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Executives

[Robert G. Burton, Jr.] – Investor Relations

Robert G. Burton, Sr. – Chairman of the Board & Chief Executive Officer

Mark S. Hiltwein – Chief Financial Officer

Analysts

Charles Strauzer – CJS Securities

Jamie Clement – Sidoti & Company

Cenveo, Inc. (CVO) Q4 2008 Earnings Call March 17, 2009 10:00 AM ET

Operator

Welcome to Cenveo’s 2008 fourth quarter and year end results conference call. Today’s host will be Mr. Robert G. Burton, Chairman and CEO of Cenveo. This call is scheduled to last approximately one hour. Mr. Burton will speak and then the call will open up for a question and answer session. I will now turn the call over to Cenveo.

[Robert G. Burton, Jr.]

Good morning, this is Rob Burton. Welcome to Cenveo’s 2008 fourth quarter and yearend conference call. Today’s call will be hosted by Robert G. Burton, the company’s Chairman and Chief Executive Officer and other members of the senior management team. Before I turn the call over to Mr. Burton I’d like to remind everyone that certain materials covered on today’s call are considered forward-looking and are covered under the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995.

Also, any forward-looking estimates given on today’s call will exclude any affects of restructuring, impairments and other related acquisition charges. For further details regarding these factors, please reference pages 10 and 11 of the company’s press release that was issued last night. With that, I’d like to turn the call over to Mr. Burton.

Robert G. Burton, Sr.

This is Bob Burton speaking and it has been my privilege to be your senior manager at Cenveo for the past 43 months. Today I’d like to open and to remind all of you that we are all sort of player coach when it comes to Cenveo stock and to start our presentation I wanted to list 10 reasons to support that statement and why we think we’re different than our competition when it comes to stock ownership and making the right business decisions.

Number one, just to remind you that Burton Capital now owes 11% of all outstanding shares along with about $10 million of Cenveo bonds. Number two, the six million shares that we own rank us number two. Number two on the list when it lists all the corporations and LLCs but number one when it lists only the private ownership.

Number three, we spend and I know it doesn’t sound like a lot of money but we spend $20,000 each month buying Cenveo stock through our ESPP and our 401k plan and that’s about $240,000 per month that we do automatically that we really don’t talk about and we’ve been doing that ever since we’ve been here.

Number four, we purchase Cenveo stock in the open windows that we’re allowed to with our legal counsel. Number five, our objective is to be the largest shareholder of Cenveo stock and I don’t know if that’s going to happen this year but it definitely will happen next year or sooner. Number six, to remind you that we haven’t sold one share of Cenveo stock since we started buying the stuck in 2005.

Number seven, we have seen the stock as low as $1.60 and as high as $26 and we have continued to buy in both the high or the low periods for the stock. Number eight, we have felt the pain and we have felt the pain at $26 per share, our stock as we own would have been worth $150 million and it’s sure not worth $150 million today.

Number nine, you can look far and wide and never, ever find a management team that is more focused and committed as we are here at Cenveo to increase that stock price. We fully realize that there’s no silver bullet to get that done but it’s my number one priority and I say this almost every time we talk to make Cenveo a successful investment for every investor that we have. I fully realize that my personal reputation is riding on the success of Cenveo and I remind our staff every day that we are only as good as our last company’s results and our results have been impeccable every place that we’ve been and we plan to make that record continue to be very successful.

We have footballs that people remind me all over our offices and I’ve sent some of you about the sayings that we have about our commitment and our focus but I’d just like to spend a couple of minutes talking about the record results you have received in our press release and I don’t really know of any smaller or large printer this past year who had record results for 2008. We were able to achieve these record results for a lot of reasons but I sort of listed four of them that I thought you’d be interested in.

The number one is the business platform that we have that I continue to talk about, about the mix of this business platform that I’m going to spend a lot of time this morning on and explaining why that is a good decision and why our mix is well suited for this kind of environment. Number two, we were successful this past year because we started our cost reduction early in the first quarter and we really don’t put out a lot of press releases about our cost reductions because it’s just not good for the competition but this past year we took out over $70 million worth of costs in the company.

Number three, we never, never gave up on the year. We had a budget and that’s what we focused on and that’s what we were measured on and we continued to use that as the guiding light on what we wanted to achieve. Last but not least, item four, the quality of our management leadership and specifically our four senior operating presidents out in the field of [Harry Vincent], Dean Cherry, Joe Cortes and [Kathy Childs].

Just to remind you and we talk about how long people have been with us, [Harry Vincent] and I started working together in 1991 at World Color and Dean Cherry started working with me in 1982, that’s probably younger, some of you weren’t even born then but Dean started to work with me at ABC before he came to World Color and Joe and [Kathy] have joined us at Moore and here at Cenveo. So, we have and I said it constantly, we have a management team that’s been around and we have a management team that’s been proven successful time and time again.

So, even though Mark is going to touch upon some of these in more detail and it’s listed in your press release, I want to touch upon the highlight record results of 2008. Very quickly, we talk about EBITDA, we ended up the year at $280 million versus $256 last year, record performance, EPS $1.63 this year versus $1.35 last year, a record performance. $141 million of record free cash flow for [1980] and record margins, some of you talk constantly about revenues and what that really means, revenues is not the answer, the answer is margins and how much profits you actually generate from your business and we were able to deliver record margins for this company.

If you remember, just like yesterday when we took over this company and this company had margins of 2.5% but we ended up the year at 13.3% EBITDA margin and 9.8% EBIT margin. Last but not least, we paid down $140 million of debt last year. $140 million of debt this past year while at the same time growing the company through strategic investments and cap ex and a couple of small little deals.

2008 was a terrific year for this company and a year when most companies just feel to the wayside because of the difficult economy and the clouds that we saw early on in the first quarter and were able to weather that whole storm throughout the year and really has prepared us better to face 2009. So, 2008 is gone bye-bye, no more, great things, now we’ve got to focus on reality of how we have another record year in 2009.

After our CFO Mark Hiltwein reviews our fourth quarter and full year results for 2008 and that’s the same format we use and normally our meetings take one hour, I’m going to come back and cover four business items and after that we will open up the call for Q&A for our hourly meeting. But, I want you to know what I’m going to be discussing later on because I want you to stay on this call and not leave us because it’s very important.

I plan to discuss the following items: number one, and this is a long statement, it says why you should hold and buy Cenveo stock now and how we become the printing survivor after the 2009/2010 mini recession/depression. I’ll say that again, why you should hold and buy Cenveo stock now and we become the printing survivor after the 2009/2010 mini recession/depression. Number two, I want to talk about acquisitions, there’s some opportunities that are outstanding and there are some things that are happening out in the marketplace that I will explain and there’s some opportunities for us to do some stuff now.

Number three, I want to touch upon the step down in the second quarter. It was touched up on in the press release and I want to talk a little bit about that. Item four, I want to talk about 2009 guidance and how this year could end up. So, we’ve got a lot to discuss today so I’m going to now ask Mark Hiltwein who’s doing a terrific job for us as CFO to review our fourth quarter and full year 2008 results.

Mark S. Hiltwein

Today I’ll be covering the following topics: first, I will provide some financial highlights from 2008 including an overview of the business and industry environment as well as a segment overview; the second item is a review of the financial statements including some detail on the goodwill impairment charge; then, I’ll provide some key balance sheet and cash flow items; and lastly, I’ll present some detail on our capital structure including the potential amendment that we discussed in the press release.

The company posted record EBITDA for the full year of $280.3 million and free cash flow for the year of $147.2 million. This cash generation enabled us to reduce our debt balance by $138.3 million for the year. We generated $209.8 million of net cash from continuing operating activities driven by operational performance as well as improvements in working capital and in particular accounts receivable.

We will continue to focus on working capital and specifically inventory reduction as we progress through 2009. We are pleased with our results for the year especially during a period where we saw significant headwinds in our business. Volume declines resulted because of a more recent downturn in the economic conditions as well as price pressures caused by increases in raw material and energy costs throughout the year.

We realized early in 2008 that we were going to be experiencing a challenge economic environment and took aggressive cost actions to mitigate exposure from revenue declines. The difficult year has caused significant stress in our industry and the over capacity that has impacted us for years is forcing many companies out of business. The commercial print market has seen the most activity, in this past month a large player in the west region was forced to close their doors for good. We were fortunate enough to recruit a number of their talented sales people that are making positive contributions for us.

This trend will continue to occur and will most likely accelerate this year as the business environment continues to be very challenging. Few companies in the industries have revenues in excess of $1 billion. The majority of commercial printers are small and mid size businesses with one plant and annual revenues under $5 million. Despite the consolidation and attrition that has occurred in the industry, the industry is still highly fragmented. The top 500 companies hold only approximately 30% of the market.

Unfortunately, in the short term we’re seeing an extremely competitive pricing situation. The companies that don’t cut costs and rationalize their operational platform will not be able to withstand the pressure that the industry is experiencing.

Moving on to a review of our product lines, the envelope group continues to be impacted by the lack of direct mail business. We believe that we have taken our share of work from our competitors for custom envelopes related to billing and remittance by end users by volume declines have impacted the business. Because we believe the environment will continue to be challenging throughout 2009 we have developed and we are executing appropriate cost reduction actions in the envelope segment. This will include consolidation of our operational footprint by reducing the number of production facilities.

The commercial print business continues to be tough with sales visibility at an all time low. Demand depends largely on the advertising and product needs of business customers and is most acceptable to declines in GDP. Again, as we forecast a challenging environment we are taking appropriate cost reduction actions in the commercial print business.

Our journal and periodical business has held up well throughout the year and we are currently in the middle of a restructuring program to streamline the manufacturing footprint to increase efficiency throughout the group. The visibility in this business remains good from an order perspective but the number of pages and colors requested by our customers is a variable to us.

Our custom resale group continues to be strong from a margin standpoint. Our prescription drug label business continues to grow and perform nicely and the cost savings initiatives that we have taken throughout the product segment have led to a strong and stable return in all areas of our label and document business.

Next, I’d like to provide a summary of our financial statements, sales for the year were $2.099 billion versus $2.047 billion in 2007, an increase of $52 million or 2.5%. This is a result of our acquisition of Rex during this year and the full year impact of our acquisitions from 2007 offset volume declines, pricing pressure and changes in product mix due to the economic environment.

As highlighted in our press release our GAAP loss from continuing operations was $297 million or a loss of $5.51 per diluted share. This loss was driven by a non-cash impairment charge of $372.8 million which was the result of our annual impairment test of goodwill for financial reporting purposes. Due to the recent difficult economic conditions and sharp declines in the capital markets including the significant impact on the equity values of public companies, many entities have had to access the recovery of their goodwill and many have taken goodwill impairment charges in 2008.

Assessing the potential impairment of goodwill is a point in time evaluation that is passed on fair value estimates. The test is required annually or whenever events and changes in circumstances indicate that an interim assessment is necessary. Our annual goodwill testing date is the beginning of December, a date in 2008 which our stock was at one of its lowest points.

Our non-GAAP income from continuing operations for the year was $88.1 million or $1.63 per diluted share. The significant difference is between our GAAP and non-GAAP net income from continuing operations for the year can be summarized by the following: restructuring, impairment and other charges of $399.1 million, the majority of this charge relates to the non-cash goodwill impairment charge I just discussed; $18.1 million relating to non-cash stock based compensation; a gain on the early extinguishment of debt of $14.6 million of which I will discuss in more details in the capital structure update; integration, acquisition and other charges of $12 million; and a tax expense which was adjusted by $29.5 million to reflect the company’s estimated cash tax rate of approximately 11%.

Cash restructuring for the year was approximately $20.4 million. On a consolidated basis our non-GAAP operating income for the year was $205.6 million, an increase of 1.8% over prior year. Our interest expense increased $15.8 million from $91.5 million to $107.3 million for the year ended 2008. The increase was primarily due to the additional debt incurred with connection to our 2007 acquisitions as well as Rex Corp in 2008 partially offset by lower interest rates.

Interest expense for the year reflects average outstanding debt of approximately $1.4 billion and a weighted average interest rate of 7.2% compared to an average outstanding debt of approximately $1.2 billion and a weighted average interest rate of7.5% in 2007.

For the quarter, sales were $517.2 million compared to $584.4 million in 2007, a difference of $67.2 million or approximately 11%. Our non-GAAP income from continuing operations for the fourth quarter was $26 million or $0.48 per diluted share. The significant differences between our GAAP and non-GAAP income from continuing operations for the quarter are as follows: restructuring, impairment and other charges of $377 million; $5.2 million relates to the non-cash stock-based compensation; a gain on the early extinguishment of debt of $18.5 million; integration, acquisition and other charges of $4.2 million; and tax expense which was adjusted by $32.2 million to reflect the company’s estimated cash tax rate of approximately 11%.

On a consolidated basis, our non-GAAP operating income for the quarter was $55.5 million. Our interest expense decreased by $1 million from $28.4 million to $27.4 million for the quarter ended. Interest expense in the fourth quarter reflects average outstanding debt of approximately $1.389 billion and a weighted average interest rate of 7.3% compared to average outstanding debt of approximately $1.465 billion and a weighted average interest rate of 7.5% in the fourth quarter of 2007.

Key balance sheet and cash flow items include the following: cash balance of $10.4 million at year end compared to $15.9 million at December 31, 2007; total debt of $1,306,000,000 versus $1,044,000,000 at December 31, 2007, a reduction of $138 million. Capital expenditures for the quarter were $11.5 million and $31 million for the full year net of proceeds of $18.3 million. Cash interest for the quarter was $30 million and $100.5 million for the full year. Cash taxes for the quarter was $577,000 and $1.6 million for the year. Our net operating loss carry forwards now stand at approximately $160 million and we project that we will exhaust these NOLs in 2011.

Lastly, I would like to discuss our capital structure. In the fourth quarter of 2008 we made open market debt repurchases of $48.5 million or approximately $30 million in cash and recognized a gain on early extinguishment of debt of $18.5 million and this equates to an average price of $62. We estimate that these repurchases will generate nearly $2 million of annual interest expense savings. We have continued this prudent use of our cash in 2009 with additional open market repurchases.

After taking in to account the purchases in 2008 our debt balances and maturities at yearend are as follows. Our $200 million revolving credit facility which matures June, 2012, that balance was outstanding at December, 2008 was $8 million. The $707.9 million term loans which matured June, 2013, more than four year from today the 7 7/8ths senior sub notes which had a balance of $303.4 million at year end mature December, 2013 and the [8.3] senior sub notes which had a balance of $73.6 million at yearend mature June, 2015. Finally, the $175 million 10.5 senior unsecured notes mature August, 2016.

We are in compliance with all of our debt covenants and we ended 2008 with a reasonable level of debt covenant cushion. We have contingency plans that show the company maintaining levels to meet its covenant compliance going forward but given the unprecedented uncertainty in the financial markets coupled with limited sales visibility we have decided that exploring an amendment to our credit agreement is a prudent course of action.

We are currently in discussion with our lead bank about modifying the terms of the credit facility to give us some flexibility during this period of unprecedented economic uncertainty and volatility. Subsequent to 2007, our credit agreement requires us to deduct cash restructuring charges form our reported EBITDA. Because we believe that we are going to perform a considerable amount of production consolidation and cost savings initiatives due to the weakening economic environment, we would be negatively impacted at a time when we needed to take definitive cost reduction actions.

The cost actions that we are taking are necessary for us to keep the company financially healthy and emerge as one of the survivors of the economic turmoil. Unfortunately, the way our credit agreement is currently worded, it penalizes us for taking these actions. If we had the ability to take such actions then we are confident an amendment would likely not be necessary.

With that I’d like to turn the call back over to Bob.

Robert G. Burton, Sr.

A follow up comment on this $372 million goodwill impairment charge there is no way in the world that I view that as the value of this company being less than when we started and down $372 million. The date that was chosen I guess was December 1 when our stock price was pretty close to the bottom which hurt us dramatically. But, more importantly, really I look at our business as a series of orders that sometimes we win, most of the time we do, and sometimes we lose them. But, there are orders that we have.

The business really hasn’t been harmed going forward. There are a lot of businesses that I’ve been in, for example, the long run magazine business is not longer what it use to be. If you look at the envelope business and you look at the commercial business, those businesses are what they are and they’re going to continue to exist. The only thing that has happened is because of the economic situation corporations have delayed spending because they want their balance sheets to look as good as possible.

I just view this, I know it’s not cash and a lot of companies do it but I really don’t sleep well at night when I see these kinds of numbers bouncing around. I wanted to let you know that we look at every penny no matter how and what the structure is and I fully understand that you have to do it and what the format is but at least I want to make that comment.

So, that’s it on the update on the financials now, I’m going to take you through the four business items that I mentioned earlier and I’d really like to please ask you to stay at the end, especially because the guidance is going to be very detailed, a lot of information and especially this item one which I’m sure a lot of you really haven’t thought about. But, I talked about item one and why we think we’re going to be the survivor after period of time we’re in, the recession or depression.

But, most of you have not thought about Cenveo having large or small competitors or, if our competition is public or private because you just think we have a bunch of competitors that compete with us. But, in building our business platform early on after we initially looked at Cenveo and then our acquisition strategy, we sought out areas where most of our competitors were small, small and private. The reason why is because I spent most of my time with the large and public companies and it’s a different kind of environment.

We also look for competition who did not have good cost cutting skills and weak margins. I just didn’t want to spend another 10 years fighting the Donnelly’s and the [Quibacores] and the World Colors and the Quad’s and the Banta and Brown in a down environment because that is really something that can be stressful and not be as successful. So, the majority of our competitors today, there are a couple of exceptions, are private and they’re smaller companies that have to rely upon their own cash flow to survive.

What that really means is because in these difficult times companies do not have the same kind of cash flow that they would have in good times and we have seen several of these smaller private kind of firms go in to bankruptcy or just close their doors and never have been heard from again. Many of these competitors must now pay cash up front for their paper and other major supplies to run their business. Several of these companies have reached out to us to sell or merge their companies with ours and in most cases we have declined because we know it’s just a matter of time because they’re going to go out of business because of what’s happening in the environment.

There is no way that these companies can make their capital expenditures and invest in the upkeep of their business in this type of business environment that we’re in today. So, net/net these smaller private companies really what they’ve done is they’ve cut their price in the difficult marketplace in 2008 and I’ve seen this for the last 20 years. It’s a strategy that a lot of people just sort of all in to of cutting price and fill up the presses and if we run the presses we’re going to be okay.

But, once these smaller private competitors have cut their price below being profitable and they start getting their first quarter P&Ls they fully realize their not making any money and they don’t have cash flow. This mini depression that we’re in will give us fewer competitors with profitable pricing going in to 2009 and Cenveo is going to be the major benefactor of this problem because the printing industry is going to get smaller and these firms are just not going to be around.

If you go back and look at the size of the industry and what it was 10 years ago and five years ago and today, you’re seeing that we have too many printers and people out there trying to make a living in an industry that’s very challenging. So, item one is really something that you ought to keep in mind with us, who our competitors are and those individuals are predominately private versus public and they’re smaller versus larger.

Item two to talk about acquisitions, and I have a note here acquisitions now, all of you know that we spent this past year with our primary objective for 2008 was to pay down debt and we were successful in that and we talked to you that we’ve been able to make some major progress in that area. But, I stated earlier that several smaller companies came to meet with us to discuss a sale or a merger and there were more than two. We also had others that we had looked at ourselves in the past that really had no interest but all at once became very friendly with us and wanted to have some interest and some of those companies have changed their mind and wanted to talk to us.

So, we’ve been looking at two to three very seriously during this period of time and trying to figure out how to put these companies together so we would be able to leverage Cenveo. Plus, we think these companies are really and outstanding fit to our business platform and normally in this kind of environment we’d pass and say we’re going to continue to focus on paying down debt but I think there are some opportunities here that will look terrific as part of our platform and help us look a lot better financially and I just want to make you aware and I’ve kept you appraised on all these calls about our acquisition strategy.

We are the best in this business of acquiring companies and getting cost out and looking at multiples. We’ve done 63 of these deals, I personally have and they’ve all been accretive. We think there’s a good possibility we could do some of these other deals with our current cash that we have available and to make these deals accretive, so I just wanted you to be aware that we’re keeping you apprised of what we’re looking at to continue to grow the business and get out of this stall that the whole industry seems to be in.

Item three, the step down on the bank amendment, it sounds like we all looked at the same wording in the press release but mine’s a little different. I was recently talking to an investor about our second quarter step down and realized that the person really didn’t understand our bank agreement. The person thought we were going in to a chapter 11 and that if we missed the second quarter step down we would have major issues and I explained that if we had a problem that we would work out some kind of amendment with our bank group and the person seemed a little bit surprised when I told her that.

But, I’ve been saying all along that we could achieve our step down goal and I still feel that we can. But, with the uncertainty that’s happening out there in the marketplace of soft revenues in this mini depression environment, we’ve just come to the conclusion, why take a risk. I know that most of you want this potential risk to go away and we all feel it’s been a major negative for not buying the stock and I’ve been told that a million times and it’s hurt the stock price dramatically and no one needs to remind you that we’ve been in full compliance as a company and we’re going to continue to do that with all our debt covenants but our projections indicate as we look out there that we’re going to be okay.

But, when you look at it and with a lot of deliberation we’ve decided that amending our credit agreement is a prudent course of action and we’re currently in discussions with our lead bank about potentially modifying the terms of our credit facility to give the company some flexibility during this unprecedented economic uncertainty and volatility. I’m telling you, I’ve been there, a long time ago when I was at World Color when I arrived there we had about at least 10 potential covenant violations and I worked through that and I said those things are something you don’t want to be around.

We have focused on those constantly but sometimes when the environment gets the way it is and the uncertainty it’s better to take action that makes everyone feel comfortable and that’s what we’re in the process of doing and making the right decision for the company.

Item four, the 2009 guidance. As you know, and I repeat this, I’ve never had a down year in my entire business career, that’s never. That’s a true statement. We started this year in 2009 as we do all the years, expecting to deliver another record year’s performance. No matter how bad the economy is, I have felt and we have talked constantly with our management team that no matter how bad the business environment is, we can figure out a way to do it because that’s our job. Our job is to deliver growth results, not sit around and whine about how bad the business market is.

Many of you thought in 2008 we were going to have a down year because we had a soft first quarter in 2008 and I keep saying this and I know it’s hard because you have a lot of businesses that you look at but the first quarter is a very unique kind of quarter. It’s not similar to a runoff from the fourth quarter because the fourth quarter you’re having supposedly good holiday seasons that run over in to the first, you don’t. The first quarter is a decision when everybody sort of draws back.

If you look at your own personal situation, most people sort of look at everything they spent in the past and they start reducing what they spent and that’s what we have seen time and time again. Many of you really call me a lot of bad names because I told you how difficult it was to forecast the first quarter and you didn’t believe me but it is because what happens, we really find a lot of people really sit on orders and their PA’s are really holding those orders until they get a better feel for what the environment is going to be.

But, we have always kept on fighting and as in this past year, in 2008 to remind you, we never changed our original budget, never changed our original budget and took some major costs out of the business and delivered the record results that I spoke about earlier and that’s the $70 million worth of costs that we took out. A lot of our competitors and a lot of manufacturing people revised their number and then the next time when you’re looking at the revision of the number that’s the revision of another number you just don’t know where you’re at. But, we haven’t done that.

We have basically tried to call them specifically where we’re at and I’ve been doing this for a long, long time. So, when I look at 2009, this is going to be a really difficult kind of year. The majority of our business Mark touched upon is feeling the general downturn from 2008 in to 2009 and more importantly, the direct mail business is still soft. The direct mail business or mail business in general is down dramatically from prior year and we really don’t expect any solid orders on business from the direct mail, on business that we’ve already won.

We’ve already won these accounts and we’re just waiting for the company to make a decision to release the accounts so we can start printing some of that direct mail. But, we have seen that there’s delays and we really don’t see much of that direct mail coming in until the second quarter. I really think our first quarter is going to be like the prior year. It’s going to be sort of just easing in but it’s going to be down versus what we had in the past and you’re going to continue to see these purchasing agents at these large companies holding orders and having CEOs that need to approve all the major spending accounts before they actually go out.

Cenveo is one of the few companies in the printing and manufacturing industry that have given guidance that people can understand. Some give no quarterly guidance that I talked about earlier and we feel that really we’re one of the best forecasters in the business but today it’s really difficult to give you for a firm number because of the visibility. So, today I’m going to do something very unique and the more I think about it, it’s probably a smart thing I should have been doing all along.

Today I am going to give you three assumptions and not just three numbers. A lot of people will give you an estimate and they’ll have the low and the high of the range and sometimes you know that’s about 70 miles and I’m not going to do that. I’m going to talk to you about three assumptions on where we think we’re going to be at and how we’re going to get to those assumptions.

What I’m going to do is sort of walk you through this three assumptions that I’ve laid out here and there’s about a window of range of $33 million in between these assumptions but don’t look at it that way. Look at it as there assumptions where we start this year and how we progress through the year and once I explain it to you, you’ll understand. But, we are going to operate our company on the most conservative kind of number and once I talk to you and explain it to you, you’ll understand what I’m talking about.

So, those of you who have a piece of paper I want you to sort of follow with me that there are three guidance levels that I’m talking about. Guidance A, is a $250 level and guidance B, that’s going from left to right, that’s the $265 level and guidance C is back to our record performance $280 plus kind of level. Now, when you look at guidance A $250, here are the basic assumptions that we have used on saying A, here’s where $250 will happen or won’t happen. Number one, $250 would assume that we’re going to be down in the first quarter, it would assume that the second quarter is going to continue to trend the same way, it assumes that there are no acquisitions, no small or large acquisitions and it also assumes that there’s little to no direct mail in the second half and it also assumes that we have implemented, which we have by the way an additional $25 million cost reduction plan and dependent on how much we fully implement.

We haven’t identified, we started the implementation on how much we realize is going to be dependent upon what happens to revenues and sales. So, $250 is really what we sort of look at what we see right now as the first quarter being down and that’s all we really know and second quarter down, no acquisitions, little direct mail in the second half and the $25 million cost reduction.

Now, if you look at our second number, the $265 million, our assumption is again that the first quarter is going to be down but the second quarter we feel revenues will be up to flat for the second quarter and we also assume that we will have completed one acquisition and that acquisition will be in the $200 to $300 revenue kind of range and we’ll see some kind of direct mail activity, not a lot but some of the business that we’ve won before and some of the business that we get on a daily transactional business and also assumes the $25 million cost reductions. So again, on the $265 number, first quarter down, second quarter flat to up, one acquisition in the $200 to $300 million range and the $25 million cost reduction.

Plan C, the $280 plus which is a number that we’re all striving for and it will be the number that this company or this organization will be committed to every day. That’s the first quarter is down, and I’ve told you that’s going to happen, the second quarter is going to be up. We’re going to look not only to do one acquisition, we’re looking to do two small acquisitions that would give us about $500 million worth of consolidated revenues with what we’ve done at $265 level and the $280 level, so we do an additional acquisition and the back half direct mail would be much stronger than what we’ve had in the past and would also reflect what we have actually won from our major accounts and the $25 million cost reduction would still be in there and how much we actually do would depend upon the business.

So, on the record number, to make us have a record performance first quarter down, second quarter a pick up, acquisitions we pick up another one consolidated we’re doing about $500 million worth of revenues and we have a strong back half of direct mail and we have the cost reductions. I need to be careful not to give you a lot more because it gives too much information to our competitors but once again, we plan to run the company at the $250 level until we see what the second quarter is and then we may shift in to gears to see the improvement for the full year.

Again, our goal is to have another record year in 2009 but we need to be reasonable with what the market place is telling us about business as such. Again, on all of these we will have reduced our cap ex and that’s also because of the reorganizations that we’re doing within the businesses that give us some capital we can use throughout the organization and we’re going to probably shoot that in around the $20 million number right across the board in all of these areas unless we have some real opportunities to blow out the $280.

What I’ve given you is we have an assumption, we have details behind all these numbers, we have the field that’s in the process of doing a lot of the reorganization in an impact upon what this could be and I have the feeling again that we’re seeing a repeat of 2008 in this year but this has really been a much more difficult kind of situation to actually forecast. So, I’ve given you al lot of guidance and we can talk about this, I’m sure when you call in you’ll have a lot of questions of what this all really means. But, I wanted you to know that we are going to do that and at least it’s a lot better than not giving you any guidance.

I think every strongly that we should and we’re obligated to do that and we’re also obligated to strive for that guidance level at level C. So, with that, that was the fourth item that I had to talk about and operator why don’t you open up the call and maybe we can take a couple of questions here until our one hour is done.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Charles Strauzer – CJS Securities.

Charles Strauzer – CJS Securities

Just picking up on your last comments there, obviously there’s been a lot of compression or pressure on some of your smaller competitors and given the ability to maybe define some attractive targets right now I would assume that you’re figuring that the multiples have come down quite a bit in terms of price when you’re having these discussions, is that true?

Robert G. Burton, Sr.

It is. It’s like everything else you need to walk them down from what they expect to what’s reality. But, price is a big thing but just as important Charlie as I’m sure that you know better than anyone, it’s also where the synergies are. If there are really significant synergies we have the advantage of doing price versus the other thing but in some cases we won’t beat people up as much or at least try to work a deal where we look consolidated at both synergies and what the price is. But, the answer is yes, the multiples have come down because I look at ours and I look at the rest of the industry and the multiples are a lot less than what they should be.

Charles Strauzer – CJS Securities

I would assume that you say they’re accretive to earnings they would also probably be accretive to your leverage ratios if you were going to make a transaction of these types of size?

Robert G. Burton, Sr.

That’s is correct. I didn’t mention that but, that is correct.

Charles Strauzer – CJS Securities

Then just talk a little bit more about some of the pressures in the industry. Obviously, there’s been a lot of news about various kind of mid size printers starting to feel the pain. Are you starting to see that acceleration? I agree with you, I do think the industry is going to see an acceleration on the compression side of the capacity that is out there and I think it needs to happen. I think obviously when you look back to ’01 post 9-11 a lot of your competitors were kept afloat through vendor financing and creative access to capital but you don’t have that access to capital today so are you going to see that acceleration pretty soon?

Robert G. Burton, Sr.

You know, really it’s sad. It’s very sad to see companies that have been around for 25 or 50 years that really will not make it in today’s environment and they are falling like flies unfortunately. You talk about that and there were some companies early on that were totally funded by people buying presses for them and putting them out there in business. Those days are gone. They are gone.

There are no people walking around now that want to be owners of printing companies today. That use to be the big deal. Mark mentioned earlier on the west coast there’s been a flash flood of consolidations out there and what we’ve seen before there was always someone who wanted to come out there in LA and be the owner of a printing company and go to all of these Hollywood galas and do all the printing for them and make all these celebrity contacts, those days are just over.

It’s reality of cost and other business kind of decisions and unfortunately we take no joy in this at all. Unfortunately, it’s accelerating right now and it’s going to continue because there are just people out there who have never – we had people in this office here sitting at the same table we are this past December who came in and talked to us about merging who had not even implemented a cost reduction plan for 2008.

We had people, to give you an example, I was talking to someone the other day who talked about their having discussions that maybe, maybe they would actually take the 401k match off the table and I reminded that individual that we did that in December of 1991 at World Color. It’s just the reality of life that people need to wake up and it’s a new world. It’s just a new world and it’s going to be fewer survivors out there and we have positioned ourselves to be one of those players.

Operator

Your last question comes from Jamie Clement – Sidoti & Company.

Jamie Clement – Sidoti & Company

Mark, if I could just ask you a quick question and then back to you Bob if we have time. Mark, with respect to the credit agreement and a negotiation with your lenders that might be ongoing right now, did you say the cash restructuring cost was post 2007 or post 2008 start to get deducted out of your adjusted EBITDA?

Mark S. Hiltwein

Effective January 1, 2008 so subsequent to 2007 we started to take the cash restructuring as a direct hit against EBITDA.

Jamie Clement – Sidoti & Company

I’m not sure if you filed your K yet, I don’t believe you have but what was that total number in 2008 and were there any positive offsets, asset sales, that kind of thing that would offset that?

Mark S. Hiltwein

The number was $20.4 million. Mainly headcount, severance related costs, some building clean up, some equipment moving but it was $20.4 million.

Jamie Clement – Sidoti & Company

A follow up question to Bob if that’s okay, as you mentioned the potential for some acquisitions in 2009 I think your track record has always been a successful job on the synergy side, that typically does cost some money so is it far to assume that any discussion with the lending group regarding a rework of your facility would take that possibility in to account?

Robert G. Burton, Sr.

No, it will not need that.

Jamie Clement – Sidoti & Company

Oh really?

Robert G. Burton, Sr.

Am I missing something guys? I don’t think so, we’re fine. We can do that.

Robert G. Burton, Sr.

Ladies and gentlemen thank you very much for your support and again we’re going to continue to give you 110% effort to deliver quality results for 2009.

Operator

That concludes today’s conference call. You may now disconnect.

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Source: Cenveo, Inc. Q4 2008 Earnings Call Transcript
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