NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 1 PLAN
DESCRIPTION
The following description of the RR Donnelley Savings Plan (the Plan) is provided for general information purposes
only. The Plan is a defined contribution plan sponsored by R. R. Donnelley & Sons Company (the Company) designed to allow eligible employees to save for retirement on a tax-advantaged basis. The Plan is intended to qualify as a
cash or deferred arrangement under Section
401(k) of the Internal Revenue Code of 1986, as amended (the Code), and is subject to the Employee Retirement Income Security Act of 1974, as amended (ERISA). The description
covers current Plan provisions, except as specifically noted otherwise. For more complete information, refer to the Summary Plan Description and the Plan document, including any modifications and amendments thereto.
Administration
The Plan is administered by the Plans Benefits Committee and its delegates. In 2011 Plan assets were held in the RR Donnelley Savings Plan Master
Trust (the Trust). Effective January 1, 2012 the Trust was amended resulting in it not being administered as a Master Trust during 2012. The Bank of New York Mellon (the Trustee) is the trustee of the Trust and custodian
of the Plans assets, other than with respect to assets invested through the self-directed brokerage accounts. Charles Schwab & Co., Inc is the custodian of assets invested through the self-directed brokerage accounts. Administrative
and record keeping services are provided by Aon Hewitt, LLC.
Administrative Expenses
Administrative expenses paid by the Plan include recordkeeping fees, investment consulting fees, investment management fees, and most other administrative
fees, including various printing and postage charges. Expenses paid by the Company include audit fees, legal fees, and some other administrative fees.
Eligibility
Generally, all employees of the Company and its U.S. subsidiaries are
eligible to become Plan members (participants), unless they are part of a bargaining unit that does not participate in the Plan. Except with respect to certain contingent employees, eligible employees are not required to satisfy any
service or age requirements to participate in the Plan and, accordingly, become eligible to participate in the Plan on their first day of employment with the Company or one of its participating affiliates. Elections to participate in the Plan are
effective as soon as administratively practicable. Automatic enrollment provisions under the Plan became effective January 1, 2012. Generally, employees not actively participating in the Plan effective November 30, 2011 were automatically
enrolled on January 1, 2012, and employees hired on or after December 1, 2011 are automatically enrolled 30 days after being hired, in each case unless the employee opted, or opts, out of automatic enrollment or elected, or elects, to be
enrolled earlier. Individuals who are automatically enrolled make contributions on a before-tax basis equal to 3% of eligible compensation.
Contributions
Eligible employees may elect to make before-tax, after-tax and Roth
401(k) contributions under the Plan. Subject to certain limitations, the contribution election percentages allowed are from 1%-85% of eligible compensation for before-tax, after-tax and Roth 401(k) contributions, and the total of all elections
cannot exceed 85% of eligible compensation. Before-tax, after-tax and Roth 401(k) contributions are funded by payroll deductions and must be made in whole percentages of employee eligible earnings, although contributions designated as
catch-up contributions must be designated in full dollar amounts. Participants can change contribution elections at any time. Earnings of the Plan attributable to before-tax, after-tax and matching contributions, as well as such
before-tax contributions and matching contributions to the Plan, generally are not taxable to the participants until withdrawn.
Effective
during fiscal year 2012, the Company made matching contributions equal to 40% of a participants before-tax and Roth
401(k) contributions on up to 6% of eligible compensation each payroll period. The per payroll period matching
contributions ceased effective December 31, 2012. The Company did not make any matching contributions during the 2011 Plan year, except for participants entitled to such contributions pursuant to collective bargaining agreements. In addition,
the Plan permits the Company to provide a discretionary matching contribution to certain employees. The Company did not make any such discretionary matching contributions for the 2011 or 2012 Plan years. Matching contributions, when made, are
contributed to the Plan in cash and invested according to the participants investment elections.
Employees may also roll over amounts
to the Plan that were distributed from certain types of retirement plans and accounts.
4
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 1 PLAN DESCRIPTION (continued)
Vesting
Participants are always 100% vested in their before-tax, after-tax, Roth 401(k) and rollover contributions and investment earnings thereon. Except with respect to certain members of collective bargaining
units, participants first hired before January 1, 2012 are always 100% vested with respect to matching and discretionary matching contributions (and earnings thereon), whereas participants first hired on or after January 1, 2012 do not
become vested in such matching and discretionary matching contributions (and earnings thereon) until they have earned three years of service under the Plan, at which time they are 100% vested in such contributions and earnings. Different vesting
rules apply to contingent employees.
Notes Receivable from Participants
Participants are permitted to borrow up to the lesser of 50% of their vested before-tax, after-tax, Roth 401(k), matching and rollover account balance, or
$50,000, reduced by the highest outstanding loan balance in the last 12 months. The minimum loan amount is $1,000. Subject to certain exceptions for historical loans and loans originated under other plans, participants are allowed only one
outstanding loan at any time and the maximum loan repayment period is four and a half years. The loans are secured by the balance in the participants accounts and bear interest at a rate equal to 1% over the prime rate, as published in the
Wall Street Journal. The interest rate for the loans outstanding as of December 31, 2012 ranged from a low of 4% to a high of 10.50%. The participant pays an administrative fee of $100 to the Plans recordkeeper, Aon Hewitt, LLC, at the
inception of the loan.
Benefit Payments and Withdrawals
A participants account balance may be distributed on retirement or other termination of employment. Distributions may be made in the form of lump
sum distribution of all or a portion of the participants account, or in installment payments. Amounts invested in the TRASOP Fund may be distributed in the form of shares of Company stock. All other payments are made in cash.
A participant may withdraw his or her after-tax contributions and rollover contributions, and the value of the participants Fund B account, if any,
at any time, and may withdraw an amount from his or her vested account (other than his or her TRASOP Account) while he or she is still employed if he or she incurs a financial hardship, or has attained age 59.5. A participant may withdraw all or
part of his or her before-tax or Roth 401(k) contributions if he or she is performing service in the uniformed services while on active duty for more than 30 days. A participant may withdraw any portion of his or her vested account after attaining
age 70.5, and will be required to begin taking distributions upon the later of his or her attainment of age 70.5 or termination of employment.
Investment Options
Participants are permitted to direct how their account balance
under the Plan is invested. Subject to certain restrictions, participants can change investment elections on a daily basis. Generally, participants may invest up to 20% of their account balance and up to 20% of their current contributions in the RR
Donnelley Stock Fund, and may shift their contributions into and out of the RR Donnelley Stock Fund at any time. As of December 31, 2012, the following investment options were offered under the Plan:
Core Investment Funds
investment funds that invest in different asset classes, such as fixed income funds, bond
funds, stock funds, and funds that invest in alternative investments. Examples offered under the Plan as of December 31, 2012 include the following funds: stable value, fixed income index, fixed income core plus, Treasury inflation protected
securities index, large cap core index, large cap value, large cap growth, small cap core index, small cap value, small-mid cap growth, international core index, international equity core plus, emerging markets index, real estate investment trust,
and diversified real asset.
Target Date Funds
mix of investments in core investment funds that
automatically reduce their level of equity risk over time and target retirement at age 65.
Conservative Income
Fund
a conservative portfolio comprised of a mix of investments in core investment funds with equity risk maintained lower than any Target Date Fund.
RR Donnelley Stock Fund and TRASOP Fund
unitized funds that invest primarily in shares of common stock of the Company and hold a certain percent of assets in
cash-equivalents for liquidity purposes. Due to investments in cashequivalents, the RR Donnelley Stock Fund and the TRASOP Fund may not reflect the exact performance of Company stock over any given time period. The TRASOP Fund has been
considered an employee stock ownership plan during all periods covered by these financial statements. Effective April 2013, the RR Donnelley Stock Fund is also considered an employee stock ownership plan. Dividends paid on
the shares of Company stock held in the TRASOP Fund have historically been passed through and paid out to participants, whereas dividends paid on the RR Donnelley Stock Fund have been reinvested in the fund. The TRASOP Fund is closed to new
investments.
5
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 1 PLAN DESCRIPTION (continued)
Self-Directed Brokerage Account
participants may invest a portion of
their account balance under the Plan in investment options not otherwise offered under the Plan, such as certain mutual funds, stocks, or bonds, by directing such portion of their account balance to be invested through the self-directed brokerage
account offered under the Plan.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting
The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America
(US GAAP). The accounts of the Plan are maintained on the accrual basis of accounting. The Plan has evaluated subsequent events through June 14, 2013, which is the date that the financial statements were approved and available to be
issued, for events requiring recording or disclosure in the Plans financial statements.
Reclassifications
Certain amounts previously reported have been reclassified to conform to the current-year presentation.
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and changes therein, and disclosure of contingent assets and
liabilities. Actual results could differ from those estimates.
Investment Valuation and Income Recognition
The Plans investments are stated at fair value. Fair value is the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. See Note 6 for discussion of fair value measurements, including details on inputs, valuation techniques and fair value level within the fair value
hierarchy.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividends
are recorded on the ex-dividend date.
Net appreciation or depreciation of investments included in the accompanying Statement of Changes in
Net Assets available for Benefits includes realized gains or losses from the sale of investments and unrealized appreciation or depreciation in fair value of investments. Net unrealized appreciation or depreciation in the fair value of investments
represents the net change in the fair value of the investments held during the period. The net realized gains or losses on the sale of investments represents the difference between the sale proceeds and the fair value of the investment as of the
beginning of the period or the cost of the investment if purchased during the year.
Plan Distributions
Benefit payments to participants are recorded upon distribution. The Trustee uses a distribution account to make all benefit payments.
Amounts are transferred from the participants investment fund(s) to this account as directed by the Plan administrator.
Risks and Uncertainties
The Plan provides various options for investing in securities. Investment securities are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with
certain investment securities and the level of uncertainty related to changes in the value of investment securities, it is at least reasonably possible that changes in risks in the near term could materially affect participants account
balances and the amounts reported in the Statements of Net Assets Available for Benefits and the Statements of Changes in Net Assets Available for Benefits.
Recent Accounting Pronouncements
In May 2011, the Financial Accounting Standards
Board issued Accounting Standards Update No. 2011-04 Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs (ASU 2011-04), which amends
the definition of fair value measurement principles and disclosure requirements to eliminate differences between U.S. GAAP and International Financial Reporting Standards (IFRS). ASU 2011-04 requires new quantitative
6
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
and qualitative disclosures about the sensitivity of recurring Level 3 measurement disclosures, as well as transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 was
effective for the Plan for the year ended December 31, 2012 and did not have a material impact on the Plans Statements of Net Assets Available for Benefits or the Plans disclosures.
NOTE 3 PLAN MERGERS/BATCH ROLLOVERS
The Plan did not merge with any other plan during 2012 or 2011. However, employees with account balances in the terminated Bowne Savings Plan were permitted to roll over their account balances from the
Bowne Savings Plan into the Plan commencing on December 31, 2010. A batch rollover of some of those account balances was effective on January 27, 2011, in the amount of $74,917,093, which included $71,542,053 in rollovers, $3,416,815 of
participant loans, and accrued interest from the Bowne Savings Plan.
NOTE 4 INVESTMENT IN RR DONNELLEY SAVINGS PLAN
Investment contracts held by a defined-contribution plan are required to be reported at fair value. However, contract value is the relevant measurement
attribute for that portion of the net assets available for benefits of a defined-contribution plan attributable to fully benefit-responsive investment contracts because contract value is the amount participants would receive if they were to initiate
permitted transactions under the terms of the plan. The Statements of Net Assets Available for Benefits presents the fair value of the investment contracts as well as the adjustment of the fully benefit-responsive investment contracts from fair
value to contract value. The Statements of Changes in Net Assets Available for Benefits is prepared on a contract value basis. The amounts relating to the investment contract fair value, and related adjustment, are broken out in the Statements of
Net Assets Available for Benefits.
Effective January 1, 2012 the Trust was amended resulting in it not being administered as a Master
Trust during 2012. Interest and dividends, along with net appreciation (depreciation) in the fair value of investments, are accounted for on a daily basis based upon the Plans participation in the various investment funds and portfolios.
The following table presents the net assets held by the Plan at December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Investments at fair value:
|
|
|
|
|
|
|
|
|
Collective trust funds
|
|
$
|
1,128,634,628
|
|
|
$
|
1,012,282,670
|
|
U.S. equity securities
|
|
|
376,482,431
|
|
|
|
413,290,293
|
|
Fixed income securities
|
|
|
347,785,652
|
|
|
|
262,837,097
|
|
Mutual funds
|
|
|
213,540,667
|
|
|
|
150,971,120
|
|
Non-U.S. equity securities
|
|
|
121,533,221
|
|
|
|
165,320,267
|
|
Self-directed brokerage account
|
|
|
59,037,173
|
|
|
|
49,931,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,247,013,772
|
|
|
|
2,054,633,361
|
|
Cash and money market funds
|
|
|
8,698,648
|
|
|
|
32,937,411
|
|
Contributions and other receivables
|
|
|
404,227
|
|
|
|
2,187,811
|
|
|
|
|
|
|
|
|
|
|
Total investments*
|
|
|
2,256,116,647
|
|
|
|
2,089,758,583
|
|
Accrued expenses and other liabilities
|
|
|
226,777
|
|
|
|
2,836,695
|
|
|
|
|
|
|
|
|
|
|
Net assets at fair value
|
|
|
2,255,889,870
|
|
|
|
2,086,921,888
|
|
|
|
|
|
|
|
|
|
|
Adjustment from fair value to contract value for fully benefit-responsive investment contracts
|
|
|
(20,153,978
|
)
|
|
|
(15,848,693
|
)
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
$
|
2,235,735,892
|
|
|
$
|
2,071,073,195
|
|
|
|
|
|
|
|
|
|
|
*
|
Total investments in 2011 were administered as a Master Trust.
|
7
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 4 INVESTMENT IN RR DONNELLEY SAVINGS PLAN (continued)
Investment income (loss) of the Plan for the years ended December 31, 2012 and 2011, is summarized
as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Net appreciation (depreciation) in fair value of investments:
|
|
|
|
|
|
|
|
|
Collective trust funds
|
|
$
|
76,255,123
|
|
|
$
|
20,566,272
|
|
U.S. equity securities
|
|
|
46,993,913
|
|
|
|
(18,743,964
|
)
|
Mutual funds
|
|
|
28,603,745
|
|
|
|
(6,033,004
|
)
|
Non-U.S. equity securities
|
|
|
18,758,920
|
|
|
|
(26,781,636
|
)
|
Fixed income securities
|
|
|
10,090,057
|
|
|
|
833,244
|
|
|
|
|
|
|
|
|
|
|
Investment income (loss)
|
|
$
|
180,701,758
|
|
|
$
|
(30,159,088
|
)
|
|
|
|
|
|
|
|
|
|
Dividends and interest income for the Plan was $34,012,210 and $29,933,365 for the years ended December 31, 2012 and
2011.
The fair values of the Plans investments that represent 5% or more of the Plans net assets, at December 31, 2012 and
2011, are summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Wells Fargo Fixed Income Fund A
|
|
$
|
123,350,803
|
|
|
$
|
117,258,178
|
|
Wells Fargo Fixed Income Fund F
|
|
|
210,948,446
|
|
|
|
198,958,618
|
|
Wells Fargo Fixed Income Fund L
|
|
|
123,082,433
|
|
|
|
122,251,339
|
|
Vanguard Large Cap Core Index
|
|
|
247,192,100
|
|
|
|
192,550,576
|
|
Lending of Portfolio Securities
To generate additional income, a fund may lend a percentage of its investment securities to approved institutional borrowers who need to borrow securities provided a number of conditions
are satisfied, including that the loan is fully collateralized in the form of cash or U.S. government securities. Each loan is initially collateralized, in the case of: (a) loaned securities denominated in U.S. dollars or whose
primary trading market is located in the U.S. to the extent of 102% of the market value of the loaned securities, or (b) loaned securities not denominated in U.S. dollars or whose primary trading market is not located in the U.S. to the extent
of 105% of the market value of the loaned securities.
By lending its investment securities, a fund attempts to increase its net investment
income through the receipt of interest on the loan. Any gain or loss in the market price of the securities loaned that might occur during the term of the loan would belong to a fund. Each investment option within the Plan that participates in the
program receives its pro-rata share of the income or loss earned by the collateral investment fund monthly and is reflected in the calculation of the investment options net asset value (NAV). Per review of the securities lending transactions
with all parties involved, there are not any material transactions or potentially material transactions outstanding on the Plans Statements of Net Assets Available for Benefits for each reporting period.
8
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 5 GALLIARD STABLE VALUE FUND
The Plan assets entered into benefit-responsive investment contracts via investment in the Galliard Stable Value Fund (the Fund).
The Fund primarily invests in security-backed contracts issued by insurance companies and other financial institutions. A security-backed contract is an investment contract issued by an insurance company
or other financial institution, backed by a portfolio of bonds that are owned by the Fund. The portfolio underlying the contract is maintained separately from the contract issues general assets, usually by a third party custodian. These
contracts typically allow for realized and unrealized gains and losses on the underlying assets to be amortized, usually over the duration of the underlying investments, through adjustment to the future interest crediting rate, rather than reflected
immediately in the net assets of the Fund. The security-backed contracts are designed to reset their respective crediting rates on a quarterly basis and cannot credit an interest rate that is less than 0%. The issuer guarantees that all qualified
participant withdrawals will be at contract value.
Risks arise when entering into any investment contract due to the potential inability of
the issuer to meet the terms of the contract. In addition, security-backed contracts have the risk of default or the lack of liquidity of the underlying portfolio assets.
The credit risk of each issuer is evaluated and monitored through Galliards credit analysis, and the underlying portfolio assets are rated investment grade at the time of purchase.
The primary variables impacting the future crediting rates of security-backed contracts include:
|
|
|
The current yield of the assets underlying the contract;
|
|
|
|
The duration of the assets underlying the contract; and
|
|
|
|
The existing difference between the fair value and contract value of the assets within the contract.
|
The yield earned by the Galliard Fund at December 31, 2012 and 2011 was 1.09% and 1.78%, respectively. This represents the annualized earnings of
all investments in the Fund, including the earnings recorded at the underlying collective trust funds, divided by the fair value of all investments in the Fund at December 31, 2012, or 2011, as applicable.
The yield earned by the Fund with an adjustment to reflect the actual interest rate credited to participants in the Fund at December 31, 2012 and
2011, was 2.45% and 2.84%, respectively. This represents the annualized earnings credited to participants in the Fund divided by the fair value of all investments in the Fund at December 31, 2012, or 2011, as applicable. The crediting rate of
security-backed contracts will track current market yields on a trailing basis. The rate reset allows the contract value to converge with the fair value of the underlying portfolio over time, assuming the portfolio continues to earn the current
yield for a period of time equal to the current portfolio duration.
To the extent that the underlying portfolio of a security-backed contract
has unrealized and/or realized losses, a positive adjustment is made to the adjustment from fair value to contract value under contract value accounting. As a result, the future crediting rate may be lower over time than the then-current market
rates. Similarly, if the underlying portfolio generates unrealized and/or realized gains, a negative adjustment is made to the adjustment from fair value to contract value, and the future crediting rate may be higher than the then-current market
rates. The adjustment from fair value to contract value for fully benefit-responsive investment contracts was ($20,153,978) and ($15,848,693) for the periods ended December 31, 2012 and 2011, respectively.
Security-backed contracts generally provide for withdrawals associated with certain events which are not in the ordinary course of Fund operations and
are paid with a market value adjustment. Events that may trigger a market value adjustment can include the following:
|
|
|
Material amendments to the Funds structure or administration;
|
|
|
|
Changes to the participating plans competing investment options including the elimination of equity wash provisions;
|
|
|
|
Complete or partial termination of the Fund, including merger with another fund;
|
|
|
|
The failure of the Fund to qualify for exemption from federal income taxes or any required prohibited transaction exemption under ERISA;
|
9
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 5 GALLIARD STABLE VALUE FUND (continued)
|
|
|
The redemption of all or a portion of the interests in the Fund held by a participating plan including withdrawals due to the removal of a specifically
identifiable group of employees from coverage under the participating plan, the closing or sale of a subsidiary, employing unit, or affiliate, the bankruptcy or insolvency of a plan sponsor, the merger of the plan with another plan, or the plan
sponsors establishment of another tax qualified defined contribution plan;
|
|
|
|
Any change in law, regulation, ruling, administrative or judicial position, or accounting requirement, applicable to the Funds or participating plans;
and
|
|
|
|
The delivery of any communication to plan participants designed to influence a participant not to invest in the Fund.
|
At this time, the Fund does not believe that the occurrence of any such market value event, which would limit the Funds ability to transact at
contract value with participants, is probable.
Participants may redeem their shares at any time at contract value. However, there is a
90 day equity wash restriction for transfers from the Stable Value Fund to the Schwab PCRA (Brokerage) option.
NOTE 6 FAIR VALUE
MEASUREMENTS
Various inputs are used in determining the fair value of the Plans investments. These inputs are categorized in the
three tier value hierarchy, which prioritizes valuation methodology based on the reliability of inputs, as listed below:
Level 1
Valuations based on quoted prices for identical assets and liabilities in active markets.
Level 2 Valuations based on observable inputs
other than quoted prices included in Level 1, such as quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are not active, or other inputs that are
observable or can be corroborated by observable market data.
Level 3 Valuations based on unobservable inputs reflecting the
Companys own assumptions, consistent with reasonably available assumptions made by other market participants.
The asset or
liabilitys fair value measurement level within the fair value hierarchy is based on the lowest level of the input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and
minimize the use of unobservable inputs.
The following is a description by major asset categories of the valuation methodologies and levels
used for determining fair value. There have been no changes in the methodology used at December 31, 2012 and 2011.
Cash and other
assets
Carrying value approximates fair value. Cash and other assets are classified as Level 1.
Collective trust funds
Collective trust funds are priced using the NAV, and are considered Level 2. The net asset value is deemed appropriate as these funds do not have finite lives, unfunded commitments relating to these types of investments, or significant
restrictions on redemptions. The investments include the Galliard Stable Value Fund as discussed in Note 5. Prices for government, agency, municipal, corporate mortgage backed, and asset backed securities of the Fund are primarily obtained from
independent pricing services. These prices are based on observable market data for the same or similar securities, including quoted prices in markets that are not active, or internal matrix pricing models or other similar techniques that use
observable market inputs, such as benchmark yields, expected prepayment speeds and volumes, and issuer ratings.
Fixed income securities
Fixed income securities are typically priced based on a valuation model rather than a last trade basis and are not exchange-traded. These valuation models involve utilizing dealer quotes, analyzing market information, estimating
prepayment speeds and evaluating underlying collateral. Accordingly, the Company classified these fixed income securities as Level 2.
Mutual funds
Valued at the NAV of shares held by the Plan at year end. NAV is derived by the quoted prices of underlying investments. All
funds that are separately managed and not traded on an exchange are classified as Level 2.
Equity securities
The values of
individual equity securities were based on quoted prices in active markets. As such, these assets are classified as Level 1. This includes all U.S. and Non-U.S. equity securities, the Company Stock Fund and the TRASOP fund. The individually managed
self-directed brokerage accounts are also classified as Level 1 since the underlying investments are actively traded on the market or exchange.
10
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 6 FAIR VALUE MEASUREMENTS (continued)
The valuation methodologies described above may generate a fair value calculation that may not be
indicative of net realizable value or future fair values. While the Plan believes the valuation methodologies used are appropriate, the use of different methodologies or assumptions in calculating fair value could result in different amounts. The
Plan invests in various assets in which valuation is determined by NAV. The Plan believes that the NAV is representative of fair value at the reporting date, as there are no significant restrictions on redemption of these investments or other
reasons to indicate that the investment would be redeemed at an amount different than the NAV.
The fair values of the Plans assets as
of December 31, 2012 and 2011 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total as of
December
31,
2012
|
|
Investments at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Other
|
|
$
|
9,102,875
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
9,102,875
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities
|
|
|
|
|
|
|
593,681,076
|
|
|
|
|
|
|
|
593,681,076
|
|
International Core Index Fund
|
|
|
|
|
|
|
111,277,635
|
|
|
|
|
|
|
|
111,277,635
|
|
Large Cap Core Index Fund
|
|
|
|
|
|
|
247,192,099
|
|
|
|
|
|
|
|
247,192,099
|
|
Treasury Inflation Protected Securities Fund
|
|
|
|
|
|
|
101,368,204
|
|
|
|
|
|
|
|
101,368,204
|
|
Small Cap Fund
|
|
|
|
|
|
|
75,115,614
|
|
|
|
|
|
|
|
75,115,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Collective Trust Funds
|
|
|
|
|
|
|
1,128,634,628
|
|
|
|
|
|
|
|
1,128,634,628
|
|
Fixed Income Securities
|
|
|
|
|
|
|
347,785,652
|
|
|
|
|
|
|
|
347,785,652
|
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Real Asset Fund
|
|
|
|
|
|
|
39,610,586
|
|
|
|
|
|
|
|
39,610,586
|
|
Real Estate Investment Trust Fund
|
|
|
|
|
|
|
49,327,629
|
|
|
|
|
|
|
|
49,327,629
|
|
Small Cap Fund
|
|
|
|
|
|
|
80,929,970
|
|
|
|
|
|
|
|
80,929,970
|
|
Emerging Markets Fund
|
|
|
|
|
|
|
43,672,482
|
|
|
|
|
|
|
|
43,672,482
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mutual Funds
|
|
|
|
|
|
|
213,540,667
|
|
|
|
|
|
|
|
213,540,667
|
|
Non-U.S. Equity Securities
|
|
|
121,533,221
|
|
|
|
|
|
|
|
|
|
|
|
121,533,221
|
|
U.S. Equity Securities
|
|
|
376,482,431
|
|
|
|
|
|
|
|
|
|
|
|
376,482,431
|
|
Self-Directed Brokerage Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
|
13,323,383
|
|
|
|
|
|
|
|
|
|
|
|
13,323,383
|
|
Common Stock
|
|
|
27,800,207
|
|
|
|
|
|
|
|
|
|
|
|
27,800,207
|
|
Corporate Obligations
|
|
|
263,236
|
|
|
|
|
|
|
|
|
|
|
|
263,236
|
|
Mutual Funds
|
|
|
12,203,228
|
|
|
|
|
|
|
|
|
|
|
|
12,203,228
|
|
Preferred Stock
|
|
|
1,041,913
|
|
|
|
|
|
|
|
|
|
|
|
1,041,913
|
|
Unit Investment Trusts
|
|
|
4,405,206
|
|
|
|
|
|
|
|
|
|
|
|
4,405,206
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Self-Directed Brokerage Account
|
|
|
59,037,173
|
|
|
|
|
|
|
|
|
|
|
|
59,037,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value
|
|
$
|
566,155,700
|
|
|
$
|
1,689,960,947
|
|
|
$
|
|
|
|
$
|
2,256,116,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 6 FAIR VALUE MEASUREMENTS (continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Category
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Total as of
December 31,
2011
|
|
Investments at Fair Value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Other
|
|
$
|
35,125,222
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
35,125,222
|
|
Collective Trust Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Income Securities
|
|
|
|
|
|
|
575,053,873
|
|
|
|
|
|
|
|
575,053,873
|
|
International Core Index Fund
|
|
|
|
|
|
|
74,695,783
|
|
|
|
|
|
|
|
74,695,783
|
|
Large Cap Core Index Fund
|
|
|
|
|
|
|
192,563,032
|
|
|
|
|
|
|
|
192,563,032
|
|
Treasury Inflation Protected Securities Fund
|
|
|
|
|
|
|
84,250,116
|
|
|
|
|
|
|
|
84,250,116
|
|
Small Cap Fund
|
|
|
|
|
|
|
85,719,866
|
|
|
|
|
|
|
|
85,719,866
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Collective Trust Funds
|
|
|
|
|
|
|
1,012,282,670
|
|
|
|
|
|
|
|
1,012,282,670
|
|
Fixed Income Securities
|
|
|
|
|
|
|
262,837,097
|
|
|
|
|
|
|
|
262,837,097
|
|
Mutual Funds
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diversified Real Asset Fund
|
|
|
|
|
|
|
42,634,191
|
|
|
|
|
|
|
|
42,634,191
|
|
Real Estate Investment Trust Fund
|
|
|
|
|
|
|
45,283,416
|
|
|
|
|
|
|
|
45,283,416
|
|
Small Cap Fund
|
|
|
|
|
|
|
63,053,513
|
|
|
|
|
|
|
|
63,053,513
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Mutual Funds
|
|
|
|
|
|
|
150,971,120
|
|
|
|
|
|
|
|
150,971,120
|
|
Non-U.S. Equity Securities
|
|
|
165,320,267
|
|
|
|
|
|
|
|
|
|
|
|
165,320,267
|
|
U.S. Equity Securities
|
|
|
413,290,293
|
|
|
|
|
|
|
|
|
|
|
|
413,290,293
|
|
Self-Directed Brokerage Account
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
|
9,846,216
|
|
|
|
|
|
|
|
|
|
|
|
9,846,216
|
|
Common Stock
|
|
|
24,263,830
|
|
|
|
|
|
|
|
|
|
|
|
24,263,830
|
|
Corporate Obligations
|
|
|
343,974
|
|
|
|
|
|
|
|
|
|
|
|
343,974
|
|
Mutual Funds
|
|
|
10,770,098
|
|
|
|
|
|
|
|
|
|
|
|
10,770,098
|
|
Preferred Stock
|
|
|
1,366,954
|
|
|
|
|
|
|
|
|
|
|
|
1,366,954
|
|
Unit Investment Trusts
|
|
|
3,340,842
|
|
|
|
|
|
|
|
|
|
|
|
3,340,842
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Self-Directed Brokerage Account
|
|
|
49,931,914
|
|
|
|
|
|
|
|
|
|
|
|
49,931,914
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets at Fair Value
|
|
$
|
663,667,696
|
|
|
$
|
1,426,090,887
|
|
|
$
|
|
|
|
$
|
2,089,758,583
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 7 TAX STATUS OF THE PLAN
The Plan obtained its latest determination letter on November 22, 2002, in which the Internal Revenue Service stated that the Plan, as then designed, was in compliance with the applicable
requirements of the Code, including Sections 401(a) and 401(k) of the Code. The Plan has been amended since receiving the determination letter. However, the Plan administrator, having consulted with the Plans counsel, believes that the
Plan remains tax-exempt as of the financial statement date. A letter of request for a new determination letter was filed on December 28, 2006. The IRS delivered notice to the Plan administrator that it would not act on the 2006 filing because
it was filed in advance of the applicable cycle, and a subsequent letter of request for a new determination letter was filed on-cycle on January 31, 2011.
U.S. GAAP requires Plan management to evaluate tax positions taken by the Plan. The financial statement effects of a tax position are recognized when the position is more likely than not, based on the
technical merits, to be sustained upon examination by the IRS. The Plan Administrator has analyzed the tax positions taken by the Plan, and has concluded that as of December 31, 2012 and 2011, there are no uncertain positions taken or expected
to be taken. The Plan has recognized no interest or penalties related to uncertain tax positions. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress. The Plan
Administrator believes the Plan is no longer subject to income tax examinations for years prior to 2008.
12
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 8 PLAN TERMINATION
Although it has not expressed any intent to do so, the Company has the right under the Plan to terminate the Plan at any time subject to the provisions of ERISA. In the event of Plan termination, the
rights of the participants in their account balances will, to the extent not already vested, become 100% vested.
NOTE 9 RELATED
PARTY TRANSACTIONS
At December 31, 2012, the Plan held an aggregate of 2,428,238 units of Company common stock in the TRASOP Fund and
the RR Donnelley Stock Fund, which funds are primarily invested in common shares of Company stock with an original cost of $46,642,305 and a market value of $22,766,838. At December 31, 2011, the Plan held an aggregate of 2,187,939 units of
Company common stock in the TRASOP Fund and the RR Donnelley Stock Fund, which funds are primarily invested in common shares of Company stock with an original cost of $46,543,117 and a market value of $31,600,371.
These investments qualify as party-in-interest transactions. However, they are exempt from the prohibited transactions rules of ERISA. Certain plan
investments are shares of mutual funds managed by the Trustee as defined by the Plan and, therefore, these transactions qualify as party-in-interest transactions. Fees paid by the Plan for the investment management services are with the Trustee and
are party-in-interest transactions. These fees are netted against investment income for the years ended December 31, 2012 and 2011.
The
Plan reimburses the Company for certain employees compensation and related benefit costs related to the administration of the Plan.
NOTE 10 RECONCILIATION TO FORM 5500
The following table reconciles the financial statements to the Plan Form 5500 as filed by the Company:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Net Assets Available for Benefits per the financial statements
|
|
$
|
2,284,880,772
|
|
|
$
|
2,122,519,993
|
|
Less: Participant withdrawals payable
|
|
|
(1,778,068
|
)
|
|
|
(2,197,938
|
)
|
Less: Deemed distributions
|
|
|
(229,340
|
)
|
|
|
(320,744
|
)
|
|
|
|
|
|
|
|
|
|
NET ASSETS AVAILABLE FOR BENEFITS PER THE FORM 5500
|
|
$
|
2,282,873,364
|
|
|
$
|
2,120,001,311
|
|
|
|
|
|
|
|
|
|
|
The following is a reconciliation of benefits paid to participants per the financial statements to the Plan Form 5500 for
the years ended December 31, 2012 and 2011:
|
|
|
|
|
|
|
|
|
|
|
2012
|
|
|
2011
|
|
Benefits paid to participants per the financial statements
|
|
$
|
195,952,021
|
|
|
$
|
163,665,967
|
|
Add: amounts allocated to withdrawing participants at December 31, 2012 and 2011, respectively
|
|
|
1,778,068
|
|
|
|
2,197,938
|
|
Less: amounts allocated to withdrawing participants at December 31, 2011 and 2010, respectively
|
|
|
(2,197,938
|
)
|
|
|
(4,312,177
|
)
|
|
|
|
|
|
|
|
|
|
BENEFITS PAID TO PARTICIPANTS PER THE FORM 5500
|
|
$
|
195,532,151
|
|
|
$
|
161,551,728
|
|
|
|
|
|
|
|
|
|
|
Amounts allocated to withdrawing participants are recorded on the Plan Form 5500 for withdrawals that have been processed
and approved for payment prior to December 31st, but not yet paid as of that date.
13
RR DONNELLEY SAVINGS PLAN
NOTES TO FINANCIAL STATEMENTS (continued)
AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2012 and 2011
NOTE 11 PLAN AMENDMENTS
The Plan was amended and restated effective January 1, 2012 to reflect certain plan design changes, including the reinstatement of a Company matching contribution (and the formula for such
contributions), automatic enrollment, and a new vesting schedule as described in Note 1. In 2012, the Plan was amended to (i) provide for different automatic enrollment provisions for members of certain collective bargaining units,
(ii) add service requirements and different vesting provisions for contingent employees effective November 1, 2012, (iii) provide that any discretionary matching contributions made with respect to any Plan year would be allocated to
all eligible participants employed on December 31 of such year (rather than in March of the following year), and (iv) cease the per pay period matching contributions effective December 31, 2012. The Plan was amended to permit Roth
401(k) contributions effective January 1, 2011.
14