R.R. Donnelley & Sons Company (NASDAQ: RRD) today
reported first-quarter net earnings attributable to common
shareholders of $52.6 million or $0.25 per diluted share on net
sales of $2.4 billion compared to net earnings attributable to
common shareholders of $13.9 million or $0.07 per diluted share on
net sales of $2.5 billion in the first quarter of 2009. The
first-quarter net earnings attributable to common shareholders
included pre-tax charges for restructuring ($14.5 million) and
impairment ($1.0 million) totaling $15.5 million in 2010 compared
to charges for restructuring ($41.4 million) and impairment ($12.8
million) totaling $54.2 million in 2009. Substantially all of the
restructuring charges in both the first quarter 2010 and the first
quarter 2009 were related to the reorganization of certain
operations and the exiting of certain business activities.
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 $69.5 million or $0.33 per diluted share in the first
quarter of 2010 compared to $49.2 million or $0.24 per diluted
share in the first quarter of 2009. First-quarter non-GAAP net
earnings attributable to common shareholders exclude restructuring
and impairment charges for both years. Also excluded from 2010 are
acquisition expenses and charges associated with the currency
devaluation in Venezuela. For non-GAAP comparison purposes, the
effective tax rate decreased to 35.6% in the first quarter of 2010
from 37.1% in the first quarter of 2009, due to the increased
benefit from the domestic manufacturing deduction in 2010 and a
change in the mix of income across tax jurisdictions, partially
offset by a one-time charge of $3.3 million associated with the
enacted Patient Protection and Affordable Care Act. A
reconciliation of GAAP net earnings attributable to common
shareholders to non-GAAP net earnings attributable to common
shareholders is presented in the attached tables.
“We are very pleased with our first-quarter results. The
benefits of our diverse product offerings and the actions taken to
improve our cost structure have driven our higher operating
margins," said Thomas J. Quinlan III, RR Donnelley's President and
Chief Executive Officer.
Quinlan added, “While the economic outlook remains uncertain, we
approach the balance of the year with tempered enthusiasm. For the
full year, we continue to expect revenue growth, excluding
acquisitions, in the low single digits, and operating cash flow
less capital expenditures in the range of $600 million to $650
million. This expectation is in line with our proven ability to
achieve consistent cash flow, as reflected by the nearly $4.2
billion in operating cash flow less capital expenditures generated
since the beginning of 2004.”
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 $2.4 billion, down 1.6% from the
first quarter of 2009 and inclusive of a 2.0% positive impact from
changes in foreign exchange rates. Excluding the impact from
foreign exchange, the 3.6% decrease was caused primarily by
continued price pressure and a reduction in paper sales; the
reduction in paper sales was due to the combination of lower paper
prices and an increase in the relative amount of customer-supplied
paper. Gross margin increased to 23.7% in the first quarter of 2010
from 23.3% in the first quarter of 2009 due to continued
productivity efforts and a higher recovery on print-related
by-products, partially offset by continued price pressure. SG&A
expense as a percentage of net sales in the first quarter of 2010
decreased to 11.3% from 11.5% in the first quarter of 2009
primarily due to continued productivity efforts. Operating earnings
were negatively impacted by charges for restructuring and
impairment of $15.5 million and acquisition expenses of $2.0
million in the first quarter of 2010 and restructuring and
impairment charges of $54.2 million in the first quarter of 2009
that resulted in operating income of $145.8 million in 2010 and
$87.4 million in 2009.
Excluding charges for restructuring and impairment in the first
quarter of both years and acquisition expenses in the first quarter
of 2010, our non-GAAP operating margin in the first quarter of 2010
increased to 6.8% from 5.8% in the first quarter of 2009, as the
benefits from our productivity efforts and the higher by-products
recoveries were partially offset by continued price pressure.
Segments
Net sales for the U.S. Print and Related Services segment in the
quarter decreased 3.7% from the first quarter of 2009 to $1.8
billion primarily due to lower paper sales and price declines
across most products and services. The reduction in paper sales was
related to both lower paper prices and an increase in the relative
amount of customer-supplied paper. The segment’s operating income,
which was negatively impacted by charges for restructuring and
impairment of $5.9 million in the first quarter of 2010 and $32.7
million in the first quarter of 2009, increased to $163.8 million
in the first quarter of 2010 from $114.4 million in the first
quarter of 2009. Excluding the restructuring and impairment
charges, the segment’s non-GAAP operating margin increased to 9.2%
in the first quarter of 2010 from 7.7% in the first quarter of
2009, as the benefits of continued productivity efforts and higher
by-products recoveries more than offset the impact of price
erosion.
Net sales for the International segment in the quarter increased
5.5% from the first quarter of 2009 to $578.3 million due to a 9.0%
positive impact from changes in foreign exchange rates, partially
offset by volume and price declines. The segment’s operating
income, which was negatively impacted by charges for restructuring
of $9.5 million in the first quarter of 2010 and restructuring and
impairment charges of $18.3 million in the first quarter of 2009,
improved to $33.7 million in the first quarter of 2010 from $16.5
million in the first quarter of 2009. Excluding the restructuring
and impairment charges, the segment’s non-GAAP operating margin
increased to 7.5% in the first quarter of 2010 from 6.3% in the
first quarter of 2009 due to favorable product mix and the benefits
of continued productivity efforts, partially offset by the impact
of price erosion.
Unallocated Corporate operating expenses increased to $51.7
million in the first quarter of 2010 as compared to $43.5 million
in the first quarter of 2009. Excluding acquisition expenses of
$2.0 million and restructuring charges of $0.1 million in the first
quarter of 2010 and restructuring charges of $3.2 million in the
first quarter of 2009, unallocated Corporate operating expenses
increased $9.3 million to $49.6 million in the first quarter of
2010. Higher non-cash pension and other benefits-related expenses,
partially offset by our productivity efforts, were the primary
factors contributing to the increase.
Conference Call
RR Donnelley will host a conference call and simultaneous
webcast to discuss its first-quarter results today, Wednesday, May
5, 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 706.634.1139. A webcast replay will
be archived on the Company’s web site for 30 days after the call.
In addition, a telephonic replay of the call will be available for
seven days at 706.645.9291, passcode 66556813.
About RR Donnelley
RR Donnelley (NASDAQ: RRD) is a global provider of integrated
communications. Founded more than 145 years ago, the Company works
collaboratively with more than 60,000 customers worldwide to
develop custom communications solutions that reduce costs, 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
products and services to leading 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; our
ability to access unsecured debt in the capital markets and the
reliability of the participants to our 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 March 31, 2010 and December 31,
2009 (UNAUDITED) (In millions, except per share data)
March 31, 2010 December 31, 2009
Assets
Current Assets Cash and cash equivalents $ 451.3 $ 499.2
Restricted cash equivalents 38.9 - Receivables, less allowance for
doubtful accounts 1,659.3 1,675.9 Income taxes receivable 48.0 63.2
Inventories 526.1 561.8 Prepaid expenses and other current assets
184.2 160.8 Total Current Assets
2,907.8 2,960.9
Property, plant and equipment - net 2,193.2 2,271.4 Goodwill
2,327.8 2,333.3 Other intangible assets - net 716.9 747.4
Other noncurrent assets 424.8
434.6
Total Assets
$ 8,570.5 $ 8,747.6
Liabilities
Current Liabilities Accounts payable $ 850.3 $ 886.4 Accrued
liabilities 751.1 813.4 Short-term and current portion of long-term
debt 336.1 339.9 Total Current
Liabilities
1,937.5
2,039.7 Long-term debt 2,982.6 2,982.5 Pension
liability 506.2 509.8 Postretirement benefit obligations 328.0
324.5 Deferred income taxes 201.0 205.5 Other
noncurrent liabilities 457.1
524.6
Total Liabilities
6,412.4 6,586.6
Equity
Common stock, $1.25 par value 303.7 303.7 Authorized shares: 500.0
Issued shares: 243.0 in 2010 and 2009 Additional paid-in capital
2,888.3 2,906.2 Retained earnings 662.0 662.9 Accumulated other
comprehensive loss (548.7 ) (545.0 ) Treasury stock, at cost, 36.5
shares in 2010 (2009 - 37.3 shares) (1,169.5 )
(1,193.8 ) Total Shareholders' Equity 2,135.8 2,134.0
Noncontrolling Interests 22.3
27.0
Total Equity
2,158.1 2,161.0 Total
Liabilities and Equity $ 8,570.5
$ 8,747.6
R. R. Donnelley & Sons
Company Condensed Consolidated Statements of Operations Three
Months Ended March 31, 2010 and 2009 (In millions, except per share
data)
(UNAUDITED)
Three Months
Ended March 31,
2010
GAAP
ADJUSTMENTS
TO NON-GAAP
2010
NON-GAAP
2009
GAAP
ADJUSTMENTS
TO NON-GAAP
2009
NON-GAAP
Net sales $
2,415.1 $ - $ 2,415.1
$ 2,455.6 $ - $ 2,455.6
Cost of sales (exclusive of depreciation and
amortization shown below) 1,841.7 - 1,841.7 1,882.8 - 1,882.8
Selling, general and administrative expenses (exclusive of
depreciation and amortization shown below) 273.5 (2.0 ) 271.5 283.2
- 283.2 Restructuring and impairment charges 15.5 (15.5 ) - 54.2
(54.2 ) - Depreciation and amortization 138.6
- 138.6
148.0 -
148.0 Total operating expenses 2,269.3
(17.5 ) 2,251.8
2,368.2 (54.2 )
2,314.0
Income from operations
145.8 17.5
163.3 87.4
54.2 141.6
Interest expense - net 55.7 - 55.7 59.1 - 59.1 Investment
and other expense (9.0 ) 8.9 (0.1 ) (0.3 ) - (0.3 )
Earnings before income taxes
81.1 26.4
107.5
28.0 54.2
82.2 Income tax expense 32.4 5.9 38.3 11.6
18.9 30.5
Net
earnings 48.7
20.5 69.2
16.4 35.3
51.7
Less: (Loss) income attributable
to noncontrolling interests
(3.9
)
3.6
(0.3
)
2.5
-
2.5
Net earnings
attributable to common shareholders $ 52.6
$ 16.9 $
69.5 $ 13.9
$ 35.3 $ 49.2
Earnings per share attributable to common
shareholders Basic net earnings per share
$ 0.26
$ 0.34 $ 0.07 $ 0.24
Diluted net earnings per share
$ 0.25 $
0.33 $ 0.07 $ 0.24 Weighted
average common shares outstanding: Basic
205.6
205.6 205.2 205.2 Diluted
209.0
209.0 206.7 206.7
The Company believes that certain non-GAAP measures, when
presented in conjunction with comparable GAAP measures, are useful
because that information is an appropriate measure for evaluating
the Company’s operating performance. Internally, the
Company uses this non-GAAP information as an indicator of business
performance, and evaluates management’s effectiveness with specific
reference to this indicator. These measures should be considered in
addition to, not a substitute for, or superior to, measures of
financial performance prepared in accordance with
GAAP.
R.R. Donnelley & Sons Company Reconciliation
of GAAP to Non-GAAP Measures IN MILLIONS, EXCEPT PER SHARE AND
MARGIN DATA (UNAUDITED)
Three Months Ended March 31, 2010 Three Months
Ended March 31, 2009
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 $ 145.8 6.0% $ 52.6 $ 0.25 $ 87.4 3.6% $ 13.9 $ 0.07
Non-GAAP adjustments: Restructuring and impairment charges
(1) 15.5 0.7% 10.6 0.05 54.2 2.2% 35.3 0.17 Acquisition-related
expenses (2) 2.0 0.1% 1.8 0.01 - - - - Venezuela devaluation (3)
- - 4.5 0.02
- - - - Total Non-GAAP
adjustments 17.5 0.8% 16.9
0.08 54.2 2.2% 35.3
0.17 Non-GAAP measures $ 163.3 6.8%
$ 69.5 $ 0.33 $ 141.6 5.8% $ 49.2
$ 0.24 (1) Restructuring and impairment
charges (pre-tax): Operating results for the three months ended
March 31, 2010 and 2009 were affected by the following
restructuring and impairment charges:
2010
2009
Employee termination costs (a) $ 9.2 $ 39.0 Lease termination and
other facility closure costs 5.3 2.4
Total
restructuring expense 14.5 41.4 Total
impairment charges (b) 1.0
12.8 Total restructuring and impairment charges
$ 15.5 $ 54.2 (a)
employee termination costs resulted from the reorganization of
certain operations and the exiting of certain business activities.
(b) impairment charges related to the impairment of other
long-lived assets. (2) Acquisition-related expenses: Legal,
accounting and other expenses associated with current year
acquisitions completed or contemplated. (3) Venezuela
devaluation: Currency devaluation in Venezuela resulted in a
pre-tax loss of $8.9 million ($8.1 million after-tax) and an
increase in loss attributable to noncontrolling interests of $3.6
million.
R. R. Donnelley & Sons Company Segment
GAAP to Non-GAAP Operating Income and Margin Reconciliation For the
Three Months Ended March 31, 2010 and 2009 $ IN MILLIONS
(UNAUDITED)
U.S. Print andRelated Services
International Corporate Consolidated
Three Months Ended March 31,
2010
Net sales $ 1,836.8 $ 578.3 $ - $ 2,415.1 Operating expense
1,673.0 544.6 51.7
2,269.3 Operating income (loss) 163.8 33.7
(51.7 ) 145.8 Operating margin % 8.9 % 5.8 % nm 6.0 %
Non-GAAP Adjustments
Restructuring charges 4.9 9.5 0.1 14.5 Impairment charges 1.0 - -
1.0 Acquisition-related expenses - -
2.0 2.0 Total
Non-GAAP adjustments 5.9 9.5 2.1 17.5 Non-GAAP income (loss)
from operations $ 169.7 $ 43.2 $ (49.6 ) $ 163.3 Non-GAAP operating
margin % 9.2 % 7.5 % nm 6.8 % Depreciation and amortization
101.0 29.7 7.9 138.6 Capital expenditures 26.1 12.4 1.4 39.9
Three Months Ended March 31,
2009
Net sales $ 1,907.4 $ 548.2 $ - $ 2,455.6 Operating expense
1,793.0 531.7 43.5
2,368.2 Operating income (loss) 114.4 16.5
(43.5 ) 87.4 Operating margin % 6.0 % 3.0 % nm 3.6 %
Non-GAAP Adjustments
Restructuring charges 24.3 13.9 3.2 41.4 Impairment charges
8.4 4.4 -
12.8 Total Non-GAAP adjustments 32.7 18.3 3.2 54.2
Non-GAAP income (loss) from operations $ 147.1 $ 34.8 $
(40.3 ) $ 141.6 Non-GAAP operating margin % 7.7 % 6.3 % nm 5.8 %
Depreciation and amortization 107.7 30.3 10.0 148.0 Capital
expenditures 35.7 16.2 3.0 54.9
R. R. Donnelley &
Sons Company Condensed Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 2010 and 2009 IN MILLIONS
(UNAUDITED)
2010
2009
Operating Activities
Net earnings $ 48.7 $ 16.4 Adjustment to reconcile
net earnings to cash provided by operating activities 159.9 183.5
Changes in operating assets and liabilities (133.0 )
338.8
Net cash provided by operating
activities $ 75.6 $
538.7
Net cash used in investing activities $
(63.3 ) $ (72.2 )
Net cash (used in) provided
by financing activities $ (51.6 )
$ 249.3
Effect of exchange rate on cash and cash equivalents
(8.6 ) (12.2 )
Net (decrease) increase in cash flows and
cash equivalents $ (47.9 )
$ 703.6
Cash and cash equivalents at beginning of period
499.2 324.0
Cash and cash equivalents at end of
period $ 451.3 $
1,027.6 R.R. Donnelley &
Sons Company Liquidity Summary As of March 31, 2010 and
December 31, 2009 $ IN MILLIONS (UNAUDITED)
Total Liquidity (1)
March 31, 2010 December 31, 2009 Cash (2) $ 451.3 $ 499.2 Committed
Credit Facility ("Facility") (3) 1,310.4 1,437.1
1,761.7 1,936.3
Usage
Borrowings under Facility - - Letters of credit outstanding under
Facility 35.9 35.9 35.9 35.9 Net Available
Liquidity $ 1,725.8 $ 1,900.4 (1) Liquidity does not include
credit facilities of non-U.S. subsidiaries, which are uncommitted
facilities. (2) Approximately 83% of the cash as of March
31, 2010 and December 31, 2009 was located outside the U.S., most
of which is subject to U.S. federal income taxes and some of which
is subject to local country taxes if repatriated to the U.S.
(3) $2 billion committed credit facility maturing on January 6,
2012. The Facility contains a financial covenant that limits total
debt to four times adjusted EBITDA for the last twelve months as
described therein. Based on the results of operations for the
twelve months ended March 31, 2010 and existing term debt at that
date, the Company could have incurred up to $1,310.4 million of
additional debt under the Facility or otherwise in aggregate and
not be in violation of its financial covenants. The $1,310.4
million of maximum additional debt is $689.6 million less than the
amount otherwise available under the $2 billion committed Facility.
As this total debt covenant is calculated using the results of
operations for the trailing twelve months, it does not consider the
impact of any future operating results that might be achieved if
the $1,310.4 million of additional available debt were deployed in
future operating activities.
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