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8-K - CENVEO, INC | cenveo8k.htm |
Exhibit 99.1
News Release
Cenveo Announces Second Quarter 2011 Results
2nd Quarter Net Sales of $495.2 million, up 11.2% from 2010
2nd Quarter Operating Income of $29.4 million, up 51.6% from 2010
2nd Quarter Non-GAAP Operating Income of $40.6 million, up 7.5% from 2010
2nd Quarter Adjusted EBITDA of $57.6 million, up 6.7% from 2010
Year-to-Date 2011 Adjusted EBITDA of $108.7 million, up 9.2% from 2010
Robert G. Burton, Jr. Appointed President
Reaffirms Full Year 2011 Guidance
STAMFORD, CT – (August 10, 2011) – Cenveo, Inc. (NYSE: CVO) today announced results for the three and six months ended July 2, 2011.
For the three months ended July 2, 2011, net sales increased approximately 11.2% to $495.2 million, compared to $445.3 million for the three months ended July 3, 2010, primarily due to the acquisition of MeadWestvaco Corporation’s Envelope Product Group (“EPG”), which closed in February, and growth from the Company’s direct envelope group, which benefited from strong direct mail volumes. For the six months ended July 2, 2011, net sales increased approximately 11.0% to $998.3 million, compared to $899.2 million for the six months ended July 3, 2010. This increase was driven by the acquisition of EPG and organic growth in the Company’s direct envelope, custom label, content, commercial print and specialty packaging product lines.
The Company generated operating income of $29.4 million for the three months ended July 2, 2011, compared to $19.4 million for the three months ended July 3, 2010. This increase was a result of lower restructuring and impairment charges, a lower operating cost structure than prior year and contributions from the EPG acquisition. Non-GAAP operating income increased 7.5%
to $40.6 million for the three months ended July 2, 2011, compared to $37.8 million for the three months ended July 3, 2010. For the six months ended July 2, 2011, the Company generated operating income of $51.5 million, compared to $31.6 million for the six months ended July 3, 2010. This increase was a result of lower restructuring and impairment charges, a lower operating cost structure than prior year and contributions from the EPG acquisition. For the six months ended July 2, 2011, non-GAAP operating income increased 11.2% to $75.1 million, compared to $67.6 million for the six months ended July 3, 2010. Non-GAAP operating income excludes integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges and divested operations or assets held for sale. A reconciliation of operating income to non-GAAP operating income is presented in the attached tables.
For the three months ended July 2, 2011, the Company recorded net income of $0.4 million, or $0.01 per share, compared to a net loss of $8.3 million, or $0.13 per share, for the three months ended July 3, 2010. The improvement in net income is primarily due to lower restructuring and impairment charges and lower interest expense in the second quarter of 2011, compared to the second quarter of 2010, partially offset by a lower income tax benefit in the second quarter of 2011, compared to the second quarter of 2010. For the six months ended July 2, 2011, the Company recorded net income of $3.2 million, or $0.05 per share, compared to a net loss of $19.4 million, or $0.31 per share, for the six months ended July 3, 2010. The improvement in net income is primarily due to a preliminary bargain purchase gain of $11.1 million related to the EPG acquisition, lower restructuring and impairment charges and lower interest expense in the first six months of 2011, compared to the first six months of 2010, partially offset by a lower income tax benefit in the first six months of 2011, compared to the first six months of 2010 and a loss on early extinguishment of debt of $2.6 million in the first six months of 2010.
Adjusted EBITDA for the three months ended July 2, 2011 was $57.6 million, compared to $54.0 million for the three months ended July 3, 2010, an increase of approximately 6.7%. Adjusted EBITDA for the six months ended July 2, 2011, was $108.7 million, compared to $99.5 million for the six months ended July 3, 2010, an increase of approximately 9.2%. These increases are primarily attributable to stronger performance across the majority of the Company’s product lines combined with contributions from the EPG acquisition. Adjusted
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EBITDA is defined as earnings before interest, taxes, depreciation and amortization, excluding integration, acquisition and other charges, stock-based compensation provision, restructuring and impairment charges, gain on bargain purchase, divested operations or assets held for sale, loss on early extinguishment of debt, and loss from discontinued operations, net of taxes. An explanation of the Company’s use of Adjusted EBITDA is detailed below and a reconciliation of net income (loss) to Adjusted EBITDA is provided in the attached tables.
The results for the second quarter and the first six months of 2011 include a preliminary bargain purchase gain related to the EPG acquisition. The purchase price allocation of acquired assets and liabilities assumed in the EPG acquisition and the related bargain purchase gain recognized in the Company’s statement of operations are preliminary. Differences between the preliminary and final purchase price allocations could have a material impact on the Company’s financial statements, including the bargain purchase gain. The Company will finalize the purchase price allocation as soon as practicable within the EPG acquisition’s measurement period, but in no event later than one year after the acquisition date.
Robert G. Burton, Sr., Chairman and Chief Executive Officer stated:
“Cenveo had another strong quarter with continued operational and financial improvement, meaningful net debt pay down of $20 million and significant progress integrating EPG into our operations. Once again we saw organic revenue growth in our direct envelope and custom label businesses which, combined with our continued focus on costs, led to improvements in our revenues, operating income, and Adjusted EBITDA.”
“Despite uncertainty in the economy, the positive trends which we have seen across most of our businesses since the end of 2010 continued through the second quarter of 2011. Our direct envelope group posted another quarter of strong organic sales growth of over 6%, benefiting from strong direct mail volumes, favorable product mix and the consolidation efforts related to the EPG integration. To date we have announced the consolidation of three EPG facilities into our existing envelope operations and have made significant progress in aligning equipment across our leading envelope manufacturing platform. Our custom label and packaging products once again delivered another solid performance as our customers spending in those end markets
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grew in line with expectations. While our publisher services group continues to be challenged by weakness in the publishing industry, our content management offering continues to grow as our global platform benefits from the outsourcing of project management and composition services. Despite weaker seasonality this quarter, our commercial print businesses delivered strong year over year margin improvement benefiting from our consolidation plans executed in prior years and continued improvements in the automotive, financial services, travel and leisure markets.”
Mr. Burton concluded:
“We now have two strong quarters behind us, positioning us well to deliver our revenue, free cash flow and Adjusted EBITDA objectives in the back half of the year despite the challenging macro-environment. Our integration efforts in connection with EPG are well underway and will begin to deliver meaningful savings in the fourth quarter when we fully transition off EPG’s legacy systems and back office functions. We will continue our focus on driving free cash flow and deleveraging our balance sheet. In the short term we will look to improve our working capital position. We believe that by focusing our attention on working capital improvements, we can deliver upwards of $40 million of incremental cash flow by the end of 2012. Over the longer term, we remain committed to executing our game plan of operating niche growth businesses while using our free cash flow to invest in and grow our higher margin product lines or pay down debt. To further show our commitment to these goals, the Board of Directors has appointed Robert G. Burton, Jr. to the position of President. He will be responsible for overseeing this plan as we continue to position the company for the future. His 15 years of industry experience and current responsibilities make him the ideal person to see this initiative through to completion. He has my and the Board’s full support as we continue to look to grow our higher margin product lines and free cash flow.”
“I would like to encourage all Cenveo investors to join us on our conference call to listen to our aggressive action plans aimed at deleveraging our balance sheet and discussing our strong first half financial results and our outlook for the back half. I look forward to discussing our action plans in more detail as it is our number one priority to deliver value for all our stakeholders.”
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Conference Call:
Cenveo will host a conference call tomorrow, Thursday, August 11, 2011, at 10:00 a.m. Eastern Time. The conference call will be available via webcast, which can be accessed via the internet at www.cenveo.com.
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Cenveo, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(in thousands, except per share data)
(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
July 2, 2011
|
July 3, 2010
|
July 2, 2011
|
July 3, 2010
|
|||||||||||||
Net sales
|
$ | 495,199 | $ | 445,264 | $ | 998,264 | $ | 899,198 | ||||||||
Cost of sales
|
402,910 | 360,017 | 816,731 | 735,207 | ||||||||||||
Selling, general and administrative expenses
|
54,622 | 51,484 | 115,114 | 105,526 | ||||||||||||
Amortization of intangible assets
|
2,811 | 2,901 | 5,586 | 5,785 | ||||||||||||
Restructuring and impairment charges
|
5,465 | 11,476 | 9,292 | 21,103 | ||||||||||||
Operating income
|
29,391 | 19,386 | 51,541 | 31,577 | ||||||||||||
Gain on bargain purchase
|
(540 | ) | — | (11,079 | ) | — | ||||||||||
Interest expense, net
|
29,412 | 31,492 | 59,629 | 61,106 | ||||||||||||
Loss on early extinguishment of debt
|
— | — | — | 2,598 | ||||||||||||
Other expense, net
|
149 | 305 | 338 | 1,032 | ||||||||||||
Income (loss) from continuing operations before income taxes
|
370 | (12,411 | ) | 2,653 | (33,159 | ) | ||||||||||
Income tax benefit
|
(4 | ) | (4,119 | ) | (505 | ) | (13,846 | ) | ||||||||
Income (loss) from continuing operations
|
374 | (8,292 | ) | 3,158 | (19,313 | ) | ||||||||||
Loss from discontinued operations, net of taxes
|
— | (35 | ) | — | (122 | ) | ||||||||||
Net income (loss)
|
$ | 374 | $ | (8,327 | ) | $ | 3,158 | $ | (19,435 | ) | ||||||
Income (loss) per share – basic and diluted:
|
||||||||||||||||
Continuing operations
|
$ | 0.01 | $ | (0.13 | ) | $ | 0.05 | $ | (0.31 | ) | ||||||
Discontinued operations
|
— | — | — | — | ||||||||||||
Net income (loss)
|
$ | 0.01 | $ | (0.13 | ) | $ | 0.05 | $ | (0.31 | ) | ||||||
Weighted average shares outstanding:
|
||||||||||||||||
Basic
|
62,862 | 62,216 | 62,802 | 62,166 | ||||||||||||
Diluted
|
63,439 | 62,216 | 63,224 | 62,166 |
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Cenveo, Inc. and Subsidiaries
Reconciliation of Income (Loss) from Continuing Operations to Non-GAAP Income (Loss) from Continuing Operations
and Related Per Share Data
(in thousands, except per share data)
(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
July 2, 2011
|
July 3, 2010
|
July 2, 2011
|
July 3, 2010
|
|||||||||||||
Income (loss) from continuing operations
|
$ | 374 | $ | (8,292 | ) | $ | 3,158 | $ | (19,313 | ) | ||||||
Integration, acquisition and other charges
|
3,244 | 3,233 | 9,258 | 5,499 | ||||||||||||
Stock-based compensation provision
|
2,510 | 2,727 | 5,018 | 5,625 | ||||||||||||
Restructuring and impairment charges
|
5,465 | 11,476 | 9,292 | 21,103 | ||||||||||||
Divested operations or assets held for sale
|
— | 958 | — | 3,758 | ||||||||||||
Gain on bargain purchase
|
(540 | ) | — | (11,079 | ) | — | ||||||||||
Loss on early extinguishment of debt
|
— | — | — | 2,598 | ||||||||||||
Income tax expense
|
(335 | ) | (4,298 | ) | (959 | ) | (14,009 | ) | ||||||||
Non-GAAP income from continuing operations
|
$ | 10,718 | $ | 5,804 | $ | 14,688 | $ | 5,261 | ||||||||
Income (loss) per share – diluted:
|
||||||||||||||||
Continuing operations
|
$ | 0.01 | $ | (0.13 | ) | $ | 0.05 | $ | (0.31 | ) | ||||||
Integration, acquisition and other charges
|
0.05 | 0.05 | 0.15 | 0.09 | ||||||||||||
Stock-based compensation provision
|
0.04 | 0.04 | 0.08 | 0.09 | ||||||||||||
Restructuring and impairment charges
|
0.09 | 0.18 | 0.15 | 0.33 | ||||||||||||
Divested operations or assets held for sale
|
— | 0.02 | — | 0.06 | ||||||||||||
Gain on bargain purchase
|
(0.01 | ) | — | (0.18 | ) | — | ||||||||||
Loss on early extinguishment of debt
|
— | — | — | 0.04 | ||||||||||||
Income tax expense
|
(0.01 | ) | (0.07 | ) | (0.02 | ) | (0.22 | ) | ||||||||
Non-GAAP continuing operations
|
$ | 0.17 | $ | 0.09 | $ | 0.23 | $ | 0.08 | ||||||||
Weighted average shares outstanding—diluted
|
63,439 | 63,125 | 63,224 | 63,055 |
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Cenveo, Inc. and Subsidiaries
Reconciliation of Net Income (Loss) to Adjusted EBITDA
(in thousands)
(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
July 2, 2011
|
July 3, 2010
|
July 2, 2011
|
July 3, 2010
|
|||||||||||||
Net income (loss)
|
$ | 374 | $ | (8,327 | ) | $ | 3,158 | $ | (19,435 | ) | ||||||
Interest expense, net
|
29,412 | 31,492 | 59,629 | 61,106 | ||||||||||||
Income tax benefit
|
(4 | ) | (4,119 | ) | (505 | ) | (13,846 | ) | ||||||||
Depreciation
|
14,350 | 13,638 | 28,322 | 27,225 | ||||||||||||
Amortization of intangible assets
|
2,811 | 2,901 | 5,586 | 5,785 | ||||||||||||
Integration, acquisition and other charges
|
3,244 | 3,233 | 9,258 | 5,499 | ||||||||||||
Stock-based compensation provision
|
2,510 | 2,727 | 5,018 | 5,625 | ||||||||||||
Restructuring and impairment charges
|
5,465 | 11,476 | 9,292 | 21,103 | ||||||||||||
Gain on bargain purchase
|
(540 | ) | — | (11,079 | ) | — | ||||||||||
Loss on early extinguishment of debt
|
— | — | — | 2,598 | ||||||||||||
Divested operations or assets held for sale
|
— | 958 | — | 3,758 | ||||||||||||
Loss from discontinued operations, net of taxes
|
— | 35 | — | 122 | ||||||||||||
Adjusted EBITDA, as defined
|
$ | 57,622 | $ | 54,014 | $ | 108,679 | $ | 99,540 |
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Cenveo, Inc. and Subsidiaries
Reconciliation of Operating Income to Non-GAAP Operating Income
(in thousands)
(Unaudited)
|
||||||||||||||||
Three Months Ended
|
Six Months Ended
|
|||||||||||||||
July 2, 2011
|
July 3, 2010
|
July 2, 2011
|
July 3, 2010
|
|||||||||||||
Operating income
|
$ | 29,391 | $ | 19,386 | $ | 51,541 | $ | 31,577 | ||||||||
Integration, acquisition and other charges
|
3,244 | 3,233 | 9,258 | 5,499 | ||||||||||||
Stock-based compensation provision
|
2,510 | 2,727 | 5,018 | 5,625 | ||||||||||||
Divested operations or assets held for sale
|
— | 958 | — | 3,758 | ||||||||||||
Restructuring and impairment charges
|
5,465 | 11,476 | 9,292 | 21,103 | ||||||||||||
Non-GAAP operating income
|
$ | 40,610 | $ | 37,780 | $ | 75,109 | $ | 67,562 |
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Cenveo, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
July 2, 2011
|
January 1, 2011 | |||||||
Assets
|
(Unaudited)
|
|||||||
Current assets:
|
||||||||
Cash and cash equivalents
|
$ | 11,636 | $ | 49,756 | ||||
Accounts receivable, net
|
283,658 | 263,364 | ||||||
Inventories
|
175,203 | 149,151 | ||||||
Prepaid and other current assets
|
66,217 | 66,135 | ||||||
Total current assets
|
536,714 | 528,406 | ||||||
Property, plant and equipment, net
|
358,630 | 347,921 | ||||||
Goodwill
|
209,002 | 209,161 | ||||||
Other intangible assets, net
|
242,382 | 246,424 | ||||||
Other assets, net
|
64,063 | 65,818 | ||||||
Total assets
|
$ | 1,410,791 | $ | 1,397,730 | ||||
Liabilities and Shareholders’ Deficit
|
||||||||
Current liabilities:
|
||||||||
Current maturities of long-term debt
|
$ | 12,933 | $ | 10,098 | ||||
Accounts payable
|
177,331 | 166,468 | ||||||
Accrued compensation and related liabilities
|
33,745 | 30,672 | ||||||
Other current liabilities
|
89,287 | 98,471 | ||||||
Total current liabilities
|
313,296 | 305,709 | ||||||
Long-term debt
|
1,284,894 | 1,283,905 | ||||||
Other liabilities
|
142,738 | 149,447 | ||||||
Commitments and contingencies
|
||||||||
Shareholders’ deficit:
|
||||||||
Preferred stock
|
— | — | ||||||
Common stock
|
630 | 627 | ||||||
Paid-in capital
|
347,447 | 342,607 | ||||||
Retained deficit
|
(661,124 | ) | (664,282 | ) | ||||
Accumulated other comprehensive loss
|
(17,090 | ) | (20,283 | ) | ||||
Total shareholders’ deficit
|
(330,137 | ) | (341,331 | ) | ||||
Total liabilities and shareholders’ deficit
|
$ | 1,410,791 | $ | 1,397,730 |
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Cenveo, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
Six Months Ended
|
||||||||
July 2, 2011
|
July 3, 2010
|
|||||||
Cash flows from operating activities:
|
||||||||
Net income (loss)
|
$ | 3,158 | $ | (19,435 | ) | |||
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
|
||||||||
Loss from discontinued operations, net of taxes
|
— | 122 | ||||||
Depreciation and amortization, excluding non-cash interest expense
|
33,908 | 33,010 | ||||||
Non-cash interest expense, net
|
2,875 | 2,345 | ||||||
Loss on early extinguishment of debt
|
— | 2,598 | ||||||
Stock-based compensation provision
|
5,018 | 5,625 | ||||||
Non-cash restructuring and impairment charges, net of gain on sale
|
1,758 | 5,525 | ||||||
Bargain purchase gain
|
(11,079 | ) | — | |||||
Deferred income taxes
|
(3,078 | ) | (15,976 | ) | ||||
(Gain) loss on sale of assets
|
292 | (65 | ) | |||||
Other non-cash charges, net
|
4,235 | 3,853 | ||||||
Changes in operating assets and liabilities excluding the effects of acquired businesses:
|
||||||||
Accounts receivable
|
6,063 | 23,022 | ||||||
Inventories
|
(6,428 | ) | (2,161 | ) | ||||
Accounts payable and accrued compensation and related liabilities
|
(6,639 | ) | (18,896 | ) | ||||
Other working capital changes
|
(13,495 | ) | 16,623 | |||||
Other, net
|
(4,739 | ) | (6,595 | ) | ||||
Net cash provided by operating activities
|
11,849 | 29,595 | ||||||
Cash flows from investing activities:
|
||||||||
Cost of business acquisitions, net of cash acquired
|
(54,784 | ) | (21,483 | ) | ||||
Capital expenditures
|
(8,547 | ) | (8,236 | ) | ||||
Proceeds from sale of property, plant and equipment
|
10,864 | 1,476 | ||||||
Net cash used in investing activities
|
(52,467 | ) | (28,243 | ) | ||||
Cash flows from financing activities:
|
||||||||
Borrowings under revolving credit facility due 2014
|
8,200 | — | ||||||
Proceeds from exercise of stock options
|
318 | 1,281 | ||||||
Repayments of other long-term debt
|
(3,556 | ) | (4,064 | ) | ||||
Repayment of term loan B due 2016
|
(1,900 | ) | — | |||||
Purchase and retirement of common stock upon vesting of RSUs
|
(496 | ) | — | |||||
Proceeds from issuance of 8⅞% senior second lien notes
|
— | 397,204 | ||||||
Repayment of term loans
|
— | (311,944 | ) | |||||
Repayments under revolving credit facility due 2012
|
— | (22,500 | ) | |||||
Payment of refinancing or repurchase fees, redemption premiums and expenses
|
— | (13,009 | ) | |||||
Net cash provided by financing activities
|
2,566 | 46,968 | ||||||
Effect of exchange rate changes on cash and cash equivalents
|
(68 | ) | 817 | |||||
Net (decrease) increase in cash and cash equivalents
|
(38,120 | ) | 49,137 | |||||
Cash and cash equivalents at beginning of period
|
49,756 | 10,796 | ||||||
Cash and cash equivalents at end of period
|
$ | 11,636 | $ | 59,933 |
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###
In addition to results presented in accordance with accounting principles generally accepted in the U.S. (“GAAP”), included in this release is a certain non-GAAP financial measure, specifically Adjusted EBITDA. This non-GAAP financial measure is defined herein, and should be read in conjunction with GAAP financial measures. This non-GAAP financial measure is not presented as an alternative to cash flows from operations, as a measure of our liquidity or as an alternative to reported net income (loss) as an indicator of our operating performance. The non-GAAP financial measures as used herein may not be comparable to similarly titled measures reported by our competitors.
We believe the use of Adjusted EBITDA along with GAAP financial measures enhances the understanding of our operating results and may be useful to investors in comparing our operating performance with that of our competitors and estimating our enterprise value. Adjusted EBITDA is also a useful tool in evaluating the core operating results of the Company given the significant variation that can result from, for example, the timing of capital expenditures, the amount of intangible assets recorded or the differences in assets’ lives. We also use Adjusted EBITDA internally to evaluate the operating performance of our segments, to allocate resources and capital to such segments, to measure performance for incentive compensation programs and to evaluate future growth opportunities.
Cenveo (NYSE: CVO), headquartered in Stamford, Connecticut, is a leading global provider of print and related resources, offering world-class solutions in the areas of envelopes, custom labels, specialty packaging, commercial print, publisher solutions and business documents. The company provides a one-stop offering through services ranging from design and content management to fulfillment and distribution. With approximately 10,000 employees worldwide, we pride ourselves on delivering quality solutions and service every day for our customers. For more information please visit us at www.cenveo.com.
___________________________
Statements made in this release, other than those concerning historical financial information, may be considered “forward-looking statements,” which are based upon current expectations and involve a number of assumptions, risks and uncertainties that could cause actual results to differ materially from such 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 of this release, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Factors that could cause actual results to differ materially from management’s expectations include, without limitation: (i) recent United States and global economic conditions, which have adversely affected us and could continue to do so; (ii) our substantial level of
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indebtedness, which 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 are available to us that could further exacerbate our risk exposure from debt; (vi) our ability to successfully integrate acquired businesses into our business; (vii) a decline of our consolidated profitability or profitability within one of our individual reporting units could result in the impairment of our assets; (viii) intense competition and fragmentation in our industry; (ix) the general absence of long-term customer agreements in our industry, 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 affecting demand for our products; (xii) increases in raw material costs and decreases in their availability; (xiii) our labor relations; (xiv) our compliance with environmental laws; (xv) our dependence on key management personnel; (xvi) our dependence upon information technology systems; and (xvii) our international operations and the risks associated with operating outside of the United States. 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 in Cenveo, Inc.’s periodic filings with the SEC, which are available at http://www.cenveo.com.
Inquiries from analysts and investors should be directed to Robert G. Burton, Jr. at (203) 595-3005.
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