CVO-2015.03.28-10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 28, 2015
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.) |
| | |
200 FIRST STAMFORD PLACE | | |
STAMFORD, CT | | 06902 |
(Address of principal executive offices) | | (Zip Code) |
| | |
203-595-3000 |
(Registrant’s telephone number, including area code) |
| N/A | |
(Former name, former address and former fiscal year, if changed since last report) |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ý No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the Exchange Act. Large accelerated filer o Accelerated filer ý Non-accelerated filer o Smaller reporting company o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý
As of May 5, 2015, the registrant had 67,873,560 shares of common stock, par value $0.01 per share, outstanding.
CENVEO, INC. AND SUBSIDIARIES
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the quarterly period ended March 28, 2015
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| PART I. FINANCIAL INFORMATION | |
Item 1: | Financial Statements (unaudited) | |
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Item 2: | | |
Item 3: | | |
Item 4: | | |
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| PART II. OTHER INFORMATION | |
Item 1: | | |
Item 1A: | | |
Item 4: | | |
Item 6: | | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) |
| | | | | | | |
| |
| March 28, 2015 | | December 27, 2014 |
| (unaudited) | | |
Assets | | | |
Current assets: | |
| | |
|
Cash and cash equivalents | $ | 12,439 |
| | $ | 14,593 |
|
Accounts receivable, net | 271,409 |
| | 281,898 |
|
Inventories | 141,553 |
| | 137,010 |
|
Prepaid and other current assets | 46,851 |
| | 50,406 |
|
Assets of discontinued operations - current | 12 |
| | 8 |
|
Total current assets | 472,264 |
| | 483,915 |
|
| | | |
Property, plant and equipment, net | 275,428 |
| | 282,408 |
|
Goodwill | 185,590 |
| | 185,849 |
|
Other intangible assets, net | 155,254 |
| | 157,704 |
|
Other assets, net | 46,971 |
| | 48,015 |
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Total assets | $ | 1,135,507 |
| | $ | 1,157,891 |
|
Liabilities and Shareholders’ Deficit | |
| | |
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Current liabilities: | |
| | |
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Current maturities of long-term debt | $ | 4,467 |
| | $ | 4,355 |
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Accounts payable | 219,130 |
| | 232,184 |
|
Accrued compensation and related liabilities | 36,987 |
| | 37,125 |
|
Other current liabilities | 76,483 |
| | 87,221 |
|
Liabilities of discontinued operations - current | 68 |
| | 70 |
|
Total current liabilities | 337,135 |
| | 360,955 |
|
| | | |
Long-term debt | 1,246,274 |
| | 1,229,984 |
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Other liabilities | 192,449 |
| | 199,627 |
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Commitments and contingencies |
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| |
|
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Shareholders’ deficit: | |
| | |
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Preferred stock | — |
| | — |
|
Common stock | 678 |
| | 677 |
|
Paid-in capital | 370,218 |
| | 370,228 |
|
Retained deficit | (913,062 | ) | | (905,383 | ) |
Accumulated other comprehensive loss | (98,185 | ) | | (98,197 | ) |
Total shareholders’ deficit | (640,351 | ) | | (632,675 | ) |
Total liabilities and shareholders’ deficit | $ | 1,135,507 |
| | $ | 1,157,891 |
|
See notes to condensed consolidated financial statements.
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (in thousands, except per share data) (unaudited)
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
Net sales | | $ | 475,105 |
| | $ | 490,119 |
|
Cost of sales | | 397,888 |
| | 415,157 |
|
Selling, general and administrative expenses | | 52,261 |
| | 55,494 |
|
Amortization of intangible assets | | 2,407 |
| | 3,449 |
|
Restructuring and other charges | | 4,354 |
| | 5,947 |
|
Operating income | | 18,195 |
| | 10,072 |
|
Interest expense, net | | 25,692 |
| | 27,910 |
|
Loss on early extinguishment of debt, net | | 433 |
| | 18 |
|
Other income, net | | (217 | ) | | (509 | ) |
Loss from continuing operations before income taxes | | (7,713 | ) | | (17,347 | ) |
Income tax benefit | | (66 | ) | | (560 | ) |
Loss from continuing operations | | (7,647 | ) | | (16,787 | ) |
(Loss) income from discontinued operations, net of taxes | | (32 | ) | | 953 |
|
Net loss | | (7,679 | ) | | (15,834 | ) |
Other comprehensive income (loss): | | | | |
Changes in pension and other employee benefit accounts, net of taxes | | 1,342 |
| | 480 |
|
Currency translation adjustment | | (1,330 | ) | | 88 |
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Comprehensive loss | | $ | (7,667 | ) | | $ | (15,266 | ) |
| | | | |
(Loss) income per share – basic: | | | | |
Continuing operations | | $ | (0.11 | ) | | $ | (0.25 | ) |
Discontinued operations | | — |
| | 0.01 |
|
Net loss | | $ | (0.11 | ) | | $ | (0.24 | ) |
| | | | |
(Loss) income per share – diluted: | | | | |
Continuing operations | | $ | (0.11 | ) | | $ | (0.25 | ) |
Discontinued operations | | — |
| | 0.01 |
|
Net loss | | $ | (0.11 | ) | | $ | (0.24 | ) |
| | | | |
Weighted average shares outstanding: | | |
| | |
|
Basic | | 67,746 |
| | 66,336 |
|
Diluted | | 67,746 |
| | 66,336 |
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See notes to condensed consolidated financial statements.
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) |
| | | | | | | |
| For the Three Months Ended |
| March 28, 2015 | | March 29, 2014 |
Cash flows from operating activities: | | | |
Net loss | $ | (7,679 | ) | | $ | (15,834 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: | |
| | |
|
Gain on sale of discontinued operations, net of taxes | — |
| | (845 | ) |
Loss (income) from discontinued operations, net of taxes | 32 |
| | (108 | ) |
Depreciation and amortization, excluding non-cash interest expense | 14,688 |
| | 16,061 |
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Non-cash interest expense, net | 2,472 |
| | 2,418 |
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Deferred income taxes | (266 | ) | | (852 | ) |
Loss (gain) on sale of assets | 684 |
| | (2 | ) |
Non-cash restructuring and other charges, net | 2,491 |
| | 2,609 |
|
Loss on early extinguishment of debt, net | 433 |
| | 18 |
|
Stock-based compensation provision | 132 |
| | 836 |
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Other non-cash charges | 803 |
| | 735 |
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Changes in operating assets and liabilities, excluding the effects of acquired businesses: | |
| | |
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Accounts receivable | 9,136 |
| | 7,382 |
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Inventories | (4,946 | ) | | (11,130 | ) |
Accounts payable and accrued compensation and related liabilities | (13,157 | ) | | 2,654 |
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Other working capital changes | (10,263 | ) | | (2,004 | ) |
Other, net | (1,966 | ) | | (5,361 | ) |
Net cash used in operating activities of continuing operations | (7,406 | ) | | (3,423 | ) |
Net cash used in operating activities of discontinued operations | (38 | ) | | (1,658 | ) |
Net cash used in operating activities | (7,444 | ) | | (5,081 | ) |
Cash flows from investing activities: | |
| | |
|
Capital expenditures | (6,059 | ) | | (8,975 | ) |
Purchase of investment | — |
| | (2,000 | ) |
Proceeds from sale of property, plant and equipment | 573 |
| | 162 |
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Net cash used in investing activities of continuing operations | (5,486 | ) | | (10,813 | ) |
Net cash provided by investing activities of discontinued operations | — |
| | 1,018 |
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Net cash used in investing activities | (5,486 | ) | | (9,795 | ) |
Cash flows from financing activities: | |
| | |
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Payment of financing-related costs and expenses and debt issuance discounts | (1,162 | ) | | (2,330 | ) |
Repayments of other long-term debt | (1,472 | ) | | (1,569 | ) |
Repayment of 11.5% senior notes due 2017 | (15,776 | ) | | — |
|
Purchase and retirement of common stock upon vesting of RSUs | (141 | ) | | (252 | ) |
Repayment of 15% Unsecured Term Loan due 2017 | — |
| | (600 | ) |
Repayment of Term Loan Facility due 2017 | — |
| | (900 | ) |
Borrowings under ABL Facility due 2017 | 141,300 |
| | 156,400 |
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Repayments under ABL Facility due 2017 | (111,100 | ) | | (135,600 | ) |
Net cash provided by financing activities | 11,649 |
| | 15,149 |
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Effect of exchange rate changes on cash and cash equivalents | (873 | ) | | (64 | ) |
Net (decrease) increase in cash and cash equivalents | (2,154 | ) | | 209 |
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Cash and cash equivalents at beginning of period | 14,593 |
| | 11,329 |
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Cash and cash equivalents at end of period | $ | 12,439 |
| | $ | 11,538 |
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See notes to condensed consolidated financial statements.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements ("financial statements") of Cenveo, Inc. and its subsidiaries (collectively, "Cenveo" or the "Company") have been prepared in accordance with Rule 10-01 of Regulation S-X promulgated by the Securities and Exchange Commission ("SEC") and, in the Company’s opinion, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of financial position as of March 28, 2015, and the results of operations for the three months ended March 28, 2015, and March 29, 2014, and cash flows for the three months ended March 28, 2015, and March 29, 2014. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to SEC rules. The results of operations for the three months ended March 28, 2015, are generally not indicative of the results to be expected for any interim period or for the full year, primarily due to restructuring, acquisition and debt-related activities or transactions. The December 27, 2014 consolidated balance sheet has been derived from the audited consolidated financial statements at that date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 27, 2014, filed with the SEC. The reporting periods for the three months ended March 28, 2015, and March 29, 2014, each consisted of 13 weeks.
New Accounting Pronouncements: In April 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-08, "Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity." The amendments in the ASU change the criteria for reporting discontinued operations while enhancing related disclosures. The amendments in the ASU were effective in the first quarter of 2015. The Company's adoption of this amendment did not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue from Contracts with Customers (Topic 606)." The new revenue recognition standard provides a five-step analysis to determine when and how revenue is recognized. The standard requires that a company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2016 and will be applied retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02, “Consolidation: Amendment to the Consolidation Analysis.” This revised standard improves targeted areas of the consolidation guidance and reduces the number of consolidation models. This update is effective for annual and interim periods in fiscal years beginning after December 15, 2015, with early adoption permitted. The Company does not expect the adoption of ASU 2015-02 to have a material impact on its consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in ASU 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03 is effective for annual and interim periods beginning on or after December 15, 2015. As of March 28, 2015, the Company had $24.5 million of debt issuance costs that would be reclassified from a long-term asset to a reduction in the carrying amount of its debt.
2. Acquisitions
The Company accounts for business combinations under the provisions of the Business Combination Topic of the FASB’s Accounting Standards Codification ("ASC") 805. Acquisitions are accounted for by the purchase method, and accordingly, the assets and liabilities of the acquired businesses have been recorded at their estimated fair values on the acquisition date with the excess of the purchase price over their estimated fair values recorded as goodwill. In the event the estimated fair values of the assets and liabilities acquired exceed the purchase price paid, a bargain purchase gain is recorded in the statements of operations.
Acquisition-related costs are expensed as incurred. Acquisition-related costs, including integration costs, are included in selling, general and administrative expenses in the Company’s statements of operations and were $0.3 million and $1.9 million for the three months ended March 28, 2015, and March 29, 2014, respectively.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
National Envelope
On September 16, 2013, Cenveo acquired certain assets of National Envelope Corporation ("National"). National's accounts receivable and inventory were purchased by unrelated third parties in conjunction with Cenveo's acquisition. National manufactured and distributed envelope products for the billing, financial, direct mail and office products markets and had approximately 1,600 employees. The Company believes the acquisition of certain assets of National has enhanced the Company's manufacturing capabilities and reduced capacity in the envelope industry. The purchase price was $34.1 million, of which $6.0 million was Cenveo common stock, and was allocated to the tangible and identifiable intangible assets acquired and liabilities assumed based on their estimated fair values at the acquisition date, and was assigned to the Company's envelope segment. The acquisition of certain assets of National resulted in a bargain purchase gain of approximately $17.3 million, exclusive of $6.8 million of tax expense, which was recognized in the Company's statement of operations in 2013. Prior to the recognition of the bargain purchase gain, the Company reassessed the fair values of the tangible and identifiable intangible assets acquired and liabilities assumed in the acquisition. The Company believes it was able to acquire those assets of National for less than their fair value due to National's bankruptcy prior to the Company's acquisition. The acquired identifiable intangible asset relates to a leasehold interest with a fair value of $4.4 million, which is being amortized over the remaining lease term of 20 years, which includes renewal periods. The Company finalized the purchase price allocation in the third quarter of 2014 and adjusted the preliminary values allocated to certain assets and liabilities. There were no material adjustments to the purchase price allocation.
National's results of operations and cash flows are included in the Company’s statements of operations and cash flows from September 16, 2013.
Purchase Price Allocation
The following table summarizes the allocation of the purchase price of National to the assets acquired and liabilities assumed in the acquisition (in thousands):
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| | | | |
Property, plant and equipment | | $ | 53,108 |
|
Other intangible assets | | 4,430 |
|
Total assets acquired | | 57,538 |
|
Accounts payable | | 1,015 |
|
Accrued compensation and related liabilities | | 1,210 |
|
Other current liabilities | | 1,453 |
|
Note payable | | 2,536 |
|
Total liabilities assumed | | 6,214 |
|
Net assets acquired | | 51,324 |
|
Cost of the acquisition of certain assets of National | | 34,062 |
|
Gain on bargain purchase | | $ | 17,262 |
|
Property, plant and equipment values were estimated based on discussions with machinery and equipment brokers, internal expertise related to the equipment and current marketplace conditions. The value of the leasehold interest acquired was determined based on the present value of the difference between: (i) the contractual amounts to be paid pursuant to the lease; and (ii) management's estimate of current market lease rates for the corresponding lease, measured over the remaining lease term and renewal periods.
The fair values of property, plant and equipment and the intangible asset acquired from National were determined to be Level 3 under the fair value hierarchy.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. Discontinued Operations
On September 28, 2013, the Company completed the sale of its Custom Envelope Group ("Custom Envelope"). To date, the Company has received total net cash proceeds of approximately $47.0 million, of which $1.0 million was received in the first quarter of 2014. This resulted in the recognition of a total after-tax gain of $16.5 million, of which $14.9 million was recognized in the year ended 2013. The operating results of Custom Envelope are reported in discontinued operations in the Company's financial statements for all periods presented herein.
During the second quarter of 2013, the Company decided to exit the San Francisco market and closed a manufacturing facility within its print segment. The operating results of this manufacturing facility are reported in discontinued operations in the Company's financial statements for all periods presented herein.
Collectively, the Company refers to these businesses as the "Discontinued Operations."
The following table shows the components of assets and liabilities that are classified as discontinued operations in the Company's condensed consolidated balance sheets as of March 28, 2015, and December 27, 2014 (in thousands):
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| | | | | | | | |
| | March 28, 2015 | | December 27, 2014 |
Prepaid and other current assets | | $ | 12 |
| | $ | 8 |
|
Assets of discontinued operations - current | | 12 |
| | 8 |
|
Accrued compensation and related liabilities | | 68 |
| | 70 |
|
Liabilities of discontinued operations - current | | 68 |
| | 70 |
|
Net assets | | $ | (56 | ) | | $ | (62 | ) |
The following table summarizes certain statement of operations information for discontinued operations (in thousands, except per share data):
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| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
(Loss) income from discontinued operations before income taxes | | $ | (32 | ) | | $ | 176 |
|
Income tax expense on discontinued operations | | — |
| | 68 |
|
Gain on sale of discontinued operations (1) | | — |
| | 845 |
|
(Loss) income from discontinued operations, net of taxes | | $ | (32 | ) | | $ | 953 |
|
(Loss) income per share - basic | | $ | — |
| | $ | 0.01 |
|
(Loss) income per share - diluted | | $ | — |
| | $ | 0.01 |
|
__________________________
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(1) | The gain on the sale of discontinued operations is shown net of taxes of $0.5 million for the three months ended March 29, 2014. |
4. Inventories
Inventories by major category are as follows (in thousands):
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| | | | | | | | |
| | March 28, 2015 | | December 27, 2014 |
Raw materials | | $ | 49,253 |
| | $ | 45,341 |
|
Work in process | | 15,728 |
| | 19,649 |
|
Finished goods | | 76,572 |
| | 72,020 |
|
| | $ | 141,553 |
| | $ | 137,010 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. Property, Plant and Equipment
Property, plant and equipment are as follows (in thousands):
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| | | | | | | | |
| | March 28, 2015 | | December 27, 2014 |
Land and land improvements | | $ | 13,995 |
| | $ | 13,982 |
|
Buildings and building improvements | | 101,245 |
| | 101,407 |
|
Machinery and equipment | | 614,498 |
| | 623,619 |
|
Furniture and fixtures | | 9,554 |
| | 10,086 |
|
Construction in progress | | 16,212 |
| | 13,154 |
|
| | 755,504 |
| | 762,248 |
|
Accumulated depreciation | | (480,076 | ) | | (479,840 | ) |
| | $ | 275,428 |
| | $ | 282,408 |
|
6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill as of March 28, 2015, by reportable segment are as follows (in thousands):
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| | | | | | | | | | | | | | | | |
| | Envelope | | Print | | Label and Packaging | | Total |
Balance as of December 27, 2014 | | $ | 23,433 |
| | $ | 45,432 |
| | $ | 116,984 |
| | $ | 185,849 |
|
Foreign currency translation | | — |
| | 96 |
| | (355 | ) | | (259 | ) |
Balance as of March 28, 2015 | | $ | 23,433 |
| | $ | 45,528 |
| | $ | 116,629 |
| | $ | 185,590 |
|
Other intangible assets are as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | March 28, 2015 | | December 27, 2014 |
| | Weighted Average Remaining Amortization Period (Years) | | Gross Carrying Amount | | Accumulated Impairment Charges | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Impairment Charges | | Accumulated Amortization | | Net Carrying Amount |
Intangible assets with definite lives: | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
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Customer relationships | | 8 | | $ | 144,693 |
| | $ | (27,234 | ) | | $ | (64,376 | ) | | $ | 53,083 |
| | $ | 144,732 |
| | $ | (27,234 | ) | | $ | (62,202 | ) | | $ | 55,296 |
|
Trademarks and trade names | | 21 | | 77,755 |
| | (55,367 | ) | | (9,560 | ) | | 12,828 |
| | 77,750 |
| | (55,367 | ) | | (9,383 | ) | | 13,000 |
|
Leasehold interest | | 18 | | 4,430 |
| | — |
| | (348 | ) | | 4,082 |
| | 4,430 |
| | — |
| | (291 | ) | | 4,139 |
|
Patents | | 11 | | 3,528 |
| | — |
| | (3,167 | ) | | 361 |
| | 3,528 |
| | — |
| | (3,159 | ) | | 369 |
|
Subtotal | | 11 | | 230,406 |
| | (82,601 | ) | | (77,451 | ) | | 70,354 |
| | 230,440 |
| | (82,601 | ) | | (75,035 | ) | | 72,804 |
|
| | | | | | | | | | | | | | | | | | |
Intangible assets with indefinite lives: | | | | |
| | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Trademarks | | | | 84,900 |
| | — |
| | — |
| | 84,900 |
| | 84,900 |
| | — |
| | — |
| | 84,900 |
|
Total | | | | $ | 315,306 |
| | $ | (82,601 | ) | | $ | (77,451 | ) | | $ | 155,254 |
| | $ | 315,340 |
| | $ | (82,601 | ) | | $ | (75,035 | ) | | $ | 157,704 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Annual amortization expense of intangible assets for the next five years is estimated to be as follows (in thousands):
|
| | | | |
| | Annual Estimated Expense |
Remainder of 2015 | | $ | 7,205 |
|
2016 | | 7,889 |
|
2017 | | 7,439 |
|
2018 | | 7,154 |
|
2019 | | 6,949 |
|
2020 | | 6,853 |
|
Thereafter | | 26,865 |
|
Total | | $ | 70,354 |
|
Asset Impairments
There were no goodwill or intangible asset impairments recorded in the three months ended March 28, 2015, and March 29, 2014.
7. Long-Term Debt
Long-term debt is as follows (in thousands):
|
| | | | | | | | |
| | March 28, 2015 | | December 27, 2014 |
ABL Facility due 2017 | | $ | 164,900 |
| | $ | 134,700 |
|
8.500% junior priority secured notes due 2022 ($248.0 million outstanding principal amount as of March 28, 2015, and December 27, 2014) | | 245,444 |
| | 245,384 |
|
6.000% senior priority secured notes due 2019 ($540.0 million outstanding principal amount as of March 28, 2015, and December 27, 2014) | | 534,805 |
| | 534,552 |
|
11.5% senior notes due 2017 ($206.5 million and $222.3 million outstanding principal amount as of March 28, 2015, and December 27, 2014, respectively) | | 202,903 |
| | 218,011 |
|
7% senior exchangeable notes due 2017 | | 83,250 |
| | 83,250 |
|
Other debt including capital leases | | 19,439 |
| | 18,442 |
|
| | 1,250,741 |
| | 1,234,339 |
|
Less current maturities | | (4,467 | ) | | (4,355 | ) |
Long-term debt | | $ | 1,246,274 |
| | $ | 1,229,984 |
|
The estimated fair value of the Company’s long-term debt was approximately $1.2 billion and $1.1 billion as of March 28, 2015, and December 27, 2014, respectively. The fair value was determined by the Company to be Level 2 under the fair value hierarchy, and was based upon review of observable pricing in secondary markets for each debt instrument.
As of March 28, 2015, the Company was in compliance with all covenants under its long-term debt.
Amendment to ABL Facility
On January 30, 2015, the Company entered into Amendment No. 3 ("ABL Amendment No. 3") to the $230 million asset-based revolving credit facility (the "ABL Facility"), and an accompanying Increasing Lender Agreement on February 4, 2015, pursuant to which the revolving commitments were increased by $10.0 million. Among other things, ABL Amendment No. 3 increased the Company's flexibility to use the proceeds of any future asset sales to prepay its other indebtedness. The amendment also generally increased the Company's flexibility to prepay outstanding indebtedness, make acquisitions and other investments, and pay dividends, subject to the satisfaction of certain conditions. In connection with this amendment, the Company capitalized debt issuance costs of $1.3 million.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Extinguishments
In the first quarter of 2015, the Company recorded a loss on early extinguishment of debt of $0.4 million related to the repurchase of $15.8 million of its 11.5% senior notes due 2017 (the "11.5% Notes"), of which $0.2 million related to the write-off of unamortized debt issuance costs, and $0.2 million related to the write-off of original issuance discount.
8. Commitments and Contingencies
The Company is party to various legal actions that are ordinary and incidental to its business. While the outcome of pending legal actions cannot be predicted with certainty, management believes the outcome of these various proceedings will not have a material effect on the Company’s financial statements.
The Company is involved in certain environmental matters and has been designated as a potentially responsible party for certain hazardous waste sites. There have been no material changes related to these environmental matters and, based on information currently available, the Company believes that remediation of these environmental matters will not have a material effect on the Company’s financial statements.
The Company’s income, sales and use and other tax returns are routinely subject to audit by various authorities. The Company believes that the resolution of any matters raised during such audits will not have a material effect on the Company’s financial statements.
The Company participates in a number of multi-employer pension plans for union employees ("Multi-Employer Pension Plans") and is exposed to significant risks and uncertainties arising from its participation in these Multi-Employer Pension Plans. These risks and uncertainties, including changes in future contributions due to partial or full withdrawal of the Company and other participating employers from these Multi-Employer Pension Plans, could significantly increase the Company’s future contributions or the underfunded status of these Multi-Employer Pension Plans. Two of the Multi-Employer Pension Plans are in mass withdrawal status. While it is not possible to quantify the potential impact of future actions of the Company or other participating employers in these Multi-Employer Pension Plans, continued participation in or withdrawal from these Multi-Employer Pension Plans could have a material effect on the Company’s financial statements.
9. Fair Value Measurements
Certain assets and liabilities of the Company are required to be recorded at fair value on either a recurring or nonrecurring basis. Fair value is determined based on the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. There were no assets or liabilities recorded at fair value on a recurring or nonrecurring basis as of March 28, 2015. On an annual basis, the Company records its pension plan assets at fair value. No additional assets or liabilities were recorded at fair value on a recurring or nonrecurring basis as of December 27, 2014.
Fair Value of Financial Instruments
The Company’s financial instruments include cash and cash equivalents, accounts receivable, net, long-term debt and accounts payable. The carrying values of cash and cash equivalents, accounts receivable, net, current maturities of long-term debt and accounts payable are reasonable estimates of their fair values as of March 28, 2015, and December 27, 2014, due to the short-term nature of these instruments. See Note 7 for fair value of the Company’s long-term debt. Additionally, the Company records the assets acquired and liabilities assumed in its acquisitions (Note 2) at fair value.
10. Retirement Plans
The components of the net periodic expense (benefit) for the Company’s pension plans, supplemental executive retirement plans ("SERP") and other postretirement benefit plans ("OPEB") are as follows (in thousands):
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
Service cost | | $ | — |
| | $ | — |
|
Interest cost | | 3,524 |
| | 3,707 |
|
Expected return on plan assets | | (5,226 | ) | | (5,206 | ) |
Net amortization and deferral | | — |
| | — |
|
Recognized net actuarial loss | | 2,156 |
| | 794 |
|
Net periodic expense (benefit) | | $ | 454 |
| | $ | (705 | ) |
Interest cost on the projected benefit obligation includes $0.2 million related to the Company’s SERP and OPEB plans in each of the three months ended March 28, 2015, and March 29, 2014.
For the three months ended March 28, 2015, the Company made total contributions of $3.1 million to its pension, SERP and OPEB plans. The Company expects to contribute approximately $3.7 million to its pension, SERP and OPEB plans for the remainder of 2015.
11. Stock-Based Compensation
Total stock-based compensation expense recognized in selling, general and administrative expenses in the Company’s statements of operations was $0.1 million and $0.8 million for the three months ended March 28, 2015, and March 29, 2014, respectively.
As of March 28, 2015, there was approximately $0.6 million of total unrecognized compensation cost related to unvested stock-based compensation grants, which is expected to be amortized over a weighted average period of 2.0 years.
Stock Options
A summary of the Company’s outstanding stock options as of and for the three months ended March 28, 2015, is as follows:
|
| | | | | | | | | | | | | |
| | Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (In Years) | | Aggregate Intrinsic Value (in thousands) |
Outstanding at December 27, 2014 | | 1,670,500 |
| | $ | 5.18 |
| | 1.4 | | $ | 29 |
|
Granted | | — |
| | — |
| | | | |
Exercised | | — |
| | — |
| | | | $ | — |
|
Forfeited/expired | | (100,000 | ) | | 5.20 |
| | | | |
Outstanding at March 28, 2015 | | 1,570,500 |
| | $ | 5.18 |
| | 1.2 | | $ | 16 |
|
Exercisable at March 28, 2015 | | 1,450,875 |
| | $ | 5.44 |
| | 1.0 | | $ | 4 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
RSUs
A summary of the Company’s non-vested restricted share units ("RSUs") as of and for the three months ended March 28, 2015, is as follows:
|
| | | | | | | |
| | RSUs | | Weighted Average Grant Date Fair Value |
Non-vested at December 27, 2014 | | 512,861 |
| | $ | 3.22 |
|
Granted | | — |
| | — |
|
Vested | | (147,500 | ) | | 5.62 |
|
Forfeited | | — |
| | — |
|
Non-vested at March 28, 2015 | | 365,361 |
| | $ | 2.26 |
|
The total fair value of RSUs which vested during the three months ended March 28, 2015, was $0.3 million.
12. Restructuring and Other Charges
The Company currently has three active cost savings, restructuring and integration plans: (i) two plans related to the implementation of cost savings initiatives focused on overhead cost eliminations, including headcount reductions, and the potential closure of certain manufacturing facilities (the "2015 Plan" and the "2014 Plan"); and (ii) a plan related to the integration of certain assets of National into existing envelope operations (the "National Plan").
2015 Plan
During the first quarter of 2015, the Company began implementing the 2015 Plan, which primarily focuses on overhead cost eliminations, including headcount reductions, and the potential closure of certain manufacturing facilities. The Company expects to be substantially complete with the 2015 Plan during the 2016 fiscal year.
2014 Plan
During the first quarter of 2014, the Company began implementing the 2014 Plan, which primarily focuses on overhead cost eliminations, including headcount reductions, and the potential closure of certain manufacturing facilities. The Company expects to be substantially complete with the 2014 Plan during the 2015 fiscal year.
Acquisition Integration Plans
Upon the completion of the acquisition of certain assets of National, the Company developed and began implementing the National Plan. The Company is substantially complete with the accelerated integration of these assets, which has included the closure and consolidation of nine manufacturing facilities into existing envelope operations and two new facilities. The Company expects to be complete with the National Plan in 2015.
Residual Plans
The Company currently has certain residual cost savings, restructuring and integration plans (the "Residual Plans"). As a result of these cost savings actions over the last several years, the Company has closed or consolidated a significant amount of manufacturing facilities and has had a significant number of headcount reductions.
The Company does not anticipate any significant future expenses related to the Residual Plans other than modifications to current assumptions for lease terminations, multi-employer pension withdrawal liabilities and ongoing expenses related to maintaining restructured assets.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following tables present the details of the expenses recognized as a result of these plans.
2015 Activity
Restructuring and other charges for the three months ended March 28, 2015 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Employee Separation Costs | | Asset Charges Net of Gain on Sale | | Equipment Moving Expenses | | Lease Termination Expenses | | Multi-Employer Pension Withdrawal Expenses | | Building Clean-up & Other Expenses | | Total |
Envelope | | | | | | | | | | | | | | |
| 2014 Plan | | $ | 270 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 270 |
|
| Residual Plans | | — |
| | — |
| | — |
| | (22 | ) | | 40 |
| | 40 |
| | 58 |
|
| Acquisition Integration Plans | | 39 |
| | 1,895 |
| | 8 |
| | 275 |
| | — |
| | 247 |
| | 2,464 |
|
Total Envelope | | 309 |
| | 1,895 |
| | 8 |
| | 253 |
| | 40 |
| | 287 |
| | 2,792 |
|
Print | | | | | | | | | | | | | | |
| 2015 Plan | | 60 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 60 |
|
| 2014 Plan | | 125 |
| | 116 |
| | 13 |
| | — |
| | — |
| | 563 |
| | 817 |
|
| Residual Plans | | (54 | ) | | — |
| | — |
| | 58 |
| | 132 |
| | 24 |
| | 160 |
|
Total Print | | 131 |
| | 116 |
| | 13 |
| | 58 |
| | 132 |
| | 587 |
| | 1,037 |
|
Label and Packaging | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| 2015 Plan | | 150 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 150 |
|
| 2014 Plan | | 273 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 273 |
|
Total Label and Packaging | | 423 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 423 |
|
Corporate | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| 2015 Plan | | 88 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 88 |
|
| Residual Plans | | — |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 14 |
|
Total Corporate | | 88 |
| | — |
| | — |
| | — |
| | — |
| | 14 |
| | 102 |
|
Total Restructuring and Other Charges | | $ | 951 |
| | $ | 2,011 |
| | $ | 21 |
| | $ | 311 |
| | $ | 172 |
| | $ | 888 |
| | $ | 4,354 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2014 Activity
Restructuring and other charges for the three months ended March 29, 2014 were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | Employee Separation Costs | | Asset Charges Net of Gain on Sale | | Equipment Moving Expenses | | Lease Termination Expenses | | Multi-Employer Pension Withdrawal Expenses | | Building Clean-up & Other Expenses | | Total |
Envelope | | | | | | | | | | | | | | |
| Residual Plans | | $ | (1 | ) | | $ | — |
| | $ | — |
| | $ | (198 | ) | | $ | 32 |
| | $ | 16 |
| | $ | (151 | ) |
| Acquisition Integration Plans | | 93 |
| | 601 |
| | 636 |
| | 1,390 |
| | — |
| | 448 |
| | 3,168 |
|
Total Envelope | | 92 |
| | 601 |
| | 636 |
| | 1,192 |
| | 32 |
| | 464 |
| | 3,017 |
|
Print | | | | | | | | | | | | | | |
| 2014 Plan | | 7 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 7 |
|
| Residual Plans | | 388 |
| | (22 | ) | | 1 |
| | 77 |
| | 716 |
| | 839 |
| | 1,999 |
|
Total Print | | 395 |
| | (22 | ) | | 1 |
| | 77 |
| | 716 |
| | 839 |
| | 2,006 |
|
Label and Packaging | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| 2014 Plan | | 251 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 251 |
|
| Residual Plans | | 26 |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | 40 |
|
Total Label and Packaging | | 277 |
| | — |
| | — |
| | 14 |
| | — |
| | — |
| | 291 |
|
Corporate | | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
| 2014 Plan | | 604 |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | 633 |
|
Total Corporate | | 604 |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | 633 |
|
Total Restructuring and Other Charges | | $ | 1,368 |
| | $ | 579 |
| | $ | 637 |
| | $ | 1,283 |
| | $ | 748 |
| | $ | 1,332 |
| | $ | 5,947 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
A summary of the activity related to the restructuring liabilities for all the cost savings, restructuring and integration initiatives were as follows (in thousands):
|
| | | | | | | | | | | | | | | | | | | | |
| | Employee Separation Costs | | Lease Termination Expenses | | Multi-Employer Pension Withdrawal Expenses | | Building Clean-up, Equipment Moving and Other Expenses | | Total |
2015 Plan | | | | | | | | | | |
Balance as of December 27, 2014 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Accruals, net | | 298 |
| | — |
| | — |
| | — |
| | 298 |
|
Payments | | (257 | ) | | — |
| | — |
| | — |
| | (257 | ) |
Balance as of March 28, 2015 | | $ | 41 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 41 |
|
| | | | | | | | | | |
2014 Plan | | | | | | | | | | |
Balance as of December 27, 2014 | | $ | 1,506 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,506 |
|
Accruals, net | | 668 |
| | — |
| | — |
| | 576 |
| | 1,244 |
|
Payments | | (1,486 | ) | | — |
| | — |
| | (576 | ) | | (2,062 | ) |
Balance as of March 28, 2015 | | $ | 688 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 688 |
|
| | | | | | | | | | |
Residual Plans | | | | | | | | | | |
Balance as of December 27, 2014 | | $ | 54 |
| | $ | 677 |
| | $ | 18,700 |
| | $ | — |
| | $ | 19,431 |
|
Accruals, net | | (54 | ) | | 36 |
| | 172 |
| | 78 |
| | 232 |
|
Payments | | — |
| | (144 | ) | | (849 | ) | | (78 | ) | | (1,071 | ) |
Balance as of March 28, 2015 | | $ | — |
| | $ | 569 |
| | $ | 18,023 |
| | $ | — |
| | $ | 18,592 |
|
| | | | | | | | | | |
Acquisition Integration Plans | | | | | | | | | | |
Balance as of December 27, 2014 | | $ | 77 |
| | $ | 1,136 |
| | $ | — |
| | $ | — |
| | $ | 1,213 |
|
Accruals, net | | 39 |
| | 275 |
| | — |
| | 255 |
| | 569 |
|
Payments | | (63 | ) | | (573 | ) | | — |
| | (255 | ) | | (891 | ) |
Balance as of March 28, 2015 | | $ | 53 |
| | $ | 838 |
| | $ | — |
| | $ | — |
| | $ | 891 |
|
| | | | | | | | | | |
Total Restructuring Liability | | $ | 782 |
| | $ | 1,407 |
| | $ | 18,023 |
| | $ | — |
| | $ | 20,212 |
|
13. Accumulated Other Comprehensive Income (Loss)
The following table presents the changes in the balances of each component of accumulated other comprehensive income ("AOCI"), net of tax (in thousands):
|
| | | | | | | | | | | | | |
| | | Foreign Currency Translation | | Pension and Other Postretirement Benefits | | Total |
Balance as of December 27, 2014 | | $ | (2,905 | ) | | $ | (95,292 | ) | | $ | (98,197 | ) |
| Other comprehensive loss before reclassifications | | (1,330 | ) | | — |
| | (1,330 | ) |
| Amounts reclassified from AOCI | | — |
| | 1,342 |
| | 1,342 |
|
| Other comprehensive (loss) income | | (1,330 | ) | | 1,342 |
| | 12 |
|
Balance as of March 28, 2015 | | $ | (4,235 | ) | | $ | (93,950 | ) | | $ | (98,185 | ) |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Reclassifications from AOCI
|
| | | | | | | | | | | |
AOCI Components (in thousands) | | Amounts Reclassified from AOCI | | Income Statement Line Item |
| | | For the Three Months Ended | | |
| | | March 28, 2015 | | March 29, 2014 | | |
Changes in pension and other employee benefit accounts: | | | | | | |
| Net actuarial losses | | $ | 2,156 |
| | $ | 794 |
| | Selling, general and administrative expenses |
| | | 2,156 |
| | 794 |
| | Total before tax |
Taxes | | (814 | ) | | (314 | ) | | Income tax benefit |
Total reclassifications for the period | | $ | 1,342 |
| | $ | 480 |
| | Net of tax |
14. Income (Loss) per Share
Basic income (loss) per share is computed based upon the weighted average number of common shares outstanding for the period. When applicable, diluted income (loss) per share is calculated using two approaches. The first approach, the treasury stock method, reflects the potential dilution that could occur if the stock options, RSUs and, when applicable, performance share units ("PSUs," and collectively with the stock options and RSUs, the "Equity Awards") to issue common stock were exercised. The second approach, the if converted method, reflects the potential dilution of the Equity Awards and the senior exchangeable notes due 2017 (the "7% Notes") being exchanged for common stock. Under this method, interest expense associated with the 7% Notes, net of tax, is added back to income from continuing operations and the shares outstanding are increased by the underlying 7% Notes equivalent.
For the three months ended March 28, 2015, and March 29, 2014, the effect of approximately 20.3 million and 21.1 million shares, respectively, related to the exchange of the 7% Notes for common stock and the issuance of common stock upon exercise of the Equity Awards, were excluded from the calculation of diluted income (loss) per share, as the effect would be anti-dilutive.
The following table sets forth the computation of basic and diluted income (loss) per share for the three months ended March 28, 2015, and March 29, 2014 (in thousands, except per share data):
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
Numerator for basic and diluted (loss) income per share: | | | | |
Loss from continuing operations | | $ | (7,647 | ) | | $ | (16,787 | ) |
(Loss) income from discontinued operations, net of taxes | | (32 | ) | | 953 |
|
Net loss | | $ | (7,679 | ) | | $ | (15,834 | ) |
Denominator for weighted average common shares outstanding: | | |
| | |
|
Basic shares | | 67,746 |
| | 66,336 |
|
Dilutive effect of 7% Notes | | — |
| | — |
|
Dilutive effect of Equity Awards | | — |
| | — |
|
Diluted shares | | 67,746 |
| | 66,336 |
|
| | | | |
(Loss) income per share – basic: | | | | |
Continuing operations | | $ | (0.11 | ) | | $ | (0.25 | ) |
Discontinued operations | | — |
| | 0.01 |
|
Net loss | | $ | (0.11 | ) | | $ | (0.24 | ) |
| | | | |
(Loss) income per share – diluted: | | | | |
Continuing operations | | $ | (0.11 | ) | | $ | (0.25 | ) |
Discontinued operations | | — |
| | 0.01 |
|
Net loss | | $ | (0.11 | ) | | $ | (0.24 | ) |
15. Segment Information
The Company operates four operating segments: envelope, print, label and packaging. Based upon similar economic characteristics and management reporting, the Company has aggregated the label and packaging operating segments to have a total of three reportable segments: envelope, print and label and packaging. The envelope segment provides direct mail offerings and transactional and stock envelopes. The print segment provides a wide array of print offerings such as high-end printed materials including car brochures, advertising literature, corporate identity and brand marketing material, digital printing and content management. The label and packaging segment specializes in the design, manufacturing and printing of labels such as custom labels, overnight packaging labels, pressure-sensitive prescription labels, full body shrink sleeves, and specialized folded carton packaging.
Operating income (loss) of each segment includes all costs and expenses directly related to the segment's operations. Corporate expenses include corporate general and administrative expenses including stock-based compensation.
Corporate identifiable assets primarily consist of cash and cash equivalents, miscellaneous receivables, deferred financing fees, deferred tax assets and other assets.
The following tables present certain segment information (in thousands):
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
Net sales: | | | | |
Envelope | | $ | 227,410 |
| | $ | 241,671 |
|
Print | | 128,166 |
| | 128,397 |
|
Label and Packaging | | 119,529 |
| | 120,051 |
|
Total | | $ | 475,105 |
| | $ | 490,119 |
|
Operating income (loss): | | |
| | |
|
Envelope | | $ | 14,840 |
| | $ | 9,806 |
|
Print | | 2,373 |
| | 1,240 |
|
Label and Packaging | | 9,405 |
| | 10,193 |
|
Corporate | | (8,423 | ) | | (11,167 | ) |
Total | | $ | 18,195 |
| | $ | 10,072 |
|
Restructuring and other charges: | | |
| | |
|
Envelope | | $ | 2,792 |
| | $ | 3,017 |
|
Print | | 1,037 |
| | 2,006 |
|
Label and Packaging | | 423 |
| | 291 |
|
Corporate | | 102 |
| | 633 |
|
Total | | $ | 4,354 |
| | $ | 5,947 |
|
Depreciation and intangible asset amortization: | | |
| | |
|
Envelope | | $ | 4,903 |
| | $ | 5,154 |
|
Print | | 4,452 |
| | 5,700 |
|
Label and Packaging | | 4,363 |
| | 3,876 |
|
Corporate | | 970 |
| | 1,331 |
|
Total | | $ | 14,688 |
| | $ | 16,061 |
|
Net sales by product line: | | |
| | |
|
Envelope | | $ | 227,410 |
| | $ | 241,671 |
|
Print | | 128,166 |
| | 128,397 |
|
Label | | 80,167 |
| | 78,686 |
|
Packaging | | 39,362 |
| | 41,365 |
|
Total | | $ | 475,105 |
| | $ | 490,119 |
|
Intercompany sales: | | |
| | |
|
Envelope | | $ | 1,812 |
| | $ | 1,532 |
|
Print | | 3,864 |
| | 1,188 |
|
Label and Packaging | | 2,339 |
| | 2,176 |
|
Total | | $ | 8,015 |
| | $ | 4,896 |
|
|
| | | | | | | | |
| | March 28, 2015 | | December 27, 2014 |
Total assets: | | | | |
Envelope | | $ | 440,746 |
| | $ | 449,819 |
|
Print | | 286,033 |
| | 291,892 |
|
Label and Packaging | | 353,550 |
| | 355,325 |
|
Corporate | | 55,178 |
| | 60,855 |
|
Total | | $ | 1,135,507 |
| | $ | 1,157,891 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. Condensed Consolidating Financial Information
Cenveo, Inc. is a holding company (the "Parent Company"), which is the ultimate parent of all Cenveo subsidiaries. The Parent Company’s wholly-owned subsidiary, Cenveo Corporation (the “Subsidiary Issuer”), issued the 6.000% senior priority secured notes due 2019 (the “6.000% Notes”), the 8.500% junior priority secured notes due 2022 (the “8.500% Notes”), the 7.875% senior subordinated notes due 2013 (the “7.875% Notes”), the 8.875% senior second lien notes due 2018 (the “8.875% Notes”), the 7% Notes, and the 11.5% senior notes due 2017 (the “11.5% Notes,” and collectively with the 6.000% Notes, the 8.500% Notes, the 7.875% Notes, the 8.875% Notes, and the 7% Notes, the "Subsidiary Issuer Notes"), which are fully and unconditionally guaranteed, on a joint and several basis, by the Parent Company and substantially all of its wholly owned North American subsidiaries, other than the Subsidiary Issuer (the "Guarantor Subsidiaries").
Presented below is condensed consolidating financial information for the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and the Parent Company's subsidiaries other than the Subsidiary Issuer and the Guarantor Subsidiaries (the "Non-Guarantor Subsidiaries") as of March 28, 2015, and December 27, 2014, and for the three months ended March 28, 2015, and March 29, 2014. The condensed consolidating financial information has been presented to show the financial position, results of operations and cash flows of the Parent Company, the Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries, assuming the guarantee structure of the Subsidiary Issuer Notes was in effect at the beginning of the periods presented.
The supplemental condensed consolidating financial information reflects the investments of the Parent Company in the Subsidiary Issuer, the Guarantor Subsidiaries and the Non-Guarantor Subsidiaries using the equity method of accounting. The Parent Company’s primary transactions with its subsidiaries, other than the investment account and related equity in net income (loss) of subsidiaries, are the intercompany payables and receivables between its subsidiaries.
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET March 28, 2015 (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 6,353 |
| | $ | 622 |
| | $ | 5,464 |
| | $ | — |
| | $ | 12,439 |
|
Accounts receivable, net | — |
| | 129,046 |
| | 140,699 |
| | 1,664 |
| | — |
| | 271,409 |
|
Inventories | — |
| | 71,911 |
| | 67,761 |
| | 1,881 |
| | — |
| | 141,553 |
|
Notes receivable from subsidiaries | — |
| | 36,938 |
| | 3,245 |
| | — |
| | (40,183 | ) | | — |
|
Prepaid and other current assets | — |
| | 38,088 |
| | 6,054 |
| | 2,709 |
| | — |
| | 46,851 |
|
Assets of discontinued operations - current | — |
| | — |
| | 12 |
| | — |
| | — |
| | 12 |
|
Total current assets | — |
| | 282,336 |
| | 218,393 |
| | 11,718 |
| | (40,183 | ) | | 472,264 |
|
| | | | | | | | | | | |
Investment in subsidiaries | (640,351 | ) | | 1,961,772 |
| | 4,540 |
| | 7,829 |
| | (1,333,790 | ) | | — |
|
Property, plant and equipment, net | — |
| | 117,131 |
| | 157,752 |
| | 545 |
| | — |
| | 275,428 |
|
Goodwill | — |
| | 25,540 |
| | 154,763 |
| | 5,287 |
| | — |
| | 185,590 |
|
Other intangible assets, net | — |
| | 9,892 |
| | 144,612 |
| | 750 |
| | — |
| | 155,254 |
|
Other assets, net | — |
| | 41,871 |
| | 4,607 |
| | 493 |
| | — |
| | 46,971 |
|
Total assets | $ | (640,351 | ) | | $ | 2,438,542 |
| | $ | 684,667 |
| | $ | 26,622 |
| | $ | (1,373,973 | ) | | $ | 1,135,507 |
|
| | | | | | | | | | | |
Liabilities and Shareholders’ (Deficit) Equity | |
| | |
| | |
| | |
| | |
| | |
|
Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Current maturities of long-term debt | $ | — |
| | $ | 3,000 |
| | $ | 1,467 |
| | $ | — |
| | $ | — |
| | $ | 4,467 |
|
Accounts payable | — |
| | 120,168 |
| | 97,852 |
| | 1,110 |
| | — |
| | 219,130 |
|
Accrued compensation and related liabilities | — |
| | 29,624 |
| | 6,770 |
| | 593 |
| | — |
| | 36,987 |
|
Other current liabilities | — |
| | 56,522 |
| | 19,054 |
| | 907 |
| | — |
| | 76,483 |
|
Liabilities of discontinued operations - current | — |
| | — |
| | 68 |
| | — |
| | — |
| | 68 |
|
Intercompany payable (receivable) | — |
| | 1,473,784 |
| | (1,483,531 | ) | | 9,747 |
| | — |
| | — |
|
Notes payable to issuer | — |
| | — |
| | 36,938 |
| | 3,245 |
| | (40,183 | ) | | — |
|
Total current liabilities | — |
| | 1,683,098 |
| | (1,321,382 | ) | | 15,602 |
| | (40,183 | ) | | 337,135 |
|
| | | | | | | | | | | |
Long-term debt | — |
| | 1,242,052 |
| | 4,222 |
| | — |
| | — |
| | 1,246,274 |
|
Other liabilities | — |
| | 153,743 |
| | 40,055 |
| | (1,349 | ) | | — |
| | 192,449 |
|
Shareholders’ (deficit) equity | (640,351 | ) | | (640,351 | ) | | 1,961,772 |
| | 12,369 |
| | (1,333,790 | ) | | (640,351 | ) |
Total liabilities and shareholders’ (deficit) equity | $ | (640,351 | ) | | $ | 2,438,542 |
| | $ | 684,667 |
| | $ | 26,622 |
| | $ | (1,373,973 | ) | | $ | 1,135,507 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the three months ended March 28, 2015 (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net sales | $ | — |
| | $ | 223,852 |
| | $ | 249,464 |
| | $ | 1,789 |
| | $ | — |
| | $ | 475,105 |
|
Cost of sales | — |
| | 190,863 |
| | 206,492 |
| | 533 |
| | — |
| | 397,888 |
|
Selling, general and administrative expenses | — |
| | 30,115 |
| | 21,720 |
| | 426 |
| | — |
| | 52,261 |
|
Amortization of intangible assets | — |
| | 152 |
| | 2,144 |
| | 111 |
| | — |
| | 2,407 |
|
Restructuring and other charges | — |
| | 3,447 |
| | 907 |
| | — |
| | — |
| | 4,354 |
|
Operating (loss) income | — |
| | (725 | ) | | 18,201 |
| | 719 |
| | — |
| | 18,195 |
|
Interest expense, net | — |
| | 25,592 |
| | 100 |
| | — |
| | — |
| | 25,692 |
|
Intercompany interest (income) expense | — |
| | (274 | ) | | 274 |
| | — |
| | — |
| | — |
|
Loss on early extinguishment of debt, net | — |
| | 433 |
| | — |
| | — |
| | — |
| | 433 |
|
Other expense (income), net | — |
| | 294 |
| | (539 | ) | | 28 |
| | — |
| | (217 | ) |
(Loss) income from continuing operations before income taxes and equity in (loss) income of subsidiaries | — |
| | (26,770 | ) | | 18,366 |
| | 691 |
| | — |
| | (7,713 | ) |
Income tax (benefit) expense | — |
| | (321 | ) | | 143 |
| | 112 |
| | — |
| | (66 | ) |
(Loss) income from continuing operations before equity in (loss) income of subsidiaries | — |
| | (26,449 | ) | | 18,223 |
| | 579 |
| | — |
| | (7,647 | ) |
Equity in (loss) income of subsidiaries | (7,679 | ) | | 18,771 |
| | 579 |
| | — |
| | (11,671 | ) | | — |
|
(Loss) income from continuing operations | (7,679 | ) | | (7,678 | ) | | 18,802 |
| | 579 |
| | (11,671 | ) | | (7,647 | ) |
Loss from discontinued operations, net of taxes | — |
| | (1 | ) | | (31 | ) | | — |
| | — |
| | (32 | ) |
Net (loss) income | (7,679 | ) | | (7,679 | ) | | 18,771 |
| | 579 |
| | (11,671 | ) | | (7,679 | ) |
Other comprehensive income (loss): | | | | | | | | | | | |
Other comprehensive income (loss) of subsidiaries | 12 |
| | (1,330 | ) | | 353 |
| | — |
| | 965 |
| | — |
|
Changes in pension and other employee benefit accounts, net of taxes | — |
| | 1,342 |
| | — |
| | — |
| | — |
| | 1,342 |
|
Currency translation adjustment | — |
| | — |
| | (1,683 | ) | | 353 |
| | — |
| | (1,330 | ) |
Comprehensive (loss) income | $ | (7,667 | ) | | $ | (7,667 | ) | | $ | 17,441 |
| | $ | 932 |
| | $ | (10,706 | ) | | $ | (7,667 | ) |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 28, 2015 (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Cash flows from operating activities: | | | | | | | | | | | |
Net cash provided by (used in) operating activities of continuing operations | $ | 132 |
| | $ | (44,536 | ) | | $ | 34,028 |
| | $ | 2,970 |
| | $ | — |
| | $ | (7,406 | ) |
Net cash used in operating activities of discontinued operations | — |
| | — |
| | (38 | ) | | — |
| | — |
| | (38 | ) |
Net cash provided by (used in) operating activities | 132 |
| | (44,536 | ) | | 33,990 |
| | 2,970 |
| | — |
| | (7,444 | ) |
Cash flows from investing activities: | |
| | |
| | |
| | |
| | |
| | |
|
Capital expenditures | — |
| | (4,750 | ) | | (1,309 | ) | | — |
| | — |
| | (6,059 | ) |
Proceeds from sale of property, plant and equipment | — |
| | 571 |
| | 2 |
| | — |
| | — |
| | 573 |
|
Net cash used in investing activities | — |
| | (4,179 | ) | | (1,307 | ) | | — |
| | — |
| | (5,486 | ) |
Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
Payment of financing-related costs and expenses and debt issuance discounts | — |
| | (1,162 | ) | | — |
| | — |
| | — |
| | (1,162 | ) |
Repayments (borrowings) of other long-term debt | — |
| | (3,219 | ) | | 1,747 |
| | — |
| | — |
| | (1,472 | ) |
Repayment of 11.5% senior notes due 2017 | — |
| | (15,776 | ) | | — |
| | — |
| | — |
| | (15,776 | ) |
Purchase and retirement of common stock upon vesting of RSUs | (141 | ) | | — |
| | — |
| | — |
| | — |
| | (141 | ) |
Borrowings under ABL Facility due 2017 | — |
| | 141,300 |
| | — |
| | — |
| | — |
| | 141,300 |
|
Repayments under ABL Facility due 2017 | — |
| | (111,100 | ) | | — |
| | — |
| | — |
| | (111,100 | ) |
Intercompany advances | 9 |
| | 34,060 |
| | (34,112 | ) | | 43 |
| | — |
| | — |
|
Net cash (used in) provided by financing activities | (132 | ) | | 44,103 |
| | (32,365 | ) | | 43 |
| | — |
| | 11,649 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | (540 | ) | | (333 | ) | | — |
| | (873 | ) |
Net (decrease) increase in cash and cash equivalents | — |
| | (4,612 | ) | | (222 | ) | | 2,680 |
| | — |
| | (2,154 | ) |
Cash and cash equivalents at beginning of period | — |
| | 10,965 |
| | 844 |
| | 2,784 |
| | — |
| | 14,593 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 6,353 |
| | $ | 622 |
| | $ | 5,464 |
| | $ | — |
| | $ | 12,439 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING BALANCE SHEET December 27, 2014 (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Assets | | | | | | | | | | | |
Current assets: | | | | | | | | | | | |
Cash and cash equivalents | $ | — |
| | $ | 10,965 |
| | $ | 844 |
| | $ | 2,784 |
| | $ | — |
| | $ | 14,593 |
|
Accounts receivable, net | — |
| | 128,599 |
| | 149,528 |
| | 3,771 |
| | — |
| | 281,898 |
|
Inventories | — |
| | 71,108 |
| | 64,036 |
| | 1,866 |
| | — |
| | 137,010 |
|
Notes receivable from subsidiaries | — |
| | 36,938 |
| | 3,245 |
| | — |
| | (40,183 | ) | | — |
|
Prepaid and other current assets | — |
| | 42,889 |
| | 5,012 |
| | 2,505 |
| | — |
| | 50,406 |
|
Assets of discontinued operations - current | — |
| | — |
| | 8 |
| | — |
| | — |
| | 8 |
|
Total current assets | — |
| | 290,499 |
| | 222,673 |
| | 10,926 |
| | (40,183 | ) | | 483,915 |
|
| | | | | | | | | | | |
Investment in subsidiaries | (632,675 | ) | | 1,944,300 |
| | 3,608 |
| | 7,829 |
| | (1,323,062 | ) | | — |
|
Property, plant and equipment, net | — |
| | 120,949 |
| | 160,903 |
| | 556 |
| | — |
| | 282,408 |
|
Goodwill | — |
| | 25,540 |
| | 155,118 |
| | 5,191 |
| | — |
| | 185,849 |
|
Other intangible assets, net | — |
| | 10,011 |
| | 146,843 |
| | 850 |
| | — |
| | 157,704 |
|
Other assets, net | — |
| | 42,242 |
| | 5,289 |
| | 484 |
| | — |
| | 48,015 |
|
Total assets | $ | (632,675 | ) | | $ | 2,433,541 |
| | $ | 694,434 |
| | $ | 25,836 |
| | $ | (1,363,245 | ) | | $ | 1,157,891 |
|
| | | | | | | | | | | |
Liabilities and Shareholders’ (Deficit) Equity | |
| | |
| | |
| | |
| | |
| | |
|
Current liabilities: | |
| | |
| | |
| | |
| | |
| | |
|
Current maturities of long-term debt | $ | — |
| | $ | 3,000 |
| | $ | 1,355 |
| | $ | — |
| | $ | — |
| | $ | 4,355 |
|
Accounts payable | — |
| | 138,939 |
| | 91,860 |
| | 1,385 |
| | — |
| | 232,184 |
|
Accrued compensation and related liabilities | — |
| | 29,851 |
| | 6,736 |
| | 538 |
| | — |
| | 37,125 |
|
Other current liabilities | — |
| | 66,895 |
| | 19,346 |
| | 980 |
| | — |
| | 87,221 |
|
Liabilities of discontinued operations - current | — |
| | — |
| | 70 |
| | — |
| | — |
| | 70 |
|
Intercompany payable (receivable) | — |
| | 1,439,715 |
| | (1,449,419 | ) | | 9,704 |
| | — |
| | — |
|
Notes payable to issuer | — |
| | — |
| | 36,938 |
| | 3,245 |
| | (40,183 | ) | | — |
|
Total current liabilities | — |
| | 1,678,400 |
| | (1,293,114 | ) | | 15,852 |
| | (40,183 | ) | | 360,955 |
|
| | | | | | | | | | | |
Long-term debt | — |
| | 1,227,397 |
| | 2,587 |
| | — |
| | — |
| | 1,229,984 |
|
Other liabilities | — |
| | 160,419 |
| | 40,661 |
| | (1,453 | ) | | — |
| | 199,627 |
|
Shareholders’ (deficit) equity | (632,675 | ) | | (632,675 | ) | | 1,944,300 |
| | 11,437 |
| | (1,323,062 | ) | | (632,675 | ) |
Total liabilities and shareholders’ (deficit) equity | $ | (632,675 | ) | | $ | 2,433,541 |
| | $ | 694,434 |
| | $ | 25,836 |
| | $ | (1,363,245 | ) | | $ | 1,157,891 |
|
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) For the three months ended March 29, 2014 (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non-Guarantor Subsidiaries | | Eliminations | | Consolidated |
Net sales | $ | — |
| | $ | 241,467 |
| | $ | 245,177 |
| | $ | 3,475 |
| | $ | — |
| | $ | 490,119 |
|
Cost of sales | — |
| | 210,725 |
| | 201,544 |
| | 2,888 |
| | — |
| | 415,157 |
|
Selling, general and administrative expenses | — |
| | 33,608 |
| | 21,550 |
| | 336 |
| | — |
| | 55,494 |
|
Amortization of intangible assets | — |
| | 185 |
| | 3,131 |
| | 133 |
| | — |
| | 3,449 |
|
Restructuring and other charges | — |
| | 3,931 |
| | 2,016 |
| | — |
| | — |
| | 5,947 |
|
Operating (loss) income | — |
| | (6,982 | ) | | 16,936 |
| | 118 |
| | — |
| | 10,072 |
|
Interest expense, net | — |
| | 27,823 |
| | 87 |
| | — |
| | — |
| | 27,910 |
|
Intercompany interest (income) expense | — |
| | (270 | ) | | 270 |
| | — |
| | — |
| | — |
|
Loss on early extinguishment of debt, net | — |
| | 18 |
| | — |
| | — |
| | — |
| | 18 |
|
Other income, net | — |
| | (183 | ) | | (325 | ) | | (1 | ) | | — |
| | (509 | ) |
(Loss) income from continuing operations before income taxes and equity in (loss) income of subsidiaries | — |
| | (34,370 | ) | | 16,904 |
| | 119 |
| | — |
| | (17,347 | ) |
Income tax (benefit) expense | — |
| | (391 | ) | | (237 | ) | | 68 |
| | — |
| | (560 | ) |
(Loss) income from continuing operations before equity in (loss) income of subsidiaries | — |
| | (33,979 | ) | | 17,141 |
| | 51 |
| | — |
| | (16,787 | ) |
Equity in (loss) income of subsidiaries | (15,834 | ) | | 18,072 |
| | 51 |
| | — |
| | (2,289 | ) | | — |
|
(Loss) income from continuing operations | (15,834 | ) | | (15,907 | ) | | 17,192 |
| | 51 |
| | (2,289 | ) | | (16,787 | ) |
Income from discontinued operations, net of taxes | — |
| | 73 |
| | 880 |
| | — |
| | — |
| | 953 |
|
Net (loss) income | (15,834 | ) | | (15,834 | ) | | 18,072 |
| | 51 |
| | (2,289 | ) | | (15,834 | ) |
Other comprehensive income (loss): | | | | | | | | | | | |
Other comprehensive income (loss) of subsidiaries | 568 |
| | 88 |
| | 619 |
| | — |
| | (1,275 | ) | | — |
|
Changes in pension and other employee benefit accounts, net of taxes | — |
| | 480 |
| | — |
| | — |
| | — |
| | 480 |
|
Currency translation adjustment | — |
| | — |
| | (531 | ) | | 619 |
| | — |
| | 88 |
|
Comprehensive (loss) income | $ | (15,266 | ) | | $ | (15,266 | ) | | $ | 18,160 |
| | $ | 670 |
| | $ | (3,564 | ) | | $ | (15,266 | ) |
CENVEO, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CENVEO, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS For the three months ended March 29, 2014 (in thousands) |
| | | | | | | | | | | | | | | | | | | | | | | |
| Parent Company | | Subsidiary Issuer | | Guarantor Subsidiaries | | Non- Guarantor Subsidiaries | | Eliminations | | Consolidated |
Cash flows from operating activities: | | | | | | | | | | | |
Net cash provided by (used in) operating activities of continuing operations | $ | 836 |
| | $ | (34,318 | ) | | $ | 31,552 |
| | $ | (1,493 | ) | | $ | — |
| | $ | (3,423 | ) |
Net cash used in operating activities of discontinued operations | — |
| | (610 | ) | | (1,048 | ) | | — |
| | — |
| | (1,658 | ) |
Net cash provided by (used in) operating activities | 836 |
| | (34,928 | ) | | 30,504 |
| | (1,493 | ) | | — |
| | (5,081 | ) |
Cash flows from investing activities: | |
| | |
| | |
| | |
| | |
| | |
|
Capital expenditures | — |
| | (5,427 | ) | | (3,501 | ) | | (47 | ) | | — |
| | (8,975 | ) |
Purchase of investment | — |
| | (2,000 | ) | | — |
| | — |
| | — |
| | (2,000 | ) |
Proceeds from sale of property, plant and equipment | — |
| | 8 |
| | 154 |
| | — |
| | — |
| | 162 |
|
Net cash used in investing activities of continuing operations | — |
| | (7,419 | ) | | (3,347 | ) | | (47 | ) | | — |
| | (10,813 | ) |
Net cash provided by investing activities of discontinued operations | — |
| | 462 |
| | 556 |
| | — |
| | — |
| | 1,018 |
|
Net cash used in investing activities | — |
| | (6,957 | ) | | (2,791 | ) | | (47 | ) | | — |
| | (9,795 | ) |
Cash flows from financing activities: | |
| | |
| | |
| | |
| | |
| | |
|
Payment of financing-related costs and expenses and debt issuance discounts | — |
| | (2,330 | ) | | — |
| | — |
| | — |
| | (2,330 | ) |
Repayments of other long-term debt | — |
| | (750 | ) | | (819 | ) | | — |
| | — |
| | (1,569 | ) |
Purchase and retirement of common stock upon vesting of RSUs | (252 | ) | | — |
| | — |
| | — |
| | — |
| | (252 | ) |
Repayment of 15% Unsecured Term Loan due 2017 | — |
| | (600 | ) | | — |
| | — |
| | — |
| | (600 | ) |
Repayment of Term Loan Facility due 2017 | — |
| | (900 | ) | | — |
| | — |
| | — |
| | (900 | ) |
Borrowings under ABL Facility due 2017 | — |
| | 156,400 |
| | — |
| | — |
| | — |
| | 156,400 |
|
Repayments under ABL Facility due 2017 | — |
| | (135,600 | ) | | — |
| | — |
| | — |
| | (135,600 | ) |
Intercompany advances | (584 | ) | | 24,624 |
| | (26,317 | ) | | 2,277 |
| | — |
| | — |
|
Net cash (used in) provided by financing activities | (836 | ) | | 40,844 |
| | (27,136 | ) | | 2,277 |
| | — |
| | 15,149 |
|
Effect of exchange rate changes on cash and cash equivalents | — |
| | — |
| | 5 |
| | (69 | ) | | — |
| | (64 | ) |
Net increase (decrease) in cash and cash equivalents | — |
| | (1,041 | ) | | 582 |
| | 668 |
| | — |
| | 209 |
|
Cash and cash equivalents at beginning of period | — |
| | 9,504 |
| | — |
| | 1,825 |
| | — |
| | 11,329 |
|
Cash and cash equivalents at end of period | $ | — |
| | $ | 8,463 |
| | $ | 582 |
| | $ | 2,493 |
| | $ | — |
| | $ | 11,538 |
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
This Management’s Discussion and Analysis of Financial Condition and Results of Operations, which we refer to as MD&A, of Cenveo, Inc. and its subsidiaries, which we refer to as Cenveo, should be read in conjunction with the accompanying condensed consolidated financial statements and "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 27, 2014, which we refer to as our 2014 Form 10-K. Item 7 of our 2014 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of March 28, 2015. Cenveo, Inc. and its subsidiaries are referred to herein as “Cenveo,” the “Company,” “we,” “our,” or “us.”
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 which 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 which could cause actual results to differ materially from management’s expectations include, without limitation: (i) recent United States and global economic conditions have adversely affected us and could continue to do so; (ii) our substantial level of indebtedness could impair our financial condition and prevent us from fulfilling our business obligations; (iii) our ability to service or refinance our debt; (iv) the terms of our indebtedness imposing significant restrictions on our operating and financial flexibility; (v) additional borrowings available to us which could further exacerbate our risk exposure from debt; (vi) our ability to successfully integrate acquired businesses with our business; (vii) a decline in our consolidated profitability or profitability within one of our individual reporting units could result in the impairment of our assets, including goodwill and other long-lived assets; (viii) the industries in which we operate our business are highly competitive and extremely fragmented; (ix) a general absence of long-term customer agreements in our industries, subjecting our business to quarterly and cyclical fluctuations; (x) factors affecting the United States postal services impacting demand for our products; (xi) the availability of the internet and other electronic media adversely affecting our business; (xii) increases in paper costs and decreases in the availability of raw materials; (xiii) our labor relations; (xiv) our compliance with environmental laws; (xv) our dependence on key management personnel; and (xvi) any failure, interruption or security lapse of our information technology systems. This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact our business. Additional information regarding these and other factors can be found elsewhere in this report, and in our other filings with the Securities and Exchange Commission, which we refer to as the SEC.
Business Overview
We are a diversified manufacturing company focused on print-related products. Our broad portfolio of products includes envelope converting, commercial printing, label manufacturing and specialty packaging. We operate a global network of strategically located manufacturing facilities, serving a diverse base of over 100,000 customers.
Our business strategy has been, and continues to be, focused on improving sales performance, pursuing and integrating strategic acquisitions, improving our cost and capital structure, and maintaining reasonable levels of financial flexibility. We believe this strategy has allowed us to diversify our revenue base, maintain our low cost structure and deliver quality product offerings to our customers.
We operate our business in three complementary reportable segments: the envelope segment, the print segment and the label and packaging segment.
Envelope. We are the largest envelope manufacturer in North America. On September 16, 2013, we enhanced our manufacturing capabilities and reduced capacity in the envelope industry with the acquisition of certain assets of National Envelope Corporation, which we refer to as National. Our envelope segment represented approximately 47.9% of our net sales for the three months ended March 28, 2015.
Our envelope segment offers direct mail products used for customer solicitations and transactional envelopes used for billing and remittance by end users including financial institutions, insurance companies and telecommunications companies. We also produce a broad line of specialty and stock envelopes which are sold through wholesalers, and to the office product market through distributors.
Print. We are one of the leading commercial printers in North America. Our print segment represented approximately 27.0% of our net sales for the three months ended March 28, 2015.
Our print segment primarily caters to the consumer products, automotive, travel and leisure and telecommunications industries. We provide a wide array of print offerings to our customers including electronic prepress, digital asset archiving, direct-to-plate technology, high-quality color printing on web and sheet-fed presses, digital printing and content management. The broad selection of print products we produce includes car brochures, annual reports, direct mail products, advertising literature, corporate identity materials and brand marketing materials. Our content management business offers complete solutions, including: editing, content processing, content management, electronic peer review, production, distribution and reprint marketing.
Label and Packaging. We are a leading label manufacturer and the largest North American prescription label manufacturer for retail pharmacy chains. Our specialty packaging business currently focuses on specialty folded carton packaging and shrink-sleeve packaging. Our label and packaging segment represented approximately 25.1% of our net sales for the three months ended March 28, 2015.
Our label and packaging segment produces a diverse line of custom labels for a broad range of industries including manufacturing, warehousing, packaging, food and beverage, and health and beauty, which we sell through extensive networks within the resale channels. We provide direct mail and overnight packaging labels, food and beverage labels, and shelf and scale labels for national and regional customers. We produce pressure-sensitive prescription labels for the retail pharmacy chain market. We produce premium, high-quality promotional packaging offerings including folded carton and full body shrink sleeves. Our primary customers for our specialty packaging products are pharmaceutical, apparel, neutraceutical and other large, multinational consumer product companies.
Consolidated Operating Results
This MD&A includes an overview of our condensed consolidated results of operations for the three months ended March 28, 2015, and March 29, 2014, followed by a discussion of the results of operations of each of our reportable segments for the same periods.
2015 Outlook
Generally, print-related industries are highly fragmented and extremely competitive due to over-capacity and pricing pressures. We believe these factors, combined with uncertain economic conditions in the United States, will continue to impact our results of operations in 2015.
Our current management focus is on the following areas:
Improving Sales Performance
Our sales focus has been, and will continue to be, on our customers’ experience across each of our businesses, ensuring we meet our customers’ demands. We seek to expand our relationship with them through cross-selling initiatives available within our platform. Over the past three years, we have made significant investments to improve our top line performance. These investments include a customer relationship management tool across our entire sales platform, capital investments in our e-commerce platform and incremental headcount. We have been successful in our recruiting efforts focusing on attracting not only talented individuals with experience in our current business lines, but also individuals with experience in complementary industry channels. We expect these focus points will allow us to experience sales stability despite operating in challenging industries and an uncertain economy.
Integrating Certain Assets of National
We believe our acquisition and accelerated integration of certain assets of National has provided much needed capacity reductions within the envelope industry. We substantially completed the accelerated integration of these assets in 2014, which included the closure and consolidation of nine manufacturing facilities into our existing envelope operations and two new facilities.
This accelerated integration has resulted in improved margins within our envelope segment, which we expect to continue throughout 2015 and beyond.
Improving our Cost Structure
We continue to monitor our cost structure as marketplace conditions warrant, and expect to further reduce costs as necessary. Our fixed costs have been reduced significantly as a result of the facility consolidations related to integrating National with our existing operations and select downsizing of certain commercial print assets. We also continue to focus on strategic investments, capital expenditures and acquisitions in areas that we believe will strengthen our manufacturing platform and product offerings. We continue to review strategic alternatives for business lines we believe are underperforming or non-strategic to our future operations.
Improving our Capital Structure
Since the beginning of 2011, we have been focused on improving our capital structure through a number of initiatives including working capital improvements, exiting underperforming or non-strategic businesses, and taking advantage of attractive leveraged loan and high yield debt market conditions. Since we began this initiative, we have reduced our outstanding debt and weighted average interest rate, despite our continued reinvestments of cash into our businesses via four acquisitions, focused capital expenditures, and incurring over $95 million in transaction costs associated with the improvement of our capital structure.
On June 26, 2014, we issued $540.0 million aggregate principal amount of 6.000% senior priority secured notes due 2019, which we refer to as the 6.000% Notes, and $250.0 million aggregate principal amount of 8.500% junior priority secured notes due 2022, which we refer to as the 8.500% Notes. Net proceeds from the 6.000% Notes and 8.500% Notes were used to refinance: (i) the $360 million secured term loan facility, which we refer to as the Term Loan Facility, which at the time had a remaining principal balance of $327.3 million; and (ii) the 8.875% senior second lien notes due 2018, which we refer to as the 8.875% Notes, which at the time had a remaining principal balance of $400.0 million. Additionally, in June 2014, we used cash on hand of $9.4 million to repay in full the remaining principal balance on our unsecured $50.0 million aggregate principal amount term loan due 2017, which we refer to as the Unsecured Term Loan. These transactions resulted in reductions in future cash interest expense, elimination of maintenance covenants within our capital structure and a significant extension of our existing maturities.
The June 2014 refinancing provides us greater flexibility to address our higher interest rate debt instruments. Since the completion of the refinancing, we have: (i) extinguished $25.3 million of our 11.5% senior notes due 2017, which we refer to as our 11.5% Notes, during 2014 and 2015; (ii) exchanged $3.0 million of our $86.3 million 7% senior exchangeable notes due 2017, which we refer to as our 7% Notes, for approximately one million shares of our common stock; and (iii) extinguished $2.0 million of our 8.500% Notes. During the remainder of 2015, we will use cash flow generated from operations and any proceeds from non-strategic asset sales, to the extent allowable by our indentures, to continue to address our highest interest rate debt instruments.
On January 30, 2015, we entered into Amendment No. 3 to the $230 million asset-based revolving credit facility, which we refer to as the ABL Facility, and an accompanying Increasing Lender Agreement on February 4, 2015, pursuant to which the borrowing capacity was increased by $10 million to $240 million. Among other things, this amendment increased our flexibility to use the proceeds of any future asset sales to prepay our other indebtedness. The amendment also generally increased our flexibility to prepay outstanding indebtedness, make acquisitions and other investments, and pay dividends, subject to the satisfaction of certain conditions.
Discontinued Operations
In September 2013, we completed the sale of our custom envelope business, which we refer to as Custom Envelope, within our envelope segment. We received total net proceeds of $47.0 million, of which $1.0 million was received in the first quarter of 2014. The operating results of this divestiture are reported in discontinued operations in our condensed consolidated financial statements for all periods presented.
During the second quarter of 2013, we decided to exit the San Francisco market and closed a manufacturing facility within our print segment. The operating results of this manufacturing facility are reported in discontinued operations in our condensed consolidated financial statements for all periods presented.
Collectively, we refer to these businesses as the Discontinued Operations.
Reportable Segments
We operate three complementary reportable segments: the envelope segment, the print segment and the label and packaging segment.
See below for a summary of net sales and operating income (loss) for our reportable segments that we use internally to assess our operating performance. Our three month reporting periods each consisted of 13 weeks and ended on March 28, 2015, and March 29, 2014.
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
| | (in thousands, except per share amounts) |
Net sales | | $ | 475,105 |
| | $ | 490,119 |
|
Operating income (loss): | | |
| | |
|
Envelope | | $ | 14,840 |
| | $ | 9,806 |
|
Print | | 2,373 |
| | 1,240 |
|
Label and Packaging | | 9,405 |
| | 10,193 |
|
Corporate | | (8,423 | ) | | (11,167 | ) |
Total operating income | | 18,195 |
| | 10,072 |
|
Interest expense, net | | 25,692 |
| | 27,910 |
|
Loss on early extinguishment of debt, net | | 433 |
| | 18 |
|
Other income, net | | (217 | ) | | (509 | ) |
Loss from continuing operations before income taxes | | (7,713 | ) | | (17,347 | ) |
Income tax benefit | | (66 | ) | | (560 | ) |
Loss from continuing operations | | (7,647 | ) | | (16,787 | ) |
(Loss) income from discontinued operations, net of taxes | | (32 | ) | | 953 |
|
Net loss | | $ | (7,679 | ) | | $ | (15,834 | ) |
(Loss) income per share – basic: | | |
| | |
|
Continuing operations | | $ | (0.11 | ) | | $ | (0.25 | ) |
Discontinued operations | | — |
| | 0.01 |
|
Net loss | | $ | (0.11 | ) | | $ | (0.24 | ) |
| | | | |
(Loss) income per share – diluted: | | | | |
Continuing operations | | $ | (0.11 | ) | | $ | (0.25 | ) |
Discontinued operations | | — |
| | 0.01 |
|
Net loss | | $ | (0.11 | ) | | $ | (0.24 | ) |
Net Sales
Net sales decreased $15.0 million, or 3.1%, in the first quarter of 2015, as compared to the first quarter of 2014. Sales in our envelope segment decreased $14.3 million, sales in our print segment decreased $0.2 million and sales in our label and packaging segment decreased $0.5 million.
See Segment Operations below for a detailed discussion of the primary factors affecting the change in our net sales by reportable segment.
Operating Income
Operating income increased $8.1 million, or 80.6%, in the first quarter of 2015, as compared to the first quarter of 2014. This increase was due to: (i) an increase in operating income from our envelope segment of $5.0 million; (ii) a reduction in corporate expenses of $2.7 million; and (iii) an increase in operating income of $1.1 million from our print segment, partially offset by a decline in operating income from our label and packaging segment of $0.8 million.
See Segment Operations below for a more detailed discussion of the primary factors for the changes in operating income by reportable segment.
Interest Expense
Interest expense decreased $2.2 million to $25.7 million in the first quarter of 2015, as compared to $27.9 million in the first quarter of 2014. The decrease was primarily due to: (i) a lower weighted average interest rate as a result of the debt refinancing in the second quarter of 2014; and (ii) principal repayments made on our 11.5% Notes.
We expect interest expense for the remainder of 2015 will be lower than the same period in 2014, primarily due to the refinancing of the Term Loan Facility and 8.875% Notes in the second quarter of 2014, the concurrent repayment in full of the Unsecured Term Loan, and principal repayments made on our 11.5% Notes.
Loss on Early Extinguishment of Debt
In the first quarter of 2015, we recorded a loss on early extinguishment of debt of $0.4 million related to the repurchase of $15.8 million of our 11.5% Notes, of which $0.2 million related to the write-off of unamortized debt issuance costs, and $0.2 million related to the write-off of original issuance discount.
Income Taxes
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
| | (in thousands) |
Income tax benefit from U.S. operations | | $ | (171 | ) | | $ | (690 | ) |
Income tax expense from foreign operations | | 105 |
| | 130 |
|
Income tax benefit | | $ | (66 | ) | | $ | (560 | ) |
Effective income tax rate | | 0.9 | % | | 3.2 | % |
Income Tax Expense
In the first quarter of 2015, we had an income tax benefit of $0.1 million, compared to an income tax benefit of $0.6 million in the first quarter of 2014. The tax benefit for the first quarter of 2015 and the tax benefit for the first quarter of 2014 primarily related to income taxes on our domestic operations.
Our effective tax rate in the first quarter of 2015 and 2014 differed from the federal statutory rate, primarily as a result of having a full valuation allowance related to our net deferred tax assets. We do not believe our unrecognized tax benefits will change significantly for the remainder of 2015.
Valuation Allowance
We review the likelihood that we will realize the benefit of our deferred tax assets, and therefore the need for valuation allowances, on a quarterly basis, or more frequently if events indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or consolidated group recording the net deferred tax asset is considered, along with all other available positive and negative evidence. The factors considered in our determination of the probability of the realization of the deferred tax assets include, but are not limited to: recent historical financial results, historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences, the duration of statutory carryforward periods and tax planning strategies. If, based upon the weight of available evidence, it is more likely than not the deferred tax assets will not be realized, a valuation allowance is recorded.
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence which is objective and verifiable, such as cumulative losses in recent years. We utilize a rolling twelve quarters of pre-tax income or loss adjusted for significant permanent book to tax differences as a measure of our cumulative results in recent years. In the United States, our analysis indicates that we have cumulative three year historical losses on this basis. While there are significant impairment, restructuring and refinancing charges driving our cumulative three year loss, this is considered significant negative evidence which is objective and verifiable and, therefore, difficult to overcome. However, the three year loss position is not solely determinative and accordingly, we consider all other available positive and negative evidence in our analysis. Based upon our analysis, we believe it is more likely than not that the net deferred tax assets in the United States will not be fully realized in the future. Accordingly, we have a valuation allowance related to those net deferred tax assets of $151.6 million as of March 28, 2015. Deferred tax assets related to foreign tax credit carryforwards also did not reach the more likely than not realizability criteria and accordingly, were subject to a valuation allowance. During the three months ended March 28, 2015, our valuation allowance related to these deferred tax assets was unchanged at $7.0 million.
There is no corresponding income tax benefit recognized with respect to losses incurred and no corresponding income tax expense recognized with respect to earnings generated in jurisdictions with a valuation allowance. This causes variability in our effective tax rate. We intend to maintain the valuation allowances until it is more likely than not that the net deferred tax assets will be realized. If operating results improve on a sustained basis, or if certain tax planning strategies are implemented, our conclusions regarding the need for valuation allowances could change, resulting in the reversal of some or all of the valuation allowances in the future, which could have a significant impact on income tax expense or benefit in the period recognized and subsequent periods.
(Loss) Income from Discontinued Operations, Net of Taxes
As a result of exploring opportunities to divest certain non-strategic or underperforming businesses within our manufacturing platform, we decided to exit the San Francisco market and closed a manufacturing facility within the print segment in the second quarter of 2013. Additionally, in the third quarter of 2013, we completed the sale of Custom Envelope within the envelope segment. The results of operations and cash flows of these businesses are reflected within discontinued operations for all periods presented herein, including the related tax effects.
In the first quarter of 2014, income from discontinued operations was $1.0 million, comprised of: (i) a gain recognized related to the sale of Custom Envelope of $0.8 million, net of tax expense of $0.5 million; and (ii) income from the operations of our Discontinued Operations of $0.2 million, net of tax expense of $0.1 million.
Segment Operations
Our Chief Executive Officer monitors the performance of the ongoing operations of our three reportable segments. We assess performance based on net sales and operating income.
Envelope
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
| | (in thousands) |
Segment net sales | | $ | 227,410 |
| | $ | 241,671 |
|
Segment operating income | | $ | 14,840 |
| | $ | 9,806 |
|
Operating income margin | | 6.5 | % | | 4.1 | % |
Restructuring and other charges | | $ | 2,792 |
| | $ | 3,017 |
|
Segment Net Sales
Segment net sales for our envelope segment decreased $14.3 million, or 5.9%, in the first quarter of 2015, as compared to the first quarter of 2014. The decrease was primarily due to volume declines resulting from the closure and consolidation of several envelope facilities related to the integration of National with our existing operations and two new facilities over the course of 2014, partially offset by product mix and our ability to pass along paper price increases to certain customers.
Segment Operating Income
Segment operating income for our envelope segment increased $5.0 million, or 51.3%, in the first quarter of 2015, as compared to the first quarter of 2014. The increase was primarily due to: (i) higher gross margin of $4.0 million and lower selling, general and administrative expenses of $0.8 million, primarily the result of cost savings and efficiencies realized upon the integration of National with our existing operations, and our ability to pass along paper price increases to certain customers; and (ii) lower restructuring and other charges of $0.2 million.
Print
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
| | (in thousands) |
Segment net sales | | $ | 128,166 |
| | $ | 128,397 |
|
Segment operating income | | $ | 2,373 |
| | $ | 1,240 |
|
Operating income margin | | 1.9 | % | | 1.0 | % |
Restructuring and other charges | | $ | 1,037 |
| | $ | 2,006 |
|
Segment Net Sales
Segment net sales for our print segment decreased $0.2 million, or 0.2%, in the first quarter of 2015, as compared to the first quarter of 2014. This decrease was primarily due to sales declines resulting from the closure of a print facility during the first quarter of 2015 and two print facilities during the first quarter of 2014 as well as continued pricing pressure, which was partially offset by increased volumes within specific customer accounts.
Segment Operating Income
Segment operating income for our print segment increased $1.1 million, or 91.4%, in the first quarter of 2015, as compared to the first quarter of 2014. The increase was primarily due to: (i) lower restructuring and other charges of $1.0 million; and (ii) lower amortization expense of $0.8 million related to the accelerated retirement of a trade name in the first quarter of 2014. These increases were partially offset by lower gross margin of $0.4 million due to continued pricing pressure within the industry.
Label and Packaging
|
| | | | | | | | |
| | For the Three Months Ended |
| | March 28, 2015 | | March 29, 2014 |
| | (in thousands) |
Segment net sales | | $ | 119,529 |
| | $ | 120,051 |
|
Segment operating income | | $ | 9,405 |
| | $ | 10,193 |
|
Operating income margin | | 7.9 | % | | 8.5 | % |
Restructuring and other charges | | $ | 423 |
| | $ | 291 |
|
Segment Net Sales
Segment net sales for our label and packaging segment decreased $0.5 million, or 0.4%, in the first quarter of 2015, as compared to the first quarter of 2014. Net sales from our label operations increased $1.5 million, primarily due to increased volume from certain retail customers and favorable pricing mix in our prescription label business. Net sales from our packaging operations declined $2.0 million, primarily due to volume declines in our folded carton business, including the impact of the transition of work to our international locations.
Segment Operating Income
Segment operating income for our label and packaging segment decreased $0.8 million, or 7.7%, in the first quarter of 2015, as compared to the first quarter of 2014. The decrease was primarily due to lower gross margin of $1.7 million in our packaging operations, primarily due to a decline in sales and the delayed ability to pass along increases in raw material prices to our customers. This decline was partially offset by lower selling, general and administrative expenses of $0.8 million in 2015, primarily due to e-commerce and information technology initiatives in 2014 as well as other focused cost reduction initiatives in both 2014 and 2015.
Corporate Expenses
Corporate expenses include the costs of running our corporate headquarters. Corporate expenses decreased $2.7 million in the first quarter of 2015, as compared to the first quarter of 2014, primarily due to costs related to the integration of certain assets of National incurred during 2014, and lower restructuring and other charges of $0.5 million in 2015.
Restructuring and Other Charges
Restructuring
We currently have three active cost savings, restructuring and integration plans: (i) two plans related to the implementation of cost savings initiatives focused on overhead cost eliminations, including headcount reductions and the potential closure of certain manufacturing facilities, which we refer to as the 2015 Plan and the 2014 Plan; and (ii) a plan related to the integration of certain assets of National into our existing envelope operations and two new facilities, which we refer to as the National Plan.
During the first three months of 2015, we implemented the 2015 Plan and continued implementing the 2014 Plan. We also continued our plan to integrate certain assets of National by substantially completing the closure and consolidation of nine manufacturing facilities into our existing envelope operations and two new facilities.
We currently have certain residual cost savings, restructuring and integration plans, which we refer to as the Residual Plans. As a result of these cost savings actions, over the last several years we have closed or consolidated a significant amount of manufacturing facilities and have had a significant number of headcount reductions. We do not anticipate any significant future expenses related to the Residual Plans, other than modifications to current assumptions for lease terminations, multi-employer pension withdrawal liabilities and ongoing expenses related to maintaining restructured assets.
During the first quarter of 2015, as a result of our restructuring and integration activities, we incurred $4.4 million of restructuring and other charges, which included $1.0 million of employee separation costs, $2.0 million of net non-cash charges on long-lived assets, lease termination expenses of $0.3 million, multi-employer pension withdrawal expenses of $0.2 million and building clean-up and other expenses of $0.9 million.
During the first quarter of 2014, as a result of our restructuring and integration activities, we incurred $5.9 million of restructuring and other charges, which included $1.4 million of employee separation costs, $0.6 million of net non-cash charges on long-lived assets, equipment moving expenses of $0.6 million, lease termination expenses of $1.3 million, multi-employer pension withdrawal expenses of $0.7 million and building clean-up and other expenses of $1.3 million.
As of March 28, 2015, our total restructuring liability was $20.2 million, of which $3.9 million is included in other current liabilities and $16.3 million, which is expected to be paid through 2032, is included in other liabilities in our condensed consolidated balance sheet. Our multi-employer pension withdrawal liabilities are $18.0 million of our remaining restructuring liabilities. We believe these liabilities represent our anticipated ultimate withdrawal liabilities; however, we are exposed to significant risks and uncertainties arising from our participation in these multi-employer pension plans. While it is not possible to quantify the potential impact of our future actions or the future actions of other participating employers from the multi-employer pension plans for which we have exited, our anticipated ultimate withdrawal liabilities may be significantly impacted in the future due to lower future contributions or increased withdrawals from other participating employers.
Goodwill and Intangible Asset Impairments
There were no goodwill or intangible asset impairments recorded in the three months ended March 28, 2015, and March 29, 2014.
Liquidity and Capital Resources
Net Cash Used In Operating Activities of Continuing Operations. Net cash used in operating activities of continuing operations was $7.4 million in the first three months of 2015, primarily due to: (i) a use of cash of $19.2 million from working capital; and (ii) pension and other postretirement plan contributions of $3.1 million. The use of working capital primarily resulted from a use of cash due to interest payments and accounts payable, partially offset by a source of cash from accounts receivables due to the timing of collections from and sales to our customers. The use of cash for accounts payable resulted from the classification of $11.9 million of cash balances within accounts payable to offset outstanding checks at the same financial institution. Historically, this cash balance paid down our prime rate borrowing contracts under our ABL Facility. Given our cash generation during the quarter and the remaining term on LIBOR-based borrowing contracts under our ABL Facility, all prime rate contracts were paid down and we elected not to terminate a LIBOR-based contract early as of our quarter end. Had there been prime rate borrowings outstanding, we would have applied the $11.9 million of cash against those contracts, which would have been reflected as cash used in financing activities rather than operating activities. We expect to see the impact of this classification of cash flows from operating activities reverse in future quarters. This use of cash was partially offset by our net loss adjusted for non-cash items of $13.8 million.
Net cash used in operating activities of continuing operations was $3.4 million in the first three months of 2014, primarily due to: (i) a use of cash of $3.1 million from working capital; and (ii) pension and other postretirement plan contributions of $3.3 million. The use of working capital primarily resulted from an increase of inventory to ensure minimal disruption as we integrated and consolidated our envelope platform, as well as the procurement of specific paper grades in advance of announced price increases. We also experienced a use of cash related to a vendor arrangement in connection with the acquisition of certain assets of National. This use of cash was partially offset by our net loss adjusted for non-cash items of $5.0 million.
Cash provided by operating activities is generally sufficient to meet daily disbursement needs. On days when our cash receipts exceed disbursements, we reduce our revolving credit balance or place excess funds in conservative, short-term investments until there is an opportunity to pay down debt. On days when our cash disbursements exceed cash receipts, we use invested cash balances and/or our revolving credit to fund the difference. As a result, our daily revolving credit balance fluctuates depending on working capital needs. Regardless, at all times we believe we have sufficient liquidity available to us to fund our cash needs.
Net Cash Used In Operating Activities of Discontinued Operations. Represents the net cash used in operating activities of our Discontinued Operations.
Net Cash Used In Investing Activities of Continuing Operations. Net cash used in investing activities of continuing operations was $5.5 million in the first three months of 2015, primarily resulting from capital expenditures of $6.1 million, partially offset by proceeds received from the sale of property, plant and equipment of $0.6 million.
Net cash used in investing activities of continuing operations was $10.8 million in the first three months of 2014, primarily resulting from: (i) capital expenditures of $9.0 million; and (ii) the purchase of an investment of $2.0 million. These uses of cash were offset in part by proceeds received from the sale of property, plant and equipment of $0.2 million.
Our debt agreements limit capital expenditures to $45.0 million in 2015 plus any proceeds received from the sale of property, plant and equipment and, if certain conditions are satisfied, any unused permitted amounts from 2014. We estimate that we will spend approximately $20.0 million on capital expenditures for the remainder of 2015, after considering proceeds from the sale of property, plant and equipment. Our primary sources for our capital expenditures are cash generated from operations, proceeds from the sale of property, plant and equipment, and financing capacity within our current debt arrangements. These sources of funding are consistent with prior years’ funding of our capital expenditures.
Net Cash Provided By Investing Activities of Discontinued Operations. Represents the net cash provided by our Discontinued Operations related to investing activities. In the first three months of 2014, the cash provided by discontinued investing activities of $1.0 million is comprised of net cash proceeds received in 2014 related to the sale of Custom Envelope.
Net Cash Provided By Financing Activities. Net cash provided by financing activities of continuing operations was $11.6 million in the first three months of 2015, primarily due to net borrowings of $30.2 million under our ABL Facility, partially offset by: (i) the extinguishment of $15.8 million of our 11.5% Notes; (ii) various repayments on other long-term debt totaling $1.5 million; and (iii) the payment of $1.2 million of financing-related costs and expenses.
Net cash provided by financing activities of continuing operations was $15.1 million in the first three months of 2014, primarily due to net borrowings of $20.8 million under our ABL Facility, partially offset by: (i) various repayments on long-term debt totaling $3.1 million; and (ii) the payment of $2.3 million of financing-related costs and expenses.
Long-Term Debt. Our total outstanding long-term debt, including current maturities, was approximately $1.3 billion as of March 28, 2015, an increase of $16.4 million from December 27, 2014. This increase was primarily due to net borrowings of $30.2 million under our ABL Facility during the first quarter of 2015, partially offset by the repayment of $15.8 million of our 11.5% Notes. As of March 28, 2015, approximately 86% of our debt outstanding was subject to fixed interest rates. As of May 5, 2015, we had approximately $50.0 million of borrowing availability under our ABL Facility. From time to time, we may seek to refinance our debt obligations as business needs and market conditions warrant.
Note Repurchases
We may from time to time seek to purchase our outstanding notes in open market purchases, privately negotiated transactions or other means. Such repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors.
During the first quarter of 2015, we extinguished $15.8 million of our 11.5% Notes, and an additional $6.8 million of our 11.5% Notes to date during the second quarter of 2015.
Letters of Credit
As of March 28, 2015, we had outstanding letters of credit of approximately $19.2 million related to performance and payment guarantees. Based on our experience with these arrangements, we do not believe that any obligations that may arise will be significant.
Credit Ratings
Our current credit ratings are as follows:
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Rating Agency | | Corporate Rating | | 6.000% Notes | | 8.500% Notes | | 11.5% Notes | | Outlook | | Last Update |
Moody’s | | Caa1 | | B3 | | Caa2 | | Caa3 | | Stable | | June 2014 |
Standard & Poor’s | | B- | | B | | CCC | | CCC | | Stable | | June 2014 |
In June 2014, Moody's Investors Services, which we refer to as Moody's, affirmed our Corporate Rating and the ratings on our 11.5% Notes. Additionally, they rated the 6.000% Notes and 8.500% Notes for the first time. In June 2014, Standard & Poor's Ratings Services, which we refer to as Standard & Poor's, affirmed our Corporate Rating and the ratings on our 11.5%
Notes. Additionally, they rated the 6.000% Notes and the 8.500% Notes for the first time. The detail of all current ratings has been provided in the table above.
The terms of our existing debt do not have any rating triggers that impact our funding availability or influence our daily operations, including planned capital expenditures. We do not believe that our current ratings will unduly influence our ability to raise additional capital if and/or when needed. Some of our constituents closely track rating agency actions and would note any raising or lowering of our credit ratings; however, we believe that along with reviewing our credit ratings, additional quantitative and qualitative analysis must be performed to accurately judge our financial condition.
As of March 28, 2015, we were in compliance with all covenants under our long-term debt.
We expect that our internally generated cash flows and financing available under our ABL Facility will be sufficient to fund our working capital needs for the next twelve months; however, this cannot be assured.
Seasonality
Our envelope market and certain segments of the direct mail market have historically experienced seasonality with a higher percentage of volume of products sold to these markets during the fourth quarter of the year, primarily related to holiday purchases. Our office product envelope business historically has experienced seasonality during the late summer months in advance of back to school campaigns.
Our print plants experience seasonal variations. Revenues associated with consumer publications, such as holiday catalogs and automobile brochures tend to be concentrated from July through October. Revenues from annual reports are generally concentrated from February through April. Revenues associated with the educational and scholastic market and promotional materials tend to decline in the summer. As a result of these seasonal variations, some of our print operations operate at or near capacity at certain times throughout the year.
Our general label business has historically experienced a seasonal increase in net sales during the first and second quarters of the year, primarily resulting from the release of our product catalogs to the trade channel customers and our customers’ spring advertising campaigns. Our prescription label business has historically experienced seasonality in net sales due to cold and flu seasons, generally concentrated in the fourth and first quarters of the year. As a result of these seasonal variations, some of our label operations operate at or near capacity at certain times throughout the year.
Our packaging business has not historically experienced seasonal variations.
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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are exposed to market risks such as changes in interest and foreign currency exchange rates, which may adversely affect our results of operations and financial position.
As of March 28, 2015, we had variable rate debt outstanding of $178.7 million. A change of 1% to the current London Interbank Offered Rate, which we refer to as LIBOR, would have a minimal impact to our interest expense.
Our changes in foreign currency exchange rates are managed through normal operating and financing activities. We have foreign operations, primarily in Canada and India, and thus are exposed to market risk for changes in foreign currency exchange rates. For the three months ended March 28, 2015, a uniform 10% strengthening of the United States dollar relative to the local currency of our foreign operations would have resulted in a decrease in sales of approximately $1.5 million and an increase in operating income of less than $0.1 million.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended ("Exchange Act")) as of March 28, 2015. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of March 28, 2015, in order to provide reasonable assurance that information required to be disclosed in our filings under the Exchange Act was recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as defined in the Exchange Act Rule 13a-15(f) and 15d-15(f)) during the quarter ended March 28, 2015, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitations on Effectiveness of Controls
Our management, including our Chief Executive Officer and our Chief Financial Officer, does not expect that our disclosure controls or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. The design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we may be involved in claims or lawsuits that arise in the ordinary course of business. Accruals for claims or lawsuits have been provided for to the extent that losses are deemed probable and estimable. Although the ultimate outcome of these claims or lawsuits cannot be ascertained, on the basis of present information and advice received from counsel, it is our opinion that the disposition or ultimate determination of such claims or lawsuits will not have a material effect on our consolidated financial statements.
In the case of administrative proceedings related to environmental matters involving governmental authorities, we do not believe that any imposition of monetary damages or fines would be material.
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, "Item 1A. Risk factors" in our Annual Report on Form 10-K for the year ended December 27, 2014, 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 4. Mine Safety Disclosures
Not applicable.
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Item 6. Exhibits |
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Exhibit Number | Description |
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2.1 | | Stock Purchase Agreement dated as of July 17, 2007, among Cenveo Corporation, Commercial Envelope Manufacturing Co. Inc. and its shareholders—incorporated by reference to Exhibit 2.1 to registrant’s current report on Form 8-K filed July 20, 2007. |
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3.1 | | Articles of Incorporation—incorporated by reference to Exhibit 3(i) of the registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 1997, filed August 14, 1997. |
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3.2 | | Articles of Amendment to the Articles of Incorporation dated May 17, 2004—incorporated by reference to Exhibit 3.2 to registrant’s quarterly report on Form 10-Q for the quarter ended June 30, 2004, filed August 2, 2004. |
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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. |
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3.4 | | Bylaws as amended and restated effective March 31, 2014—incorporated by reference to Exhibit 3.2 to registrant’s current report on Form 8-K, filed April 4, 2014. |
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4.1 | | Indenture, dated as of March 28, 2012, among the Company, Cenveo Corporation, the other guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 11.5% Notes—incorporated by reference to Exhibit 4.3 to registrant's current report on Form 8-K filed March 30, 2012. |
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4.2 | | Form of Guarantee issued by the Company and the other guarantors named therein relating to the 11.5% Notes—incorporated by reference to Exhibit 4.4 to registrant's current report on Form 8-K filed March 30, 2012. |
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4.3 | | Registration Rights Agreement, dated as of March 28, 2012, among the Company, Cenveo Corporation, the other guarantors named therein and the initial purchasers named therein relating to the 11.5% Notes—incorporated by reference to Exhibit 4.7 to registrant's current report on Form 8-K filed March 30, 2012. |
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4.4 | | Indenture, dated as of March 28, 2012, by and among the Company, Cenveo Corporation, the other guarantors named therein and U.S. Bank National Association, as Trustee, relating to the 7% Notes—incorporated by reference to Exhibit 4.5 to registrant's current report on Form 8-K filed March 30, 2012. |
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Item 6. Exhibits |
4.5 | | Form of Guarantee issued by the Company and the other guarantors named therein relating to the 7% Notes—incorporated by reference to Exhibit 4.6 to registrant's current report on Form 8-K filed March 30, 2012. |
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4.6 | | Indenture, dated as of June 26, 2014, by and among Cenveo, Inc., Cenveo Corporation, the other guarantors named therein and The Bank of New York Mellon, as Trustee and Collateral Agent, relating to the 6.000% Senior Priority Secured Notes due 2019--incorporated by reference to Exhibit 4.1 to registrant's current report on Form 8-K filed July 1, 2014. |
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4.7 | | Form of Guarantee issued by Cenveo, Inc. and the other guarantors named therein relating to the 6.000% Senior Priority Secured Notes due 2019--incorporated by reference to Exhibit 4.2 to registrant's current report on Form 8-K filed July 1, 2014. |
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4.8 | | Indenture, dated as of June 26, 2014, by and among Cenveo, Inc., Cenveo Corporation, the other guarantors named therein and The Bank of New York Mellon, as Trustee and Collateral Agent, relating to the 8.500% Junior Priority Secured Notes due 2022--incorporated by reference to Exhibit 4.3 to registrant's current report on Form 8-K filed July 1, 2014. |
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4.9 | | Form of Guarantee issued by Cenveo, Inc. and the other guarantors named therein relating to the 8.500% Junior Priority Secured Notes due 2022--incorporated by reference to Exhibit 4.4 to registrant's current report on Form 8-K filed July 1, 2014. |
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4.10 | | Intercreditor Agreement, dated as of June 26, 2014, by and among Cenveo, Inc., Cenveo Corporation, the other guarantors named therein, Bank of America, N.A., as ABL Agent, and The Bank of New York Mellon, as Collateral Agent with respect to the Senior Notes--incorporated by reference to Exhibit 4.5 to registrant's current report on Form 8-K filed July 1, 2014. |
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4.11 | | Intercreditor Agreement, dated as of June 26, 2014, by and among Cenveo, Inc., Cenveo Corporation, the other guarantors named therein, Bank of America, N.A., as ABL Agent, The Bank of New York Mellon, as Collateral Agent with respect to the Senior Notes, and The Bank of New York Mellon, as Collateral Agent with respect to the Junior Notes--incorporated by reference to Exhibit 4.6 to registrant's current report on Form 8-K filed July 1, 2014. |
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10.1 | | Amendment No. 3, dated as of January 30, 2015, to Credit Agreement, dated as of April 16, 2013, among Cenveo Corporation, Cenveo, Inc., Bank of America, N.A., as administrative agent, and the lenders party thereto--incorporated by reference to Exhibit 10.20 to registrant's Annual Report on Form 10-K for the year ended December 27, 2014, filed on February 18, 2015. |
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31.1* | | Certification by Robert G. Burton, Sr., Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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31.2* | | Certification by Scott J. Goodwin, Chief Financial Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
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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. |
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101.INS* | | XBRL Instance Document. |
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101.SCH* | | XBRL Taxonomy Extension Schema Document. |
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101.CAL* | | XBRL Taxonomy Extension Calculation Linkbase Document. |
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101.LAB* | | XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE* | | XBRL Taxonomy Extension Presentation Linkbase Document. |
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101.DEF* | | XBRL Taxonomy Extension Definition Linkbase Document. |
__________________________
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 May 6, 2015.
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| CENVEO, INC. |
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| By: | /s/ Robert G. Burton, Sr. |
| | Robert G. Burton, Sr. |
| | Chairman and Chief Executive Officer |
| | (Principal Executive Officer) |
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| By: | /s/ Scott J. Goodwin |
| | Scott J. Goodwin |
| | Chief Financial Officer |
| | (Principal Financial Officer and |
| | Principal Accounting Officer) |