Highlights: CHICAGO, Feb. 27 /PRNewswire-FirstCall/ -- R.R.
Donnelley & Sons Company (NYSE:RRD) today reported a
fourth-quarter 2006 net loss from continuing operations of $1.1
million or $0.01 per share on net sales of $2.5 billion compared to
a net loss from continuing operations of $236.0 million or $1.09
per share on net sales of $2.4 billion in the fourth quarter of
2005. The fourth-quarter 2006 net loss from continuing operations
included pre-tax charges for impairment ($138.6 million) and
restructuring ($29.7 million) totaling $168.3 million, a non-cash,
pre-tax write-down of the company's investment in affordable
housing partnerships of $16.9 million and a pre-tax gain on the
sale of an investment of $7.0 million. The non-cash impairment
charge of $138.6 million included: a pre-tax charge of $110.0
million following our annual impairment test of indefinite-lived
assets, in accordance with Statement of Financial Accounting
Standards No. 142, Accounting for Goodwill and Other Intangible
Assets and related to the recognition of impairment of goodwill of
the company's global document solutions reporting unit (formerly
Astron); a pre-tax charge of $26.3 million reflecting the
write-down of the Astron trade name intangible asset associated
with the re-branding of Astron to RR Donnelley Global Document
Solutions; and a pre-tax charge of $2.3 million related to the
impairment of other long-lived assets. Substantially all of the
restructuring charges in the fourth quarter of 2006 were associated
with the reorganization of certain operations and the exiting of
certain business activities. Net earnings from continuing
operations in the fourth quarter of 2005 included pre-tax charges
for impairment ($364.3 million), restructuring ($13.4 million) and
integration ($1.9 million) totaling $379.6 million, substantially
all related to a non-cash charge for the recognition of impairment
of goodwill and other intangibles of the company's North American
forms and labels reporting unit. The company's effective tax rate
was 84.2% in the fourth quarter of 2006, reflecting the impact of
the non-deductible portion of the non-cash impairment charges.
Results of discontinued operations were a net loss of $0.1 million
in the fourth quarter of 2006 and net earnings of $73.5 million,
substantially all attributable to tax benefits recognized as part
of the sale of Peak Technologies, in the fourth quarter of 2005.
Including discontinued operations, the net loss was $1.2 million or
$0.01 per share in the fourth quarter of 2006 and the net loss was
$162.5 million or $0.75 per share in the fourth 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 $153.6 million or $0.70 per diluted share in the
fourth quarter of 2006 compared to $134.3 million or $0.62 per
diluted share in the fourth quarter of 2005. Non-GAAP net earnings
from continuing operations exclude impairment and restructuring
charges, a non-cash write-down of the company's investment in
affordable housing partnerships and a gain on the sale of an
investment in the fourth quarter of 2006 and exclude charges for
restructuring, impairment and integration in the fourth quarter of
2005. For non-GAAP comparison purposes, the effective tax rate
decreased to 19.2% in the fourth quarter of 2006 from 30.3% in the
fourth quarter of 2005, primarily due to favorable settlement of
tax audit issues and a higher proportion of taxable income being
generated in lower-tax jurisdictions in 2006. A reconciliation of
GAAP net earnings to non-GAAP net earnings for these adjustments is
presented in the attached tables. "RR Donnelley continues to
deliver strong operating results," said Mark A. Angelson, RR
Donnelley's Chief Executive Officer. "Our Global Print Solutions
segment delivered impressive operating margin expansion for the
year, particularly so in light of their strong performance in 2005.
The recently completed acquisitions of Banta Corporation and Perry
Judd's provide us with much needed additional capacity that we
already have started to put to use and that, over time, will reduce
our capital requirements." Angelson added, "I am especially pleased
with our strong cash performance from continuing operations that
exceeded $900 million for the year and allowed us strategically to
invest in our business and people while comfortably funding our
dividend and servicing our debt." Business Review (Continuing
Operations) Due to a previously announced reorganization of
managerial responsibilities, effective with the reporting of
fourth-quarter 2006 results, the company reports its results in two
reportable segments, 1) Global Print Solutions and 2) Global
Services, and Corporate. The company has also conformed
prior-period financial results to reflect this segment change in
all periods presented. Summary Net sales in the quarter were $2.5
billion, up 3.3% from the fourth quarter of 2005. The increase was
due to new customer wins and increased volume with existing
customers, acquisitions and favorable foreign exchange comparisons,
offset in part by continued price pressure. The gross margin rate
decreased to 25.7% in the fourth quarter of 2006 from 26.2% in the
fourth quarter of 2005, as benefits from higher sales volume and
our productivity efforts were more than offset by price pressure
and the timing of expenses for discretionary 401K funding. SG&A
expense as a percentage of net sales decreased to 11.8% in the
fourth quarter of 2006 from 12.3% in the fourth quarter of 2005 due
to the benefits of our productivity initiatives and additional
sales volume. Operating margin, which was negatively impacted by
charges for impairment and restructuring totaling $168.3 million in
the fourth quarter of 2006 and by charges for impairment,
restructuring and integration totaling $379.6 million in the fourth
quarter of 2005, increased to 2.3% in the fourth quarter of 2006
from a loss in the fourth quarter of 2005. Excluding charges for
restructuring, impairment and integration, the non-GAAP operating
margin in the fourth quarter of 2006 was 9.1% compared to 9.3% in
the fourth quarter of 2005, as the benefits of our productivity
efforts and increased volume were more than offset by price
pressure and the timing of expenses for discretionary 401K funding.
Reconciliations of GAAP operating income and margin to non-GAAP
operating income and margin are presented in the attached tables.
Segments The Global Print Solutions segment includes: our 1)
magazine, catalog and retail, 2) directories, 3) book, 4)
logistics, 5) direct mail, 6) short-run commercial print, 7)
European and 8) Asian operations. Net sales for the Global Print
Solutions segment increased 2.3% to $1.6 billion from the fourth
quarter of 2005 due to sales increases in our international
operations, short-run commercial print and logistics offerings and
the Spencer Press acquisition in 2005. The segment's operating
margin, which was negatively impacted by charges for restructuring
and impairment totaling $3.6 million in the fourth quarter of 2006
and by charges for restructuring, impairment and integration
totaling $3.4 million in the fourth quarter of 2005, increased to
14.4% in the fourth quarter of 2006 from 13.3% in the fourth
quarter of 2005. Excluding restructuring, impairment and
integration charges, the segment's non-GAAP operating margin in the
fourth quarter of 2006 increased to 14.6% from 13.5% in the fourth
quarter of 2005 resulting from increased sales volume and the
benefits of our productivity initiatives that more than offset the
impact of price pressure and unfavorable business mix. The Global
Services segment includes: our 1) digital solutions, 2) financial
print, 3) global document solutions, 4) OfficeTiger and 5) forms,
labels and statement printing operations. Net sales for the Global
Services segment increased 5.1% to $914.2 million from the fourth
quarter of 2005 due to sales growth in financial print as well as
the acquisition of OfficeTiger, offset in part by lower sales of
statement printing. The segment's operating margin, which was
negatively impacted by charges for impairment and restructuring
totaling $146.2 million in the fourth quarter of 2006 and by
charges for restructuring, impairment and integration totaling
$366.0 million in the fourth quarter of 2005 was a loss in the
fourth quarter of both 2006 and 2005. Excluding restructuring,
impairment and integration charges, the segment's non-GAAP
operating margin decreased to 5.6% in the fourth quarter of 2006
from 8.1% in the fourth quarter of 2005. This decrease was due to
continued price pressure, the performance of statement printing and
incremental non-cash depreciation and purchase accounting-related
amortization expenses associated with the acquisition of
OfficeTiger. Corporate operating expenses increased to $72.1
million in the fourth quarter of 2006 from $64.9 million in the
fourth quarter of 2005. Excluding charges for restructuring and
impairment totaling $18.5 million in the fourth quarter of 2006 and
charges for restructuring, impairment and integration totaling
$10.2 million in the fourth quarter of 2005, corporate operating
expenses decreased $1.1 million to $53.6 million from the fourth
quarter of the prior year reflecting the benefits of our
productivity initiatives. Full-Year Results The company reported
net earnings from continuing operations of $402.6 million or $1.84
per diluted share on net sales of $9.3 billion for the full year of
2006 compared to net earnings from continuing operations of $95.6
million or $0.44 per diluted share on net sales of $8.4 billion for
the full year of 2005. The full-year 2006 net earnings from
continuing operations included: pre-tax charges for impairment
($140.9 million) and restructuring ($65.2 million) totaling $206.1
million, substantially all from the non-cash charge for the
impairment of goodwill and other intangibles of the company's
global document solutions reporting unit and the reorganization of
certain operations and the exiting of certain business activities;
a non-cash write-down of the company's investment in affordable
housing partnerships of $16.9 million; a gain on the sale of an
investment of $7.0 million; and a tax benefit from the realization
of a deferred tax asset of $23.5 million. The full-year 2005 net
earnings from continuing operations included pre-tax charges for
impairment ($370.1 million), restructuring ($49.7 million), and
integration ($8.3 million) totaling $428.1 million, including the
non-cash charge for the recognition of impairment of goodwill and
other intangibles of the company's North American forms and labels
reporting unit and the integration of the 2004 acquisition of Moore
Wallace. Operating margin, which was negatively impacted by charges
for impairment and restructuring totaling $206.1 million for the
full year of 2006 and by charges for impairment, restructuring and
integration totaling $428.1 million for the full year of 2005,
increased to 8.1% for the full year of 2006 from 5.3% for the full
year of 2005. Excluding restructuring, integration and impairment
charges, non-GAAP operating margin decreased to 10.3% for the full
year of 2006 from 10.4% for the full year of 2005, as the benefits
from higher sales volume and our productivity efforts were offset
by pricing pressure, higher energy costs and unfavorable business
mix. The effective tax rate decreased to 32.6% in 2006 from 71.5%
in 2005, primarily due to a reduction of non-deductible non-cash
impairment charges and a tax benefit from the realization of a
deferred tax asset of $23.5 million in 2006. Results of
discontinued operations were a net loss of $2.0 million in 2006 and
net earnings of $41.5 million in 2005. Including discontinued
operations, net earnings were $400.6 million or $1.83 per diluted
share for the full year of 2006 and $137.1 million or $0.63 per
diluted share for the full year of 2005. Non-GAAP net earnings from
continuing operations totaled $558.0 million or $2.55 per diluted
share in the full year of 2006 compared to $496.4 million or $2.29
per diluted share in the full year of 2005. Non-GAAP net earnings
from continuing operations exclude impairment and restructuring
charges, a non-cash write-down of the company's investment in
affordable housing partnerships, a gain on the sale of an
investment and a tax benefit from the realization of a deferred tax
asset in the full year of 2006 and exclude charges for
restructuring, impairment and integration in the full year of 2005.
For non-GAAP comparison purposes, the effective tax rate decreased
to 31.4% in 2006 from 34.8% in 2005, primarily due to favorable
settlement of tax audit issues and a higher proportion of taxable
income being generated in lower-tax jurisdictions in 2006. A
reconciliation of GAAP net earnings to non-GAAP net earnings for
these adjustments is presented in the attached tables. Outlook --
2007 Full-Year Non-GAAP EPS from Continuing Operations For the full
year of 2007, RR Donnelley is projecting non-GAAP net earnings per
diluted share from continuing operations to be in the range of
$2.70 to $2.75. This guidance includes the impact of the previously
announced acquisitions and assumes no shares repurchased under the
authorization available to the company. The non-GAAP effective tax
rate for 2007 is expected to be approximately 34.1%. GAAP net
earnings per diluted share from continuing operations in 2007 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 fourth
quarter and full-year results today, Tuesday, February 27, 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 706.634.1139. 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 706.645.9291, passcode 7305104. 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
December 31, 2006 and December 31, 2005 (UNAUDITED) (In millions,
except per share data) December 31, 2006 December 31, 2005 Assets
Current Assets Cash and cash equivalents $211.4 $366.7 Receivables,
less allowance for doubtful accounts 1,638.6 1,529.1 Inventories
501.8 481.4 Prepaid expenses and other current assets 70.4 67.5
Deferred income taxes 94.8 177.0 Total Current Assets 2,517.0
2,621.7 Property, plant and equipment - net 2,142.3 2,138.6
Goodwill 2,886.8 2,750.7 Other intangible assets - net 1,119.8
1,094.3 Prepaid pension cost 638.6 514.1 Other noncurrent assets
331.3 254.3 Total Assets $9,635.8 $9,373.7 Liabilities Current
Liabilities Accounts payable 749.1 718.1 Accrued liabilities 839.2
826.9 Short-term debt and current portion of long-term debt 23.5
269.1 Total Current Liabilities 1,611.8 1,814.1 Long-term debt
2,358.6 2,365.4 Postretirement benefit obligations 288.0 330.6
Deferred income taxes 604.1 596.8 Other noncurrent liabilities
645.4 541.2 Liabilities from discontinued operations 3.2 1.4 Total
Liabilities $5,511.1 $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
2,871.8 2,888.2 Retained earnings 1,615.0 1,439.4 Accumulated other
comprehensive income (loss) 62.1 (90.2) Unearned compensation -
(44.9) Treasury stock, at cost, 24.2 shares in 2006 (2005 - 25.5
shares) (727.9) (772.0) Total Shareholders' Equity $4,124.7
$3,724.2 Total Liabilities and Shareholders' Equity $9,635.8
$9,373.7 R. R. Donnelley & Sons Company Consolidated Statements
of Operations Three and Twelve Months Ended December 31, 2006 and
2005 (In millions, except per share data) (UNAUDITED) Three months
ended December 31, ADJUSTMENTS 2006 ADJUSTMENTS 2005 2006 TO NON-
2005 TO NON- GAAP NON-GAAP GAAP GAAP NON-GAAP GAAP Net sales
$2,467.3 $- $2,467.3 $2,387.9 $- $2,387.9 Cost of sales (exclusive
of depreciation and amortization shown below) 1,832.7 - 1,832.7
1,761.2 - 1,761.2 Selling, general and administrative expenses
(exclusive of depreciation and amortization shown below) 291.8 -
291.8 293.8 (1.9) 291.9 Restructuring and impairment charges - net
168.3 (168.3) - 377.7 (377.7) - Depreciation and amortization 118.3
- 118.3 113.6 - 113.6 Total operating expenses 2,411.1 (168.3)
2,242.8 2,546.3 (379.6) 2,166.7 Income (loss) from continuing
operations 56.2 168.3 224.5 (158.4) 379.6 221.2 Interest expense -
net 33.3 - 33.3 33.9 - 33.9 Investment and other income (expense) -
net (6.4) 9.9 3.5 4.1 - 4.1 Earnings (loss) from continuing
operations before income taxes and minority interest 16.5 178.2
194.7 (188.2) 379.6 191.4 Income tax expense 13.9 23.5 37.4 48.6
9.3 57.9 Minority interest 3.7 - 3.7 (0.8) - (0.8) Net earnings
(loss) from continuing operations (1.1) 154.7 153.6 (236.0) 370.3
134.3 Income (loss) from discontinued operations - net of tax (0.1)
0.1 - 73.5 (73.5) - Net earnings (loss) $(1.2) $154.8 $153.6
$(162.5) $296.8 $134.3 Earnings (loss) per share: Basic: Net
earnings (loss) from continuing operations $(0.01) $0.71 $(1.09)
$0.62 Income (loss) from discontinued operations, net of tax - -
0.34 - Net earnings (loss) $(0.01) $0.71 $(0.75) $0.62 Diluted: Net
earnings (loss) from continuing operations $(0.01) $0.70 $(1.09)
$0.62 Income (loss) from discontinued operations, net of tax - -
0.34 - Net earnings (loss) $(0.01) $0.70 $(0.75) $0.62 Weighted
average common shares outstanding: Basic 217.1 217.1 215.9 215.9
Diluted 217.1 219.7 215.9 217.5 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 Twelve Months Ended
December 31, 2006 and 2005 (In millions, except per share data)
(UNAUDITED) Twelve months ended December 31, ADJUSTMENTS 2006
ADJUSTMENTS 2005 2006 TO NON- 2005 TO NON- GAAP NON-GAAP GAAP GAAP
NON-GAAP GAAP Net sales $9,316.6 $- $9,316.6 $8,430.2 $- $8,430.2
Cost of sales (exclusive of depreciation and amortization shown
below) 6,798.9 - 6,798.9 6,090.3 (0.1) 6,090.2 Selling, general and
administrative expenses (exclusive of depreciation and amortization
shown below) 1,097.6 - 1,097.6 1,044.7 (8.2) 1,036.5 Restructuring
and impairment charges - net 206.1 (206.1) - 419.8 (419.8) -
Depreciation and amortization 463.3 - 463.3 425.0 - 425.0 Total
operating expenses 8,565.9 (206.1) 8,359.8 7,979.8 (428.1) 7,551.7
Income (loss) from continuing operations 750.7 206.1 956.8 450.4
428.1 878.5 Interest expense - net 139.0 - 139.0 110.7 - 110.7
Investment and other income (expense) - net (10.4) 9.9 (0.5) (7.9)
- (7.9) Earnings (loss) from continuing operations before income
taxes and minority interest 601.3 216.0 817.3 331.8 428.1 759.9
Income tax expense 196.0 60.6 256.6 237.4 27.3 264.7 Minority
interest 2.7 - 2.7 (1.2) - (1.2) Net earnings (loss) from
continuing operations 402.6 155.4 558.0 95.6 400.8 496.4 Income
(loss) from discontinued operations - net of tax (2.0) 2.0 - 41.5
(41.5) - Net earnings (loss) $400.6 $157.4 $558.0 $137.1 $359.3
$496.4 Earnings (loss) per share: Basic: Net earnings (loss) from
continuing operations $1.86 $2.58 $0.45 $2.31 Income (loss) from
discontinued operations, net of tax (0.01) - 0.19 - Net earnings
(loss) $1.85 $2.58 $0.64 $2.31 Diluted: Net earnings (loss) from
continuing operations $1.84 $2.55 $0.44 $2.29 Income (loss) from
discontinued operations, net of tax (0.01) - 0.19 - Net earnings
(loss) $1.83 $2.55 $0.63 $2.29 Weighted average common shares
outstanding: Basic 216.4 216.4 215.0 215.0 Diluted 218.9 218.9
216.7 216.7 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 December 31, 2006 Income from Net earnings
continuing Operating Net earnings per diluted operations margin
(loss) share GAAP basis measures $56.2 2.3% $(1.2) $(0.01) Non-GAAP
adjustments: Restructuring and impairment charges, net (1) 168.3
6.8% 148.7 0.68 Integration charges (2) - - - - Income tax
adjustments - - - - Net loss (income) from discontinued operations
(3) - - 0.1 0.00 Other Non-GAAP adjustments, net (4) - - 6.0 0.03
Total non-GAAP adjustments 168.3 6.8% 154.8 0.71 Non-GAAP measures
$224.5 9.1% $153.6 $0.70 (1) Restructuring and impairment
(pre-tax): Operating results for the three months ended December
31, 2006 and 2005 were affected by the following restructuring and
impairment charges: - 2006 included $26.9 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; $2.8
million of other restructuring costs, including lease termination
and other facility closure costs; and $138.6 million of impairment
charges, of which approximately $110.0 million related to the
impairment of goodwill for Global Document Solutions, $26.3 million
related to the write- down of the Astron trade name and $2.3
million related to the impairment of other long-lived assets. -
2005 included $2.8 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; $10.6 million of other restructuring costs,
substantially all lease termination costs associated with exited
facilities; and $364.3 million of impairment charges, of which
$362.3 million related to goodwill and indefinite-lived intangible
assets in the Global Services segment and $2.0 million related to
the impairment of other long-lived assets. (2) Integration charges
(pre-tax): Operating income included post- acquisition integration
charges of $1.9 million in the three months ended December 31, 2005
related to the Moore Wallace acquisition. (3) Net loss (income)
from discontinued operations: Net loss from discontinued operations
for the three months ended December 31, 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 December 31, 2005, the net income
includes a gain on the sale of Peak Technologies of $77.3 million,
including the impact of related tax benefits of $79.0 million. (4)
Other Non-GAAP adjustments: For the three months ended December
31,2006, the Company recognized a write-down of $16.9 million
($10.1 million after tax) for the investment in affordable housing,
partially offset by a $7.0 million ($4.1 million after tax) gain on
the sale of certain investment property. R.R. Donnelley & Sons
Company Reconciliation of GAAP to Non-GAAP Measures IN MILLIONS,
EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED) Three months ended
December 31, 2005 Income from Net earnings continuing Operating Net
earnings per diluted operations margin (loss) share GAAP basis
measures $(158.4) -6.6% $(162.5) $(0.75) Non-GAAP adjustments:
Restructuring and impairment charges, net (1) 377.7 15.8% 368.7
1.70 Integration charges (2) 1.9 0.1% 1.2 0.01 Income tax
adjustments - - 0.4 0.00 Net loss (income) from discontinued
operations (3) - - (73.5) (0.34) Other Non-GAAP adjustments, net
(4) - - - - Total non-GAAP adjustments 379.6 15.9% 296.8 1.37
Non-GAAP measures $221.2 9.3% $134.3 $0.62 (1) Restructuring and
impairment (pre-tax): Operating results for the three months ended
December 31, 2006 and 2005 were affected by the following
restructuring and impairment charges: - 2006 included $26.9 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; $2.8 million of other restructuring costs,
including lease termination and other facility closure costs; and
$138.6 million of impairment charges, of which approximately $110.0
million related to the impairment of goodwill for Global Document
Solutions, $26.3 million related to the write- down of the Astron
trade name and $2.3 million related to the impairment of other
long-lived assets. - 2005 included $2.8 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; $10.6
million of other restructuring costs, substantially all lease
termination costs associated with exited facilities; and $364.3
million of impairment charges, of which $362.3 million related to
goodwill and indefinite-lived intangible assets in the Global
Services segment and $2.0 million related to the impairment of
other long-lived assets. (2) Integration charges (pre-tax):
Operating income included post- acquisition integration charges of
$1.9 million in the three months ended December 31, 2005 related to
the Moore Wallace acquisition. (3) Net loss (income) from
discontinued operations: Net loss from discontinued operations for
the three months ended December 31, 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 December 31, 2005, the net income
includes a gain on the sale of Peak Technologies of $77.3 million,
including the impact of related tax benefits of $79.0 million. (4)
Other Non-GAAP adjustments: For the three months ended December
31,2006, the Company recognized a write-down of $16.9 million
($10.1 million after tax) for the investment in affordable housing,
partially offset by a $7.0 million ($4.1 million after tax) gain on
the sale of certain investment property. R. R. Donnelley & Sons
Company Reconciliation of GAAP to Non-GAAP Measures IN MILLIONS,
EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED) Twelve months ended
December 31, 2006 Income from Net earnings continuing Operating Net
earnings per diluted operations margin (loss) share GAAP basis
measures $750.7 8.1% $400.6 $1.83 Non-GAAP adjustments:
Restructuring and impairment charges, net (1) 206.1 2.2% 172.9 0.79
Integration charges (2) - - - - Income tax adjustments (3) - -
(23.5) (0.11) Net loss (income) from discontinued operations (4) -
- 2.0 0.01 Other Non-GAAP adjustments, net (5) - - 6.0 0.03 Total
non-GAAP adjustments 206.1 2.2% 157.4 0.72 Non-GAAP measures $956.8
10.3% $558.0 $2.55 (1) Restructuring and impairment (pre-tax):
Operating results for the nine months ended December 31, 2006 and
2005 were affected by the following restructuring and impairment
charges: - 2006 included $54.1 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; $11.1 million of other
restructuring costs, primarily lease termination costs; and $140.9
of impairment charges, of which approximately $110.0 million
related to the impairment of goodwill for Global Document
Solutions, $26.3 million related to the write-down of the Astron
trade name and $4.6 million related to the impairment of other
long-lived assets. - 2005 included $15.9 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; $33.8
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 $370.1 million of
impairment charges, of which $362.3 million related to goodwill and
indefinite-lived intangible assets in the Global Services Segment
and $7.8 million related to the impairment of other long-lived
assets. (2) Integration charges (pre-tax): Operating income
included post- acquisition integration charges of $8.3 million in
the twelve months ended December 31, 2005 primarily related to the
Moore Wallace acquisition and Corporate information systems
integration. (3) Income tax adjustments: Income tax expense for the
twelve months ended December 31, 2006 included a $23.5 million
benefit from the realization of a deferred tax asset. (4) Net loss
(income) from discontinued operations: Net loss from discontinued
operations for the twelve months ended December 31, 2006 primarily
reflects costs resulting from a subtenant bankruptcy related to a
facility previously occupied by the Company's package logistics
business. For the twelve months ended December 31, 2005, the net
income includes income from Peak Technologies of $42 million,
including the impact of related pre-tax impairment charges of $36.6
million and tax benefits of $93.5 million. (5) Other Non-GAAP
adjustments: For the twelve months ended December 31,2006, the
Company recognized a write-down of $16.9 million ($10.1 million
after tax) for the investment in affordable housing, partially
offset by a $7.0 million ($4.1 million after tax) gain on the sale
of certain investment property. R. R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures IN MILLIONS, EXCEPT PER
SHARE AND MARGIN DATA (UNAUDITED) Twelve months ended December 31,
2005 Income from Net earnings continuing Operating Net earnings per
diluted operations margin (loss) share GAAP basis measures $450.4
5.3% $137.1 $0.63 Non-GAAP adjustments: Restructuring and
impairment charges, net (1) 419.8 5.0% 395.6 1.83 Integration
charges (2) 8.3 0.1% 5.2 0.02 Income tax adjustments (3) - - - -
Net loss (income) from discontinued operations (4) - - (41.5)
(0.19) Other Non-GAAP adjustments, net (5) - - - - Total non-GAAP
adjustments 428.1 5.1% 359.3 1.66 Non-GAAP measures $878.5 10.4%
$496.4 $2.29 (1) Restructuring and impairment (pre-tax): Operating
results for the nine months ended December 31, 2006 and 2005 were
affected by the following restructuring and impairment charges: -
2006 included $54.1 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; $11.1 million of other
restructuring costs, primarily lease termination costs; and $140.9
of impairment charges, of which approximately $110.0 million
related to the impairment of goodwill for Global Document
Solutions, $26.3 million related to the write-down of the Astron
trade name and $4.6 million related to the impairment of other
long-lived assets. - 2005 included $15.9 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; $33.8
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 $370.1 million of
impairment charges, of which $362.3 million related to goodwill and
indefinite-lived intangible assets in the Global Services Segment
and $7.8 million related to the impairment of other long-lived
assets. (2) Integration charges (pre-tax): Operating income
included post- acquisition integration charges of $8.3 million in
the twelve months ended December 31, 2005 primarily related to the
Moore Wallace acquisition and Corporate information systems
integration. (3) Income tax adjustments: Income tax expense for the
twelve months ended December 31, 2006 included a $23.5 million
benefit from the realization of a deferred tax asset. (4) Net loss
(income) from discontinued operations: Net loss from discontinued
operations for the twelve months ended December 31, 2006 primarily
reflects costs resulting from a subtenant bankruptcy related to a
facility previously occupied by the Company's package logistics
business. For the twelve months ended December 31, 2005, the net
income includes income from Peak Technologies of $42 million,
including the impact of related pre-tax impairment charges of $36.6
million and tax benefits of $93.5 million. (5) Other Non-GAAP
adjustments: For the twelve months ended December 31,2006, the
Company recognized a write-down of $16.9 million ($10.1 million
after tax) for the investment in affordable housing, partially
offset by a $7.0 million ($4.1 million after tax) gain on the sale
of certain investment property. R. R. Donnelley & Sons Company
Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation
For the three months ended March 31, 2006 and 2005 $ IN MILLIONS
(UNAUDITED) Global Print Global Solutions Services Corporate
Consolidated Three Months Ended March 31, 2006 Net Sales $1,371.7
$895.1 $- $2,266.8 Operating Expense 1,194.6 811.8 48.4 2,054.9
Operating Income (Loss) 177.1 83.3 (48.4) 211.9 Operating Margin %
12.9% 9.3% nm 9.3% Non-GAAP Adjustments Restructuring charges 5.2
5.0 6.0 16.2 Impairment charges - 0.4 - 0.4 Integration charges - -
- - Total Non-GAAP Adjustments 5.2 5.4 6.0 16.6 Operating income
(loss) excluding restructuring, impairment and integration charges
$182.3 $88.7 $(42.4) $228.5 Operating margin before restructuring,
impairment and integration charges % 13.3% 9.9% nm 10.1%
Depreciation and amortization 67.6 39.4 7.8 114.8 Capital
expenditures 76.4 11.2 3.3 90.9 Three Months Ended March 31, 2005
Net Sales $1,216.7 $709.8 $- $1,926.5 Operating Expense 1,044.4
639.8 45.2 1,729.4 Operating Income (Loss) 172.3 70.0 (45.2) 197.1
Operating Margin % 14.2% 9.9% nm 10.2% Non-GAAP Adjustments
Restructuring charges 1.6 6.6 2.7 10.9 Impairment charges 0.1 1.2 -
1.3 Integration charges 0.6 0.5 1.4 2.5 Total Non-GAAP Adjustments
2.3 8.3 4.1 14.7 Operating income (loss) excluding restructuring,
impairment and integration $174.6 $78.3 $(41.1) $211.8 Operating
margin before restructuring, impairment and integration charges %
14.4% 11.0% nm 11.0% Depreciation and amortization 60.3 30.8 7.6
98.7 Capital expenditures 79.3 9.9 4.6 93.8 R. R. Donnelley &
Sons Company Segment GAAP to Non-GAAP Operating Income and Margin
Reconciliation For the three months ended June 30, 2006 and 2005 $
IN MILLIONS (UNAUDITED) Global Print Global Solutions Services
Corporate Consolidated Three Months Ended June 30, 2006 Net Sales
$1,357.1 $916.7 $- $2,273.7 Operating Expense 1,159.1 839.0 53.8
2,051.9 Operating Income (Loss) 197.9 77.7 (53.8) 221.8 Operating
Margin % 14.6% 8.5% nm 9.8% Non-GAAP Adjustments Restructuring
charges 2.3 9.7 0.7 12.7 Impairment charges - 1.9 - 1.9 Integration
charges - - - - Total Non-GAAP Adjustments 2.3 11.6 0.7 14.6
Operating income (loss) excluding restructuring, impairment and
integration charges $200.2 $89.3 $(53.1) $236.4 Operating margin
before restructuring, impairment and integration charges % 14.8%
9.7% nm 10.4% Depreciation and amortization 66.7 40.3 7.1 114.2
Capital expenditures 65.6 18.5 2.7 86.8 Three Months Ended June 30,
2005 Net Sales $1,193.2 $738.9 $- $1,932.1 Operating Expense
1,043.4 664.9 48.2 1,756.5 Operating Income (Loss) 149.8 74.1
(48.2) 175.6 Operating Margin % 12.6% 10.0% nm 9.1% Non-GAAP
Adjustments Restructuring charges 6.8 2.9 12.5 22.2 Impairment
charges 1.2 0.9 0.1 2.2 Integration charges 0.1 0.3 2.2 2.6 Total
Non-GAAP Adjustments 8.1 4.1 14.8 27.0 Operating income (loss)
excluding restructuring, impairment and integration $157.9 $78.2
$(33.4) $202.6 Operating margin before restructuring, impairment
and integration charges % 13.2% 10.6% nm 10.5% Depreciation and
amortization 60.3 32.0 7.4 99.6 Capital expenditures 107.2 13.0
10.2 130.4 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)
Global Print Global Solutions Services Corporate Consolidated Three
Months Ended September 30, 2006 Net Sales $1,445.4 $863.4 $-
$2,308.7 Operating Expense 1,216.4 788.7 42.8 2,047.9 Operating
Income (Loss) 228.9 74.6 (42.8) 260.8 Operating Margin % 15.8% 8.6%
nm 11.3% Non-GAAP Adjustments Restructuring charges 0.9 3.4 2.3 6.6
Impairment charges 0.1 (0.1) - - Integration charges - - - - Total
Non-GAAP Adjustments 1.0 3.3 2.3 6.6 Operating income (loss)
excluding restructuring, impairment and integration charges $229.9
$77.9 $(40.5) $267.4 Operating margin before restructuring,
impairment and integration charges % 15.9% 9.0% nm 11.6%
Depreciation and amortization 68.0 40.7 7.3 116.0 Capital
expenditures 57.6 15.0 7.9 80.5 Three Months Ended September 30,
2005 Net Sales $1,349.6 $834.1 $- $2,183.7 Operating Expense
1,154.2 748.2 45.2 1,947.6 Operating Income (Loss) 195.4 85.9
(45.2) 236.1 Operating Margin % 14.5% 10.3% nm 10.8% Non-GAAP
Adjustments Restructuring charges 0.7 1.3 1.2 3.2 Impairment
charges 1.9 0.4 - 2.3 Integration charges 0.1 0.1 1.1 1.3 Total
Non-GAAP Adjustments 2.7 1.8 2.3 6.8 Operating income (loss)
excluding restructuring, impairment and integration $198.1 $87.7
$(42.9) $242.9 Operating margin before restructuring, impairment
and integration charges % 14.7% 10.5% nm 11.1% Depreciation and
amortization 63.0 42.3 7.7 113.0 Capital expenditures 87.7 7.4 4.9
100.0 R. R. Donnelley & Sons Company Segment GAAP to Non-GAAP
Operating Income and Margin Reconciliation For the three months
ended December 31, 2006 and 2005 $ IN MILLIONS (UNAUDITED) Global
Print Global Solutions Services Corporate Consolidated Three Months
Ended December 31, 2006 Net Sales $1,553.1 $914.2 $- $2,467.3
Operating Expense 1,329.7 1,009.3 72.1 2,411.1 Operating Income
(Loss) 223.4 (95.1) (72.1) 56.2 Operating Margin % 14.4% (10.4)% nm
2.3% Non-GAAP Adjustments Restructuring charges 2.2 9.4 18.1 29.7
Impairment charges 1.4 136.8 0.4 138.6 Integration charges - - - -
Total Non-GAAP Adjustments 3.6 146.2 18.5 168.3 Operating income
(loss) excluding restructuring, impairment and integration charges
$227.0 $51.1 $(53.6) $224.5 Operating margin before restructuring,
impairment and integration charges % 14.6% 5.6% nm 9.1%
Depreciation and amortization 68.8 42.5 7.0 118.3 Capital
expenditures 86.0 22.1 8.0 116.1 Three Months Ended December 31,
2005 Net Sales $1,518.0 $869.9 $- $2,387.9 Operating Expense
1,316.2 1,165.2 64.9 2,546.3 Operating Income (Loss) 201.8 (295.3)
(64.9) (158.4) Operating Margin % 13.3% (33.9)% nm (6.6)% Non-GAAP
Adjustments Restructuring charges 3.1 3.5 6.8 13.4 Impairment
charges 0.1 362.6 1.6 364.3 Integration charges 0.2 (0.1) 1.8 1.9
Total Non-GAAP Adjustments 3.4 366.0 10.2 379.6 Operating income
(loss) excluding restructuring, impairment and integration $205.2
$70.7 $(54.7) $221.2 Operating margin before restructuring,
impairment and integration charges % 13.5% 8.1% nm 9.3%
Depreciation and amortization 67.1 38.0 8.5 113.6 Capital
expenditures 106.3 29.0 11.5 146.8 R. R. Donnelley & Sons
Company Segment GAAP to Non-GAAP Operating Income and Margin
Reconciliation For the Twelve months ended December 31, 2006 and
2005 $ IN MILLIONS (UNAUDITED) Global Print Global Solutions
Services Corporate Consolidated Twelve Months Ended December 31,
2006 Net Sales $5,727.2 $3,589.4 $- $9,316.6 Operating Expense
4,899.9 3,448.8 217.2 8,565.9 Operating Income (Loss) 827.3 140.6
(217.2) 750.7 Operating Margin % 14.4% 3.9% nm 8.1% Non-GAAP
Adjustments Restructuring charges 10.6 27.5 27.1 65.2 Impairment
charges 1.5 139.0 0.4 140.9 Integration charges - - - - Total
Non-GAAP Adjustments 12.1 166.5 27.5 206.1 Operating income (loss)
excluding restructuring, impairment and integration charges $839.4
$307.1 $(189.7) $956.8 Operating margin before restructuring,
impairment and integration charges % 14.7% 8.6% nm 10.3%
Depreciation and amortization 271.0 163.0 29.3 463.3 Capital
expenditures 285.6 66.8 21.9 374.3 Twelve Months Ended December 31,
2005 Net Sales $5,277.5 $3,152.7 $- $8,430.2 Operating Expense
4,558.1 3,218.2 203.5 7,979.8 Operating Income (Loss) 719.4 (65.5)
(203.5) 450.4 Operating Margin % 13.6% (2.1)% nm 5.3% Non-GAAP
Adjustments Restructuring charges 12.2 14.3 23.2 49.7 Impairment
charges 3.3 365.1 1.7 370.1 Integration charges 1.0 0.8 6.5 8.3
Total Non-GAAP Adjustments 16.5 380.2 31.4 428.1 Operating income
(loss) excluding restructuring, impairment and integration $735.9
$314.7 $(172.1) $878.5 Operating margin before restructuring,
impairment and integration charges % 13.9% 10.0% nm 10.4%
Depreciation and amortization 250.8 143.0 31.2 425.0 Capital
expenditures 380.4 59.4 31.2 471.0 R. R. Donnelley & Sons
Company Condensed Consolidated Statements of Cash Flows For the
twelve months ended December 31, 2006 and 2005 IN MILLIONS
(UNAUDITED) 2006 2005 Operating Activities Net earnings $400.6
$137.1 Net loss (income) from discontinued operations 2.0 (41.5)
Adjustment to reconcile net earnings to cash provided by operating
activities 694.3 894.7 Changes in operating assets and liabilities
(193.2) (18.8) Net cash provided by operating activities of
continuing operations 903.7 971.5 Net cash (used in) provided by
operating activities of discontinued operations (0.2) (24.0) Net
cash provided by operating activities 903.5 947.5 Net cash used in
investing activities of continuing operations (608.4) (1,621.9) Net
cash (used in) provided by investing activities of discontinued
operations - 19.4 Net cash used in investing activities (608.4)
(1,602.5) Net cash (used in) provided by financing activities of
continuing operations (457.8) 378.5 Net cash used in financing
activities of discontinued operations - - Net cash (used in)
provided by financing activities (457.8) 378.5 Effect of exchange
rate on cash and cash equivalents 7.4 1.4 Net decrease in cash and
cash equivalents (155.3) (275.1) Cash and cash equivalents at
beginning of period 366.7 641.8 Cash and cash equivalents at end of
period $211.4 $366.7 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 December 31, 2006 and 2005 $ IN MILLIONS
(UNAUDITED) Adjustment for net sales of Reported acquired Pro forma
net sales businesses net sales Three Months Ended December 31, 2006
Global Print Solutions $1,553.1 $- $1,553.1 Global Services 914.2 -
914.2 Corporate - - - Consolidated $2,467.3 $- $2,467.3 Three
Months Ended December 31, 2005 Global Print Solutions $1,518.0 $8.5
$1,526.5 Global Services 869.9 24.3 894.2 Corporate - - -
Consolidated $2,387.9 $32.8 $2,420.7 Net sales change Global Print
Solutions 2.3% 1.7% Global Services 5.1% 2.2% Corporate nm nm
Consolidated 3.3% 1.9% 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 December 31, 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
December 31, 2006, no adjustment was required as no acquisitions
occurred during the quarter ended. OfficeTiger was acquired on
April 27, 2006. For the quarter ended December 31, 2005 the
adjustment for net sales of acquired businesses reflects the net
sales of Spencer Press (acquired November 9, 2005) and OfficeTiger
(acquired April 27, 2006) for the three months ended December 31,
2005 as if the respective acquisitions had occurred on October 1,
2005. R.R. Donnelley & Sons Company Revenue Reconciliation
Reported to Pro Forma For the twelve months ended December 31, 2006
and 2005 $ IN MILLIONS (UNAUDITED) Adjustment for net sales of
Reported acquired Pro forma net sales businesses net sales Twelve
Months Ended December 31, 2006 Global Print Solutions $5,727.2 $-
$5,727.2 Global Services 3,589.4 35.2 3,624.6 Corporate - - -
Consolidated $9,316.6 $35.2 $9,351.8 Twelve Months Ended December
31, 2005 Global Print Solutions $5,277.5 $166.9 $5,444.4 Global
Services 3,152.7 337.8 3,490.5 Corporate - - - Consolidated
$8,430.2 $504.7 $8,934.9 Net sales change Global Print Solutions
8.5% 5.2% Global Services 13.9% 3.8% Corporate nm nm Consolidated
10.5% 4.7% 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 twelve months ended December 31, 2006 and 2005 to pro forma
net sales as if the acquisitions took place at the beginning of the
respective periods. For the twelve months ended December 31, 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 twelve months
ended December 31, 2005 the adjustment for net sales of acquired
businesses reflects the net sales of the Astron Group (acquired
June 20, 3005), 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 twelve months ended December 31,
2005 as if the respective acquisitions had occurred on January 1,
2005. DATASOURCE: R.R. Donnelley & Sons Company CONTACT: Media,
Doug Fitzgerald, EVP, Marketing & Communications,
+1-312-326-7740, , or Investors, Dan Leib, SVP, Finance,
+1-312-326-7710, , both of R.R. Donnelley & Sons Company Web
site: http://www.rrdonnelley.com/
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