This Management's Discussion and Analysis of Financial Condition and Results of Operations of Cenveo, Inc. and its subsidiaries, which we refer to as Cenveo, should be read in conjunction with the accompanying condensed consolidated financial statements and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the fiscal year ended December 29, 2007. Item 7 of our 2007 Annual Report on Form 10-K, which we refer to as our Form 10-K, describes the application of our critical accounting policies, for which there have been no significant changes as of March 29, 2008.

Forward-Looking Statements

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

Factors that could cause actual results to differ materially from management's expectations include, without limitation: (1) our substantial indebtedness could impair our financial condition and prevent us from fulfilling our business obligations; (2) our ability to service or refinance our debt; (3) the terms of our indebtedness imposing significant restrictions on our operating and financial flexibility; (4) additional borrowings are available to us that could further exacerbate our risk exposure from debt; (5) our ability to successfully integrate acquisitions; (6) intense competition in our industry; (7) the absence of long-term customer agreements in our industry, subjecting our business to quarterly and cyclical fluctuations; (8) factors affecting the U.S. postal services impacting demand for our products; (9) the availability of the Internet and other electronic media affecting demand for our products; (10) increases in paper costs and decreases in its availability; (11) our labor relations; (12) compliance with environmental rules and regulations; and (13) dependence on key management personnel. This list of factors is not exhaustive, and new factors may emerge or changes to the foregoing factors may occur that would impact the Company's business. Additional information regarding these and other factors can be found elsewhere in this report and in our other filings with the SEC.

Business Overview

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

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

Envelopes, Forms and Labels

Our envelopes, forms and labels segment operates approximately 38 manufacturing facilities, primarily in North America and primarily specializes in the design, manufacturing, printing and fulfillment of: (1) custom and direct mail envelopes developed for the advertising, billing and remittance needs of a variety of customers, including financial services companies; (2) custom labels and specialty forms sold through an extensive network of resale distributors for industries including food and beverage, manufacturing and pharmacy chains; and
(3) stock envelopes, labels and business forms generally sold to independent distributors, office-products suppliers and office-products retail chains. In 2007 we grew our envelopes, forms and labels business with the acquisition of Commercial Envelope Manufacturing Co. Inc., which we refer to as Commercial Envelope, and PC Ink Corp., which we refer to as Printegra.

On August 30, 2007, we acquired all of the stock of Commercial Envelope, one of the largest envelope manufacturers in the United States. Prior to our acquisition, Commercial Envelope had annual revenues of approximately $160.0 million. Commercial Envelope's facilities collectively produced over 41 million envelopes per day in 2007. The acquisition of Commercial Envelope increased our market share in the U.S. envelope market and is expected to create efficiencies as we integrate our operations.

On February 12, 2007, we acquired all of the stock of Printegra, a leading producer of printed business communication documents, labels and envelopes regularly used by small and large businesses. Prior to our acquisition, Printegra had annual revenues of approximately $90.0 million. With the acquisition of Printegra, we expanded our offerings of short-run documents, labels and envelope products. Additionally, the acquisition facilitates access for Printegra's historical customer base to our extensive product offerings.

Commercial Printing

Our commercial printing segment operates approximately 40 manufacturing facilities in the United States, Canada, the Caribbean Basin and Asia and primarily offers print, design, content management, fulfillment and distribution offerings, including: (1) high-end color printing of a wide range of premium products for major national and regional customers; (2) general commercial products for regional and local customers; (3) scientific, technical and medical, which we refer to STM, journals and special interest and trade magazines for non-profit organizations, educational institutions and specialty publishers; and (4) specialty packaging and high quality promotional materials for multinational consumer products companies. We completed two commercial printing acquisitions in 2007: Madison/Graham ColorGraphics, Inc., which we refer to as ColorGraphics, and Cadmus Communications Corporation, which we refer to as Cadmus.

On July 9, 2007, we acquired all of the stock of ColorGraphics, one of the largest commercial printers in the western United States. Prior to our acquisition, ColorGraphics had annual revenues of approximately $170.0 million. ColorGraphics produces printed annual reports, booklets, brochures, advertising inserts, direct mail and other corporate communication materials.

On March 7, 2007, we acquired all of the stock of Cadmus. Cadmus is one of the world's largest providers of content management and printing to scientific, technical and medical journal publishers, one of the largest periodicals printers in North America and a leading provider of specialty packaging and promotional printing products. Prior to our acquisition, Cadmus had annual revenues of approximately $450.0 million.

See Notes 4 and 14 of our condensed consolidated financial statements included herein.

Consolidated Operating Results

Management's Discussion and Analysis of Financial Condition and Results of Operations includes an overview of our condensed consolidated results for the three month period ended March 29, 2008 followed by a discussion of the results of each of our reported segments for the same period. See Note 2 of our condensed consolidated financial statements included herein. Our results for the three month period ended March 29, 2008 included the operating results of Printegra, Cadmus, ColorGraphics and Commercial Envelope, which we refer to as the 2007 Acquisitions. Our results for the first quarter of 2007 included the operating results of both Cadmus and Printegra subsequent to their respective acquisition. See Note 4 to the condensed consolidated financial statements included herein.

A summary of our condensed consolidated statements of operations is presented below. The summary presents reported net sales and operating income. See Segment Operations below for a summary of net sales and operating income of our reportable segments that we use internally to assess our operating performance. Our fiscal quarters end on the Saturday closest to the last day of the calendar month so that each quarter has the same number of days and 13 full weeks. The reporting periods consist of 13 weeks ending on March 29, 2008 and March 31, 2007.

                                                                   Three Months Ended
                                                          March 29, 2008        March 31, 2007
                                                                  (in thousands, except
                                                                    per share amounts)

Net sales                                                $        534,328      $        414,714
Operating income (loss):
Envelopes, forms and labels                              $         25,626      $         27,389
Commercial printing                                                11,278                 9,630
Corporate                                                         (13,924 )              (8,780 )
Total operating income                                             22,980                28,239
Interest expense, net                                              26,978                16,282
Loss on early extinguishment of debt                                    -                 8,700
Other expense, net                                                    461                   222
(Loss) income from continuing operations before income
taxes                                                              (4,459 )               3,035
Income tax (benefit) expense                                       (1,716 )               1,255
(Loss) income from continuing operations                           (2,743 )               1,780
(Loss) income from discontinued operations, net of
taxes                                                                (656 )              16,293
Net (loss) income                                        $         (3,399 )    $         18,073
(Loss) income per share-basic:
Continuing operations                                    $          (0.05 )    $           0.03
Discontinued operations                                             (0.01 )                0.31
Net (loss) income                                        $          (0.06 )    $           0.34

(Loss) income per share-diluted:
Continuing operations                                    $          (0.05 )    $           0.03
Discontinued operations                                             (0.01 )                0.30
Net (loss) income                                        $          (0.06 )    $           0.33

Net Sales

Net sales increased $119.6 million in the first quarter of 2008, as compared to the first quarter of 2007. This increase was primarily due to the $150.4 million of sales generated by the 2007 Acquisitions, for which Cadmus and Printegra were included for only a portion of the first quarter of 2007 and Commercial Envelope and ColorGraphics had no corresponding amounts in the first quarter of 2007. This increase was offset in part by lower sales from our envelopes, forms and labels segment of $11.3 million and from our commercial printing segment of $19.5 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 decreased $5.3 million in the first quarter of 2008, as compared to the first quarter of 2007. This decrease was primarily due to increased restructuring, impairment and other charges of $7.1 million, primarily related to a non-recurring charge for professional fees incurred for the internal review initiated by our audit committee and decreases in operating income from our commercial printing segment of $5.9 million and from our envelopes, forms and labels segment of $3.5 million. These decreases were partially offset by $9.7 million of increased operating income generated in the first quarter of 2008 by the 2007 Acquisitions, for which Cadmus and Printegra were included for only a portion of the first quarter of 2007 and Commercial Envelope and ColorGraphics had no corresponding amounts in the first quarter of 2007. 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 increased $10.7 million to $27.0 million in the first quarter of 2008, as compared to $16.3 million in the first quarter of 2007, primarily due to the additional debt we incurred to finance the 2007 Acquisitions, partially offset by lower interest rates. Interest expense in the first quarter of 2008 reflected average outstanding debt of approximately $1.4 billion and a weighted average interest rate of 7.3%, as compared to average outstanding debt of $817.1 million and a weighted average interest rate of 7.6% in the first quarter of 2007. See Long-Term Debt below and Note 9 to the condensed consolidated financial statements included herein.

Loss on Early Extinguishment of Debt. In the first quarter of 2007, we: (i) executed a tender offer for repayment on March 19, 2007 of $20.9 million of Cadmus' 8?% senior subordinated notes due 2014, which we refer to as the 8?% Notes and (ii) refinanced our existing $525.0 million senior secured credit facilities, which we refer to as the Credit Facilities, in connection with the Cadmus acquisition and incurred losses on early extinguishment of debt of $8.7 million. See Long-Term Debt below and Note 9 to the condensed consolidated financial statements included herein.

Income Taxes

                                                                 Three Months Ended
                                                         March 29, 2008       March 31, 2007
                                                                   (in thousands)

Income tax (benefit) expense from U.S. operations       $         (1,745 )   $            995
Income tax expense from foreign operations                            29                  260
Income tax (benefit) expense                            $         (1,716 )   $          1,255
Effective income tax rate                                           38.5 %              41.35 %

In the first quarter of 2008, we had an income tax benefit of $1.7 million, compared to income tax expense of $1.3 million in the first quarter of 2007, which primarily relates to taxes on our domestic operations. Our effective tax rate in the first quarter of 2008 and 2007 was higher than the statutory rate, primarily due to non-deductible expenses and state income taxes.

We assess the recoverability of our deferred tax assets and, based upon this assessment, record a valuation allowance against deferred tax assets to the extent recoverability does not satisfy the "more likely than not" recognition criteria in Statement of Financial Accounting Standards No. 109, Accounting for Income Taxes. We consider our recent operating results and anticipated future taxable income in assessing the need for a valuation allowance. As of March 29, 2008, the total valuation allowance on our net U.S. deferred tax assets was approximately $30.8 million.

Income (Loss) from Discontinued Operations, Net of Taxes. Income from discontinued operations for the three months ended March 31, 2007, included the $15.4 million gain on sale of our remaining interest in the Fund on March 13, 2007, net of taxes of $10.2 million and equity income related to our retained interest in the Fund from January 1, 2007 through March 13, 2007. See Note 5 to the condensed consolidated financial statements included herein.

Segment Operations

Our Chief Executive Officer monitors the performance of the ongoing operations of our two reportable segments. We assess performance based on division net sales and operating income. The summaries of net sales of our two segments are presented to show each segment without the net sales of divested operations, as applicable, and to show the operating income of each reportable segment. See Note 14 to the condensed consolidated financial statements included herein.

Restructuring, Impairment and Other Charges. In the fourth quarter 2007, we completed our cost savings and restructuring plan initiated in September 2005, including the consolidation of purchasing activities, the rationalization of our manufacturing platform, corporate and field human resources reductions, implementation of company-wide purchasing initiatives and streamlining of information technology infrastructure. In addition, in 2007 we implemented cost savings and integration initiatives related to the 2007 Acquisitions and anticipate substantially completing the integration of those operations during 2008. See Note 10 to the condensed consolidated financial statements included herein. As of March 29, 2008, our total restructuring liability was $15.2 million.

During the first quarter of 2008, we incurred $9.7 million of restructuring, impairment and other charges, which included a $6.7 million non-recurring charge for professional fees related to the internal review initiated by our audit committee (see Notes 2 and 10 of our condensed consolidated financial statements included herein), $1.7 million of employee separation costs, asset impairments, net of $(0.3) million which includes the gain on sale of equipment, equipment moving expenses of $0.4 million, lease termination expenses of $0.4 million, and building clean-up and other expenses of $0.9 million. During the first quarter of 2007, we incurred $2.6 million of restructuring and impairment charges, which include $1.4 million of employee separation costs, asset impairments, net of $(0.5) million which included the gain on sale of a facility, equipment moving expenses of $0.6 million, lease termination costs of $0.1 million and building clean-up and other expenses of $1.0 million.

Envelopes, Forms and Labels

                                        Three Months Ended
                                             March 31,
                                        2008          2007
                                          (in thousands)

Segment net sales                    $   238,137     $ 211,470
Segment operating income             $    25,626     $  27,389
Operating income margin                     10.8 %        13.0 %
Restructuring and impairment charges $     1,655     $     762

Segment Net Sales

Segment net sales for our envelopes, forms and labels segment increased $26.7 million, or 12.6%, in the first quarter of 2008, as compared to the first quarter of 2007. This increase was primarily due to (1) the $38.0 million of incremental sales generated by Commercial Envelope and Printegra in 2008, including the impact of sales changes for work transitioned primarily from a plant closure as a result of the Commercial Envelope acquisition, with no corresponding amount for Commercial Envelope and less than a full quarter of results for Printegra in the first quarter of 2007 and (2) higher sales of approximately $8.6 million, primarily from our envelope operations due to product mix and our label operations due to price increases. These increases were offset in part by lower sales volume of approximately $19.9 million, primarily from our envelope operations due to the reorganization and closing of operations and the retirement of older, less efficient assets to maximize profitability, a decline in the overall market due in part to the U.S. Postal Service's rate increases in the middle of the second quarter of 2007, the closure of a forms plant in connection with the integration of Printegra's operations, and an overall decline in traditional documents business, mainly as a result of customers' improved ability to print high quality documents on their own and lower sales volume from office product retail customers.

Segment Operating Income

Segment operating income for our envelopes, forms and labels segment decreased $1.8 million, or 6.4%, in the first quarter of 2008, as compared to the first quarter of 2007. This decrease was primarily due to a $4.4 million decrease in gross margins due in part to higher material costs and increased restructuring and impairment charges of $0.9 million primarily due to our 2007 cost savings and integration initiatives. These decreases were partially offset by $2.6 million of increased operating income generated by Commercial Envelope and Printegra in 2008, with no corresponding amount and less than a full quarter of results, respectively, in the first quarter of 2007, and lower selling, general and administrative expenses of $0.9 million from cost reduction programs.

Commercial Printing

                                        Three Months Ended
                                             March 31,
                                        2008          2007
                                          (in thousands)

Segment net sales                    $   296,191     $ 203,244
Segment operating income             $    11,278     $   9,630
Operating income margin                      3.8 %         4.7 %
Restructuring and impairment charges $     1,354     $   1,793

Segment Net Sales

Segment net sales for our commercial printing segment increased $92.9 million, or 45.7%, in the first quarter of 2008, as compared to the first quarter of 2007. This increase was primarily due to the $112.4 million of incremental sales generated by ColorGraphics and Cadmus in 2007, including the impact of sales changes for work transitioned

primarily from two plants that we closed as a result of the ColorGraphics acquisition, with no corresponding amount for ColorGraphics and less than a full quarter of results for Cadmus in the first quarter of 2007. This increase was offset by lower sales resulting from plants we closed in 2007 of approximately $13.9 million and lower pricing and sales volume and product mix, partially offset by higher sales due to paper price increases and foreign currency fluctuations.

Segment Operating Income

Segment operating income for our commercial printing segment increased $1.6 million, or 17.1%, in the first quarter of 2008, as compared to the first quarter of 2007. This increase was primarily due to $7.1 million of operating income generated by ColorGraphics and Cadmus during 2008, with no corresponding amount for ColorGraphics and less than a full quarter of results for Cadmus in 2007, reduced selling, general and administrative expenses of approximately $1.7 million from our cost savings programs, lower amortization expense of $1.1 million and lower restructuring and impairment charges of $0.4 million. These increases were substantially offset by lower gross margins of approximately $8.7 million due in part to higher material costs and plant closures in 2007.

Corporate Expenses. Corporate expenses include the costs of running our corporate headquarters. Corporate expenses were higher in the first quarter of 2008, as compared to the first quarter of 2007, primarily due to the $6.7 million non-recurring charge incurred for professional fees in connection with the internal review conducted by our audit committee. See Notes 2, 3 and 10 to the condensed consolidated financial statements included herein.

Liquidity and Capital Resources

Net Cash Provided by Continuing Operating Activities. Net cash provided by continuing operating activities was $54.4 million in the first three months of 2008, which was primarily due to a decrease in our working capital of $34.6 million and net income adjusted for non-cash items of $22.9 million. The decrease in our working capital primarily resulted from a decrease in receivables primarily due to the timing of collections and the timing of sales to our customers and the timing of interest payments, partially offset by an increase in inventories primarily due to the timing of work performed for our customers.

Net cash used in continuing operating activities was $29.7 million in the first three months of 2007, which was primarily due to net income adjusted for non-cash items of $27.5 million.

Net Cash Provided by Discontinued Operating Activities. Represents the net cash dividends received from the Fund through March 31, 2007.

Net Cash Used in Investing Activities. Net cash used in investing activities was $8.7 million in the first three months of 2008, primarily resulting from capital expenditures of $9.1 million.

Net cash used in investing activities was $260.4 million in the first three months of 2007, primarily resulting from the acquisition cost of Cadmus and Printegra of $329.3 million and capital expenditures of $7.1 million, offset in part by $73.6 million of cash proceeds from the sale of our remaining interest in the Fund.

Net Cash (Used in) Provided by Financing Activities. Net cash used in financing activities was $48.6 million in the first three months of 2008, primarily due the repayment of our revolving credit facility of $45.2 million, our term loans of $1.8 million and $1.8 million of other long-term debt.

Net cash provided by financing activities was $225.9 million in the first quarter of 2007, primarily due to our debt-financed acquisition of Cadmus (see 2007 Debt Amendment and Refinancing below) with proceeds from our term loans of $620.0 million and net borrowings under our revolving credit facility of $29.4 million, offset in part by the repayment of: (i) our term loan B of $324.2 million, (ii) the Cadmus revolving senior bank credit facility of $70.1 million,
(iii) $20.9 million of 8?% Notes and (iv) $7.5 million of payments for refinancing fees, redemption premiums and expenses on the extinguishment of debt and $0.9 million of debt issuance cost payments in connection with our debt refinancing and the issuance of debt.

Long-Term Debt. Our total outstanding long-term debt, including current maturities, was approximately $1.4 billion at March 29, 2008, a decrease of $48.9 million from December 29, 2007. This decrease was primarily due to cash flows provided by operating activities which was used to pay down debt. As of March 29, 2008, approximately 75% of our outstanding debt was subject to fixed interest rates. See the remainder of this Long-Term Debt section below and Note 9 to the condensed consolidated financial statements included herein.

2007 Debt Amendment and Refinancing

On March 7, 2007, in connection with the Cadmus acquisition, we amended and refinanced our $525.0 million senior secured credit facilities, which we refer to as the Credit Facilities. The Credit Facilities, established in September 2006, were comprised of the Revolving Credit Facility, and a $325.0 million seven-year term loan facility, which we refer to as the Term Loan B. The Credit Facilities were amended by increasing the overall borrowing availability from $525.0 million to $925.0 million to create the Amended Credit Facilities, . . .