-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TDor8ietiRTLovQcJPxwt69IdqnCRCoxeWyKPrDUVrV2/YV0NoxMnVC5fWP4fWTv 4GwEfOnap7lf5/23pXrvuQ== 0001068800-05-000493.txt : 20050802 0001068800-05-000493.hdr.sgml : 20050802 20050801201902 ACCESSION NUMBER: 0001068800-05-000493 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20050630 FILED AS OF DATE: 20050802 DATE AS OF CHANGE: 20050801 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENVEO, INC CENTRAL INDEX KEY: 0000920321 STANDARD INDUSTRIAL CLASSIFICATION: CONVERTED PAPER & PAPERBOARD PRODS (NO CONTAINERS/BOXES) [2670] IRS NUMBER: 841250533 STATE OF INCORPORATION: CO FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12551 FILM NUMBER: 05989804 BUSINESS ADDRESS: STREET 1: 8310 S VALLEY HWY #400 CITY: ENGLEWOOD STATE: CO ZIP: 80112 BUSINESS PHONE: 3037908023 MAIL ADDRESS: STREET 1: 8310 S VALLEY HWY #400 CITY: ENGLEWOOD STATE: CO ZIP: 80112 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL INC DATE OF NAME CHANGE: 19950817 FORMER COMPANY: FORMER CONFORMED NAME: MAIL WELL HOLDINGS INC DATE OF NAME CHANGE: 19940328 10-Q 1 cenveoq.txt ============================================================================= - ----------------------------------------------------------------------------- UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------------- FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2005 COMMISSION FILE NUMBER 1-12551 ------------------------ CENVEO, INC. (Exact name of Registrant as specified in its charter.) COLORADO 84-1250533 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 8310 S. VALLEY HIGHWAY, #400 ENGLEWOOD, CO 80112 (Address of principal executive offices) (Zip Code) 303-790-8023 (Registrant's telephone number, including area code) ------------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / / Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes /X/ No / / The aggregate market value of the voting stock held by non-affiliates of the Registrant as of July 29, 2005 was $264,448,081. As of July 29, 2005 the Registrant had 50,735,041 shares of Common Stock, $0.01 par value, outstanding. - ------------------------------------------------------------------------------ ============================================================================== CENVEO, INC. AND SUBSIDIARIES INDEX PAGE ---- Part I. Financial Information Item 1. Financial Statements Condensed Consolidated Balance Sheets-- June 30, 2005 and December 31, 2004................. 1 Condensed Consolidated Statements of Operations-- Three and six months ended June 30, 2005 and 2004... 2 Condensed Consolidated Statements of Cash Flows-- Six months ended June 30, 2005 and 2004............. 3 Notes to Condensed Consolidated Financial Statements.......................................... 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations..... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk....................................... 21 Item 4. Controls and Procedures........................... 22 Part II. Other Information Item 2. Issuer Purchases of Equity Securities............. 23 Item 4. Submission of Matters to a Vote of Securities Holders........................................... 23 Item 6. Exhibits.......................................... 23 Signatures.................................................... 27 i PART I--FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands) (Unaudited)
JUNE 30, 2005 DECEMBER 31, 2004 ------------- ----------------- ASSETS CURRENT ASSETS: Cash and cash equivalents............................... $ 1,844 $ 796 Accounts receivable..................................... 226,951 252,711 Inventories............................................. 113,585 112,219 Other current assets.................................... 46,881 46,019 ---------- ---------- TOTAL CURRENT ASSETS................................ 389,261 411,745 Property, plant and equipment, net.......................... 345,061 367,260 Goodwill.................................................... 307,627 308,938 Other intangible assets, net................................ 29,853 28,788 Other assets................................................ 56,417 58,016 ---------- ---------- TOTAL ASSETS................................................ $1,128,219 $1,174,747 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable........................................ $ 150,600 $ 172,731 Accrued compensation and related liabilities............ 60,249 58,639 Other current liabilities............................... 57,070 64,714 Current maturities of long-term debt.................... 2,841 2,270 ---------- ---------- TOTAL CURRENT LIABILITIES........................... 270,760 298,354 Long-term debt, less current maturities..................... 780,734 767,499 Other liabilities........................................... 48,644 51,540 ---------- ---------- TOTAL LIABILITIES................................... 1,100,138 1,117,393 Commitments and contingencies SHAREHOLDERS' EQUITY: Preferred stock, $0.01 par value; 25,000 shares authorized, none issued............................... -- -- Common stock, $0.01 par value; 100,000,000 shares authorized, 50,557,649 and 48,702,832 shares issued and outstanding as of June 30, 2005 and December 31, 2004, respectively.................................... 505 487 Paid-in capital......................................... 224,100 214,902 Accumulated deficit..................................... (203,205) (170,039) Deferred compensation................................... (2,885) (2,003) Accumulated other comprehensive income.................. 9,566 14,007 ---------- ---------- TOTAL SHAREHOLDERS' EQUITY.......................... 28,081 57,354 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $1,128,219 $1,174,747 ========== ========== See notes to condensed consolidated financial statements.
1 CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except earnings per share amounts) (Unaudited)
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Net sales................................... $421,736 $409,396 $871,338 $833,138 Cost of sales............................... 338,428 325,762 701,275 661,084 -------- -------- -------- -------- Gross profit................................ 83,308 83,634 170,063 172,054 Operating expenses: Selling, general and administrative expenses.............................. 64,559 66,415 137,224 134,413 Amortization of intangible assets....... 1,276 1,396 2,606 2,801 Loss on sale of non-strategic businesses............................ 539 -- 1,260 -- Restructuring, impairment and other charges............................... 4,922 1,018 12,990 1,121 -------- -------- -------- -------- Operating income............................ 12,012 14,805 15,983 33,719 Other expenses: Interest expense........................ 18,802 17,513 36,995 35,912 Loss from the early extinguishment of debt.................................. -- -- -- 17,748 Other................................... 445 527 434 968 -------- -------- -------- -------- Loss from continuing operations before income taxes.............................. (7,235) (3,235) (21,446) (20,909) Income tax expense (benefit)................ 3,374 61 11,721 (1,078) -------- -------- -------- -------- Loss from continuing operations............. (10,609) (3,296) (33,167) (19,831) Gain on disposal of discontinued operations, net of taxes of $770...................... -- 1,230 -- 1,230 -------- -------- -------- -------- Net loss.................................... $(10,609) $ (2,066) $(33,167) $(18,601) ======== ======== ======== ======== Earnings (loss) per share--basic and diluted: Continuing operations................... $ (0.22) $ (0.07) $ (0.69) $ (0.42) Discontinued operations................. -- 0.03 -- 0.03 -------- -------- -------- -------- Loss per share--basic and diluted........... $ (0.22) $ (0.04) $ (0.69) $ (0.39) ======== ======== ======== ======== Weighted average shares--basic and diluted................................... 48,804 47,740 48,292 47,737 See notes to condensed consolidated financial statements.
2 CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (Unaudited)
SIX MONTHS ENDED JUNE 30, ------------------------------ 2005 2004 ---------- ----------- Cash flows from operating activities: Net loss from continuing operations....................... $ (33,167) $ (19,831) Adjustments to reconcile net loss from continuing operations to net cash used in operating activities: Depreciation......................................... 23,289 22,841 Amortization......................................... 4,896 5,093 Asset impairment charges............................. 7,689 -- Loss on sale of non-strategic businesses............. 1,260 -- Write-off of deferred financing fees................. -- 4,220 Deferred income tax expense (benefit)................ 456 (7,949) Loss on disposal of assets........................... 77 240 Other non-cash charges, net.......................... (703) (366) Changes in operating assets and liabilities, excluding the effects of operations acquired and sold: Accounts receivable.................................. 25,723 4,210 Inventories.......................................... (2,247) (20,011) Accounts payable and accrued compensation............ (20,077) 7,686 Income taxes payable................................. (476) (991) Other working capital changes........................ (9,415) 211 Other, net........................................... (6,877) (76) ---------- ----------- Net cash used in operating activities.............. (9,572) (4,723) Cash flows from investing activities: Aquisitions, net of cash acquired..................... (3,995) -- Capital expenditures.................................. (12,652) (12,460) Proceeds from divestitures............................ 4,158 2,000 Proceeds from sales of property, plant and equipment............................................ 284 346 ---------- ----------- Net cash used in investing activities.............. (12,205) (10,114) Cash flows from financing activities: Increase in borrowings under credit facility.......... 14,824 6,806 Proceeds from issuance of long-term debt.............. -- 320,000 Repayments of long-term debt.......................... (1,018) (302,809) Proceeds from issuance of common stock................ 9,082 46 Capitalized loan fees................................. -- (8,936) ---------- ----------- Net cash provided by financing activities........... 22,888 15,107 Effect of exchange rate changes on cash and cash equivalents................................................ (63) (412) ---------- ----------- Net increase (decrease) in cash and cash equivalents........................................ 1,048 (142) Cash and cash equivalents at beginning of year.............. 796 307 ---------- ----------- Cash and cash equivalents at end of quarter................. $ 1,844 $ 165 ========== =========== See notes to condensed consolidated financial statements.
3 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of Cenveo, Inc. and subsidiaries (collectively, "Cenveo", or the "Company") have been prepared in accordance with generally accepted accounting principles for interim financial statements and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position of Cenveo at June 30, 2005, the results of operations for the three and six months ended June 30, 2005, and the cash flows for the six months ended June 30, 2005. Operating results for the six months ended June 30, 2005 are not necessarily indicative of the results that may be expected for the year ending December 31, 2005. The condensed consolidated balance sheet at December 31, 2004 has been derived from the audited financial statements at that date but does not include all of the information and footnote disclosures required by generally accepted accounting principles for complete financial statements. It has been our practice to close our quarters on the Saturday closest to the last day of the calendar month so that each quarter has the same number of days and 13 full weeks. The financial statements and other financial information in this report are presented using a calendar convention. The reporting periods, which consist of 13 and 26 weeks ending on July 2, 2005 and June 26, 2004, are reported as ending on June 30, 2005 and 2004, respectively. The effects of this practice are generally not significant. The financial statements and other financial information presented in this report should be read in conjunction with the financial statements contained in our Annual Report on Form 10-K for 2004. 2. STOCK-BASED COMPENSATION We account for our fixed stock option plans under Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees ("APB 25"). Under APB 25, we are not required to recognize compensation expense on the stock options granted under our plans since the options are granted with an exercise price equal to the market value of the underlying stock on the grant date. In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payments: an amendment of FASB Statements No. 123 and 95 ("SFAS No. 123R"). SFAS No. 123R requires all share-based payments to employees, including grants of stock options, to be recognized in the financial statements based on their fair value. The Company expects to implement SFAS 123R in the first quarter of 2006 and use the modified-prospective transition method of implementation. Under the modified-prospective transition method, the Company will recognize compensation expense in the financial statements issued subsequent to the date of adoption, which will be January 1, 2006, for all share-based payments granted, modified or settled after January 1, 2006 as well as for any awards that were granted prior to January 1, 2006 for which the requisite service has not been provided as of January 1, 2006. The Company will recognize compensation expense on awards granted subsequent to January 1, 2006 using the fair values determined by a valuation model prescribed by SFAS 123R. The compensation expense on awards granted prior to January 1, 2006 will be recognized using the fair values determined for the pro forma disclosures on stock-based compensation. The amount of compensation expense that will be recognized on awards that have not fully vested will exclude the compensation expense cumulatively recognized in the pro forma disclosures on stock-based compensation. The Company has not determined the impact of its adoption of SFAS No. 123R. 4 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 2. STOCK-BASED COMPENSATION (CONTINUED) If we were to apply the fair value recognition provisions of Statement of Financial Accounting Standards No. 123, Accounting for Stock-Based Compensation, the Company's reported and pro forma net loss and loss per share would have been as follows (in thousands, except per share data):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 2005 2004 2005 2004 -------- ------- -------- -------- Net loss, as reported.................... $(10,609) $(2,066) $(33,167) $(18,601) Adjustment for stock-based compensation expense (expense reversal) included in reported net loss.............................. (939) 165 (747) 309 Less: stock-based compensation expense determined under fair value method for all awards....... (77) (805) (1,381) (1,374) -------- ------- -------- -------- Pro forma net loss........................ $(11,625) $(2,706) $(35,295) $(19,666) ======== ======= ======== ======== Loss per share--basic and diluted: As reported......................... $ (0.22) $ (0.04) $ (0.69) $ (0.39) Pro forma........................... $ (0.24) $ (0.06) $ (0.73) $ (0.41)
3. INVENTORIES Inventories consist of the following (in thousands):
JUNE 30, DECEMBER 31, 2005 2004 --------- ------------ Raw materials........................................... $ 35,173 $ 36,440 Work in process......................................... 28,064 30,357 Finished goods.......................................... 55,338 50,122 --------- --------- 118,575 116,919 Reserves................................................ (4,990) (4,700) --------- --------- $ 113,585 $ 112,219 ========= =========
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following (in thousands):
JUNE 30, DECEMBER 31, 2005 2004 --------- ------------ Land and land improvements.............................. $ 18,820 $ 19,457 Buildings and building improvements..................... 109,330 109,889 Machinery and equipment................................. 524,184 532,470 Furniture and fixtures.................................. 14,016 13,997 Construction in progress................................ 9,734 9,806 --------- --------- 676,084 685,619 Accumulated depreciation................................ (331,023) (318,359) --------- --------- $ 345,061 $ 367,260 ========= =========
5 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 5. COMPREHENSIVE LOSS A summary of the comprehensive loss is as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------------- ----------------------- 2005 2004 2005 2004 --------- --------- -------- -------- Net loss............................... $ (10,609) $ (2,066) $(33,167) $(18,601) Other comprehensive loss: Currency translation adjustment...................... (2,837) (3,150) (4,441) (5,128) --------- --------- -------- -------- Comprehensive loss..................... $ (13,446) $ (5,216) $(37,608) $(23,729) ========= ========= ======== ========
6. LONG-TERM DEBT At June 30, 2005 and December 31, 2004, long-term debt consisted of the following (in thousands):
JUNE 30, DECEMBER 31, 2005 2004 -------- ------------ Senior Secured Credit Facility, due 2008................ $ 93,265 $ 78,441 Senior Notes, due 2012.................................. 350,000 350,000 Senior Subordinated Notes, due 2013..................... 320,000 320,000 Other................................................... 20,310 21,328 -------- -------- 783,575 769,769 Less current maturities................................. (2,841) (2,270) -------- -------- Long-term debt...................................... $780,734 $767,499 ======== ========
As of June 30, 2005, the Company was in compliance with all of the covenants of its various debt agreements. 7. INCOME TAXES Since our U.S. operations have incurred substantial net operating losses over the last four years, we have recorded a valuation allowance to offset the estimated tax benefit from the net operating loss incurred by our U.S. operations in the three and six months ended June 30, 2005. The tax expense reported for the three and six months ended June 30, 2005 relates to our Canadian operations which are expected to generate taxable income in 2005. In addition, a valuation allowance of $3.7 million was recorded in the first quarter for foreign tax credits generated that are not likely to be used. 6 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES A summary of the restructuring, impairment and other charges recorded in the three and six months ended June 30, 2005 follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2005 JUNE 30, 2005 ------------------ ---------------- Restructuring charges Employee termination and related expenses...... $3,962 $ 4,357 Other.......................................... (180) 356 Impairment charges Commercial..................................... -- 7,137 Resale......................................... 552 552 Other charges...................................... 588 588 ------ ------- $4,922 $12,990 ====== =======
In June 2005, we announced a corporate-wide initiative to reduce selling, general and administrative expenses by $20 million. We recorded employee separation and related expenses of $4.0 million in the second quarter as a result of the elimination of 114 jobs. There will be additional charges of approximately $1.0 million related to this initiative in the third quarter. In the first quarter of 2005, the commercial segment began the closure of a small printing operation located in Phoenix, Arizona and the consolidation of its production into our Los Angeles, California printing plant. We have incurred employee separation and related expenses of $0.3 million to cover the separation of 45 employees, and $0.3 million of other closure costs associated with the shut-down of this plant which was completed during the second quarter. In addition, we have completed the consolidation of our printing operations in Seattle, Washington and San Francisco, California. The restructuring expenses incurred to complete these consolidations totaled $0.2 million. In July 2005, we began evaluating other opportunities to optimize capacity and reduce operating expenses. We anticipate additional restructuring charges during the remainder of 2005. During the three months ended June 30, 2005, we determined the value of certain equipment used in the resale segment for production of traditional business documents to be impaired. This equipment will be taken out of service during the second half of 2005 or the first quarter of 2006. The commercial asset impairment charges relate to certain operations that operated at a loss throughout 2004 and have continued to perform poorly in 2005. It became apparent early in 2005 that the plans that had been developed to make these operations profitable were not likely to be successful as quickly as we expected. In the first quarter of 2005, we determined the value of certain assets at these operations to be impaired since it was more likely than not that these assets would be sold or otherwise disposed of significantly before the end of their estimated useful lives. These impairment charges are based on management's best estimates. Additional impairment and restructuring charges may be required prior to the end of 2005. Other charges include investment banking and legal fees incurred during the second quarter of 2005 in connection with the evaluation of the Company's strategic alternatives and in connection with the special meeting of shareholders called by a dissident shareholder group. The evaluation has not been completed and the proxy contest in connection with the special meeting is ongoing; accordingly, additional expenses will be incurred during the remainder of 2005. 7 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 8. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES (CONTINUED) The 2001 and 2002 restructuring plans have been completed. The following is a summary of the activity charged to the 2002 restructuring liability for the six months ended June 30, 2005:
COMMERCIAL RESALE TOTAL ---------- ------ ----- Balance, December 31, 2004............................. $ 653 $ 14 $ 667 Payments for lease termination and property exit costs............................................ (428) -- (428) Payments for other exit costs...................... (127) -- (127) Reversal of unused accrual......................... -- (14) (14) ----- ---- ----- Balance, June 30, 2005................................. $ 98 $ -- $ 98 ===== ==== =====
A summary of the activity charged to the 2001 restructuring liability during the six months ended June 30, 2005 is as follows (in thousands):
COMMERCIAL ---------- Balance, December 31, 2004.............................. $ 426 Payments for lease termination and property exit costs............................................. (128) ----- Balance, June 30, 2005.................................. $ 298 =====
9. LOSS ON SALE OF NON-STRATEGIC BUSINESSES The following is a summary of the loss recognized as a result of the sale of non-strategic businesses during the three and six months ended June 30, 3005 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2005 JUNE 30, 2005 ------------------ ---------------- Commercial Printing operations in Riviera Beach, FL and Osage Beach, MO.............................. $313 $ 864 Envelope jet printing operation in Canada...... -- 170 Resale Mailing supplies business...................... 226 226 ---- ------ $539 $1,260 ==== ======
The net proceeds as a result of these divestitures totaled $4.2 million. The following table summarizes the net sales and operating losses of these businesses that are included in the condensed consolidated statements of operations:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 2005 2004 2005 2004 ------ ------ ------ ------- Net sales..................................... $1,709 $6,735 $7,443 $12,624 Operating losses.............................. $ (90) $ (142) $ (630) $ (273)
The Company has ongoing supply agreements with these entities; accordingly, the dispositions of these non-strategic businesses have not been accounted for as discontinued operations in the condensed consolidated statements of operations. 8 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 10. PENSION PLANS The components of the net periodic pension expense for the Company's pension plans and the supplemental executive retirement plans are as follows (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- --------------------- 2005 2004 2005 2004 ----- ----- ------- ------- Service cost.................................. $ 650 $ 521 $ 1,309 $ 1,065 Interest cost................................. 890 765 1,719 1,476 Expected return on plan assets................ (970) (812) (1,899) (1,656) Net amortization and deferral................. 125 50 300 103 ----- ----- ------- ------- Net periodic pension expense.................. $ 695 $ 524 $ 1,429 $ 988 ===== ===== ======= =======
We expect to contribute $2.8 million to the Company's pension plans in 2005. As of June 30, 2005, contributions of $1.4 million had been made. 11. LOSS PER SHARE Basic loss per share excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock. A reconciliation of the amounts included in the computation of basic loss per share and diluted loss per share is as follows (in thousands, except per share amounts):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 2005 2004 2005 2004 -------- ------- -------- -------- Numerator: Numerator for basic and diluted loss per share--net loss............................ $(10,609) $(2,066) $(33,167) $(18,601) ======== ======= ======== ======== Denominator: Denominator for basic and diluted loss per share--weighted average shares............. 48,804 47,740 48,292 47,737 Loss per share--basic and diluted........ $ (0.22) $ (0.04) $ (0.69) $ (0.39) ======== ======= ======== ========
In the three and six months ended June 30, 2005 and 2004, outstanding options and shares of restricted stock in the amount of 4,644,000 and 7,330,000, respectively, were excluded from the calculation of diluted earnings per share because the effect would be antidilutive. 12. SEGMENT INFORMATION The commercial segment specializes in printing annual reports, car brochures, brand marketing collateral, financial communications and general commercial printing and the manufacturing and printing of customized envelopes for billing and remittance and direct mail advertising. The commercial segment also offers services such as design, fulfillment, eCommerce and inventory management. These products and services are sold directly to national and local customers. The resale segment produces business documents and labels, custom and stock envelopes, and specialty packaging and mailers. These products are generally sold through professional print distributors, business forms suppliers, office-products retail chains and the Internet. 9 CENVEO, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 12. SEGMENT INFORMATION (CONTINUED) Operating income of each segment includes all costs and expenses directly related to the segment's operations. Corporate expenses include corporate general and administrative expenses. Inter-company sales for the three months ended June 30, 2005 and 2004 were $6.9 million and $6.2 million, respectively. Inter-company sales for the six months ended June 30, 2005 and 2004 were $12.9 and $11.5 million, respectively. These amounts were eliminated in consolidation and excluded from reported net sales. The following tables present certain segment information for the three and six months ended June 30, 2005 and 2004 (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- 2005 2004 2005 2004 -------- -------- -------- -------- Net sales: Commercial.......................... $320,195 $307,583 $666,603 $631,432 Resale.............................. 101,541 101,813 204,735 201,706 -------- -------- -------- -------- Total............................... $421,736 $409,396 $871,338 $833,138 ======== ======== ======== ======== Operating income (expense): Commercial.......................... $ 7,918 $ 9,920 $ 10,181 $ 21,914 Resale.............................. 9,321 12,359 18,059 23,822 Corporate........................... (5,227) (7,474) (12,257) (12,017) -------- -------- -------- -------- Total............................... $ 12,012 $ 14,805 $ 15,983 $ 33,719 ======== ======== ======== ======== Restructuring, impairment and other charges included in operating income: Commercial.......................... $ 2,422 $ 1,018 $ 10,505 $ 1,121 Resale.............................. 1,676 -- 1,661 -- Corporate........................... 824 -- 824 -- -------- -------- -------- -------- Total............................... $ 4,922 $ 1,018 $ 12,990 $ 1,121 ======== ======== ======== ======== Net sales by product line: Commercial printing................. $188,748 $186,873 $399,125 $385,073 Envelopes........................... 183,322 172,077 373,093 346,180 Business documents and labels....... 49,666 50,446 99,120 101,885 -------- -------- -------- -------- Total............................... $421,736 $409,396 $871,338 $833,138 ======== ======== ======== ========
In July 2005, we reorganized our management structure and our manufacturing operations. We anticipate a change in our operating segments as a result of this reorganization. 10 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS OVERVIEW Cenveo is one of North America's leading providers of visual communication solutions delivered through print and electronic media. Our products include offset and digital printing, custom and stock envelopes, and business documents and labels. We also provide communications consulting, end-to-end project management and eServices. We have production facilities and fulfillment and distribution centers strategically located throughout North America. We are organized into two business segments-- commercial and resale. Our commercial segment specializes in printing annual reports, car brochures, brand marketing collateral, financial communications and general commercial printing and in the manufacturing and printing of customized envelopes for billing and remittance and direct mail advertising. The commercial segment also offers services such as design, fulfillment, eCommerce and inventory management. These products and services are provided directly to national and local customers. Our commercial segment consists of 34 printing plants, 27 envelope plants and five distribution and fulfillment centers. Our resale segment produces business documents and labels, custom and stock envelopes, and specialty packaging and mailers. These products are generally sold through professional print distributors, business forms suppliers, office products retail chains and the Internet. The resale segment operates 18 manufacturing facilities. Management's Discussion and Analysis of Financial Condition and Results of Operations is intended to provide an update on the financial condition of Cenveo since December 31, 2004 and to discuss operating trends to the extent known and considered relevant. This discussion should be read in conjunction with the consolidated financial statements and related notes and Management's Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended December 31, 2004. REVIEW OF RESULTS The discussion and analysis of the results of operations includes an overview of our consolidated results for the second quarter and the first six months of 2005 followed by a discussion of the results of our two business segments. 11 A summary of our consolidated statements of operations is presented below. The summary presents reported net sales and operating income as well as the net sales and operating income data of our business segments used internally to assess operating performance of our business segments. Division sales exclude sales of divested operations and division operating income excludes the costs associated with our corporate headquarters, operating losses of divested operations, losses incurred on the divestitures of non-strategic businesses, charges related to restructuring and impairments and expenses incurred that are unrelated to operations.
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 2005 2004 2005 2004 - ---------------------------------------- -------- -------- -------- -------- Division net sales.......................... $420,027 $402,661 $863,895 $820,515 Divested operations..................... 1,709 6,735 7,443 12,623 -------- -------- -------- -------- Net sales................................... $421,736 $409,396 $871,338 $833,138 ======== ======== ======== ======== Division operating income................... $ 21,965 $ 23,439 $ 42,296 $ 47,130 Unallocated corporate expenses.......... (4,402) (7,474) (11,433) (12,017) Restructuring, impairment and other charges............................... (4,922) (1,018) (12,990) (1,121) Divested operations..................... (90) (142) (630) (273) Loss on sale of non-strategic businesses............................ (539) -- (1,260) -- -------- -------- -------- -------- Operating income............................ 12,012 14,805 15,983 33,719 Interest expense........................ 18,802 17,513 36,995 35,912 Loss on early extinguishment of debt.... -- -- -- 17,748 Other non operating expenses............ 445 527 434 968 -------- -------- -------- -------- Loss before income taxes.................... (7,235) (3,235) (21,446) (20,909) Income tax expense (benefit)............ 3,374 61 11,721 (1,078) -------- -------- -------- -------- Loss from continuing operations............. (10,609) (3,296) (33,167) (19,831) Gain from discontinued operations....... -- 1,230 -- 1,230 -------- -------- -------- -------- Net loss.................................... $(10,609) $ (2,066) $(33,167) $(18,601) ======== ======== ======== ======== Loss per share--diluted..................... $ (0.22) $ (0.04) $ (0.69) $ (0.39) ======== ======== ======== ========
NET SALES Consolidated net sales in the second quarter of 2005 were 3% higher than the second quarter of 2004. For the first six months of 2005, consolidated net sales increased 5% over the comparable period of 2004. Growth of division net sales was slightly better. Our strategy of offering the full range of our products and services is continuing to drive the sales performance of the commercial segment. Sales growth in our resale segment has been dampened in 2005 by a decline in sales of traditional business documents, especially continuous forms. OPERATING INCOME Consolidated operating income in the second quarter of 2005 declined $2.8 million compared to the second quarter of 2004 and declined $17.7 million in the first six months of 2004 compared to the corresponding period of 2004. 12 DIVISION OPERATING INCOME. Division operating income declined $1.5 million in the second quarter of 2005 and $4.8 million in the first half of 2005 compared to the corresponding periods of 2004. These reductions in profitability were primarily the result of the following: * As expected, the profits of our resale segment were lower during the first half of 2005 compared to the first half of 2004 due to the pricing concessions made in the second half of 2004 to defend and grow our share of the office products markets. * The cost of the paper used to produce envelopes increased approximately 9% at the beginning of 2005. This increase in the cost of paper has had a negative impact on the margins of our envelope products in 2005 as we experienced delays in passing the higher cost of raw materials to our customers. * Management incentives have been accrued in 2005. The accrual required for incentive compensation was not significant in the first six months of 2004 since, under the plan in effect during 2004, the incentives had not been earned. UNALLOCATED CORPORATE EXPENSES. Unallocated corporate expenses include the costs of our corporate headquarters and certain expenses not allocated to our segments. Unallocated corporate expenses in 2005 were lower than 2004, because unallocated corporate expenses in the second quarter of 2004 reflected a $2.0 million charge related to a change in our estimate of the cost of workers' compensation claims incurred prior to 2004. As a result of the change in our chief executive officer we incurred expenses totaling approximately $2.1 million. The majority of these expenses were incurred in the first quarter of the year. RESTRUCTURING, IMPAIRMENT AND OTHER CHARGES. A summary of the restructuring, impairment and other charges recorded in the second quarter and first six months of 2005 follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, 2005 JUNE 30, 2005 ------------------ ---------------- Restructuring charges Employee termination and related expenses.......... $3,962 $ 4,357 Other.............................................. (180) 356 Impairment charges Commercial......................................... -- 7,137 Resale............................................. 552 552 Other charges.......................................... 588 588 ------ ------- $4,922 $12,990 ====== =======
In June 2005, we announced a corporate-wide initiative to reduce selling, general and administrative expenses by $20 million. We recorded employee separation and related expenses of $4.0 million in the second quarter as a result of the elimination of 114 jobs. We estimate the annual savings from the elimination of these positions as well as other actions taken as of June 30, 2005 will be approximately $17.1 million. There will be additional charges of approximately $1.0 million in the third quarter to coincide with the remaining actions to be taken to complete this initiative which will bring the total annual savings to $20.0 million. In the first quarter of 2005, the commercial segment began the closure of a small printing operation in Phoenix, Arizona and the consolidation of its production in our Los Angeles, California printing plant. We have incurred employee separation and other related expenses of $0.3 million to cover the separation of 45 employees and $0.3 million of other closure costs associated with the shut-down of this plant which was completed during the second quarter. In addition, we have completed the consolidations of our printing operations in Seattle, Washington and San Francisco, California during the first quarter of 2005. The cost incurred to complete these consolidations was $0.2 million. In July 2005, we began evaluating other opportunities to optimize capacity and reduce operating expenses. We anticipate additional restructuring charges during the remainder of 2005. 13 In the second quarter of 2005, we determined the value of certain equipment used in the resale segment for the production of traditional business documents to be impaired. This equipment will be taken out of service during the second half of 2005 or the first quarter of 2006. In the first quarter, we determined the value of the equipment at certain operations in our commercial segment that operated at a loss throughout 2004 and continued to perform poorly in 2005 to be impaired. It became apparent in early 2005 that the plans that had been developed to make these operations profitable were not likely to be successful. We intend to exit these businesses by the end of 2005 and have written down the carrying value of equipment that will be held and used until the operations are either sold or closed. Other charges include investment banking and legal fees incurred during the second quarter of 2005 in connection with the evaluation of the Company's strategic alternatives and in connection with the special meeting of shareholders called by a dissident shareholder group. The evaluation has not been completed and the proxy contest in connection with the special meeting is ongoing; accordingly, additional expenses will be incurred during the remainder of 2005. LOSS ON SALE OF NON-STRATEGIC BUSINESSES In the second quarter of 2005, the resale segment sold its mailing supplies business. In the first quarter of 2005, the commercial segment sold its printing operations in Riviera Beach, Florida and Osage Beach, Missouri and a jet printing operation in Canada. The net sales and the operating income of these businesses were as follows:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ------------------- -------------------- 2005 2004 2005 2004 ------ ------ ------ ------- Sales.......................................... $1,709 $6,735 $7,443 $12,624 Operating income............................... (90) (142) (630) (273)
The total loss of $1.3 million recorded as a result of the divestitures of these non-strategic businesses was primarily due to the write-off of the goodwill allocated to these businesses as required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets. INTEREST EXPENSE Interest expense increased $1.3 million to $18.8 million in the second quarter of 2005 from $17.5 million in the second quarter of 2004. Interest expense in the second quarter reflects average outstanding debt of $817.7 million during the quarter and a weighted average interest rate of 8.3% compared to average outstanding debt of $807.1 million during the second quarter of 2004 and a weighted average interest rate of 8.06%. Interest expense increased $1.1 million to $37.0 million during the first six months of 2005 compared to the first six months of 2004. Interest expense during this period reflects our average outstanding debt of $822.9 million and a weighted average interest rate of 8.25% compared to the average outstanding debt of $812.4 million and a weighted average interest rate of 8.19% during the first six months of 2004. LOSS FROM THE EARLY EXTINGUISHMENT OF DEBT In January 2004, we sold $320 million of 7 7/8% senior subordinated notes due 2013. The proceeds from the sale of these notes were used to redeem our 8 3/4% senior subordinated notes due 2008. The premium paid to redeem the 8 3/4% notes and the unamortized debt issuance costs on the 8 3/4% notes, which were written off, totaled $17.7 million. 14 INCOME TAXES Since our U.S. operations have incurred substantial net operating losses over the last four years, we have recorded a valuation allowance to offset the estimated tax benefit from the net operating losses incurred by our U.S. operations. The tax expense reported for 2005 relates to our Canadian operations which are expected to generate taxable income in 2005. In addition, a valuation allowance of $3.7 million was recorded in the first quarter of 2005 for foreign tax credits generated that are not likely to be used. GAIN ON DISPOSAL OF DISCONTINUED OPERATIONS In September 2000, we sold the extrusion coating and laminating business segment of American Business Products, Inc., a company we acquired in February 2000. The consideration received for this business included an unsecured note which was fully reserved at the time of the sale. This note was redeemed by the issuer in June 2004 for $2.0 million. The proceeds, net of tax, were recorded as a gain on disposal of discontinued operations. NET LOSS AND NET LOSS PER SHARE The net loss of $10.6 million, or $0.22 per share, for the second quarter of 2005 and the net loss of $33.2 million, or $0.69 per share, for the first six months of 2005 reflect lower division operating income, higher restructuring and impairment charges, higher interest expense and higher tax expense than during the comparable periods of 2004. 15 RELEVANT NON-GAAP MEASURE--EBITDA We use EBITDA, a non-GAAP measure, internally to monitor our overall performance and the performance of our segments. We define EBITDA as earnings before interest, taxes, depreciation, amortization, impairment charges, and losses on the sale of non-strategic businesses. Additionally, we exclude the impacts of restructuring and related charges and the EBITDA of divested operations. In 2004, we excluded the loss incurred on the early extinguishment of debt. We believe EBITDA, as defined, provides useful supplemental information for comparative purposes since it excludes the impact of investing and financing transactions as well as the effect of asset impairments and restructuring and related charges on our operating results. A reconciliation of net income to EBITDA, as defined, is presented below:
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ---------------------- ----------------------- 2005 2004 2005 2004 -------- ------- -------- -------- Net loss..................................... $(10,609) $(2,066) $(33,167) $(18,601) Interest................................. 18,802 17,513 36,995 35,912 Income taxes............................. 3,374 61 11,721 (1,078) Depreciation............................. 11,640 11,375 23,289 22,841 Amortization............................. 1,306 1,416 2,667 2,901 Retructuring, impairment and other charges................................ 4,922 1,018 12,990 1,121 Loss on sale of non-strategic businesses............................. 539 -- 1,260 -- Divested operations...................... 71 (86) 442 (194) Loss from the early extinguishment of debt................................... -- -- -- 17,748 Gain on discontinued operations.......... -- (1,230) -- (1,230) -------- ------- -------- -------- EBITDA, as defined........................... $ 30,045 $28,001 $ 56,197 $ 59,420 ======== ======= ======== ======== EBITDA, as defined, by segment: Commercial............................... $ 21,436 $21,419 $ 43,513 $ 43,545 Resale................................... 13,496 14,409 24,618 28,303 Corporate................................ (4,887) (7,827) (11,934) (12,428) -------- ------- -------- -------- $ 30,045 $28,001 $ 56,197 $ 59,420 ======== ======= ======== ========
SEGMENT OPERATIONS Our chief executive officer monitors the performance of the ongoing operations of each of our business segments. The summaries of sales and operating income of our two segments have been presented to show each segment without the sales of divested operations ("Division net sales") and to show the operating income of each segment without the operating income of divested operations, restructuring and impairment charges and the losses incurred on divestitures ("Division operating income"). Net sales and operating income of the operations divested, restructuring and impairment charges and the losses incurred on divestitures have been included in the tables that follow to reconcile segment sales and segment operating income reported in Note 12 to our condensed consolidated financial statements to division net sales and division operating income on which our segments are evaluated. 16 COMMERCIAL
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- (IN THOUSANDS) 2005 2004 2005 2004 - -------------- -------- -------- -------- -------- Segment sales............................... $320,195 $307,583 $666,603 $631,432 Divested operations..................... -- (3,294) (3,285) (6,938) -------- -------- -------- -------- Division net sales.......................... $320,195 $304,289 $663,318 $624,494 ======== ======== ======== ======== Segment operating income.................... $ 7,918 $ 9,920 $ 10,181 $ 21,914 Restructuring and impairment charges.... 2,422 1,018 10,505 1,121 Loss on sale of non-strategic businesses............................ 313 -- 1,034 -- Divested operations..................... -- 377 353 391 -------- -------- -------- -------- Division operating income................... $ 10,653 $ 11,315 $ 22,073 $ 23,426 ======== ======== ======== ======== Division operating income margin............ 3% 4% 3% 4%
Net sales of our commercial segment increased $12.6 million, or 4%, in the second quarter of 2005 compared to the second quarter of 2004. Division net sales increased $15.9 million, or 5%. Net sales increased $35.2 million, or 6%, in the first six months of 2005 compared to the corresponding period of 2004. Division net sales increased $38.8 million, or 6%. Division net sales for the second quarter of 2005 and the first six months of the year reflect the following: * Sales to our strategic accounts grew 34% in the second quarter and 24% during the first half of the year. * Sales in our local markets declined 1.3% in the second quarter and were less than 1% lower on a year-to-date basis. * There was a favorable foreign exchange impact on sales of $4.0 million in the second quarter of 2005 and $7.7 million for the first six months of the year. This trend could reverse in the second half of 2005 since the Canadian dollar has declined since the end of 2004. Operating income of the commercial segment declined $2.0 million in the second quarter of 2005 and $11.7 million in the first six months of 2005 when compared to the corresponding periods of 2004. These declines in profitability were driven primarily by restructuring and asset impairment charges and losses on the sale of non-strategic businesses. Despite the increase in sales, division operating income declined $0.7 million in the second quarter of 2005 and $1.4 million in the first six months of 2005. The significant factors contributing to this performance were as follows: * Due to contractual commitments and competitive pressures, we have not fully recovered the higher cost of paper and other materials used to produce our envelope products. We estimate the negative impact of the lower margins of our envelope products to have been approximately $2.2 million in the second quarter of 2005 which is less than the impact of $4.1 million estimated in the first quarter. * The results at three plants that performed poorly in 2004 improved in the second quarter of 2005 compared to the second quarter of 2004; however, for the first six months of 2005, the results at these plants have been $1.4 million lower than the first six months of 2004. * Results in 2005 include higher incentive accruals than the results reported in 2004. 17 RESALE
THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, ----------------------- ----------------------- (IN THOUSANDS) 2005 2004 2005 2004 - -------------- -------- -------- -------- -------- Segment sales............................... $101,541 $101,813 $204,735 $201,706 Divested operations..................... (1,709) (3,441) (4,158) (5,686) -------- -------- -------- -------- Division net sales.......................... $ 99,832 $ 98,372 $200,577 $196,020 ======== ======== ======== ======== Segment operating income.................... $ 9,321 $ 12,359 $ 18,059 $ 23,822 Restructuring and impairment charges.... 1,676 -- 1,661 -- Loss on sale of non-strategic business.............................. 226 -- 226 -- Divested operations..................... 90 (235) 277 (118) -------- -------- -------- -------- Division operating income................... $ 11,313 $ 12,124 $ 20,223 $ 23,704 ======== ======== ======== ======== Division operating income margin............ 11% 12% 10% 12%
Net sales of our resale segment were slightly lower in the second quarter of 2005 than the second quarter of 2004 due primarily to lower sales of the mailing supplies business that was sold during the quarter. Division net sales increased $1.5 million. For the first six months of 2005, net sales increased $3.0 million compared to 2004, while division net sales increased $4.6 million. Division net sales for the second quarter of 2005 and the first six months of the year reflect the following: * Sales of office products to our retail, wholesale and trade customers grew 17% in the second quarter of 2005 and 20% in the first six months of 2005. Lower net pricing, however, reduced our overall revenue growth in these markets to $3.0 million in the second quarter and $6.7 million in the first six months of 2005. * Sales of labels, documents and envelopes to our distribution customers declined $1.7 million in the second quarter of 2005 and $2.3 million for the first six months of 2005. These declines were primarily due to lower sales of traditional business documents, specifically continuous forms, and lower prices for our specialty forms. The operating income of the resale segment declined $3.0 million, or 25%, in the second quarter of 2005. Division operating income declined $0.8 million, or 7%. For the first six months of 2005 operating income declined $5.8 million, or 24%, while division operating income declined $3.5 million, or 15%. The declines in division operating income were primarily due to lower net selling prices for office products and higher distribution expenses in the retail and wholesale market segment. Higher incentive accruals in 2005 also contributed to lower operating income in 2005. Operating income of our operations selling labels, documents and envelopes through distributors has improved in 2005 despite lower sales. This improvement was achieved by controlling manufacturing costs and reducing selling, general and administrative expenses. 18 LIQUIDITY AND CAPITAL RESOURCES Our cash flows from operating, investing and financing activities, as reflected in the consolidated statements of cash flows, are summarized as follows:
SIX MONTHS ENDED JUNE 30, ----------------------- (IN THOUSANDS) 2005 2004 - -------------- -------- -------- Cash provided by (used for): Operating activities.................................... $ (9,572) $ (4,723) Investing activities.................................... (12,205) (10,114) Financing activities.................................... 22,888 15,107 Effect of exchange rate changes on cash................. (63) (412) -------- -------- Net increase (decrease) in cash and cash equivalents........ $ 1,048 $ (142) ======== ========
OPERATING ACTIVITIES. During the first six months of 2005, our operations used $6.3 million more cash than in the first six months of 2004. This increased use of cash was primarily due to payments made to customers for rebates earned in 2004, a payment made related to a long-term customer contract and deferred compensation payments. INVESTING ACTIVITIES. Capital expenditures were $12.7 million in the first six months of 2005 compared to $12.5 million in the first six months of 2004. Proceeds from divestitures were $4.2 million in 2005 compared to $2.0 million in 2004. Acquisition spending in 2005 included a $1.4 million payment on an acquisition completed in 2004 and $2.5 million paid to acquire a small operation that has been consolidated with our printing operation in Philadelphia, Pennsylvania. FINANCING ACTIVITIES. Our outstanding debt was $783.6 million at June 30, 2005, an increase of $13.8 million from December 31, 2004. Proceeds received from the exercise of stock options during the six months ended June 30, 2005 totaled $9.1 million. On June 30, 2005, we had outstanding letters of credit of approximately $25.2 million related to performance and payment guarantees. In addition, we have issued letters of credit of $1.0 million as credit enhancements in conjunction with other debt. Based on our experience with these arrangements, we do not believe that any obligations that may arise will be significant. Our current credit ratings are as follows:
SENIOR SENIOR SECURED CREDIT SENIOR SUBORDINATED REVIEW AGENCY FACILITY NOTES NOTES LAST UPDATE - ----------------------------------- -------------- ------ ------------ ------------- Standard & Poor's.................. BB- B+ B December 2004 Moody's............................ Ba3 B1 B3 April 2004
The terms of our existing debt do not have any rating triggers, and we do not believe that our current ratings will impact our ability to raise additional capital. We expect internally generated cash flow and the financing available under our senior secured credit facility will be sufficient to fund our working capital needs and long-term growth; however, this cannot be assured. Based on the certificate filed July 22, 2005, we had $97.3 million of unused credit available under our senior secured credit facility. CRITICAL ACCOUNTING ESTIMATES In preparing the consolidated condensed financial statements, we make estimates based on assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. We evaluate these estimates on an ongoing basis. We base our 19 estimates on historical experience and various other assumptions that are considered reasonable in view of relevant facts and circumstances. Because these accounting estimates and assumptions inherently involve significant judgments and the most uncertainty, the nature of these accounting estimates and assumptions are important to an understanding of our financial statements. Because future events rarely develop exactly as anticipated, even the best estimates routinely require adjustment. There were no significant changes in the application of the critical accounting policies and estimates in preparing our consolidated condensed financial statements for the second quarter of 2005 from those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2004. The critical accounting policies and estimates disclosed in the Management's Discussion and Analysis of Financial Condition and Results of Operations were allowances for losses on accounts receivable, impairment of long-lived assets, goodwill, self-insurance and accounting for income taxes. NEW ACCOUNTING STANDARDS In December 2004, the FASB issued SFAS No. 123 (revised 2004), Share-Based Payments: an amendment of FASB Statements No. 123 and 95 ("SFAS No. 123R"). SFAS No. 123R requires all share-based payments to employees, including grants of stock options, to be recognized in the financial statements based on their fair value. The Company expects to implement SFAS 123R in the first quarter of 2006 and use the modified-prospective transition method of implementation. Under the modified-prospective transition method, the Company will recognize compensation expense in the financial statements issued subsequent to the date of adoption, which will be January 1, 2006, for all share-based payments granted, modified or settled after January 1, 2006 as well as for any awards that were granted prior to January 1, 2006 for which the requisite service has not been provided as of January 1, 2006. The Company will recognize compensation expense on awards granted subsequent to January 1, 2006 using the fair values determined by a valuation model prescribed by SFAS 123R. The compensation expense on awards granted prior to January 1, 2006 will be recognized using the fair values determined for the pro forma disclosures on stock-based compensation. The amount of compensation expense that will be recognized on awards that have not fully vested will exclude the compensation expense cumulatively recognized in the pro forma disclosures on stock-based compensation. The Company has not determined the impact of its adoption of SFAS No. 123R. SEASONALITY AND ENVIRONMENT Our commercial segment experiences seasonal variations. Revenues from annual reports are generally concentrated from February through April. Revenues associated with holiday catalogs and automobile brochures tend to be concentrated from July through October. As a result of these seasonal variations, some of our commercial printing operations are at or near capacity at certain times during these periods. In addition, several envelope market segments and certain segments of the direct mail market experience seasonality, with a higher percentage of the volume of products sold to these markets occurring during the fourth quarter of the year. This seasonality is due to the increase in sales to the direct mail market due to holiday purchases. The mailer operations of our resale segment are at or near capacity at times during the fourth quarter. Seasonality is offset by the diversity of our other products and markets, which are not materially affected by seasonal conditions. Environmental matters have not had a material financial impact on our historical operations and are not expected to have a material impact in the future. 20 AVAILABLE INFORMATION Our Internet address is: www.cenveo.com. We make available free of charge through our website our Annual Report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after such documents are filed electronically with the Securities and Exchange Commission. In addition, our earnings conference calls are archived for replay on our website and presentations to securities analysts are also included on our website. LEGAL PROCEEDINGS From time to time we may be involved in claims or lawsuits that arise in the ordinary course of business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed probable and can be estimated. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is our opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material adverse effect on us. CAUTIONARY STATEMENTS Certain statements in this report, and in particular, statements found in Management's Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We believe these forward-looking statements are based upon reasonable assumptions within the bounds of our knowledge of Cenveo. All such statements involve risks and uncertainties, and as a result, actual results could differ materially from those projected, anticipated or implied by these statements. Such forward-looking statements involve known and unknown risks, including but not limited to, general economic, business and labor conditions; the ability to be profitable on a consistent basis; the impact of a new CEO and changes in management and strategic direction that may be made; the impact of a special shareholders' meeting to be held September 14, 2005 called by a dissident shareholder group to replace the current board of directors and the potential triggering of certain change of control provisions under our debt instruments as a result thereof; the ability to effectively execute cost reduction programs and management reorganizations; dependence on sales that are not subject to long-term contracts; dependence on suppliers; the ability to recover the rising cost of key raw materials in markets that are highly price competitive; the ability to meet customer demand for additional value-added products and services; fluctuations in currency exchange rates, particularly with respect to the Canadian dollar; the ability to timely or adequately respond to technological changes in the industry; the impact of the Internet and other electronic media on the demand for envelopes and printed material; postage rates; the ability to manage operating expenses; the ability to manage financing costs and interest rate risk; a decline in business volume and profitability that could result in a further impairment of goodwill; the ability to retain key management personnel; the ability to identify, manage or integrate future acquisitions; the costs associated with and the outcome of outstanding and future litigation; and changes in government regulations. In view of such uncertainties, investors should not place undue reliance on our forward-looking statements since such statements speak only as of the date when made. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. 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 our operations and our financial position. Risks from interest and foreign currency exchange rate fluctuations are managed through normal operating and financing activities. We do not utilize derivatives for speculative purposes, nor have we hedged interest rate 21 exposure through the use of swaps and options or foreign exchange exposure through the use of forward contracts. Exposure to market risk from changes in interest rates relates primarily to our variable rate debt obligations. The interest on this debt is the London Interbank Offered Rate ("LIBOR") plus a margin. At June 30, 2005, we had variable rate debt outstanding of $107.4 million. A 1% increase in LIBOR on the maximum amount of debt subject to variable interest rates, which was $314.2 million, would increase our annual interest expense by $3.1 million. We have operations in Canada, and thus are exposed to market risk for changes in foreign currency exchange rates of the Canadian dollar. In the three and six months ended June 30, 2005, a uniform 10% strengthening of the U.S. dollar relative to the Canadian dollar would have resulted in a decrease in sales of approximately $4.7 million and $10.0 million, respectively, and a decrease in net income of approximately $0.5 and $1.1 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. The Company's management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures (as defined in Rule 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 report. Based upon that evaluation, the Company's management, including the Chief Executive Officer and Chief Financial Officer, concluded that the Company's disclosure controls and procedures are effective in timely alerting them to any material information relating to the Company and its subsidiaries required to be included in the Company's Exchange Act filings. CHANGES IN INTERNAL CONTROLS. There were no changes made in the Company's internal controls over financial reporting that occurred during the Company's most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company's internal controls over financial reporting. 22 PART II ITEM 2. ISSUER PURCHASES OF EQUITY SECURITIES
(d) MAXIMUM NUMBER (OR APPROXIMATE (a) TOTAL (b) (c) TOTAL NUMBER OF DOLLAR VALUE) OF NUMBER OF AVERAGE PRICE SHARES (OR UNITS) SHARES (OR UNITS) THAT SHARES (OR PAID PER PURCHASED AS PART OF MAY YET BE PURCHASED UNITS) SHARE (OR PUBLICLY ANNOUNCED UNDER THE PLANS OR PERIOD PURCHASED* UNIT) PLANS OR PROGRAMS PROGRAMS ------ ---------- ------------- -------------------- ---------------------- 05/01/05 - 05/31/05 24,733 $7.56/share 06/01/2005 - 06/30/2005 07/01/2005 - 07/31/2005 ------ ----------- TOTAL 24,733 $7.56/SHARE ====== =========== - -------- * All 24,733 shares were forfeited to the Company by certain executives in respect of certain withholding tax payments, made by the Company on the executives' behalf, that became due upon the vesting of certain restricted shares.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS On April 27, 2005, the Company held its Annual Meeting of Shareholders, at which the following matters were voted upon: ELECTION OF DIRECTORS--The following individuals were elected or re-elected to the Board of Directors by the following vote:
NAME FOR WITHHELD - ------------------- ---------- ---------- Thomas E. Costello 29,956,635 13,511,401 Paul F. Kocourek 29,316,738 14,151,298 Martin J. Maloney 29,284,858 14,183,178 David M. Olivier 29,835,556 13,632,480 Jerome W. Pickholz 29,253,442 14,214,594 Alister W. Reynolds 29,881,248 13,586,788 Susan O. Rheney 29,259,566 14,208,470 Wellington E. Webb 28,871,777 14,596,259
SELECTION OF AUDITORS--The selection by the Audit Committee of Ernst & Young LLP as independent auditors of the Company for the fiscal year ending December 31, 2005 was ratified by the following vote: 41,951,917 For, 1,071,388 Against, 444,730 Abstentions. ITEM 6. EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 3.1 Articles of Incorporation of the Company--incorporated by reference from Exhibit 3(i) of the Company's Form 10-Q for the quarter ended June 30, 1997. 3.2 Articles of Amendment to the Articles of Incorporation of the Company dated May 17, 2004--incorporated by reference to Exhibit 3.2 to Cenveo Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 2004. 3.3 Bylaws of the Company as amended and restated effective April 17, 2005--incorporated by reference to Exhibit 3.2 of the Company's Form 8-K filed April 18, 2005. 3.4 Certificate of Amendment of Certificate of Incorporation of Cenveo Corporation (formerly known as Mail-Well I Corporation) dated May 14, 2004--incorporated by reference to 23 EXHIBIT NUMBER DESCRIPTION - ------- ----------- Exhibit 3.4 to Cenveo Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 2004. 3.5 Amendment to Articles of Incorporation and Certificate of Designations of Series A Junior Participating Preferred Stock of Cenveo, Inc. dated April 20, 2005--incorporated by reference to Exhibit 3.1 of the Company's Form 8-K filed April 21, 2005. 4.1 Indenture dated as of March 13, 2002 between Mail-Well I Corporation and State Street Bank and Trust Company, as Trustee relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount of 9 5/8% Senior Notes due 2012--incorporated by reference to Exhibit 10.30 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 4.2 Form of Senior Note and Guarantee relating to Mail-Well I Corporation's $350,000,000 aggregate principal amount 9 5/8% due 2012--incorporated by reference to Exhibit 10.31 to Mail-Well, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002. 4.3 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 $320,000,000 aggregate principal amount of 7 7/8 Senior Subordinated Notes due 2013--incorporated by reference to Exhibit 4.5 to Mail-Well, Inc.'s Annual Form 10-K filed February 27, 2004. 4.4 Rights Agreement dated April 20, 2005 between Cenveo, Inc. and Computershare Trust Company, Inc.--incorporated by reference to Exhibit 4.1 of the Company's Form 8-K filed April 21, 2005. 10.1 Form of Indemnity Agreement between Mail-Well, Inc. and each of its officers and directors--incorporated by reference from Exhibit 10.17 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.2 Form of Indemnity Agreement between Mail-Well I Corporation and each of its officers and directors--incorporated by reference from Exhibit 10.18 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.3 Form of M-W Corp. Employee Stock Ownership Plan effective as of February 23, 1994 and related Employee Stock Ownership Plan Trust Agreement--incorporated by reference from Exhibit 10.19 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.4 Form of M-W Corp. 401(k) Savings Retirement Plan--incorporated by reference from Exhibit 10.20 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.5 Form of Mail-Well, Inc. Incentive Stock Option Agreement--incorporated by reference from Exhibit 10.22 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.6 Form of Mail-Well, Inc. Nonqualified Stock Option Agreement--incorporated by reference from Exhibit 10.23 of Mail-Well, Inc.'s Registration Statement on Form S-1 dated March 25, 1994. 10.7 1997 Non-Qualified Stock Option Agreement--incorporated by reference from Exhibit 10.54 of Mail-Well, Inc.'s Form 10-Q for the quarter ended March 31, 1997. 10.8 Mail-Well, Inc. 1998 Incentive Stock Option Plan Incentive Stock Option Agreement--incorporated by reference from Exhibit 10.59 to the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. 24 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.9 Mail-Well, Inc. 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.10 Form of Non-Qualified Stock Option Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.11 Form of Incentive Stock Option Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.12 Form of Restricted Stock Award Agreement under 2001 Long-Term Equity Incentive Plan--incorporated by reference from the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2001. 10.13 Second Amended and Restated Equipment Lease dated as of August 6, 2002 between Wells Fargo Bank Northwest, National Association, as trustee under MW 1997-1 Trust, and Mail- Well I Corporation--incorporated by reference to Exhibit 10.26 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.14 Second Amended and Restated Guaranty Agreement dated as of August 6, 2002, among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent, and the Trust Certificate Purchasers named therein--incorporated by reference to Exhibit 10.27 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.15 Second Amended and Restated Participation Agreement dated as of August 6, 2002, among Mail-Well I Corporation as Lessee, Fleet Capital Corporation as Arranger and Agent, and the Trust Certificate Purchasers named therein--incorporated by reference to Exhibit 10.28 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.16 Amendment Agreement No. 1 dated as of September 25, 2002, among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantors, Fleet Capital Corporation as Agent, and the Trust Certificate Purchasers named therein--incorporated by reference to Exhibit 10.29 of Mail-Well, Inc.'s Form 10-Q for the quarter ended September 30, 2002. 10.17 Employment and Executive Severance Agreement dated as of March 10, 2003, between the Company and Paul V. Reilly--incorporated by reference to Exhibit 10.26 of the Company's Annual Form 10-K filed March 31, 2003. 10.18 Form of Executive Severance Agreement entered into between the Company and each of the following: Michel Salbaing, Gordon Griffiths, Brian Hairston, Keith Pratt, William Huffman, D. Robert Meyer and Mark Zoeller--incorporated by reference to Exhibit 10.27 of the Company's Annual Form 10-K filed March 31, 2003. 10.19 Amendment Agreement No. 2 dated as of March 25, 2004 among Mail-Well I Corporation as Lessee, certain of its subsidiaries and Mail-Well, Inc. as Guarantor, Fleet Capital Corporation as Agent, and the Trust Purchasers named therein--incorporated by reference to Exhibit 10.21 of the Company's Form 10-Q for quarter ended March 31, 2004. 10.20 Second Amended and Restated Credit Agreement dated March 25, 2004 among Mail-Well, Inc., Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the lenders under the Second Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.22 of the Company's Form 10-Q for quarter ended March 31, 2004. 25 EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.21 Second Amended and Restated Security Agreement dated March 25, 2004 among Mail-Well, Inc., Mail-Well I Corporation, certain subsidiaries of Mail-Well I, the lenders under the Second Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.23 of the Company's Form 10-Q for quarter ended March 31, 2004. 10.22 Cenveo, Inc. 2001 Long-Term Equity Incentive Plan, as amended--incorporated by reference to Exhibit 10.24 to Cenveo Inc.'s quarterly report on Form 10-Q for the quarter ended June 30, 2004. 10.23 Amendment No. 1 to Second Amended and Restated Credit Agreement dated February 8, 2005 among Cenveo, Inc., Cenveo Corporation, certain subsidiaries of Cenveo Corporation, the lenders under the Second Amended and Restated Credit Agreement, and Bank of America, N.A., as administrative agent for the lenders--incorporated by reference to Exhibit 10.23 of the Company's Annual Form 10-K filed February 28, 2005. 10.24 Employment Agreement dated as of June 22, 2005 between the Company and James R. Malone--incorporated by reference to Exhibit 99.1 of the Company's Form 8-K filed June 24, 2005. 31.1* Certification of Periodic Report by James R. Malone, President and Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Certification of Periodic Report by Michel P. Salbaing, Senior Vice President--Finance and Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1** Certification of Periodic Report by James R. Malone, President and Chief Executive Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2** Certification of Periodic Report by Michel P. Salbaing, Senior Vice President--Finance and Chief Financial Officer, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. - -------- * Filed herewith. ** Furnished herewith.
26 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 Englewood, state of Colorado, on August 1, 2005. CENVEO, INC. By: /s/ JAMES R. MALONE ----------------------------------- James R. Malone, President and Chief Executive Officer (Principal Executive Officer) By: /s/ MICHEL P. SALBAING ----------------------------------- Michel P. Salbaing Senior Vice President-- Finance and Chief Financial Officer (Principal Financial Officer) 27 EX-31.1 2 ex31p1.txt Exhibit 31.1 CERTIFICATION I, James R. Malone, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cenveo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 1, 2005 /s/ James R. Malone --------------------------------- Chief Executive Officer EX-31.2 3 ex31p2.txt Exhibit 31.2 CERTIFICATION I, Michel P. Salbaing, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Cenveo, Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 1, 2005 /s/ Michel P. Salbaing ---------------------------------- Chief Financial Officer EX-32.1 4 ex32p1.txt Exhibit 32.1 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, James R. Malone, president and chief executive officer of Cenveo, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 1, 2005 /s/ James R. Malone ------------------------------------- James R. Malone President and Chief Executive Officer EX-32.2 5 ex32p2.txt Exhibit 32.2 CERTIFICATION OF PERIODIC REPORT -------------------------------- I, Michel P. Salbaing, senior vice president and chief financial officer of Cenveo, Inc. (the "Company"), certify pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that: (1) the Quarterly Report on Form 10-Q of the Company for the quarterly period ended June 30, 2005 (the "Report") fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. Dated: August 1, 2005 Michel P. Salbaing ---------------------------------- Michel P. Salbaing Senior Vice President and CFO -----END PRIVACY-ENHANCED MESSAGE-----