Highlights:
- Third-quarter 2012 GAAP income from operations of $186.7
million increased $29.9 million, or 19.1%, from GAAP income from
operations of $156.8 million in the third quarter of 2011
- Third-quarter 2012 non-GAAP income from operations of $201.9
million increased $10.2 million, or 5.3%, from non-GAAP income from
operations of $191.7 million in the third quarter of 2011
- Third-quarter 2012 GAAP operating margin of 7.4% increased 160
basis points from GAAP operating margin of 5.8% in the third
quarter of 2011
- Third-quarter 2012 non-GAAP operating margin of 8.0% increased
90 basis points from non-GAAP operating margin of 7.1% in the third
quarter of 2011
- Third-quarter 2012 GAAP earnings per diluted share of $0.39,
compared to GAAP earnings per diluted share of $0.83 in the third
quarter of 2011
- Third-quarter 2012 non-GAAP earnings per diluted share of $0.51
were flat to non-GAAP earnings per diluted share of $0.51 in the
third quarter of 2011
R.R. Donnelley & Sons Company (Nasdaq:RRD)
today reported third-quarter 2012 net earnings attributable to
common shareholders of $71.4 million, or $0.39 per diluted share,
on net sales of $2.5 billion compared to net earnings of $158.0
million, or $0.83 per diluted share, on net sales of $2.7 billion
in the third quarter of 2011. Third-quarter 2012 net earnings
attributable to common shareholders included pre-tax charges for
restructuring ($12.3 million) and impairment ($1.6 million,
non-cash), acquisition-related expenses ($1.3 million) and a tax
provision related to certain foreign earnings no longer considered
to be permanently reinvested ($11.0 million). Third-quarter 2011
net earnings attributable to common shareholders included pre-tax
charges for restructuring ($23.6 million) and impairment ($10.6
million, non-cash), a loss on debt extinguishment ($1.3 million)
and acquisition-related expenses ($0.7 million), partially offset
by the recognition of previously unrecognized tax benefits ($77.4
million, non-cash).
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 attributable to common shareholders
totaled $92.9 million, or $0.51 per diluted share, in the third
quarter of 2012 compared to $98.0 million, or $0.51 per diluted
share, in the third quarter of 2011. Third-quarter non-GAAP net
earnings attributable to common shareholders exclude restructuring
and impairment charges and acquisition-related expenses in both
years, as well as the recognition of a tax provision related to
certain foreign earnings no longer considered to be permanently
reinvested in 2012, and in 2011, the loss on debt extinguishment
and the recognition of previously unrecognized tax benefits. For
non-GAAP comparison purposes, the effective tax rate increased to
33.1% in the third quarter of 2012 from 24.1% in the third quarter
of 2011, primarily due to certain state tax matters in the third
quarter of 2011. A reconciliation of GAAP net earnings attributable
to common shareholders to non-GAAP net earnings attributable to
common shareholders is presented in the attached schedules.
"While our top line continues to be pressured by challenging
industry dynamics and ongoing global economic headwinds, we
remained focused on managing our cost structure to drive improved
operating earnings and margins in the third quarter," said Thomas
J. Quinlan III, RR Donnelley's President and Chief Executive
Officer. "As we close the year and look ahead to 2013, our focus on
aggressively aligning the cost structure with revenue will remain
intact."
Business Review
The Company reports its results in two reportable
segments: 1) U.S. Print and Related Services and 2)
International. The Company reports as Corporate its
unallocated expenses associated with general and administrative
activities.
Summary
Net sales in the quarter were $2.5 billion, down $174.5 million,
or 6.5%, from the third quarter of 2011. Pro forma for
acquisitions, net sales decreased 6.9% due to volume declines, a
118 basis point unfavorable impact of changes in foreign exchange
rates, price erosion and a 46 basis point unfavorable impact of
lower pass-through paper sales. Gross margin of 22.8% in the
third quarter of 2012 declined from 23.4% in the third quarter of
2011 as unfavorable pricing on by-products, volume declines and
pricing pressure more than offset lower variable compensation
expense, productivity improvements and lower pension
expense. SG&A expense as a percentage of net sales in the
third quarter of 2012 improved to 10.1% from 11.1% in the third
quarter of 2011, primarily due to productivity improvements
resulting from focused cost reduction actions, lower pension
expense and lower variable compensation expense. Operating
earnings in the third quarter of 2012 were $186.7 million, which
were impacted by restructuring and impairment charges and
acquisition-related expenses totaling $15.2 million, compared to
operating earnings in the third quarter of 2011 of $156.8 million,
which included restructuring and impairment charges and
acquisition-related expenses totaling $34.9 million.
Excluding restructuring and impairment charges and
acquisition-related expenses, non-GAAP operating income increased
from $191.7 million in the third quarter of 2011 to $201.9 million
in the third quarter of 2012 and non-GAAP operating margin improved
90 basis points, from 7.1% in the third quarter of 2011 to 8.0% in
the third quarter of 2012. Lower variable compensation
expense, lower pension expense, lower depreciation and amortization
and productivity improvements more than offset lower volume, an
unfavorable product mix, continued pricing pressure and unfavorable
pricing on by-products.
Segments
Net sales for the U.S. Print and Related Services segment
decreased 6.4% from the third quarter of 2011 to $1.9 billion in
the third quarter of 2012. Pro forma for acquisitions, net
sales in the segment decreased 6.9% due to volume declines across
most product offerings, lower pass-through paper sales of $18.6
million, or 93 basis points, and continued pricing pressure across
the segment. The segment's operating income of $178.7 million
in the third quarter of 2012, which was negatively impacted by
charges for restructuring and impairment of $9.4 million, increased
$9.4 million from operating income of $169.3 million in the third
quarter of 2011, which included charges for restructuring and
impairment of $28.1 million. The segment's non-GAAP operating
income of $188.1 million in the third quarter of 2012 declined by
$9.3 million from the third quarter of 2011, though the segment's
non-GAAP operating margin of 10.1% in the third quarter of 2012
improved by 10 basis points from the third quarter of 2011, as
productivity improvements, lower variable compensation expense and
lower depreciation and amortization were partially offset by volume
declines, an unfavorable product mix, unfavorable pricing on
by-products and pricing pressure.
Net sales for the International segment of $655.4 million
decreased 6.9% from the third quarter of 2011, inclusive of a 453
basis point unfavorable impact from changes in foreign exchange
rates. The balance of the change in net sales was driven by
timing shifts in Latin America, volume declines in Europe and
pricing pressure across the segment, partially offset by volume
increases in Asia, Global Turnkey Solutions and Business Process
Outsourcing and higher pass-through paper sales. The segment's
operating income of $27.5 million in the third quarter of 2012,
which was negatively impacted by charges for restructuring of $4.4
million, decreased by $9.2 million from operating income of $36.7
million in the third quarter of 2011, which included charges for
restructuring of $4.6 million. The segment's non-GAAP
operating margin declined to 4.9% in the third quarter of 2012 from
5.9% in the third quarter of 2011 as an unfavorable product mix,
pricing pressure and wage and other inflationary increases in
certain countries were partially offset by lower variable
compensation expense, lower depreciation and amortization and a
favorable impact from changes in foreign exchange rates.
Unallocated Corporate operating expenses decreased to $19.5
million in the third quarter of 2012 as compared to $49.2 million
in the third quarter of 2011. Excluding charges for
restructuring and impairment and acquisition-related expenses
totaling $1.4 million in the third quarter of 2012 and $2.2 million
in the third quarter of 2011, unallocated Corporate operating
expenses decreased $28.9 million to $18.1 million in the third
quarter of 2012. Lower pension expense, a lower LIFO inventory
provision, lower variable compensation expense and targeted cost
reductions were partially offset by the reinstatement of the 401(k)
match and higher benefits-related expense.
Outlook - 2012 Full-Year Guidance
For the full year of 2012, the Company expects revenue of
approximately $10.1 billion to $10.2 billion, which reflects an
anticipated unfavorable impact of changes in foreign exchange rates
and pass-through paper sales of approximately $170
million. The Company expects non-GAAP operating margin in the
range of 7.2% to 7.3% and non-GAAP net earnings per diluted share
to be at the lower end of its previous guidance range of $1.84 to
$1.92. This guidance assumes no additional shares are
repurchased pursuant to the current authorization from the
Company's board of directors. The non-GAAP effective tax rate for
2012 is expected to be in the range of 30% to 33%. GAAP net
earnings per diluted share in 2012 may include restructuring and
impairment charges, acquisition-related expenses, 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. The Company also expects to deliver 2012 operating cash
flow less capital expenditures of approximately $450 million. In
addition, the guidance above assumes that Hurricane Sandy will not
have a significant impact on demand for our products and services
or on the Company's operating results in the fourth quarter.
Conference Call
RR Donnelley will host a conference call and simultaneous
webcast to discuss its third-quarter results today, Thursday,
November 1, 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: www.rrdonnelley.com. Individuals wishing to
participate can join the conference call by dialing 847.413.9014,
confirmation number 33486561. 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 630.652.3042, passcode 9850121#.
About RR Donnelley
RR Donnelley (Nasdaq:RRD) is a global provider of integrated
communications. The Company works collaboratively with more
than 60,000 customers worldwide to develop custom communications
solutions that reduce costs, drive top-line growth, enhance ROI and
ensure compliance. Drawing on a range of proprietary and
commercially available digital and conventional technologies
deployed across four continents, the Company employs a suite of
leading Internet-based capabilities and other resources to provide
premedia, printing, logistics and business process outsourcing
services to clients in virtually every private and public
sector.
For more information, and for RR Donnelley's Corporate Social
Responsibility Report, 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 integration of the sales force, cost containment,
asset rationalization and other key strategies; competitive
pressures in all markets in which the company operates; the
volatility and disruption of the capital and credit markets, and
adverse changes in the global economy; the Company's ability to
access unsecured debt in the capital markets and the reliability of
the participants to the Company's contractual lending and insurance
agreements; 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; customers' financial strength; 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 |
Condensed Consolidated Balance
Sheets |
As of September 30, 2012 and
December 31, 2011 |
(UNAUDITED) |
(in millions, except per share
data) |
|
|
|
September 30,
2012 |
December 31,
2011 |
Assets |
|
|
|
|
|
Cash and cash
equivalents |
$ 392.9 |
$ 449.7 |
Receivables, less allowance for
doubtful accounts |
2,035.9 |
1,844.2 |
Income taxes
receivable |
14.2 |
32.4 |
Inventories |
546.5 |
510.9 |
Prepaid expenses and other
current assets |
149.4 |
131.4 |
Total Current Assets |
3,138.9 |
2,968.6 |
Property, plant and equipment -
net |
1,668.4 |
1,854.6 |
Goodwill |
2,269.4 |
2,222.1 |
Other intangible assets -
net |
547.1 |
590.3 |
Other noncurrent
assets |
680.1 |
646.1 |
Total
Assets |
$ 8,303.9 |
$ 8,281.7 |
|
|
|
Liabilities |
|
|
|
|
|
Accounts payable |
$ 1,094.5 |
$ 1,063.3 |
Accrued liabilities |
830.0 |
817.0 |
Short-term and current portion
of long-term debt |
364.1 |
243.7 |
Total Current
Liabilities |
2,288.6 |
2,124.0 |
Long-term debt |
3,422.3 |
3,416.8 |
Pension liabilities |
896.4 |
1,076.3 |
Postretirement
benefits |
222.3 |
227.3 |
Other noncurrent
liabilities |
324.1 |
375.1 |
Total
Liabilities |
7,153.7 |
7,219.5 |
Equity |
|
|
|
|
|
Common stock, $1.25 par
value |
303.7 |
303.7 |
Authorized shares:
500.0 |
|
|
Issued shares: 243.0 in 2012
and 2011 |
|
|
Additional paid-in
capital |
2,832.0 |
2,888.7 |
Retained earnings |
399.8 |
342.4 |
Accumulated other comprehensive
loss |
(839.0) |
(863.3) |
Treasury stock, at cost, 62.6
shares in 2012 (2011 - 64.5 shares) |
(1,565.2) |
(1,628.8) |
Total RR Donnelley
shareholders' equity |
1,131.3 |
1,042.7 |
Noncontrolling
interests |
18.9 |
19.5 |
Total
Equity |
1,150.2 |
1,062.2 |
Total Liabilities and
Equity |
$ 8,303.9 |
$ 8,281.7 |
|
|
R. R. Donnelley
& Sons Company |
Condensed Consolidated
Statements of Operations |
For the Three and Nine Months
Ended September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions, except per
share data) |
|
|
|
|
For the
Three Months Ended September 30, |
For the
Nine Months Ended September 30, |
|
2012
GAAP |
ADJUSTMENTS TO
NON-GAAP |
2012
NON-GAAP |
2011
GAAP |
ADJUSTMENTS TO
NON-GAAP |
2011
NON-GAAP |
2012
GAAP |
ADJUSTMENTS TO
NON-GAAP |
2012
NON-GAAP |
2011
GAAP |
ADJUSTMENTS TO
NON-GAAP |
2011
NON-GAAP |
Products |
$ 2,171.2 |
$ -- |
$ 2,171.2 |
$ 2,364.9 |
$ -- |
$ 2,364.9 |
$ 6,557.4 |
$ -- |
$ 6,557.4 |
$ 6,988.2 |
$ -- |
$ 6,988.2 |
Services |
337.6 |
-- |
337.6 |
318.4 |
-- |
318.4 |
1,004.9 |
-- |
1,004.9 |
902.0 |
-- |
902.0 |
Total net sales |
2,508.8 |
-- |
2,508.8 |
2,683.3 |
-- |
2,683.3 |
7,562.3 |
-- |
7,562.3 |
7,890.2 |
-- |
7,890.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Products cost of sales (exclusive of
depreciation and amortization) |
1,691.9 |
-- |
1,691.9 |
1,830.4 |
-- |
1,830.4 |
5,084.4 |
-- |
5,084.4 |
5,334.4 |
-- |
5,334.4 |
Services cost of sales (exclusive of
depreciation and amortization) |
243.9 |
-- |
243.9 |
225.9 |
-- |
225.9 |
730.3 |
-- |
730.3 |
659.7 |
-- |
659.7 |
Selling, general and administrative expenses
(exclusive of depreciation and amortization) |
253.4 |
(1.3) |
252.1 |
296.9 |
(0.7) |
296.2 |
812.8 |
(2.1) |
810.7 |
933.1 |
(2.0) |
931.1 |
Restructuring and impairment
charges-net |
13.9 |
(13.9) |
-- |
34.2 |
(34.2) |
-- |
97.9 |
(97.9) |
-- |
160.7 |
(160.7) |
-- |
Depreciation and
amortization |
119.0 |
-- |
119.0 |
139.1 |
-- |
139.1 |
364.9 |
-- |
364.9 |
420.0 |
-- |
420.0 |
Total operating expenses |
2,322.1 |
(15.2) |
2,306.9 |
2,526.5 |
(34.9) |
2,491.6 |
7,090.3 |
(100.0) |
6,990.3 |
7,507.9 |
(162.7) |
7,345.2 |
Income from
operations |
186.7 |
15.2 |
201.9 |
156.8 |
34.9 |
191.7 |
472.0 |
100.0 |
572.0 |
382.3 |
162.7 |
545.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense - net |
63.7 |
-- |
63.7 |
62.9 |
-- |
62.9 |
188.0 |
-- |
188.0 |
182.1 |
-- |
182.1 |
Investment and other (income) expense -
net |
(0.4) |
-- |
(0.4) |
(1.3) |
-- |
(1.3) |
3.2 |
(4.1) |
(0.9) |
(11.1) |
9.8 |
(1.3) |
Loss on debt extinguishment |
-- |
-- |
-- |
1.3 |
(1.3) |
-- |
12.1 |
(12.1) |
-- |
69.9 |
(69.9) |
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings before income
taxes |
123.4 |
15.2 |
138.6 |
93.9 |
36.2 |
130.1 |
268.7 |
116.2 |
384.9 |
141.4 |
222.8 |
364.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
52.2 |
(6.3) |
45.9 |
(64.8) |
96.2 |
31.4 |
70.6 |
53.6 |
124.2 |
(64.1) |
154.7 |
90.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
earnings |
71.2 |
21.5 |
92.7 |
158.7 |
(60.0) |
98.7 |
198.1 |
62.6 |
260.7 |
205.5 |
68.1 |
273.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Income (loss) attributable to
noncontrolling interests |
(0.2) |
-- |
(0.2) |
0.7 |
-- |
0.7 |
0.5 |
-- |
0.5 |
1.4 |
-- |
1.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings attributable to RR
Donnelley common shareholders |
$ 71.4 |
$ 21.5 |
$ 92.9 |
$ 158.0 |
$ (60.0) |
$ 98.0 |
$ 197.6 |
$ 62.6 |
$ 260.2 |
$ 204.1 |
$ 68.1 |
$ 272.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share attributable to RR
Donnelley common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic net earnings per share |
$ 0.39 |
|
$ 0.51 |
$ 0.84 |
|
$ 0.52 |
$ 1.10 |
|
$ 1.44 |
$ 1.03 |
|
$ 1.38 |
Diluted net earnings per share |
$ 0.39 |
|
$ 0.51 |
$ 0.83 |
|
$ 0.51 |
$ 1.09 |
|
$ 1.43 |
$ 1.02 |
|
$ 1.36 |
Weighted average common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
180.8 |
|
180.8 |
188.1 |
|
188.1 |
180.3 |
|
180.3 |
197.2 |
|
197.2 |
Diluted |
182.4 |
|
182.4 |
190.8 |
|
190.8 |
182.1 |
|
182.1 |
199.8 |
|
199.8 |
|
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 |
For the Three Months Ended
September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
For the Three Months
Ended September 30, 2012 |
For the Three Months
Ended September 30, 2011 |
|
Income from
operations |
Operating
margin |
Net earnings
attributable to common shareholders |
Net earnings
attributable to common shareholders per diluted share |
Income from
operations |
Operating
margin |
Net earnings
attributable to common shareholders |
Net earnings
attributable to common shareholders per diluted share |
GAAP basis measures |
$ 186.7 |
7.4% |
$ 71.4 |
$ 0.39 |
$ 156.8 |
5.8% |
$ 158.0 |
$ 0.83 |
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
Restructuring charges (1) |
12.3 |
0.5% |
8.2 |
0.04 |
23.6 |
0.9% |
11.5 |
0.06 |
Impairment charges (2) |
1.6 |
0.1% |
1.1 |
0.01 |
10.6 |
0.4% |
5.2 |
0.03 |
Acquisition-related expenses
(3) |
1.3 |
-- |
1.2 |
0.01 |
0.7 |
-- |
(0.1) |
0.00 |
Loss on debt extinguishment
(4) |
-- |
-- |
-- |
-- |
-- |
-- |
0.8 |
0.00 |
Income tax adjustments (5) |
-- |
-- |
11.0 |
0.06 |
-- |
-- |
(77.4) |
(0.41) |
Total Non-GAAP adjustments |
15.2 |
0.6% |
21.5 |
0.12 |
34.9 |
1.3% |
(60.0) |
(0.32) |
Non-GAAP measures |
$ 201.9 |
8.0% |
$ 92.9 |
$ 0.51 |
$ 191.7 |
7.1% |
$ 98.0 |
$ 0.51 |
|
|
|
|
|
|
|
|
|
(1) Restructuring
charges (pre-tax): Operating results for the three months
ended September 30, 2012 and 2011 were affected by the following
restructuring charges: |
|
|
|
|
|
|
|
|
|
|
2012 |
2011 |
|
|
|
|
|
|
Employee termination costs
(a) |
$ 7.5 |
$ 14.2 |
|
|
|
|
|
|
Other charges (b) |
4.8 |
9.4 |
|
|
|
|
|
|
Total restructuring
charges |
$ 12.3 |
$ 23.6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) for the three
months ended September 30, 2012 and 2011, employee termination
costs resulted from the closing of one manufacturing facility
within the U.S. Print and Related Services segment during each
period and the reorganization of certain operations. |
(b) includes lease
termination and other facility costs. |
|
|
|
|
|
|
|
|
|
(2) Impairment
charges (pre-tax): Charges primarily related to the impairment
of buildings, machinery and equipment associated with facility
closings. |
|
|
|
|
|
|
|
|
|
(3)
Acquisition-related expenses: Legal, accounting and other expenses
associated with acquisitions completed or contemplated. |
|
|
|
|
|
|
|
|
|
(4) Loss on debt
extinguishment: Pre-tax loss of $1.3 million ($0.8 million
after-tax) on the repurchase of $11.6 million of senior notes due
February 1, 2019. |
|
|
|
|
|
|
|
|
|
(5) Income tax
adjustments: Recognition of a provision of $11.0 million related to
certain foreign earnings no longer considered to be permanently
reinvested. For the three months ended September 30, 2011, the
Company recognized $77.4 million of previously unrecognized tax
benefits due to the expiration of U.S. federal statutes of
limitation for certain years. |
|
|
R.R. Donnelley &
Sons Company |
Reconciliation of GAAP to
Non-GAAP Measures |
For the Nine Months Ended
September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions, except per share
data) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Nine Months Ended
September 30, 2012 |
For the Nine Months Ended
September 30, 2011 |
|
Income from
operations |
Operating
margin |
Net earnings
attributable to common shareholders |
Net earnings
attributable to common shareholders per diluted share |
Income from
operations |
Operating
margin |
Net earnings
attributable to common shareholders |
Net earnings
attributable to common shareholders per diluted share |
GAAP basis measures |
$ 472.0 |
6.2% |
$ 197.6 |
$ 1.09 |
$ 382.3 |
4.8% |
$ 204.1 |
$ 1.02 |
|
|
|
|
|
|
|
|
|
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
Restructuring charges (1) |
78.7 |
1.0% |
52.4 |
0.29 |
117.7 |
1.5% |
79.7 |
0.40 |
Impairment charges (2) |
19.2 |
0.3% |
12.8 |
0.07 |
43.0 |
0.5% |
29.1 |
0.14 |
Acquisition-related expenses
(3) |
2.1 |
-- |
2.0 |
0.01 |
2.0 |
0.1% |
1.1 |
0.01 |
Net (gain) loss on investments
(4) |
-- |
-- |
2.6 |
0.01 |
-- |
-- |
(9.5) |
(0.05) |
Loss on debt extinguishment
(5) |
-- |
-- |
7.9 |
0.04 |
-- |
-- |
45.1 |
0.23 |
Income tax adjustments (6) |
-- |
-- |
(15.1) |
(0.08) |
-- |
-- |
(77.4) |
(0.39) |
Total Non-GAAP adjustments |
100.0 |
1.3% |
62.6 |
0.34 |
162.7 |
2.1% |
68.1 |
0.34 |
Non-GAAP measures |
$ 572.0 |
7.5% |
$ 260.2 |
$ 1.43 |
$ 545.0 |
6.9% |
$ 272.2 |
$ 1.36 |
|
|
|
|
|
|
|
|
|
(1) Restructuring
charges (pre-tax): Operating results for the nine months ended
September 30, 2012 and 2011 were affected by the following
restructuring charges: |
|
|
|
|
|
|
|
|
|
|
2012 |
2011 |
|
|
|
|
|
|
Employee termination costs
(a) |
$ 58.1 |
$ 68.2 |
|
|
|
|
|
|
Other charges (b) |
20.6 |
49.5 |
|
|
|
|
|
|
Total restructuring
charges |
$ 78.7 |
$ 117.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) for the nine
months ended September 30, 2012, employee termination costs
resulted from the reorganization of sales and administrative
functions across all segments, the closing of five manufacturing
facilities within the U.S. Print and Related Services segment and
one manufacturing facility within the International segment. For
the nine months ended September 30, 2011, employee termination
costs resulted from the closing of five manufacturing facilities
within the U.S. Print and Related Services segment and headcount
reductions due to the Bowne acquisition. |
(b) includes lease
termination and other facility costs. In addition, 2011 includes
multi-employer pension plan partial withdrawal charges primarily
attributable to the closing of three manufacturing facilities in
the U.S. Print and Related Services segment. |
|
|
|
|
|
|
|
|
|
(2) Impairment
charges (pre-tax): Charges related to the impairment of machinery,
equipment, land, buildings and other long-lived assets primarily
associated with facility closings. |
|
|
|
|
|
|
|
|
|
(3)
Acquisition-related expenses: Legal, accounting and other expenses
associated with acquisitions completed or contemplated. |
|
|
|
|
|
|
|
|
|
(4) Net (gain) loss
on investments: Pre-tax impairment loss on an equity investment of
$4.1 million ($2.6 million after-tax) for the nine months ended
September 30, 2012. For the nine months ended September 30,
2011, a pre-tax gain of $9.8 million ($9.5 million after-tax)
resulted from the acquisition of Helium, in which the Company
previously held an equity investment. The pre-tax gain is net
of the Company's portion of the transaction costs incurred by
Helium as a result of the acquisition. |
|
|
|
|
|
|
|
|
|
(5) Loss on debt
extinguishment: For the nine months ended September 30, 2012,
the pre-tax loss of $12.1 million ($7.9 million after-tax) related
to the repurchase of $341.8 million of 4.95% senior notes due April
1, 2014 and $100.0 million of 5.50% senior notes due May 15, 2015.
For the nine months ended September 30, 2011, the pre-tax loss
of $69.9 million ($45.1 million after-tax) related to the
repurchase of $427.8 million of senior notes due February 1,
2019, January 15, 2017 and May 15, 2015. |
|
|
|
|
|
|
|
|
|
(6) Income tax
adjustments: Recognition of $26.1 million of previously
unrecognized tax benefits due to the resolution of certain U.S.
federal uncertain tax positions, partially offset by a provision of
$11.0 million related to certain foreign earnings no longer
considered to be permanently reinvested for the nine months ended
September 30, 2012. For the nine months ended September 30, 2011,
an income tax benefit of $77.4 million was recognized related to
previously unrecognized tax benefits due to the expiration of U.S.
federal statutes of limitation for certain years. |
|
|
R. R. Donnelley
& Sons Company |
Segment GAAP to Non-GAAP
Operating Income and Margin Reconciliation |
For the Three Months
Ended September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions) |
|
|
|
|
|
|
U.S. Print and Related
Services |
International |
Corporate |
Consolidated |
|
|
|
|
|
For the Three Months Ended September
30, 2012 |
|
|
|
|
Net sales |
$ 1,853.4 |
$ 655.4 |
$ -- |
$ 2,508.8 |
Operating expense |
1,674.7 |
627.9 |
19.5 |
2,322.1 |
Income (loss) from operations |
178.7 |
27.5 |
(19.5) |
186.7 |
Operating margin % |
9.6% |
4.2% |
nm |
7.4% |
|
|
|
|
|
Non-GAAP Adjustments |
|
|
|
|
Restructuring charges |
7.8 |
4.4 |
0.1 |
12.3 |
Impairment charges |
1.6 |
-- |
-- |
1.6 |
Acquisition-related expenses |
-- |
-- |
1.3 |
1.3 |
Total Non-GAAP
adjustments |
9.4 |
4.4 |
1.4 |
15.2 |
|
|
|
|
|
Non-GAAP income (loss) from
operations |
$ 188.1 |
$ 31.9 |
$ (18.1) |
$ 201.9 |
Non-GAAP operating margin % |
10.1% |
4.9% |
nm |
8.0% |
|
|
|
|
|
Depreciation and amortization |
81.3 |
26.5 |
11.2 |
119.0 |
Capital expenditures |
23.0 |
12.5 |
30.7 |
66.2 |
|
|
|
|
|
For the Three Months Ended September
30, 2011 |
|
|
|
|
Net sales |
$ 1,979.4 |
$ 703.9 |
$ -- |
$ 2,683.3 |
Operating expense |
1,810.1 |
667.2 |
49.2 |
2,526.5 |
Income (loss) from operations |
169.3 |
36.7 |
(49.2) |
156.8 |
Operating margin % |
8.6% |
5.2% |
nm |
5.8% |
|
|
|
|
|
Non-GAAP Adjustments |
|
|
|
|
Restructuring charges |
17.9 |
4.6 |
1.1 |
23.6 |
Impairment charges |
10.2 |
-- |
0.4 |
10.6 |
Acquisition-related expenses |
-- |
-- |
0.7 |
0.7 |
Total Non-GAAP
adjustments |
28.1 |
4.6 |
2.2 |
34.9 |
|
|
|
|
|
Non-GAAP income (loss) from
operations |
$ 197.4 |
$ 41.3 |
$ (47.0) |
$ 191.7 |
Non-GAAP operating margin % |
10.0% |
5.9% |
nm |
7.1% |
|
|
|
|
|
Depreciation and amortization |
96.3 |
30.6 |
12.2 |
139.1 |
Capital expenditures |
28.4 |
25.9 |
11.3 |
65.6 |
|
R. R. Donnelley &
Sons Company |
Segment GAAP to Non-GAAP
Operating Income and Margin Reconciliation |
For the Nine Months Ended
September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions) |
|
|
|
|
|
|
U.S. Print and Related
Services |
International |
Corporate |
Consolidated |
|
|
|
|
|
For the Nine Months Ended September
30, 2012 |
|
|
|
|
Net sales |
$ 5,580.8 |
$ 1,981.5 |
$ -- |
$ 7,562.3 |
Operating expense |
5,097.2 |
1,881.4 |
111.7 |
7,090.3 |
Income (loss) from operations |
483.6 |
100.1 |
(111.7) |
472.0 |
Operating margin % |
8.7% |
5.1% |
nm |
6.2% |
|
|
|
|
|
Non-GAAP Adjustments |
|
|
|
|
Restructuring charges |
58.6 |
12.3 |
7.8 |
78.7 |
Impairment charges |
16.6 |
1.0 |
1.6 |
19.2 |
Acquisition-related expenses |
-- |
-- |
2.1 |
2.1 |
Total Non-GAAP
adjustments |
75.2 |
13.3 |
11.5 |
100.0 |
|
|
|
|
|
Non-GAAP income (loss) from
operations |
$ 558.8 |
$ 113.4 |
$ (100.2) |
$ 572.0 |
Non-GAAP operating margin % |
10.0% |
5.7% |
nm |
7.6% |
|
|
|
|
|
Depreciation and amortization |
252.2 |
81.1 |
31.6 |
364.9 |
Capital expenditures |
77.4 |
30.5 |
52.0 |
159.9 |
|
|
|
|
|
For the Nine Months Ended September
30, 2011 |
|
|
|
|
Net sales |
$ 5,841.4 |
$ 2,048.8 |
$ -- |
$ 7,890.2 |
Operating expense |
5,397.4 |
1,924.4 |
186.1 |
7,507.9 |
Income (loss) from operations |
444.0 |
124.4 |
(186.1) |
382.3 |
Operating margin % |
7.6% |
6.1% |
nm |
4.8% |
|
|
|
|
|
Non-GAAP Adjustments |
|
|
|
|
Restructuring charges |
90.7 |
22.6 |
4.4 |
117.7 |
Impairment charges |
40.7 |
1.0 |
1.3 |
43.0 |
Acquisition-related expenses |
-- |
-- |
2.0 |
2.0 |
Total Non-GAAP
adjustments |
131.4 |
23.6 |
7.7 |
162.7 |
|
|
|
|
|
Non-GAAP income (loss) from
operations |
$ 575.4 |
$ 148.0 |
$ (178.4) |
$ 545.0 |
Non-GAAP operating margin % |
9.9% |
7.2% |
nm |
6.9% |
|
|
|
|
|
Depreciation and amortization |
295.1 |
92.6 |
32.3 |
420.0 |
Capital expenditures |
83.8 |
72.8 |
37.2 |
193.8 |
|
|
R. R. Donnelley &
Sons Company |
Condensed Consolidated
Statements of Cash Flows |
For the Nine Months Ended
September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions) |
|
|
|
|
2012 |
2011 |
Operating
Activities |
|
|
|
|
|
Net earnings |
$ 198.1 |
$ 205.5 |
Adjustment to reconcile net
earnings to net cash provided by operating activities |
408.3 |
490.5 |
Changes in operating assets and
liabilities |
(294.4) |
(179.3) |
Pension and
postretirement benefits contributions |
(142.6) |
(44.9) |
Net cash provided by operating
activities |
$ 169.4 |
$ 471.8 |
|
|
|
Net cash used in investing
activities |
$ (209.8) |
$ (304.5) |
|
|
|
Net cash used in financing
activities |
$ (27.4) |
$ (325.8) |
|
|
|
Effect of exchange rate on cash and cash
equivalents |
11.0 |
7.5 |
|
|
|
Net decrease in cash and cash
equivalents |
$ (56.8) |
$ (151.0) |
|
|
|
Cash and cash equivalents at beginning of
period |
449.7 |
519.1 |
|
|
|
Cash and cash equivalents at
end of period |
$ 392.9 |
$ 368.1 |
|
|
R.R. Donnelley
& Sons Company |
Reconciliation of
Reported to Pro Forma Net Sales |
For the Three Months
Ended September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions) |
|
|
|
|
|
Reported net
sales |
Adjustment for
net sales of acquired businesses |
Pro forma net
sales |
For the Three Months Ended September
30, 2012 |
|
|
|
U.S. Print and Related Services |
$ 1,853.4 |
$ 12.7 |
$ 1,866.1 |
International |
655.4 |
-- |
655.4 |
Consolidated |
$ 2,508.8 |
$ 12.7 |
$ 2,521.5 |
|
|
|
|
For the Three Months Ended September
30, 2011 |
|
|
|
U.S. Print and Related Services |
$ 1,979.4 |
$ 24.4 |
$ 2,003.8 |
International |
703.9 |
-- |
703.9 |
Consolidated |
$ 2,683.3 |
$ 24.4 |
$ 2,707.7 |
|
|
|
|
Net sales change |
|
|
|
U.S. Print and Related Services |
(6.4%) |
|
(6.9%) |
International |
(6.9%) |
|
(6.9%) |
Consolidated |
(6.5%) |
|
(6.9%) |
|
|
|
|
Supplementary non-GAAP
information: |
|
|
|
|
|
|
|
Year-over-year impact of changes in
foreign exchange (FX) rates |
|
|
|
U.S. Print and Related Services |
--% |
|
--% |
International |
(4.5%) |
|
(4.5%) |
Consolidated |
(1.2%) |
|
(1.2%) |
|
|
|
|
Approximate year-over-year impact of
changes in pass-through paper sales |
|
|
|
U.S. Print and Related Services |
(0.9%) |
|
(0.9%) |
International |
0.9% |
|
0.9% |
Consolidated |
(0.5%) |
|
(0.5%) |
|
|
|
|
Net sales change, excluding impact of
changes in FX rates and pass-through paper
sales |
|
|
|
U.S. Print and Related Services |
(5.5%) |
|
(6.0%) |
International |
(3.3%) |
|
(3.3%) |
Consolidated |
(4.8%) |
|
(5.2%) |
|
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, 2012 and 2011 to pro forma net sales as if the
acquisitions took place as of January 1 of the year prior to
acquisition. |
For the three months ended
September 30, 2012, the adjustment for net sales of acquired
businesses reflects the net sales of EDGAR Online (acquired August
14, 2012) and Express Postal Options International (acquired
September 6, 2012). |
For the three months ended
September 30, 2011, the adjustment for net sales of acquired
businesses reflects the net sales of Sequence Personal LLC
(acquired August 15, 2011), LibreDigital, Inc. (acquired August 16,
2011), Genesis Packaging & Design Inc. (acquired September 6,
2011), StratusGroup, Inc. (acquired November 21, 2011), EDGAR
Online (acquired August 14, 2012) and Express Postal Options
International (acquired September 6, 2012). |
|
|
R.R. Donnelley
& Sons Company |
Reconciliation of
Reported to Pro Forma Net Sales |
For the Nine Months Ended
September 30, 2012 and 2011 |
(UNAUDITED) |
(in millions) |
|
|
|
|
|
Reported net
sales |
Adjustment for
net sales of acquired businesses |
Pro forma net
sales |
For the Nine Months Ended September
30, 2012 |
|
|
|
U.S. Print and Related Services |
$ 5,580.8 |
$ 52.4 |
$ 5,633.2 |
International |
1,981.5 |
-- |
1,981.5 |
Consolidated |
$ 7,562.3 |
$ 52.4 |
$ 7,614.7 |
|
|
|
|
For the Nine Months Ended September
30, 2011 |
|
|
|
U.S. Print and Related Services |
$ 5,841.4 |
$ 68.8 |
$ 5,910.2 |
International |
2,048.8 |
-- |
2,048.8 |
Consolidated |
$ 7,890.2 |
$ 68.8 |
$ 7,959.0 |
|
|
|
|
Net sales change |
|
|
|
U.S. Print and Related Services |
(4.5%) |
|
(4.7%) |
International |
(3.3%) |
|
(3.3%) |
Consolidated |
(4.2%) |
|
(4.3%) |
|
|
|
|
Supplementary non-GAAP
information: |
|
|
|
|
|
|
|
Year-over-year impact of changes in
foreign exchange (FX) rates |
|
|
|
U.S. Print and Related Services |
--% |
|
--% |
International |
(4.6%) |
|
(4.6%) |
Consolidated |
(1.2%) |
|
(1.2%) |
|
|
|
|
Approximate year-over-year impact of
changes in pass-through paper sales |
|
|
|
U.S. Print and Related Services |
(1.0%) |
|
(1.0%) |
International |
1.1% |
|
1.1% |
Consolidated |
(0.4%) |
|
(0.4%) |
|
|
|
|
Net sales change, excluding impact of
changes in FX rates and pass-through paper
sales |
|
|
|
U.S. Print and Related Services |
(3.5%) |
|
(3.7%) |
International |
0.2% |
|
0.2% |
Consolidated |
(2.6%) |
|
(2.7%) |
|
|
|
|
|
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, 2012 and 2011 to pro forma net sales as if the
acquisitions took place as of January 1 of the year prior to
acquisition. |
|
|
|
|
For the nine months ended
September 30, 2012, the adjustment for net sales of acquired
businesses reflects the net sales of EDGAR Online (acquired August
14, 2012) and Express Postal Options International (acquired
September 6, 2012). |
For the nine months ended
September 30, 2011, the adjustment for net sales of acquired
businesses reflects the net sales of Journalism Online (acquired
March 24, 2011), Helium, Inc. (acquired June 21, 2011), Sequence
Personal LLC (acquired August 15, 2011), LibreDigital, Inc.
(acquired August 16, 2011), Genesis Packaging & Design Inc.
(acquired September 6, 2011), StratusGroup, Inc. (acquired November
21, 2011), EDGAR Online (acquired August 14, 2012) and Express
Postal Options International (acquired September 6, 2012). |
|
|
|
R.R. Donnelley &
Sons Company |
Liquidity Summary |
As of September 30, 2012 and
December 31, 2011 |
(UNAUDITED) |
(in millions) |
|
|
|
|
|
As of September 30,
2012 |
December 31, 2011 |
Total Liquidity (1) |
Previous Credit
Agreement |
Credit Agreement |
Previous Credit
Agreement |
Cash (2) |
$ 392.9 |
$ 392.9 |
$ 449.7 |
Committed credit agreement (3) |
1,290.8 |
1,150.0 |
1,417.7 |
|
1,683.7 |
1,542.9 |
1,867.4 |
Usage |
|
|
|
Borrowings under credit agreement |
344.0 |
344.0 |
65.0 |
Letters of credit outstanding (4) |
-- |
38.9 |
-- |
|
|
|
|
Net Available Liquidity |
$ 1,339.7 |
$ 1,160.0 |
$ 1,802.4 |
|
|
|
|
|
|
|
|
(1) Liquidity does
not include credit facilities of non-U.S. subsidiaries, which are
uncommitted facilities. |
|
|
|
|
(2) Approximately
90% of cash as of September 30, 2012 and 89% of cash as of December
31, 2011 was located outside the U.S. In 2013, the Company's
foreign subsidiaries are expected to make payments to the U.S. of
approximately $150 million from current foreign cash balances.
These payments will be made in satisfaction of intercompany
obligations, and additional payments are expected to be made in
future years. The Company expects to use the cash received in the
U.S. to reduce debt, either through repayment of short term
borrowings or repurchase of senior notes or debentures. Cash held
by foreign subsidiaries may be subject to U.S. or local income or
withholding taxes if repatriated to the U.S. In addition,
repatriation of some foreign cash is further restricted by local
laws. |
|
|
|
|
(3) On October 15,
2012, the Company entered into a $1.15 billion senior secured
revolving credit agreement (the "Credit Agreement") which expires
October 15, 2017. The Credit Agreement replaced the Company's
previous $1.75 billion unsecured and committed revolving credit
agreement (the "Previous Credit Agreement") which was due to expire
on December 17, 2013. The Credit Agreement is subject to a number
of covenants, including a minimum interest coverage ratio and a
maximum leverage ratio. Under the Credit Agreement, based on the
Company's results of operations for the twelve months ended
September 30, 2012 and existing debt, in addition to the $344.0
million of borrowings outstanding as of September 30, 2012, the
Company would have had the ability to utilize an additional $767.1
million of the $1.15 billion Credit Agreement and not have been in
violation of the terms of the agreement. |
|
|
|
|
The Previous Credit
Agreement was also subject to a number of financial covenants
including a minimum interest coverage ratio and a maximum leverage
ratio, both to be computed on a pro forma basis as defined in the
Previous Credit Agreement. Under the Previous Credit Agreement,
based on the Company's results of operations for the twelve months
ended September 30, 2012 and existing term debt structure, in
addition to the $344.0 million of borrowings outstanding, the
Company could have utilized an additional $946.8 million of the
$1.75 billion Previous Credit Agreement and not have been in
violation of the maximum leverage ratio. |
|
|
|
|
Reconciliations of
the stated amount to the availability as of September 30, 2012
under the Previous Credit Agreement and the Credit Agreement, as if
it were entered into as of the end of the period, are shown in the
table below. |
|
|
|
|
|
As of September 30,
2012 |
|
|
Previous Credit
Agreement |
Credit Agreement |
|
Stated amount of credit
agreement |
$ 1,750.0 |
$ 1,150.0 |
|
Less: availability reduction
from covenants |
459.2 |
-- |
|
Total amount available |
1,290.8 |
1,150.0 |
|
Less: borrowings under credit
agreement |
344.0 |
344.0 |
|
Less: letters of credit
outstanding |
-- |
38.9 |
|
Availability at September 30,
2012 |
$ 946.8 |
$ 767.1 |
|
|
|
|
|
|
|
|
|
(4) As of September
30, 2012, the Company had $62.9 million in outstanding letters of
credit, of which $38.9 million were issued under the Previous
Credit Agreement. The outstanding letters of credit would have
reduced the availability under the Credit Agreement, but not under
the Previous Credit Agreement as the reduction in availability from
the leverage ratio covenant under the Previous Credit
Agreement exceeded the amount of the outstanding letters of
credit. |
CONTACT: Media:
Doug Fitzgerald
EVP, Communications
630.322.6830
doug.fitzgerald@rrd.com
Investors:
Dave Gardella
SVP, Investor Relations
312.326.8155
david.a.gardella@rrd.com
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