Basis of Presentation (Policies)

6 Months Ended

Jul. 01, 2017

The accompanying unaudited condensed consolidated financial statements ("financial statements") of Cenveo, Inc. and its subsidiaries (collectively, "Cenveo" or the "Company") have been prepared in accordance with Regulation S-X promulgated by the Securities and Exchange Commission ("SEC") and, in the Company’s opinion, include all adjustments, consisting of normal recurring accruals, necessary for a fair presentation of financial position as of July 1, 2017, and the results of operations for the three and six months ended July 1, 2017, and July 2, 2016, and cash flows for the six months ended July 1, 2017, and July 2, 2016. Certain information and footnote disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted pursuant to SEC rules. The results of operations for the three and six months ended July 1, 2017, are generally not indicative of the results to be expected for any interim period or for the full year, primarily due to restructuring, acquisition and debt-related activities or transactions. The December 31, 2016, condensed consolidated balance sheet is derived from the audited consolidated financial statements at that date. These financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, filed with the SEC. Certain prior year amounts have been reclassified to conform to the current year presentation. (See New Accounting Pronouncements for further discussion.) The reporting periods for the three and six months ended July 1, 2017, and July 2, 2016, each consisted of 13 and 26 weeks, respectively.

As a result of exploring opportunities to divest certain non-strategic or underperforming businesses within its manufacturing platform, during the first quarter of 2016 the Company completed the sale of its folded carton and shrink sleeve packaging businesses, along with its top-sheet lithographic print operation (collectively, the "Packaging Business"). See Note 2 for information regarding the completion of the sale of the Packaging Business. As a result, the financial results of the Packaging Business have been accounted for as discontinued operations. The Company's historical financial statements have been retroactively adjusted to give recognition to the discontinued operations for all periods presented.

During the second quarter of 2017, in connection with the closure of an envelope manufacturing facility, the Company classified the owned facility as held for sale. Accordingly, $2.2 million of property, plant and equipment, net, was reclassified to other assets, net, in the Company's condensed consolidated balance sheet.

On July 8, 2016, the Company announced a reverse split of its common stock, par value $0.01 per share (the "Common Stock"), at a ratio of 1-for-8, effective July 13, 2016 (the "Reverse Stock Split"). The Common Stock began trading on a split-adjusted basis on July 14, 2016. The Reverse Stock Split was approved by the Company’s stockholders at the annual meeting of the stockholders held on May 26, 2016. As a result of the Reverse Stock Split, each eight pre-split shares of Common Stock outstanding were automatically combined into one new share of Common Stock without any action on the part of the respective holders, and the number of outstanding common shares on the date of the split was reduced from approximately 68.5 million shares to approximately 8.5 million shares. The Reverse Stock Split also applied to Common Stock issuable upon the exchange of the Company’s outstanding 7% senior exchangeable notes due 2017 (the "7% Notes") and upon the exercise of the Company’s outstanding warrants and the Company's outstanding stock options, restricted share units ("RSUs"), and performance share units ("PSUs"), (collectively, the "Equity Awards"). In addition, the authorized Common Stock was initially increased from 100 million to 120 million shares and then adjusted in the Reverse Stock Split from 120 million to 15 million shares. The Company's historical financial statements have been retroactively adjusted to give recognition to the Reverse Stock Split for all periods presented.

New Accounting Pronouncements

New Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2014-09, "Revenue from Contracts with Customers (Topic 606)." The new revenue recognition standard provides a five-step analysis to determine when and how revenue is recognized. The standard requires that a company recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. This ASU is effective for annual periods beginning after December 15, 2017, and will be applied either retrospectively to each period presented or using modified retrospective transition approach requiring a cumulative-effect adjustment for the current period as of the date of adoption. The Company anticipates using the modified retrospective transition approach. The Company is continuing its evaluation of the impact of the pending adoption of ASU 2014-09; however, the Company does not expect that the future adoption of ASU 2014-09 will have a material impact on its consolidated financial statements or disclosures. During the second quarter 2017, as part of its assessment process of the impact of adopting ASU 2014-09, the Company concluded it was appropriate to classify postage revenues and costs of goods sold as gross amounts as opposed to offsetting them within cost of goods sold. This assessment only impacts the Company’s print operating segment and the reclassifications had no effect on operating income (loss) or net income (loss) for any period presented. The reclassification impact by major category is as follows (in thousands):



	Period	As reported		Reclassification adjustment		As adjusted
Net sales	Six months ended July 2, 2016	$	836,802	$	13,830	$	850,632
	Three months ended July 2, 2016	404,041		6,012		410,053
	Three months ended April 1, 2017	374,506		7,407		381,913

Cost of sales	Six months ended July 2, 2016	$	697,389	$	13,830	$	711,219
	Three months ended July 2, 2016	335,478		6,012		341,490
	Three months ended April 1, 2017	310,372		7,407		317,779

In July 2015, the FASB issued ASU 2015-11, "Inventory (Topic 340): Simplifying the Measurement of Inventory." Under ASU 2015-11, companies utilizing the first-in, first-out or average cost method should measure inventory at the lower of cost or net realizable value, where net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This ASU is effective for interim and annual reporting periods beginning after December 15, 2016. The Company adopted ASU 2015-11 during the first quarter of 2017. Adoption of ASU 2015-11 did not have a material impact on the Company's consolidated financial statements.

In November 2015, the FASB issued ASU 2015-17, "Balance Sheet Classification of Deferred Taxes." ASU 2015-17 simplifies the presentation of deferred income taxes to require that deferred tax assets and liabilities be classified as non-current in a classified balance sheet. As a result of prospectively adopting ASU 2015-17 during the first quarter of 2017, the Company reclassified $3.4 million of current deferred tax assets from prepaid and other current assets to other liabilities in the Company's condensed consolidated balance sheet. Prior period amounts were not adjusted.

In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)." The new standard establishes a right-of-use ("ROU") model that requires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years and early adoption is permitted. A modified retrospective transition approach is required for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. At a minimum, adoption of ASU 2016-02 will require recording a ROU asset and a lease liability on the Company's consolidated balance sheet; however the Company is currently evaluating the impact on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, "Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." The new standard simplifies various aspects related to how share-based payments are accounted for and presented in the consolidated financial statements. The amendments include income tax consequences, the accounting for forfeitures, the classification of awards as either equity or liabilities and classification on the statement of cash flows. The guidance was effective in the first quarter of fiscal 2017. Adoption of ASU 2016-09 did not have a material impact on the Company's consolidated financial statements.

In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU 2016-15 reduces the diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company adopted ASU 2016-15 during the first quarter of 2017. Adoption of ASU 2016-15 did not have a material impact on the Company's current period consolidated financial statements. The Company's prior year condensed consolidated statement of cash flows has been adjusted to conform to the current year presentation

In January 2017, the FASB issued ASU 2017-01 "Business Combinations (Topic 805): Clarifying the Definition of a Business" which clarifies the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions or disposals of assets or businesses. The revised definition of a business under ASU 2017-01 will reduce the number of transactions that are accounted for as business combinations. The amendments in this ASU are effective for annual periods beginning after December 15, 2017, including interim periods within those annual periods. Early adoption is allowed for certain transactions. The Company will prospectively evaluate the impact that adoption of ASU 2017-01 will have on any future transactions.

In January 2017, the FASB issued ASU 2017-04 "Intangibles - Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment" which removes the second step from the goodwill impairment test. A goodwill impairment will now be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual and interim periods beginning January 1, 2020, with early adoption permitted, and applied prospectively. The Company adopted ASU 2017-04 during the first quarter of 2017. Adoption of ASU 2017-04 did not have a material impact on the Company's consolidated financial statements.

In March 2017, the FASB issued ASU 2017-07, "Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Post-Retirement Benefit Cost." ASU 2017-07 requires employers to report the service cost component in the same line item as other compensation costs. The other components of net benefit costs will be presented in the income statement separately from the service cost and outside of a subtotal of income from operations. ASU 2017-07 is effective for interim and annual periods beginning after December 15, 2017. The Company is still currently evaluating the impact that the future adoption of ASU 2017-07 will have on its consolidated financial statements.