November 1, 2012

RR Donnelley Reports Third-Quarter 2012 Results

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. 
 


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Copyright 2015 RR Donnelley

 
 
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