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 31, 2011, which we refer to as our 2011 Form 10-K. Item 7 of our 2011 Form 10-K describes the application of our critical accounting policies, for which there have been no significant changes as of June 30, 2012.

Forward-Looking Statements

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

Factors that could cause actual results to differ materially from management's expectations include, without limitation: (i) 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 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 in our consolidated profitability or profitability within one of our individual reporting units could result in the impairment of our assets, including goodwill, other long-lived assets and deferred tax 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 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; (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 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 one of the largest diversified printing companies in North America, according to the December 2011 Printing Impressions 400 report. Our broad portfolio of products includes commercial printing, envelope converting, 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 focuses on providing our customers with quality product offerings, improving our cost structure and profitability, and pursuing strategic acquisitions that either expand our current product offerings or allow us to enter into niche businesses that are highly complementary to our current product offering.

We operate our business in two complementary reportable segments: print and envelope and label and packaging.

Print and Envelope. We are one of the leading commercial printers in North America and the largest envelope manufacturer. In August 2011, we added to our print and envelope business with the acquisition of Nesbitt Graphics, Inc., which we refer to as Nesbitt. In February 2011, we added to our print and envelope business with the acquisition of MeadWestvaco Corporation's Envelope Product Group, which we refer to as EPG. Our print and envelope segment represents approximately 75.3% of our net sales for each of the three and six months ended June 30, 2012.

Our print and envelope segment serves customers ranging from Fortune 50 companies to middle market and small companies operating in niche markets. This segment primarily caters to the consumer products, financial services, travel and leisure and telecommunications industries. We offer direct mail products used for customer solicitations and custom envelopes used for billing and remittance by end users including banks, brokerage firms and insurance and credit card companies. We produce

a broad line of specialty and stock envelopes that are sold through wholesalers, distributors, contract stationers, national catalogs for the office product markets and office product superstores. 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 annual reports, car brochures, 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 24.7% of our net sales for each of the three and six months ended June 30, 2012.

Our label and packaging segment serves customers ranging from multinational, national, middle market and small companies serving niche markets and resale customers. We print 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 also provide direct mail and overnight packaging labels, food and beverage labels, and shelf and scale labels for national and regional customer accounts. We also 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, tobacco, 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 and six months ended June 30, 2012 and July 2, 2011 followed by a discussion of the results of operations of each of our reportable segments for the same periods. Our results for the six months ended July 2, 2011 include the operating results of EPG for less than a full six months. Our results for the three and six months ended July 2, 2011 do not include the operating results of Nesbitt.

Market Conditions

The overall printing industry is highly fragmented which creates overcapacity and price sensitivity in many of our businesses. The uncertainty that remains with the current United States and global economic conditions most likely will continue to affect our results of operations and financial position. These uncertainties about future economic conditions in a challenging operating environment make it difficult for us to forecast our future operating results. We believe our efforts to reduce our operating cost structure, which we implemented at the beginning of the economic downturn, allowed us to mitigate significant impacts to our operating performance and to our business over the past two years. Therefore, we continue to pursue additional cost savings opportunities in an effort to mitigate any further potential impact on our operations from the remaining uncertainty surrounding the current economic conditions.

2012 Overview

During the first six months of 2012, our print and envelope operations have focused on completing the integration of EPG into our existing operations, mitigating the decline in direct mail sales due to our financial institution customers decreased demand for customer solicitations and mitigating the decline in our publisher services group revenue due to the decline in the circulation of journals and periodicals. We believe we will complete the integration of EPG into our existing operations by the end of 2012 and our efforts to mitigate sales declines have resulted in sales opportunities that should partly offset the decline in sales volumes attributable to direct mail and journals and periodicals.

During the first six months of 2012, our label and packaging operations have focused on enhancing our e-commerce customer solutions, enhancing our long-run labels business with a focus on prime label capabilities and aligning our operating platform subsequent to the divestiture of two product lines in early 2012. We believe these efforts will provide greater sales opportunities for these businesses and provide focus on our growth business lines.

In addition to the operations focus noted above, we have been focused on our 2013 debt maturity. To date, we have refinanced or paid down approximately 70% of this tranche and, most recently, gained additional flexibility with an amendment of our senior secured credit facility that will significantly reduce our excess cash flow sweep requirement due in early 2013. This amendment will allow us to use our cash flow generation for the next twelve months towards ensuring we repay the remaining

$98.5 million. We began the year with a planned approach to eliminate this debt maturity and, to date, we have executed certain steps within that plan. For further discussion related our capital structure and activities taken in 2012 to address our 2013 debt maturity, see the long-term debt section below.

Discontinued Operations
In 2011, we began exploring our opportunities to divest certain non-strategic or underperforming businesses within our manufacturing platform. As a result, in the fourth quarter of 2011, the financial results of our documents and forms business as well as our wide-format papers business were accounted for as discontinued operations, which we refer to collectively as the Discontinued Operations, resulting in our historical consolidated balance sheets, statement of operations and comprehensive income (loss) and statement of cash flows being reclassified to reflect these discontinued operations separately from our continuing operations.

In February of 2012, we completed the sale of our documents and forms business, which we refer to as the Documents Group, for cash proceeds of $40.0 million, of which $4.0 million will remain in escrow for a certain period of time subject to terms of the sale agreement. In January of 2012, we completed the sale of our wide-format papers business and received proceeds of $4.7 million.

Reportable Segments

In the first quarter of 2012, we realigned our reportable segments as a result of the sale of the Discontinued Operations combined with the realignment of management responsibilities and strategy. Previously, we reported our segments as envelopes, forms and labels and commercial printing. Beginning January 1, 2012, we realigned our segments into two complementary reportable segments: the print and envelope segment and the label and packaging segment.

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. Our reporting periods for the three and six month periods ended June 30, 2012 and July 2, 2011 each consisted of 13 weeks and 26 weeks, respectively.

                                                   Three Months Ended                    Six Months Ended
                                            June 30, 2012      July 2, 2011      June 30, 2012      July 2, 2011
                                                 (in thousands, except                (in thousands, except
                                                   per share amounts)                   per share amounts)
Net sales                                  $      438,907     $     469,899     $      894,490     $     946,870
Operating income:
Print and envelope                         $       24,454     $      25,065     $       34,075     $      45,374
Label and packaging                                12,668            12,804             24,871            23,292
Corporate                                          (8,149 )         (11,607 )          (15,734 )         (23,129 )
Total operating income                             28,973            26,262             43,212            45,537
Gain on bargain purchase                                -              (540 )                -           (11,079 )
Interest expense, net                              28,796            29,412             56,648            59,629
Loss on early extinguishment of debt,
net                                                   785                 -             11,414                 -
Other (income) expense, net                        (1,116 )             148               (818 )             337
Income (loss) from continuing operations
before income taxes                                   508            (2,758 )          (24,032 )          (3,350 )
Income tax expense (benefit)                          470            (1,206 )           (1,486 )          (2,811 )
Income (loss) income from continuing
operations                                             38            (1,552 )          (22,546 )            (539 )
(Loss) income from discontinued
operations, net of taxes                             (439 )           1,926             (5,073 )           3,697
Net (loss) income                          $         (401 )   $         374     $      (27,619 )   $       3,158
Income (loss) per share-basic and
diluted:
Continuing operations                      $            -     $       (0.02 )   $        (0.36 )   $       (0.01 )
Discontinued operations                             (0.01 )            0.03              (0.08 )            0.06
Net (loss) income                          $        (0.01 )   $        0.01     $        (0.44 )   $        0.05

Net Sales

Net sales decreased $31.0 million, or 6.6%, in the second quarter of 2012, as compared to the second quarter of 2011, primarily due to lower sales from our print and envelope segment of $29.7 million. See Segment Operations below for a detailed discussion of the primary factors affecting the change in our net sales by reportable segment.

Net sales decreased $52.4 million, or 5.5%, in the first six months of 2012, as compared to the first six months of 2011, due to lower sales from our print and envelope segment of $50.2 million and our label and packaging segment of $2.2 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 $2.7 million, or 10.3%, in the second quarter of 2012, as compared to the second quarter of 2011. This increase was primarily due to lower corporate expenses of $3.5 million, partially offset by decreases from our print and envelope segment of $0.6 million. See Segment Operations below for a more detailed discussion of the primary factors for the changes in operating income by reportable segment.

Operating income decreased $2.3 million, or 5.1%, in the first six months of 2012, as compared to the first six months of 2011. This decrease was primarily due to decreases from our print and envelope segment of $11.3 million, partially offset by lower corporate expenses of $7.4 million and increases in operating income from our label and packaging segment of $1.6 million. See Segment Operations below for a more detailed discussion of the primary factors for the changes in operating income by reportable segment.

Gain on Bargain Purchase

During the second quarter and first six months of 2011, in connection with the acquisition of EPG, we recognized a preliminary bargain purchase gain of approximately $0.5 million and $11.1 million, respectively.

Interest Expense

Interest expense decreased $0.6 million to $28.8 million in the second quarter of 2012, as compared to $29.4 million in the second quarter of 2011. The decrease is primarily due to the lower average outstanding debt balances primarily as a result of debt repayments using cash flow from operations offset in part by an increase in interest expense due to our refinancing activities in 2012. Interest expense in the second quarter of 2012 reflected average outstanding debt of approximately $1.3 billion and a weighted average interest rate of 8.2%, as compared to average outstanding debt of $1.4 billion and a weighted average interest rate of 7.9% in the second quarter of 2011. We expect higher interest expense in 2012, as compared to 2011, largely due to our 2012 refinancing activities.

Interest expense decreased $3.0 million to $56.6 million in the first six months of 2012, as compared to $59.6 million in the first six months of 2011. The decrease is primarily due to (i) the lower average outstanding debt balances primarily as a result of debt repayments using cash flow from operations and the proceeds from the sale of the Discontinued Operations, and (ii) lower weighted average interest rates primarily from the expiration of higher cost interest rate swaps in the first six months of 2011. The decrease was offset in part by higher interest expense as a result of our refinancing activities in 2012. Interest expense in the first six months of 2012 reflected average outstanding debt of approximately $1.3 billion and a weighted average interest rate of 8.1%, as compared to average outstanding debt of $1.4 billion and a weighted average interest rate of 8.0% in the first six months of 2011.

Loss on Early Extinguishment of Debt

During the second quarter of 2012, in connection with refinancing activities, we incurred a loss on early extinguishment of debt of $1.1 million, of which $0.9 million relates to tender and consent fees paid to consenting lenders and $0.2 million relates to the write-off of previously unamortized debt issuance costs. The loss on early extinguishment is partially offset by the gains on early extinguishment of debt of $0.3 million related to the repurchase of $50.0 million of our 7.875% senior subordinated notes due 2013, which we refer to as the 7.875% Notes, plus accrued and unpaid interest thereon.

During the first six months of 2012, in connection with refinancing activities, we incurred a loss on early extinguishment of debt of $13.8 million, of which $10.7 million relates to tender and consent fees paid to consenting lenders, $3.3 million relates

to the write-off of previously unamortized debt issuance costs. The loss on early extinguishment is partially offset by the gains on early extinguishment of debt of $2.4 million related to the repurchase of $182.3 million of our 7.875% Notes, $170.0 million of our 10.5% senior notes due 2016, which we refer to as the 10.5% Notes, and $25.4 million of our 8.375% senior subordinated notes due 2014, which we refer to as the 8.375% Notes plus accrued and unpaid interest thereon.

Income Taxes

                                                Three Months Ended                   Six Months Ended
                                         June 30, 2012      July 2, 2011     June 30, 2012     July 2, 2011
                                                 (in thousands)                      (in thousands)
Income tax expense (benefit) from
U.S. operations                         $        204       $     (1,693 )   $      (1,919 )   $     (3,987 )
Income tax expense from foreign
operations                                       266                487               433            1,176
Income tax expense (benefit)            $        470       $     (1,206 )   $      (1,486 )   $     (2,811 )
Effective income tax rate                       92.5 %             43.7 %             6.2 %           83.9 %

In the second quarter of 2012, we had an income tax expense of $0.5 million, compared to an income tax benefit of $1.2 million in the second quarter of 2011. The tax expense for the second quarter of 2012 and the income tax benefit for the second quarter of 2011, primarily related to income taxes on our domestic operations. Our effective tax rate in the second quarter of 2012 was higher than the federal statutory rate, primarily due to non-deductible expenses and state income taxes. Our effective tax rate in the quarter ended July 2, 2011 was higher than the federal statutory rate, primarily due to non-deductible expenses and state income taxes.

In the first six months of 2012, we had an income tax benefit of $1.5 million, compared to an income tax benefit of $2.8 million in the first six months of 2011. The tax benefit for both periods primarily related to income tax benefits from taxes on our domestic operations. Our effective tax rate in the first six months of 2012 was lower than the federal statutory rate, primarily due to non-deductible expenses and state income taxes. The income tax benefit for the first six months of 2011 was substantially offset by income tax expense of $4.3 million related to our bargain purchase gain in connection with the acquisition of EPG. Our effective tax rate in the six months ended July 2, 2011 was higher than the federal statutory rate, primarily due to non-deductible expenses and state income taxes.

We assess the recoverability of our deferred tax assets and, to the extent recoverability does not satisfy the "more likely than not" recognition criteria, record a valuation allowance against our deferred tax assets. We consider all positive and negative evidence in evaluating our ability to realize our net deferred tax assets, including our operating results, ongoing tax planning, and forecast of future taxable income, on a jurisdiction by jurisdiction basis. Significant judgment is required with respect to the determination of whether or not a valuation allowance is required for certain of our deferred tax assets. As of June 30, 2012, the total valuation allowance on our net U.S. deferred tax assets was approximately $21.5 million.

(Loss) Income from Discontinued Operations, net of taxes
(Loss) income from discontinued operations represents the results of operations, including tax effects of our Discontinued Operations. The results for the second quarter of 2012 include the loss on sale of our Discontinued Operations of $0.3 million, net of a tax benefit of $0.2 million. Loss from discontinued operations of $0.2 million, net of a tax benefit of $0.1 million for the second quarter of 2012. The results for the first six months of 2012 include the loss on sale of our Discontinued Operations of $5.3 million, net of a tax benefit of $3.4 million. Income from discontinued operations of $0.3 million, net of taxes of $0.2 million for the first six months of 2012, include the reduction of a liability of $1.8 million, net of tax expense of $1.2 million, due to the expiration of certain statutes of limitations related to a previous divestiture.

Segment Operations

Our Chief Executive Officer monitors the performance of the ongoing operations of our two reportable segments. We assess performance based on net sales and operating income.

Print and Envelope

                                                      Three Months Ended                    Six Months Ended
                                               June 30, 2012      July 2, 2011      June 30, 2012      July 2, 2011
                                                         (in thousands)                       (in thousands)
Segment net sales                             $      330,467     $     360,136     $      673,320     $     723,545
Segment operating income                      $       24,454     $      25,065     $       34,075     $      45,374
Operating income margin                                  7.4 %             7.0 %              5.1 %             6.3 %
Restructuring, impairment and other charges   $        4,271     $       5,164     $       17,757     $       8,331

Segment Net Sales

Segment net sales for our print and envelope segment decreased $29.7 million, or 8.2%, in the second quarter of 2012, as compared to the second quarter of 2011. Net sales for our envelope operations decreased $17.4 million primarily due to:
(i) lower sales volumes from our direct mail customers, primarily financial institutions, related to lower demand for customer solicitations and (ii) lower sales volumes from our office product and our journals and periodical customers due to our decision to exit lower margin business. These decreases in our envelope net sales were offset slightly by higher sales due to our ability to pass along material price increases to our customers. Net sales for our commercial printing operations declined $12.3 million, primarily due to: (i) lower sales volumes due to the closure and consolidation of a print plant into our existing operations and continued declines in the circulation of journals and periodicals, and (ii) lower sales due to price pressures that continue to exist within the print industry.

Segment net sales for our print and envelope segment decreased $50.2 million, or 6.9%, in the first six months of 2012, as compared to the first six months of 2011. Net sales for our commercial printing operations declined $34.1 million, primarily due to: (i) lower sales volumes due to the closure and consolidation of a print plant into our existing operations, customer product launches that occurred in the first six months of 2011, but did not repeat in the first six months of 2012 and continued declines in the circulation of journals and periodicals, and (ii) lower sales due to price pressures that continue to exist within the print industry. Net sales of our envelope operations decreased $16.1 million primarily due to: (i) lower sales volumes from our direct mail . . .