Highlights: CHICAGO, Nov. 7 /PRNewswire-FirstCall/ -- R.R.
Donnelley & Sons Company (NYSE:RRD) today reported
third-quarter 2006 net earnings from continuing operations of
$165.1 million or $0.75 per diluted share on net sales of $2.3
billion compared to net earnings from continuing operations of
$127.3 million or $0.59 per diluted share on net sales of $2.2
billion in the third quarter of 2005. The third-quarter 2006 net
earnings from continuing operations included pre-tax restructuring
charges of $6.6 million, substantially all of which were associated
with the reorganization of certain operations and the exiting of
certain business activities. Net earnings from continuing
operations in the third quarter of 2005 included pre-tax charges
for restructuring ($3.2 million), impairment ($2.3 million) and
integration ($1.3 million) totaling $6.8 million, primarily related
to the integration of the 2004 acquisition of Moore Wallace. The
company's effective tax rate decreased to 27.2% in the third
quarter of 2006 from 35.2% in the third quarter of 2005, primarily
reflecting the tax benefit from the realization of a deferred tax
asset. Loss from discontinued operations was $0.4 million in the
third quarter of 2006 and $25.2 million, primarily reflecting the
results of Peak Technologies, in the third quarter of 2005.
Including discontinued operations, net earnings were $164.7 million
or $0.75 per diluted share in the third quarter of 2006 compared to
net earnings of $102.1 million or $0.47 per diluted share in the
third quarter of 2005. The company believes that certain non-GAAP
measures, when presented in conjunction with comparable GAAP
(Generally Accepted Accounting Principles) measures, are useful
because that information is an appropriate measure for evaluating
the company's operating performance. Internally, the company uses
this non-GAAP information as an indicator of business performance,
and evaluates management's effectiveness with specific reference to
these indicators. These measures should be considered in addition
to, not a substitute for, or superior to, measures of financial
performance prepared in accordance with GAAP. Non-GAAP net earnings
from continuing operations totaled $146.2 million or $0.67 per
diluted share in the third quarter of 2006 compared to $134.1
million or $0.62 per diluted share in the third quarter of 2005.
Non-GAAP net earnings from continuing operations exclude
restructuring charges and the tax benefit from the realization of a
deferred tax asset in the third quarter of 2006 and exclude charges
for restructuring, impairment and integration in the third quarter
of 2005. A reconciliation of GAAP net earnings to non-GAAP net
earnings for these adjustments is presented in the attached tables.
"We are pleased with our third-quarter results," said Mark A.
Angelson, RR Donnelley's Chief Executive Officer. "Sales leverage
coupled with strong cost control expanded margins in the quarter.
Our Publishing and Retail Services segment delivered strong
operating margin expansion and solid revenue growth." Angelson
added, "Our planned combination with Banta Corporation will benefit
customers, employees and investors. The considerable overlap
between the two companies creates immediate opportunities for
cross-selling, procurement, manufacturing, premedia and logistics
synergies. Importantly, our strong balance sheet and liquidity
position enabled us to be opportune in the highly fragmented print
market." Business Review (Continuing Operations) Following are the
results for the company and each reportable segment. Summary Net
sales in the quarter were $2.3 billion, up 5.7% from the third
quarter of 2005. The increase was primarily due to new customer
wins and increased volume with existing customers, favorable
foreign exchange comparisons and acquisitions, offset in part by
continued price pressure. The gross margin rate decreased to 28.2%
in the third quarter of 2006 from 28.4% in the third quarter of
2005, reflecting price pressure, business mix shift and higher
energy prices that more than offset the benefits from higher sales
volume and our productivity efforts. SG&A expense as a
percentage of net sales decreased to 11.6% in the third quarter of
2006 from 12.2% in the third quarter of 2005 reflecting the
benefits of our cost reduction efforts and lower integration
expenses in the third quarter of 2006. Operating margin, which was
negatively impacted by restructuring charges of $6.6 million in the
third quarter of 2006 and by charges for restructuring, impairment
and integration totaling $6.8 million in the third quarter of 2005,
was 11.3% in the third quarter of 2006 compared to 10.8% in the
third quarter of 2005. Excluding charges for restructuring,
impairment and integration, the non- GAAP operating margin in the
third quarter of 2006 was 11.6% compared to 11.1% in the third
quarter of 2005. The benefits of our productivity efforts and
increased volume more than offset price pressure. Reconciliations
of GAAP operating income and margin to non-GAAP operating income
and margin are presented in the attached tables. Segments The
company reports its results in four reportable segments: 1)
Publishing and Retail Services, 2) Integrated Print Communications,
3) Forms and Labels and 4) Corporate. The Publishing and Retail
Services segment includes: our 1) magazine, catalog and retail, 2)
directories, 3) book, 4) European, 5) Asian, 6) logistics and 7)
premedia businesses. Net sales for the Publishing and Retail
Services segment increased 7.2% to $1.2 billion from the third
quarter of 2005 primarily due to the acquisitions in 2005 of
Spencer Press, Poligrafia, the Charlestown, Indiana print
operations of Adplex-Rhodes and the book business of the Asia
Printers Group, and sales increases in our international
operations. The segment's operating margin, which was negatively
impacted by restructuring charges of $0.9 million in the third
quarter of 2006 and by charges for restructuring and impairment
totaling $1.1 million in the third quarter of 2005, was 17.3% in
the third quarter of 2006 compared to 16.3% in the third quarter of
2005. Excluding restructuring and impairment charges, the segment's
non-GAAP operating margin in the third quarter of 2006 was 17.4%
compared to 16.4% in the third quarter of 2005, primarily resulting
from increased sales volume and the benefits of our productivity
initiatives that more than offset the impact of price pressure. The
Integrated Print Communications segment includes: our 1) direct
mail and business communications services, 2) financial print, 3)
short-run commercial print and 4) business process outsourcing (The
Astron Group and OfficeTiger) businesses. Net sales for the
Integrated Print Communications segment increased 4.5% to $689.0
million from the third quarter of 2005, primarily due to sales
growth in our short-run commercial print and financial print
businesses as well as the acquisition of OfficeTiger, offset in
part by lower sales in our business communications services
business. The segment's operating margin, which was negatively
impacted by restructuring charges of $2.8 million in the third
quarter of 2006 and by charges for restructuring and impairment
totaling $2.0 million in the third quarter of 2005, decreased to
7.8% in the third quarter of 2006 from 10.2% in the third quarter
of 2005. Excluding restructuring and impairment charges, the
segment's non-GAAP operating margin decreased to 8.2% in the third
quarter of 2006 from 10.5% in the third quarter of 2005. This
decrease was due to mix shift to lower margin businesses, continued
price pressure, the performance of Astron's print-based businesses
and volume declines in business communications services. The Forms
and Labels segment includes: our 1) forms, 2) labels, 3) office
products, 4) Latin American and 5) Canadian businesses. Net sales
for the segment increased 3.7% to $422.3 million in the third
quarter of 2006 from the third quarter of 2005, primarily due to
favorable foreign exchange rates and increased volume in our Latin
American and U.S. labels businesses. The segment's operating
margin, which was negatively impacted by restructuring charges of
$0.6 million in the third quarter of 2006 and by charges for
restructuring and integration totaling $1.5 million in the third
quarter of 2005, increased to 10.0% in the third quarter of 2006
from 9.7% in the third quarter of 2005. Excluding restructuring,
impairment and integration charges, non-GAAP operating margin was
10.1% in the third quarter of both 2006 and 2005, as continued
price pressure offset the impact of increased sales volume and the
benefits of our productivity efforts. Corporate operating expenses
decreased to $42.8 million in the third quarter of 2006 from $52.4
million in the third quarter of 2005. Excluding charges for
restructuring of $2.3 million in the third quarter of 2006 and
restructuring and integration totaling $2.2 million in the third
quarter of 2005, corporate operating expenses decreased $9.7
million to $40.5 million from the third quarter of the prior year
primarily reflecting the benefit of our productivity efforts.
Outlook -- 2006 Full-Year Non-GAAP EPS from Continuing Operations
Reaffirmed For the full year of 2006, RR Donnelley is projecting
non-GAAP net earnings per diluted share from continuing operations
to be in the range of $2.45 to $2.50, but trending toward the high
end of the range. This guidance includes the expected dilutive
impact from both the acquisition of OfficeTiger and the adoption,
in the first quarter of 2006, of SFAS No. 123(R) -- Share- Based
Payment, and assumes no shares repurchased under the authorization
available to the company. The non-GAAP effective tax rate for 2006
is expected to be approximately 35.2%. GAAP net earnings per
diluted share from continuing operations in 2006 may include
restructuring, impairment and integration charges, the resolution
of certain tax items and other items that are not currently
determinable, but may be significant. For that reason, the company
is unable to provide full-year GAAP net earnings estimates at this
time. Conference Call RR Donnelley will host a conference call and
simultaneous webcast to discuss its third-quarter results today,
Tuesday, November 7, 2006, at 10:00 a.m. Eastern Time (9:00 a.m.
Central Time). The live webcast will be accessible on RR
Donnelley's web site: http://www.rrdonnelley.com/ . Individuals
wishing to participate can join the conference call by dialing
(800) 657-1263 (toll-free domestic); passcode: 8068924. A webcast
replay will be archived on the Company's web site for 30 days after
the call. In addition, a telephonic replay of the call will be
available for seven days at (877) 519- 4471; passcode: 8068924.
About RR Donnelley RR Donnelley (NYSE:RRD) is the world's premier
full-service provider of print and related services, including
business process outsourcing. Founded more than 140 years ago, the
company provides solutions in commercial printing, direct mail,
financial printing, print fulfillment, labels, forms, logistics,
call centers, transactional print-and-mail, print management,
online services, digital photography, color services, and content
and database management to customers in the publishing, healthcare,
advertising, retail, technology, financial services and many other
industries. The largest companies in the world and others rely on
RR Donnelley's scale, scope and insight through a comprehensive
range of online tools, variable printing services and
market-specific solutions. For more information, visit the
company's web site at http://www.rrdonnelley.com/ . Use of
Forward-Looking Statements This news release contains
"forward-looking statements" as defined in the U.S. Private
Securities Litigation Reform Act of 1995. Readers are cautioned not
to place undue reliance on these forward-looking statements and any
such forward-looking statements are qualified in their entirety by
reference to the following cautionary statements. All
forward-looking statements speak only as of the date of this news
release and are based on current expectations and involve a number
of assumptions, risks and uncertainties that could cause the actual
results to differ materially from such forward-looking statements.
The company does not undertake to and specifically declines any
obligation to publicly release the results of any revisions to
these forward-looking statements that may be made to reflect future
events or circumstances after the date of such statement or to
reflect the occurrence of anticipated or unanticipated events. The
factors that could cause material differences in the expected
results of RR Donnelley include, without limitation, the following:
the successful execution and integration of acquisitions and the
performance of the company's businesses following acquisitions; the
ability to implement comprehensive plans for the execution of
cross-selling, cost containment, asset rationalization and other
key strategies; competitive pressures in all markets in which the
company operates; factors that affect customer demand, including
changes in postal rates and postal regulations, changes in the
capital markets, changes in advertising markets, the rate of
migration from paper-based forms to digital format, customers'
budgetary constraints and customers' changes in short-range and
long-range plans; shortages or changes in availability, or
increases in costs of, key materials (such as ink, paper and fuel);
and other risks and uncertainties described in RR Donnelley's
periodic filings with the Securities and Exchange Commission (SEC).
Readers are strongly encouraged to read the full cautionary
statements contained in RR Donnelley's filings with the SEC. R. R.
Donnelley & Sons Company Consolidated Balance Sheets As of
September 30, 2006 and December 31, 2005 (UNAUDITED) (In millions,
except per share data) September 30, December 31, 2006 2005 Assets
Current Assets Cash and cash equivalents $250.7 $366.7 Receivables,
less allowance for doubtful accounts 1,654.9 1,529.1 Inventories
552.6 481.4 Prepaid expenses and other current assets 80.6 67.5
Deferred income taxes 144.8 177.0 Total Current Assets 2,683.6
2,621.7 Property, plant and equipment - net 2,126.3 2,138.6
Goodwill 2,985.8 2,750.7 Other intangible assets - net 1,145.0
1,094.3 Prepaid pension cost 518.8 514.1 Other noncurrent assets
304.9 254.3 Total Assets $9,764.4 $9,373.7 Liabilities Current
Liabilities Accounts payable 721.4 718.1 Accrued liabilities 854.0
826.9 Short-term debt and current portion of long-term debt 255.4
269.1 Total Current Liabilities 1,830.8 1,814.1 Long-term debt
2,358.0 2,365.4 Postretirement benefit obligations 331.5 330.6
Deferred income taxes 584.9 596.8 Other noncurrent liabilities
608.9 541.2 Liabilities from discontinued operations 3.5 1.4 Total
Liabilities $5,717.6 $5,649.5 Shareholders' Equity Preferred stock,
$1.00 par value - - Authorized shares: 2.0; Issued: None Common
stock, $1.25 par value Authorized shares: 500.0 Issued shares:
243.0 in 2006 and 2005 303.7 303.7 Additional paid-in capital
2,859.3 2,888.2 Retained earnings 1,672.7 1,439.4 Accumulated other
comprehensive loss (39.9) (90.2) Unearned compensation - (44.9)
Treasury stock, at cost, 24.8 shares in 2006 (2005 - 25.5 shares)
(749.0) (772.0) Total Shareholders' Equity $4,046.8 $3,724.2 Total
Liabilities and Shareholders' Equity $9,764.4 $9,373.7 R. R.
Donnelley & Sons Company Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2006 and 2005 (In
millions, except per share data) (UNAUDITED) Three months ended
September 30, ADJUSTMENTS 2006 ADJUSTMENTS 2005 2006 TO NON- 2005
TO NON- GAAP NON-GAAP GAAP GAAP NON-GAAP GAAP Net sales $2,308.7 $-
$2,308.7 $2,183.7 $- $2,183.7 Cost of sales (exclusive of
depreciation and amortization shown below) 1,656.8 - 1,656.8
1,562.9 - 1,562.9 Selling, general and administrative expenses
(exclusive of depreciation and amortization shown below) 268.5 -
268.5 266.2 (1.3) 264.9 Restructuring and impairment charges - net
6.6 (6.6) - 5.5 (5.5) - Depreciation and amortization 116.0 - 116.0
113.0 - 113.0 Total operating expenses 2,047.9 (6.6) 2,041.3
1,947.6 (6.8) 1,940.8 Income from continuing operations 260.8 6.6
267.4 236.1 6.8 242.9 Interest expense - net 35.2 - 35.2 32.0 -
32.0 Investment and other income (expense) - net 0.5 - 0.5 (7.6) -
(7.6) Earnings from continuing operations before income taxes and
minority interest 226.1 6.6 232.7 196.5 6.8 203.3 Income tax
expense 61.4 25.5 86.9 69.2 - 69.2 Minority interest (0.4) - (0.4)
- - - Net earnings from continuing operations 165.1 (18.9) 146.2
127.3 6.8 134.1 Income (loss) from discontinued operations - net of
tax (0.4) 0.4 - (25.2) 25.2 - Net earnings $164.7 $(18.5) $146.2
$102.1 $32.0 $134.1 Earnings per share: Basic: Net earnings from
continuing operations $0.76 $0.68 $0.59 $0.62 Income (loss) from
discontinued operations, net of tax - - (0.12) - Net earnings $0.76
$0.68 $0.47 $0.62 Diluted: Net earnings from continuing operations
$0.75 $0.67 $0.59 $0.62 Income (loss) from discontinued operations,
net of tax - - (0.12) - Net earnings $0.75 $0.67 $0.47 $0.62
Weighted average common shares outstanding: Basic 216.4 216.4 215.1
215.1 Diluted 218.8 218.8 217.0 217.0 The company believes that
certain non-GAAP measures, when presented in conjunction with
comparable GAAP measures, are useful because that information is an
appropriate measure for evaluating the company's operating
performance. Internally, the company uses this non-GAAP information
as an indicator of business performance, and evaluates management's
effectiveness with specific reference to this indicator. These
measures should be considered in addition to, not a substitute for,
or superior to, measures of financial performance prepared in
accordance with GAAP. R. R. Donnelley & Sons Company
Consolidated Statements of Operations Three and Nine Months Ended
September 30, 2006 and 2005 (In millions, except per share data)
(UNAUDITED) Nine months ended September 30, ADJUSTMENTS 2006
ADJUSTMENTS 2005 2006 TO NON- 2005 TO NON- GAAP NON-GAAP GAAP GAAP
NON-GAAP GAAP Net sales $6,849.3 $- $6,849.3 $6,042.3 $- $6,042.3
Cost of sales (exclusive of depreciation and amortization shown
below) 4,966.2 - 4,966.2 4,329.1 (0.1) 4,329.0 Selling, general and
administrative expenses (exclusive of depreciation and amortization
shown below) 805.8 - 805.8 750.9 (6.3) 744.6 Restructuring and
impairment charges - net 37.8 (37.8) - 42.1 (42.1) - Depreciation
and amortization 345.0 - 345.0 311.4 - 311.4 Total operating
expenses 6,154.8 (37.8) 6,117.0 5,433.5 (48.5) 5,385.0 Income from
continuing operations 694.5 37.8 732.3 608.8 48.5 657.3 Interest
expense - net 105.7 - 105.7 76.8 - 76.8 Investment and other income
(expense) - net (4.0) - (4.0) (11.9) - (11.9) Earnings from
continuing operations before income taxes and minority interest
584.8 37.8 622.6 520.1 48.5 568.6 Income tax expense 182.1 37.1
219.2 188.8 18.0 206.8 Minority interest (1.0) - (1.0) (0.5) -
(0.5) Net earnings from continuing operations 403.7 0.7 404.4 331.8
30.5 362.3 Income (loss) from discontinued operations - net of tax
(1.9) 1.9 - (32.1) 32.1 - Net earnings $401.8 $2.6 $404.4 $299.7
$62.6 $362.3 Earnings per share: Basic: Net earnings from
continuing operations $1.87 $1.87 $1.55 $1.69 Income (loss) from
discontinued operations, net of tax (0.01) - (0.15) - Net earnings
$1.86 $1.87 $1.40 $1.69 Diluted: Net earnings from continuing
operations $1.85 $1.85 $1.53 $1.67 Income (loss) from discontinued
operations, net of tax (0.01) - (0.15) - Net earnings $1.84 $1.85
$1.38 $1.67 Weighted average common shares outstanding: Basic 216.1
216.1 214.7 214.7 Diluted 218.7 218.7 216.4 216.4 The company
believes that certain non-GAAP measures, when presented in
conjunction with comparable GAAP measures, are useful because that
information is an appropriate measure for evaluating the company's
operating performance. Internally, the company uses this non-GAAP
information as an indicator of business performance, and evaluates
management's effectiveness with specific reference to this
indicator. These measures should be considered in addition to, not
a substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures IN MILLIONS, EXCEPT PER
SHARE AND MARGIN DATA (UNAUDITED) Three months ended September 30,
2006 Net Income earnings from per continuing Operating Net diluted
operations margin earnings share GAAP basis measures $260.8 11.3%
$164.7 $0.75 Non-GAAP adjustments: Restructuring and impairment
charges, net (1) 6.6 0.3% 4.6 0.03 Integration charges (2) - - - -
Income tax adjustments (3) - - (23.5) (0.11) Net loss from
discontinued operations (4) - - 0.4 - Total non-GAAP adjustments
6.6 0.3% (18.5) (0.08) Non-GAAP measures $267.4 11.6% $146.2 $0.67
(1) Restructuring and impairment (pre-tax): Operating results for
the three months ended September 30, 2006 and 2005 were affected by
the following restructuring and impairment charges: - 2006 included
$3.5 million for employee termination costs substantially all of
which were associated with restructuring actions resulting from the
reorganization of certain operations and the exiting of certain
business activities and $3.1 million of other restructuring costs,
substantially all lease termination costs. - 2005 included $0.5
million for employee termination costs primarily related to the
elimination of duplicative administrative functions resulting from
the Moore Wallace acquisition and other actions to restructure
operations; $2.7 million of other restructuring costs, primarily
related to lease termination costs associated with exited
facilities, and $2.3 million of impairment of long-lived assets
related to the abandonment of assets in the Integrated Print
Communications and Publishing and Retail Services segments. (2)
Integration charges (pre-tax): Operating income included post-
acquisition integration charges of $1.3 million in the three months
ended September 30, 2005 related to the Moore Wallace acquisition.
(3) Income tax adjustments: Income tax expense for the three months
ended September 30, 2006 included a benefit from the realization of
a deferred tax asset. (4) Net loss from discontinued operations:
Net loss from discontinued operations for the three months ended
September 30, 2006 primarily reflects costs resulting from a
subtenant bankruptcy related to a facility previously occupied by
the Company's package logistics business. For the three months
ended September 30, 2005, substantially all of the net loss from
discontinued operations related to the Peak Technologies business,
including an impairment charge of $22.1 million after-tax. R.R.
Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP
Measures IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED)
Three months ended September 30, 2005 Net Income earnings from per
continuing Operating Net diluted operations margin earnings share
GAAP basis measures $236.1 10.8% $102.1 $0.47 Non-GAAP adjustments:
Restructuring and impairment charges, net (1) 5.5 0.3% 5.5 0.03
Integration charges (2) 1.3 - 1.3 - Income tax adjustments (3) - -
- - Net loss from discontinued operations (4) - - 25.2 0.12 Total
non-GAAP adjustments 6.8 0.3% 32.0 0.15 Non-GAAP measures $242.9
11.1% $134.1 $0.62 (1) Restructuring and impairment (pre-tax):
Operating results for the three months ended September 30, 2006 and
2005 were affected by the following restructuring and impairment
charges: - 2006 included $3.5 million for employee termination
costs substantially all of which were associated with restructuring
actions resulting from the reorganization of certain operations and
the exiting of certain business activities and $3.1 million of
other restructuring costs, substantially all lease termination
costs. - 2005 included $0.5 million for employee termination costs
primarily related to the elimination of duplicative administrative
functions resulting from the Moore Wallace acquisition and other
actions to restructure operations; $2.7 million of other
restructuring costs, primarily related to lease termination costs
associated with exited facilities, and $2.3 million of impairment
of long-lived assets related to the abandonment of assets in the
Integrated Print Communications and Publishing and Retail Services
segments. (2) Integration charges (pre-tax): Operating income
included post- acquisition integration charges of $1.3 million in
the three months ended September 30, 2005 related to the Moore
Wallace acquisition. (3) Income tax adjustments: Income tax expense
for the three months ended September 30, 2006 included a benefit
from the realization of a deferred tax asset. (4) Net loss from
discontinued operations: Net loss from discontinued operations for
the three months ended September 30, 2006 primarily reflects costs
resulting from a subtenant bankruptcy related to a facility
previously occupied by the Company's package logistics business.
For the three months ended September 30, 2005, substantially all of
the net loss from discontinued operations related to the Peak
Technologies business, including an impairment charge of $22.1
million after-tax. R.R. Donnelley & Sons Company Reconciliation
of GAAP to Non-GAAP Measures IN MILLIONS, EXCEPT PER SHARE AND
MARGIN DATA (UNAUDITED) Nine months ended September 30, 2006 Net
Income earnings from per continuing Operating Net diluted
operations margin earnings share GAAP basis measures $694.5 10.1%
$401.8 $1.84 Non-GAAP adjustments: Restructuring and impairment
charges, net (1) 37.8 0.6% 24.2 0.11 Integration charges (2) - - -
- Income tax adjustments (3) - - (23.5) (0.11) Net loss from
discontinued operations (4) - - 1.9 0.01 Total non-GAAP adjustments
37.8 0.6% 2.6 0.01 Non-GAAP measures $732.3 10.7% $404.4 $1.85 (1)
Restructuring and impairment (pre-tax): Operating results for the
nine months ended September 30, 2006 and 2005 were affected by the
following restructuring and impairment charges: - 2006 included
$27.2 million for employee termination costs substantially all of
which were associated with restructuring actions resulting from the
reorganization of certain operations and the exiting of certain
business activities; $8.3 million of other restructuring costs,
primarily lease termination costs; and $2.3 million for impairment
of other long-lived assets. - 2005 included $8.7 million for
employee termination costs related to the elimination of
duplicative administrative functions resulting from the Moore
Wallace acquisition and other actions to restructure operations;
$27.6 million of other restructuring costs related to lease
termination costs and relocation costs associated with the Moore
Wallace acquisition, the relocation of a Logistics facility, and
the exiting of a U.K. financial print facility, and $5.8 million of
impairment charges related to the abandonment of assets. (2)
Integration charges (pre-tax): Operating income included post-
acquisition integration charges of $6.4 million in the nine months
ended September 30, 2005 primarily related to the Moore Wallace
acquisition and Corporate information systems integration. (3)
Income tax adjustments: Income tax expense for the nine months
ended September 30, 2006 included a benefit from the realization of
a deferred tax asset. (4) Net loss from discontinued operations:
Net loss from discontinued operations for the nine months ended
September 30, 2006 primarily reflects costs resulting from a
subtenant bankruptcy related to a facility previously occupied by
the Company's package logistics business. For the nine months ended
September 30, 2005, substantially all of the net loss from
discontinued operations related to the Peak Technologies business,
including an impairment charge of $22.1 million after-tax. R.R.
Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP
Measures IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED)
Nine months ended September 30, 2005 Net Income earnings from per
continuing Operating Net diluted operations margin earnings share
GAAP basis measures $608.8 10.1% $299.7 $1.38 Non-GAAP adjustments:
Restructuring and impairment charges, net (1) 42.1 0.7% 26.5 0.12
Integration charges (2) 6.4 0.1% 4.0 0.02 Income tax adjustments
(3) - - - - Net loss from discontinued operations (4) - - 32.1 0.15
Total non-GAAP adjustments 48.5 0.8% 62.6 0.29 Non-GAAP measures
$657.3 10.9% $362.3 $1.67 (1) Restructuring and impairment
(pre-tax): Operating results for the nine months ended September
30, 2006 and 2005 were affected by the following restructuring and
impairment charges: - 2006 included $27.2 million for employee
termination costs substantially all of which were associated with
restructuring actions resulting from the reorganization of certain
operations and the exiting of certain business activities; $8.3
million of other restructuring costs, primarily lease termination
costs; and $2.3 million for impairment of other long-lived assets.
- 2005 included $8.7 million for employee termination costs related
to the elimination of duplicative administrative functions
resulting from the Moore Wallace acquisition and other actions to
restructure operations; $27.6 million of other restructuring costs
related to lease termination costs and relocation costs associated
with the Moore Wallace acquisition, the relocation of a Logistics
facility, and the exiting of a U.K. financial print facility, and
$5.8 million of impairment charges related to the abandonment of
assets. (2) Integration charges (pre-tax): Operating income
included post- acquisition integration charges of $6.4 million in
the nine months ended September 30, 2005 primarily related to the
Moore Wallace acquisition and Corporate information systems
integration. (3) Income tax adjustments: Income tax expense for the
nine months ended September 30, 2006 included a benefit from the
realization of a deferred tax asset. (4) Net loss from discontinued
operations: Net loss from discontinued operations for the nine
months ended September 30, 2006 primarily reflects costs resulting
from a subtenant bankruptcy related to a facility previously
occupied by the Company's package logistics business. For the nine
months ended September 30, 2005, substantially all of the net loss
from discontinued operations related to the Peak Technologies
business, including an impairment charge of $22.1 million
after-tax. R. R. Donnelley & Sons Company Segment GAAP to
Non-GAAP Operating Income and Margin Reconciliation For the three
months ended September 30, 2006 and 2005 $ IN MILLIONS (UNAUDITED)
Integrated Publishing Print Forms and Retail Communi- and Consol-
Services cations Labels Corporate idated Three Months Ended
September 30, 2006 Net Sales $1,197.4 $689.0 $422.3 $- $2,308.7
Operating Expense 989.7 635.2 380.2 42.8 2,047.9 Operating Income
(Loss) 207.7 53.8 42.1 (42.8) 260.8 Operating Margin % 17.3% 7.8%
10.0% nm 11.3% Non-GAAP Adjustments Restructuring charges 0.9 2.8
0.6 2.3 6.6 Impairment charges - - - - - Integration charges - - -
- - Total Non-GAAP Adjustments 0.9 2.8 0.6 2.3 6.6 Operating income
(loss) excluding restructuring, impairment and integration charges
$208.6 $56.6 $42.7 $(40.5) $267.4 Operating margin before
restructuring, impairment and integration charges % 17.4% 8.2%
10.1% nm 11.6% Depreciation and amortization 59.7 34.9 14.1 7.3
116.0 Capital expenditures 51.8 16.6 4.2 7.9 80.5 Three Months
Ended September 30, 2005 Net Sales $1,116.7 $659.6 $407.4 $-
$2,183.7 Operating Expense 934.9 592.4 367.9 52.4 1,947.6 Operating
Income (Loss) 181.8 67.2 39.5 (52.4) 236.1 Operating Margin % 16.3%
10.2% 9.7% nm 10.8% Non-GAAP Adjustments Restructuring charges 0.6
0.2 1.2 1.2 3.2 Impairment charges 0.5 1.8 - - 2.3 Integration
charges - - 0.3 1.0 1.3 Total Non-GAAP Adjustments 1.1 2.0 1.5 2.2
6.8 Operating income (loss) excluding restructuring, impairment and
integration $182.9 $69.2 $41.0 $(50.2) $242.9 Operating margin
before restructuring, impairment and integration charges % 16.4%
10.5% 10.1% nm 11.1% Depreciation and amortization 54.5 35.1 15.7
7.7 113.0 Capital expenditures 72.7 17.5 4.9 4.9 100.0 R. R.
Donnelley & Sons Company Segment GAAP to Non-GAAP Operating
Income and Margin Reconciliation For the Nine months ended
September 30, 2006 and 2005 $ IN MILLIONS (UNAUDITED) Integrated
Publishing Print Forms and Retail Communi- and Consol- Services
cations Labels Corporate idated Nine Months Ended September 30,
2006 Net Sales $3,433.9 $2,143.7 $1,271.7 $- $6,849.3 Operating
Expense 2,901.9 1,943.5 1,164.4 145.0 6,154.8 Operating Income
(Loss) 532.0 200.2 107.3 (145.0) 694.5 Operating Margin % 15.5%
9.3% 8.4% nm 10.1% Non-GAAP Adjustments Restructuring charges 10.7
12.5 3.3 9.0 35.5 Impairment charges - 1.8 0.5 - 2.3 Integration
charges - - - - - Total Non-GAAP Adjustments 10.7 14.3 3.8 9.0 37.8
Operating income (loss) excluding restructuring, impairment and
integration charges $542.7 $214.5 $111.1 $(136.0) $732.3 Operating
margin before restructuring, impairment and integration charges %
15.8% 10.0% 8.7% nm 10.7% Depreciation and amortization 177.1 102.4
43.2 22.3 345.0 Capital expenditures 177.8 52.1 14.4 13.9 258.2
Nine Months Ended September 30, 2005 Net Sales $3,077.3 $1,736.3
$1,228.7 $- $6,042.3 Operating Expense 2,603.3 1,540.0 1,124.9
165.3 5,433.5 Operating Income (Loss) 474.0 196.3 103.8 (165.3)
608.8 Operating Margin % 15.4% 11.3% 8.4% nm 10.1% Non-GAAP
Adjustments Restructuring charges 8.2 7.0 4.7 16.4 36.3 Impairment
charges 1.6 2.1 2.1 - 5.8 Integration charges 0.5 0.4 0.9 4.6 6.4
Total Non-GAAP Adjustments 10.3 9.5 7.7 21.0 48.5 Operating income
(loss) excluding restructuring, impairment and integration $484.3
$205.8 $111.5 $(144.3) $657.3 Operating margin before
restructuring, impairment and integration charges % 15.7% 11.9%
9.1% nm 10.9% Depreciation and amortization 158.0 83.3 47.4 22.7
311.4 Capital expenditures 251.1 38.8 14.6 19.7 324.2 R. R.
Donnelley & Sons Company Condensed Consolidated Statements of
Cash Flows For the nine months ended September 30, 2006 and 2005 IN
MILLIONS (UNAUDITED) 2006 2005 Operating Activities Net earnings
$401.8 $299.7 Net loss from discontinued operations 1.9 32.1
Adjustment to reconcile net earnings to cash provided by operating
activities 430.9 497.7 Changes in operating assets and liabilities
(267.8) (189.9) Net cash provided by operating activities of
continuing operations 566.8 639.6 Net cash (used in) provided by
operating activities of discontinued operations (0.7) 2.8 Net cash
provided by operating activities 566.1 642.4 Net cash used in
investing activities of continuing operations (500.3) (1,414.6) Net
cash used in investing activities of discontinued operations -
(0.6) Net cash used in investing activities (500.3) (1,415.2) Net
cash (used in) provided by financing activities of continuing
operations (187.9) 432.6 Net cash used in financing activities of
discontinued operations - - Net cash (used in) provided by
financing activities (187.9) 432.6 Effect of exchange rate on cash
and cash equivalents 6.1 2.7 Net decrease in cash and cash
equivalents (116.0) (337.5) Cash and cash equivalents at beginning
of period 366.7 641.8 Cash and cash equivalents at end of period
$250.7 $304.3 Supplemental non-cash disclosure: Acquisition of
assets through direct financing $10.8 $- R.R. Donnelley & Sons
Company Revenue Reconciliation Reported to Pro Forma For the three
months ended September 30, 2006 and 2005 $ IN MILLIONS (UNAUDITED)
Adjustment for net sales of Reported acquired Pro forma net sales
businesses net sales Three Months Ended September 30, 2006
Publishing and Retail Services $1,197.4 $- $1,197.4 Integrated
Print Communications 689.0 - 689.0 Forms and Labels 422.3 - 422.3
Corporate - - - Consolidated $2,308.7 $- $2,308.7 Three Months
Ended September 30, 2005 Publishing and Retail Services $1,116.7
$37.7 $1,154.4 Integrated Print Communications 659.6 14.0 673.6
Forms and Labels 407.4 - 407.4 Corporate - - - Consolidated
$2,183.7 $51.7 $2,235.4 Net sales change Publishing and Retail
Services 7.2% 3.7% Integrated Print Communications 4.5% 2.3% Forms
and Labels 3.7% 3.7% Corporate Consolidated 5.7% 3.3% The reported
results of the company include the results of acquired businesses
from the acquisition date forward. The company has provided this
schedule to reconcile reported net sales for the three months ended
September 30, 2006 and 2005 to pro forma net sales as if the
acquisitions took place at the beginning of the respective periods.
For the quarter ended September 30, 2006, no adjustment was
required as no acquisitions occurred during the quarter ended
September 30, 2006. For the quarter ended September 30, 2005, the
adjustment for net sales of acquired businesses reflects the net
sales of Asia Printers Group (acquired July 7, 2005), the
Charlestown, Indiana print facility acquired from Adplex- Rhodes
(acquired August 18, 2005), Poligrafia (acquired September 5,
2005), Spencer Press (acquired November 9, 2005) and OfficeTiger
(acquired April 27, 2006) for the three months ended September 30,
2005 as if the respective acquisitions had occurred on July 1,
2005. R.R. Donnelley & Sons Company Revenue Reconciliation
Reported to Pro Forma For the nine months ended September 30, 2006
and 2005 $ IN MILLIONS (UNAUDITED) Adjustment for net sales of
Reported acquired Pro forma net sales businesses net sales Nine
Months Ended September 30, 2006 Publishing and Retail Services
$3,433.9 $- $3,433.9 Integrated Print Communications 2,143.7 35.2
2,178.9 Forms and Labels 1,271.7 - 1,271.7 Corporate - - -
Consolidated $6,849.3 $35.2 $6,884.5 Nine Months Ended September
30, 2005 Publishing and Retail Services $3,077.3 $158.4 $3,235.7
Integrated Print Communications 1,736.3 313.5 2,049.8 Forms and
Labels 1,228.7 - 1,228.7 Corporate - - - Consolidated $6,042.3
$471.9 $6,514.2 Net sales change Publishing and Retail Services
11.6% 6.1% Integrated Print Communications 23.5% 6.3% Forms and
Labels 3.5% 3.5% Corporate Consolidated 13.4% 5.7% The reported
results of the company include the results of acquired businesses
from the acquisition date forward. The company has provided this
schedule to reconcile reported net sales for the nine months ended
September 30, 2006 and 2005 to pro forma net sales as if the
acquisitions took place at the beginning of the respective periods.
For the nine months ended September 30, 2006, the adjustment for
net sales of acquired businesses reflects the net sales of
OfficeTiger (acquired April 27, 2006) as if the acquisition had
occurred on January 1, 2006. For the nine months ended September
30, 2005, the adjustment for net sales of acquired businesses
reflects the net sales of The Astron Group (acquired June 20,
2005), Asia Printers Group (acquired July 7, 2005), the
Charlestown, Indiana print facility acquired from Adplex-Rhodes
(acquired August 18, 2005), Poligrafia (acquired September 5,
2005), Spencer Press (acquired November 9, 2005) and OfficeTiger
(acquired April 27, 2006) for the nine months ended September 30,
2005 as if the respective acquisitions had occurred on January 1,
2005. DATASOURCE: R.R. Donnelley & Sons Company CONTACT: Media
Contact, Doug Fitzgerald, Senior Vice President, Marketing &
Communications, +1-630-322-6830, , or Investor Contact, Dan Leib,
Vice President, Investor Relations, +1-312-326-7710, , both of R.R.
Donnelley & Sons Company Web site: http://www.rrdonnelley.com/
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