in our results for only a portion of2009 had one less week than the thirdfirst quarter of 20072008, 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.
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,current 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.economic conditions. See Segment Operations below for a more detailed discussion of the primary factors for ourthe changes in operating income by reportable segment.
Interest Expense.Expense
Interest expense increased $1.5decreased $4.4 million to $26.8$22.5 million in the thirdfirst quarter of 2008,2009, as compared to $25.3$27.0 million in the thirdfirst quarter of 2007,2008. This decrease in 2009 was primarily due to the additionalrepayments of our long-term debt, we incurred to finance the Rex and Commercial Envelope acquisitions, partially offset by lower interest rates.rates and the fact that there was one less week of interest expense. Interest expense in the thirdfirst quarter of 20082009 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 million7.0%, as compared 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 million7.3% in the first nine monthsquarter of 2008. This loss primarily resulted from the conversionAs a result of the $175.0 millionamendment to our existing senior unsecured loan due 2015,secured credit facilities, which we refer to as the Senior Unsecured Loan,Amended Credit Facilities, which became effective on April 24, 2009, we expect to have higher interest expense for the remainder of 2009.
Gain on Early Extinguishment of Debt
In the first quarter of 2009, we repurchased and retired principal amounts of approximately $32.7 million of our 8⅜% senior subordinated notes due 2014, which we refer to as the issuance8⅜% Notes; $5.0 million of the $175.0 millionour 10½% senior notes, due 2016, which we refer to as the 10½% Notes; and $5.0 million of our 7⅞% senior subordinated notes, due 2013, which we refer to as the 7⅞% Notes, in the second quarter of 2008.
We recorded a lossand recognized gains on early extinguishment of debt of approximately $9.3 million in$17.6 million.
Income Taxes
| | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
| | (in thousands) | |
Income tax benefit from U.S. operations | | $ | (644 | ) | | $ | (1,745 | ) |
Income tax expense from foreign operations | | | 114 | | | | 29 | |
Income tax benefit | | $ | (530 | ) | | $ | (1,716 | ) |
Effective income tax rate | | | 11.2 | % | | | 38.5 | % |
In the first nine months of 2007. This loss resulted from retiring our remaining 9⅝% senior notes due 2012, which we refer to as the 9⅝% Notes in the second quarter of 2007 and the refinancing2009, we had an income tax benefit of our existing $525$0.5 million, senior secured credit facilities, which we refercompared to as the Credit Facilities and as a resultan income tax benefit of the tender offer for and repayment of $20.9$1.7 million of Cadmus’ 8⅜% Senior Subordinated Notes due 2014, which we refer to as the 8⅜% Notes in the first quarter of 2007.
Income Taxes
| | Three Months Ended | | | Nine Months Ended | |
| | September 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 | | | $ | 2,337 | |
Income tax expense (benefit) for foreign operations | | | 105 | | | | (216 | ) | | | 390 | | | | 481 | |
Income tax expense (benefit) | | $ | 10,060 | | | $ | (844 | ) | | $ | 10,349 | | | $ | 2,818 | |
Effective income tax rate | | | 44.8 | % | | | (50.6) | % | | | 44.9 | % | | | 29.1 | % |
Our income tax expense2008, which primarily relates to income tax benefits from taxes on our domestic operations.operations, partially offset by discrete items. Our effective tax rate for all periods in 2008 and 2007the first quarter of both years was higherlower than the federal statutory rate, primarily due to non-deductible expenses and state taxes and other permanent items.income taxes.
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 oura valuation allowance. As of September 27, 2008,March 28, 2009, the total valuation allowance on our net U.S. deferred tax assets was approximately $30.8$28.1 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.
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.(loss).
Envelopes, Forms and Labels
| | Three Months Ended | | | Nine Months Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
| | (in thousands) | | | (in thousands) | |
| | $ | 224,616 | | | $ | 222,671 | | | $ | 690,630 | | | $ | 647,074 | |
| | $ | 35,947 | | | $ | 30,225 | | | $ | 93,807 | | | $ | 80,712 | |
| | | 16.0 | % | | | 13.6 | % | | | 13.6 | % | | | 12.5 | % |
Restructuring and impairment charges | | $ | 2,244 | | | $ | 4,134 | | | $ | 4,766 | | | $ | 9,808 | |
| | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
| | (in thousands) | |
| | $ | 182,431 | | | $ | 238,137 | |
Segment operating income | | | 8,406 | | | | 25,626 | |
Operating income margin | | | 4.6 | % | | | 10.8 | % |
Restructuring and impairment charges | | $ | 4,756 | | | $ | 1,655 | |
Segment Net Sales
Segment net sales for our envelopes, forms and labels segment increased $1.9decreased $55.7 million, or 0.9%23.4%, in the thirdfirst quarter of 2008,2009, as compared to the thirdfirst quarter of 2007.2008. This increasedecrease was primarily due to (i)lower sales volume of approximately $60.9 million, primarily due to having one less week in 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 thirdfirst quarter of 2007,2009, as compared to the first quarter of 2008, and (ii)current general economic conditions which have had a significant impact on our envelope business, for which we have seen a shift from direct mail and customized envelopes to generic transactional envelopes. As a result of current conditions, in March of 2009 we closed and consolidated three envelope plants into existing operations. This decrease was offset in part by higher sales of approximately $10.7$5.2 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 $5.7decreased $17.2 million, or 18.9%67.2%, in the thirdfirst quarter of 2008,2009, as compared to the thirdfirst quarter of 2007.2008. This increasedecrease was primarily due to (i) increasedlower gross margins of $3.5$18.8 million primarily due to having one less week in the first quarter of 2009, as compared to the first quarter of 2008, and the current general economic conditions, which has resulted in pricing pressure and product mix changes from high color direct mail envelopes to transactional envelope products and increased restructuring and impairment charges of $3.1 million, primarily due to the Commercial Envelope acquisition, which was included for only a portionclosure of the third quarter of 2007 and our cost savings programs,three envelope plants. These decreases were partially 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$4.7 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 tolower commission expenses resulting from lower sales.
(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 Ended | |
| | September 27, 2008 | | | September 29, 2007 | | | September 27, 2008 | | | September 29, 2007 | |
| | (in thousands) | | | (in thousands) | |
| | $ | 298,089 | | | $ | 327,930 | | | $ | 890,904 | | | $ | 815,201 | |
| | $ | 23,056 | | | $ | 7,605 | | | $ | 47,598 | | | $ | 31,189 | |
| | | | % | | | | % | | | | % | | | 3.8 | % |
Restructuring and impairment charges | | $ | 4,395 | | | $ | 15,996 | | | $ | 10,082 | | | $ | | |
| | |
| | Three Months Ended | |
| | March 28, 2009 | | | March 29, 2008 | |
| | (in thousands) | |
| | $ | 229,669 | | | $ | 296,191 | |
Segment operating income | | $ | 1,430 | | | $ | | |
Operating income margin | | | 0.6 | % | | | 3.8 | % |
Restructuring and impairment charges | | $ | 3,859 | | | $ | | |
Segment Net Sales
Segment net sales for our commercial printing segment decreased $29.8$66.5 million, or 9.1%22.5%, in the thirdfirst quarter of 2008,2009, as compared to the thirdfirst quarter of 2007.2008. This decrease was primarily due to lower sales (i) of approximately $11.5$76.5 million resulting from plant closureshaving one less week in 2007the first quarter of 2009, as compared to the first quarter of 2008 and (ii) of approximately $26.0 million from pricing pressures, volume declines and changes in product mix, primarily due to current general economic conditions, offset in part by higher sales due to material price increases. This decrease was partially offset by $7.7$10.0 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 monthsquarter 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.2008.
Segment Operating Income
Segment operating income for our commercial printing segment increased $15.5decreased $9.8 million, or 203.2%87.3%, in the thirdfirst quarter of 2008,2009, as compared to the thirdfirst quarter of 2007.2008. This increasedecrease was primarily due to (i) decreased restructuring and impairment chargeslower gross margins of $11.6 million (ii) lower selling, general and administrative expenses of $6.0approximately $14.6 million primarily due to our cost savings programs, offset in part by the Rex acquisition, which was not included in our resultshaving one less week in the thirdfirst quarter of 20072009, as compared to the first quarter of 2008, and (iii) lower amortization expense of $1.1 million. This increase wasthe current general economic conditions, which has resulted in pricing pressure and product mix changes from high color to transactional commercial print products, partially 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 byfrom Rex, as Rex was not included in our results in the thirdfirst quarter of 2007.
Segment operating income for our commercial printing segment2008, and 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$2.5 million primarily due to the acquisitionclosure and consolidation of Rex, ColorGraphicsa print plant into other operations in March of 2009. These decreases were partially offset by lower selling, general and Cadmus,administrative expenses of $7.3 million primarily due to our cost reduction programs and lower commission expenses resulting from lower sales, partially offset by selling, general and administrative expenses of Rex, as Rex was not included in our results in the first nine monthsquarter 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.2008.
Corporate Expenses. Corporate expenses include the costs of running our corporate headquarters. Corporate expenses were lower in the thirdfirst quarter of 2008 were slightly higher than the third quarter of 2007. Corporate expenses were higher in the nine months ended September 27, 2008,2009, as compared to the nine months ended September 29, 2007,first quarter of 2008, primarily due to the $6.7 million non-recurring charge incurred in 2008 for professional fees in connection with thean internal review conducted by our audit committee.committee, offset in part by higher stock-based compensation expense.
Restructuring, Impairment and Other Charges.Charges
In the fourthfirst quarter of 2007,2009, we completed ourdeveloped and implemented a cost savings and restructuring plan, initiated in September 2005, includingwhich we refer to as the consolidation of purchasing activities, the rationalization of2009 Plan, to reduce our operating costs and realign our manufacturing platform corporatein order to compete effectively during the current economic downturn. As a result, in the first quarter of 2009, we closed four manufacturing facilities and field human resourcesreduced headcount by approximately 400. We anticipate further headcount 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 operationsplant closures in 2009. In April 2009, we announced the closure of a commercial printing plant on the West Coast, which is being consolidated into other existing operations. As of September 27, 2008,March 28, 2009, our total restructuring liability was $16.4$15.8 million.
InDuring the thirdfirst quarter of 2008,2009, we incurred $6.9$8.7 million of restructuring, impairment and impairmentother charges, which included $3.9$5.4 million of employee separation costs, asset impairment chargesimpairments, net of $0.8$2.7 million, equipment moving expenses of $0.4$0.2 million, lease termination expenses of $0.6 million, the decrease of a pension withdrawal liability of $(0.2)$0.3 million, and building clean-up and other expenses of $1.4$0.1 million. During the nine months ended September 27,first quarter of 2008, we incurred $22.0$9.7 million of restructuring, impairment and other charges, which included a $6.7 million non-recurring charge for professional fees related to thean internal review initiated by our audit committee, $7.9$1.7 million of employee separation costs, asset impairment charges,impairments, net of $1.5$(0.3) million which includes the gain on sale of equipment, equipment moving expenses of $1.0$0.4 million, lease termination expenses of $2.0 million, the decrease of a pension withdrawal liability of $(0.2)$0.4 million, and building clean-up and other expenses of $3.2$0.9 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.25
Liquidity and Capital Resources
Net Cash Provided by Continuing Operating Activities. Net cash provided by continuing operating activities was $149.4$36.4 million in the first ninethree months of 2008,2009, which was primarily due to a decrease in our working capital of $34.7 million and net income adjusted for non-cash items of $100.4 million and a decrease in our working capital of $54.5$3.3 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 and lower sales due to one less week in the timingfirst quarter of interest payments on our debt2009, as compared to 2008, and an increasea decrease in accounts payableinventories, primarily due to the timing of payments towork performed for our vendors, offset in part by lower accrued compensation and other related liabilities due to headcount reductions.customers.
Net cash provided by continuing operating activities was $59.2$54.4 million in the first ninethree months of 2007,2008, which was primarily due to a decrease in our working capital of $34.6 million and net income adjusted for non-cash items of $97.6 million, offset in part by an increase in our working capital of $33.5$22.9 million. The increasedecrease in our working capital primarily resulted from a decrease in receivables primarily due to the timing of collections and the timing of sales to our customers and the timing of interest payments, partially offset by 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.customers.
Net Cash Used in Investing Activities. Net cash used in investing activities was $70.3$8.8 million and $8.7 million in the first ninethree months of 2009 and 2008, respectively, 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.expenditures.
Net cash used in investing activities was $577.2 million in the first nine months of 2007, primarily resulting from the $627.1 million cost of the 2007 Acquisitions and capital expenditures of $25.2 million, offset in part by $73.6 million of cash proceeds from the sale of our remaining interest in the Fund.
Net Cash (Used in) Provided byUsed in Financing Activities. Net cash used in financing activities was $81.1$27.7 million in the first ninethree months of 2008,2009, primarily resulting fromdue to (i) the conversionrepayment of $19.3 million of term loans under our term loan and delayed-draw term loan facility, which collectively we refer to as the Term Loans, primarily related to our excess cash flow sweep requirement under our Amended Credit Facilities, (ii) repurchases of $19.0 million, $3.3 million and $3.1 million of our $175.0 million Senior Unsecured Loan, net repayments8⅜% Notes, 10½% Notes, and 7⅞% Notes, respectively, and (iii) the repayment of our revolving credit facility of $65.2 million, payments of our other long-term debt of $16.5$2.2 million, our term loans of $5.4 million and $5.3 million for debt issuance costs on the issuance of our 10½% Notes, which was offset in part by the proceeds fromon borrowings under our revolving credit facility, which we refer to as the issuance Revolving Credit Facility, of our $175.0 million 10½% Notes and $11.3 million of borrowings of our other long-term debt.$19.8 million.
Net cash provided byused in financing activities was $516.8$48.5 million in the first ninethree months of 2007,2008, primarily due to the repayment of our debt-financed acquisitionsRevolving Credit Facility of Cadmus, ColorGraphics and Commercial Envelope and our refinancing using proceeds from$45.2 million, our term loans of $720.0$1.8 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 8⅜% notes, (iv) $10.5 million of our 9⅝% senior notes, (v) $3.1 million of term loans, and (vi) $27.0$1.8 million of other long-term debt and $8.0 million of payments of refinancing fees, redemption premiums and expensesdebt.
Cash provided by operating activities is generally sufficient to meet daily disbursement needs. On days when our cash receipts exceed disbursements, we reduce our revolving credit balance or place excess funds in conservative, short-term investments until there is an opportunity to pay down debt. On days when our cash disbursements exceed cash receipts, we use invested cash balances and/or our revolving credit to fund the difference. As a result, our daily revolving credit balance fluctuates depending on the extinguishment of debt and $5.9 million of debt issuance cost payments in connection withworking capital needs. Regardless, at all times we believe we have sufficient liquidity available to us to fund our debt refinancing and the issuance of debt.cash needs.
Long-Term Debt. Our total outstanding long-term debt, including current maturities, was approximately $1.4$1.3 billion at September 27, 2008,as of March 28, 2009, a decrease of $68.6$45.1 million from December 29, 2007.January 3, 2009. This decrease was primarily due toto: (i) paying down our debt with cash flows provided by operating activities and proceeds from(ii) the salerepurchase of assets.a portion of our 8⅜% Notes, 10½% Notes and 7⅞% Notes during the first quarter of 2009. As of September 27, 2008,March 28, 2009, approximately 89%90% 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. See the remainder of this Long-Term Debt section that follows. As of November 3, 2008,May 4, 2009, we had approximately $102.6$37.6 million of borrowing availability under our revolving credit facility.Revolving Credit Facility.
10½Extinguishments
During the first quarter of 2009, we purchased in the open market and retired principal amounts of approximately $32.7 million, $5.0 million and $5.0 million of our 8⅜% Notes,
On June 13, 2008, we issued $175.0 million 10½% Notes to Lehman Brothers Commercial Paper, Inc. upon the conversion of our $175.0 million Senior Unsecured Loan. The 10½and 7⅞% Notes, were then sold to qualified institutional buyers in accordance with Rule 144A,respectively, for approximately $19.0 million, $3.3 million 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 10½% Notes were issued pursuant to an indenture among us, certain guarantors and U.S. Bank National Association, as trustee. The 10½% Notes pay interest semi-annually on February 15 and August 15, commencing August 15, 2008. The 10½% Notes have no required principal payments prior to their maturity on August 15, 2016. The 10½% Notes constitute senior unsecured obligations and are guaranteed by us and substantially all of our North American subsidiaries. We can redeem the 10½% Notes, in whole or in part, on or after August 15, 2012, at redemption prices ranging from 100% to 105¼%,$3.1 million, respectively, plus accrued and unpaid interest. In addition, at any time priorconnection with these repurchases, we recorded gains on early extinguishment of debt of $17.6 million, which included the write-off of $0.6 million of fair value increase related to August 15, 2011,the 8⅜% Notes, $0.2 million of previously unamortized debt issuance costs and fees paid of $0.1 million. These open market purchases were made within permitted restricted payment limits under our debt agreements.
From March 29, 2009 through April 8, 2009, we may redeem up to 35%purchased in the open market and retired principal amounts of the aggregate principal amountapproximately $7.4 million of the notes originally issued at a redemption priceour 8⅜% Notes and approximately $2.1 million of 110½our 7⅞% of the principal amount thereof,Notes for approximately $4.1 million and $1.2 million, respectively, plus accrued and unpaid interestinterest. In connection with these purchases, we will record gains on early extinguishment of debt of approximately $4.3 million during the net cash proceedssecond quarter of certain public equity offerings. Each holder2009. These open market purchases were all made within permitted restricted payment limits under our debt agreements at the time of the 10½% 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 10½% Notes contains covenants, representations, and warranties substantially similar to our existing 7⅞% Senior Subordinated Notes, due 2013, which we refer to as the 7⅞% Notes, and our 8⅜% Notes, and also include a senior secured debt to consolidated cash flow covenant.purchase.
Supplemental Indentures
We entered into supplemental indentures, dated April 16, 2008Interest Rate 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 8⅜% 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 7⅞% 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 10½% Notes were issued. These supplemental indentures provide for the addition of acquisition subsidiaries as guarantors of the 8⅜%, 7⅞% and 10½% Notes.
Forward Starting Interest Rate Swaps
We currently haveenter into interest rate swap agreements to hedge interest rate exposure of $595.0 million of our notional floating rate debt. As of March 28, 2009 we had $595.0 million of such interest rate swaps. In June 2009, $220.0 million of these interest rate swaps mature, of which $75.0 million have been replaced with forward starting swaps entered into during 2008. We continue to monitor interest rate-related developments and may execute additional interest rate swaps should conditions suggest there may be a benefit. If we do not enter into cash flow hedges for the remaining $145.0 million of interest rate swaps maturing in June 2009, our exposure to floating rate interest rate will increase.
AsLetters of September 27, 2008, we were in compliance with all covenants under our debt agreements.Credit
As of September 27, 2008,On March 28, 2009, we had outstanding letters of credit of approximately $18.4$17.4 million and a de minimis amount of surety bonds related to performance and payment guarantees. Based on our experience with these arrangements, we do not believe that any obligations that may arise will be significant.
Debt Compliance and Amendment of Amended Credit Facilities
Our Amended Credit Facilities, contain two financial covenants that we must comply with: a minimum consolidated interest coverage ratio, which we refer to as the Interest Coverage Covenant, and a maximum consolidated leverage ratio, which we refer to as the Leverage Covenant. We were in compliance with all debt agreement covenants as of March 28, 2009.
On April 24, 2009, we amended our Amended Credit Facilities with the consent of the lenders thereunder, which included, among other things, modifications to the Leverage Covenant and the Interest Coverage Covenant. Our Leverage Covenant, which we must be in pro forma compliance with at all times, has been increased through March 31, 2010, and then proceeds to step down through the end of the term of the Amended Credit Facilities. Our Interest Coverage Covenant, which we must be in compliance with on a quarterly basis, has been reduced through December 31, 2009, and then proceeds to step up through the end of the term of the Amended Credit Facilities. Additionally, the calculations of the two financial covenants discussed above have been modified to permit the adding back of certain amounts.
As conditions to the amendment, we agreed, among other things, to increase the pricing on all outstanding Revolving Credit Facility balances and Term Loans to include interest at the three-month London Interbank Offered Rate (LIBOR) plus a spread ranging from 400 basis points to 450 basis points, depending on the quarterly Leverage Covenant then in effect. Previously, our LIBOR borrowing spread under the Revolving Credit Facility ranged from 175 basis points to 200 basis points, based upon the Leverage Covenant, and the LIBOR borrowing spread on the Term Loans was 200 basis points. Further, the amendment: (i) reduces the Revolving Credit Facility from $200.0 million to $172.5 million; (ii) increases the unfunded commitment fee paid to revolving credit lenders from 50 basis points to 75 basis points; (iii) eliminates our ability to request a $300.0 million incremental term loan facility; (iv) limits new unsecured debt and debt assumed from acquisitions; (v) eliminates the restricted payments basket while leverage exceeds certain thresholds; (vi) requires that certain additional financial information be delivered; (vii) lowers the annual amount that can be spent on capital expenditures; and (viii) increases certain mandatory prepayments. An amendment fee of 50 basis points was paid to all consenting lenders who approved the amendment. Except as provided in the amendment, all other provisions of our Amended Credit Facilities remain in full force and effect.
In connection with the above amendment in the second quarter of 2009, we will incur a loss on extinguishment of debt of approximately $5.0 million, of which approximately $3.9 million relates to fees paid to consenting lenders and approximately $1.1 million relates to the write-off of previously unamortized debt issuance costs. In addition, we will capitalize approximately $3.4 million of third party costs and fees paid to consenting lenders and amortize them over the remaining life of the Amended Credit Facilities.
Credit Ratings
Our current credit ratings are as follows:
| | | | Amended Credit Credit Facilities
| | | | | | | | | | | Last Update | |
Standard & Poor’s | | BB- | | BB+B+ | | BB- | | BB- | | BB- | | October 2008B- | | Negative | | | March 2009 | |
Moody’s | | B1 | | Ba2 | | B2 | | B3 | | B3 | | Negative | | | June 2008 | |
In March 2009, Standard & Poor's Ratings Services, which we refer to as Standard & Poor’s, lowered our Corporate Rating from BB- to B+ and all of our debt credit ratings citing the negative impact of the current general economic environment and its anticipated impact on our results of operations. Moody’s Investors Services, which
we refer to as Moody’s, placed us on negative ratings outlook prior to our acquisition of Cadmus in 2007, which we believe was due to our business strategy of pursuing strategic acquisitions and our level of debt.
The terms of our existing debt do not have any rating triggers that impact our funding.funding availability or unduly influence our daily operations, including planned capital expenditures. We do not believe that our current ratings will impactunduly influence our ability to raise additional capital. Some of our constituents closely track rating agency actions and would note any raising or lowering of our credit ratings; however, we believe that along with reviewing our credit ratings, additional quantitative and qualitative analyses must be performed to accurately judge our financial condition.
The current credit markets downturn that began in 2007 and continues through the date hereof makes raising additional capital expensive for any issuer. We do not have plans to enter the current credit market for new financing given that we have no significant debt maturities until 2013. Further, we expect that our internally generated cash flows and the financing available under our amended credit facilitiesRevolving Credit Facility 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.Plan Our. On July 31, 2008, our Board of Directors authorized a $15program for the repurchase of up to $15.0 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, contractual agreements and market conditions. No purchases had been made under the Share Repurchase Plan as of March 28, 2009.
Off-Balance Sheet Arrangements. It is not our business practice to enter into off-balance sheet arrangements. Accordingly, as of September 27, 2008,March 28, 2009, 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;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 Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such documents are filed electronically with the 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.
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,March 28, 2009, we had variable rate debt outstanding of $156.5$130.4 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$1.3 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,March 28, 2009, 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$1.8 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$0.2 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, 2008March 28, 2009 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, 2008March 28, 2009 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 errorserror 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 errorserror or mistakes.mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
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,January 3, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
Item 6. | Exhibits |
| |
Exhibit Number | | | Description | |
| |
2.1 | Agreement of Merger dated as of December 26, 2006 among Cenveo, Inc., Mouse Acquisition Corp. and Cadmus Communications Corporation—incorporated by reference to Exhibit 2.1 to registrant’s current report on Form 8-K filed December 27, 2006. |
| |
2.2 | Stock Purchase Agreement dated as of July 17, 2007 among Cenveo Corporation, Commercial Envelope Manufacturing Co., Inc. and its shareholders—incorporated by reference to Exhibit 2.1 to registrant’s current report on Form 8-K filed July 20, 2007. |
| |
3.1 | Articles of Incorporation—incorporated by reference to Exhibit 3(i) of the registrant’s quarterly report on Form 10-Q for the quarter ended March 31,June 30, 1997, filed August 14, 1997. |
| |
3.2 | Articles of Amendment to the Articles of Incorporation dated May 17, 2004—incorporated by reference to Exhibit 3.2 to registrant’s quarterly report on Form 10-Q for the quarter ended March 31,June 30, 2004, filed August 2, 2004. |
| |
3.3 | Amendment to Articles of Incorporation and Certificate of Designations of Series A Junior Participating Preferred Stock of the Registrant dated April 20, 2005—incorporated by reference to Exhibit 3.1 to registrant’s current report on Form 8-K filed April 21, 2005. |
| |
3.4 | Bylaws as amended and restated effective February 22, 2007—incorporated by reference to Exhibit 3.2 to registrant’s current report on Form 8-K filed August 30, 2007. |
| |
3.5*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—incorporated by reference to Exhibit 3.5 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 2008. |
| |
3.6*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—incorporated by reference to Exhibit 3.6 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 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 7⅞% 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 LLC, as Initial Purchaser, relating to Mail-Well I Corporation’s 7⅞% 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. |
| |
Exhibit Number | Description |
| |
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 7⅞% 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 7⅞% 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. |
Exhibit
Number
| Description |
| |
4.5 | Fourth Supplemental Indenture, dated as of July 9, 2007 among Cenveo Corporation (f/k/a Mail-Well I Corporation), the Guarantors named therein and U.S. Bank National Association, as Trustee, to the Indenture dated as of February 4, 2004 relating to the 7⅞% 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 7⅞% 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 7⅞% 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*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 7⅞% Senior Subordinated Notes due 2013.2013—incorporated by reference to Exhibit 4.8 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 2008. |
| |
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 8⅜% 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 8⅜% 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 8⅜% 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. |
| |
Exhibit Number | Description |
| |
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 8⅜% 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 8⅜% Senior Subordinated Notes due 2014—incorporated by reference to Exhibit 4.11 to registrant’s quarterly report on Form 10-Q for the quarter ended March 31, 2007. |
4.14 | 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 8⅜% 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 8⅜% 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 8⅜% 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 8⅜% 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*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 8⅜% Senior Subordinated Notes due 2014.2014—incorporated by reference to Exhibit 4.18 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 2008. |
| |
Exhibit Number | Description |
| |
4.19 | Indenture, dated as of June 13, 2008, between Cenveo Corporation, the other guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 10½% 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 10½% 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*4.21 | First Supplemental Indenture, dated as of August 20, 2008, to the Indenture of June 13, 2008 between Cenveo Corporation, the other guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 10½% Notes of Cenveo Corporation.Corporation—incorporated by reference to Exhibit 4.21 to registrant’s quarterly report on Form 10-Q for the quarter ended September 27, 2008. |
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. |
| |
10.1 | Third Amendment, dated as of April 24, 2009, to Credit Agreement, dated as of June 21, 2006, as amended, among Cenveo Corporation, Cenveo, Inc., Bank of America, N.A., as Administrative Agent, and the other lenders party thereto—incorporated by reference to the registrant’s current report on Form 8-K filed April 27, 2009. |
| |
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. |
Exhibit
Number
| Description |
| |
32.1* | Certification of the Chief Executive Officer and of the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, furnished as an exhibit to this report on Form 10-Q. |
________________________
*Filed herewith.
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.May 6, 2009.
| CENVEO, INC. |
| | |
| By: | /s/ Robert G. Burton, Sr. |
| | Robert G. Burton, Sr. |
| | Chairman and Chief Executive Officer |
| | (Principal Executive Officer) |
| | |
| | |
| By: | /s/ Mark S. Hiltwein |
| | Mark S. Hiltwein |
| | Chief Financial Officer |
| | (Principal Financial Officer and |
| | Principal Accounting Officer) |
35
48