R.R. Donnelley & Sons Company : RR Donnelley Reports Third-Quarter 2012 Results
11/01/2012| 06:30am US/Eastern
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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
CHICAGO, Nov. 1, 2012 (GLOBE NEWSWIRE) -- 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.
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