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RR Donnelley Reports Fourth-Quarter and Full-Year 2010 Results

02/21/2011

Highlights:

  • Fourth-quarter 2010 GAAP income from operations tripled to $85.7 million from $28.5 million in the fourth quarter of 2009
  • Full-year 2010 GAAP income from operations increased 61.3% to $555.5 million from $344.3 million in 2009
  • Fourth-quarter 2010 GAAP earnings per diluted share increased to $0.13 from a loss of $0.39 in the fourth quarter of 2009
  • Full-year 2010 GAAP earnings per diluted share increased to $1.06 from a loss of $0.13 in 2009
  • Fourth-quarter 2010 non-GAAP earnings per diluted share increased 10.9% to $0.51 from $0.46 in the fourth quarter of 2009
  • Full-year 2010 non-GAAP earnings per diluted share increased 10.0% to $1.76 from $1.60 in 2009
  • Fourth-quarter 2010 net sales of $2.7 billion increased 4.8% compared to the fourth quarter of 2009
  • Full-year 2010 net sales of $10.0 billion increased 1.6% compared to 2009

CHICAGO, Feb. 22, 2011 (GLOBE NEWSWIRE) -- R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported fourth-quarter net earnings attributable to common shareholders of $27.0 million, or $0.13 per diluted share, on net sales of $2.7 billion compared to a net loss attributable to common shareholders of $79.5 million, or $0.39 per diluted share, on net sales of $2.6 billion in the fourth quarter of 2009. The fourth-quarter net earnings (loss) attributable to common shareholders included pre-tax charges for restructuring ($21.5 million) and impairment ($61.5 million, non-cash) and acquisition-related costs ($5.6 million) totaling $88.6 million in 2010 compared to charges for restructuring ($17.5 million) and impairment ($131.1 million, non-cash) and acquisition-related costs ($0.1 million) totaling $148.7 million in 2009. Additional details regarding the nature of these charges are included in the attached schedules. 

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 $107.2 million, or $0.51 per diluted share, in the fourth quarter of 2010 compared to $95.4 million, or $0.46 per diluted share, in the fourth quarter of 2009. Fourth-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges, acquisition expenses and the write-down of affordable housing investments for both years, as well as income tax expense related to the reorganization of entities within the International segment in 2009.  For non-GAAP comparison purposes, the effective tax rate decreased to 10.0% in the fourth quarter of 2010 from 21.1% in the fourth quarter of 2009, primarily as a result of the release of valuation allowances on deferred tax assets. 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 pleased with our fourth-quarter results and the momentum that we built throughout the year," said Thomas J. Quinlan III , RR Donnelley's President and Chief Executive Officer.  "During 2010, we saw a significant increase in the number of customers purchasing multiple products and services from us, taking advantage of the breadth and scale that our unique platform offers. As we begin 2011, we continue to focus on achieving top-line growth through our One RR Donnelley global print management strategy, and expect the positive trends achieved in 2010 to continue throughout 2011."

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 $2.7 billion, up 4.8% from the fourth quarter of 2009, including $61.2 million (237 basis points) related to the acquisition of Bowne and an unfavorable impact of changes in foreign exchange rates and lower pass-through paper sales of $22.7 million (88 basis points).  Gross margin decreased to 23.1% in the fourth quarter of 2010 from 23.3% in the fourth quarter of 2009 due to continued price pressure and higher pension and other benefits-related expenses, partially offset by a higher recovery on print-related by-products, increased volume and lower incentive compensation expense. SG&A expense as a percentage of net sales in the fourth quarter of 2010 increased to 11.8% from 10.9% in the fourth quarter of 2009 primarily due to the acquisition of Bowne, higher acquisition-related expenses and a higher provision for bad debt expense, partially offset by lower incentive compensation expense. Operating earnings were negatively impacted by restructuring and impairment charges and acquisition expenses of $88.6 million in the fourth quarter of 2010 and $148.7 million in the fourth quarter of 2009, resulting in operating income of $85.7 million in 2010 and $28.5 million in 2009.

Excluding restructuring and impairment charges and acquisition expenses, our non-GAAP operating margin declined to 6.4% in the fourth quarter of 2010 from 6.9% in the fourth quarter of 2009, as higher unallocated Corporate expenses, primarily related to pension and other benefits-related expenses and a higher provision for bad debt, more than offset operating margin improvements in both of our operating segments.

Segments

Net sales for the U.S. Print and Related Services segment in the quarter increased 5.3% from the fourth quarter of 2009 to $2.0 billion primarily due to volume increases in logistics, financial print and commercial print as well as $48.1 million (250 basis points) related to the acquisition of Bowne, partially offset by price declines across most products and services and lower pass-through paper sales. The segment's operating income, which was negatively impacted by charges for restructuring and impairment of $66.1 million in the fourth quarter of 2010 and $101.5 million in the fourth quarter of 2009, increased to $127.3 million in the fourth quarter of 2010 from $71.4 million in the fourth quarter of 2009. Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin increased to 9.6% in the fourth quarter of 2010 from 9.0% in the fourth quarter of 2009, due to lower incentive compensation expense, increased volume and a higher recovery on print-related by-products, which more than offset the impact of continued price erosion.

Net sales for the International segment in the quarter increased 3.5% from the fourth quarter of 2009 to $682.4 million, including $13.1 million (199 basis points) related to the acquisition of Bowne and inclusive of an $11.6 million (176 basis points) unfavorable impact of changes in foreign exchange rates. The improvement in net sales was a result of increased volume, primarily in Asia and Latin America, partially offset by continued price pressure. The segment's operating income, which was negatively impacted by charges for restructuring and impairment of $5.0 million in the fourth quarter of 2010 and $44.2 million in the fourth quarter of 2009, improved to $49.6 million in the fourth quarter of 2010 from a loss of $3.1 million in the fourth quarter of 2009. Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin increased to 8.0% in the fourth quarter of 2010 from 6.2% in the fourth quarter of 2009 due to increased volume, partially offset by the impact of continued price erosion.           

Unallocated Corporate operating expenses increased to $91.2 million in the fourth quarter of 2010 as compared to $39.8 million in the fourth quarter of 2009. Excluding restructuring charges of $11.9 million and acquisition expenses of $5.6 million in the fourth quarter of 2010 and restructuring charges of $2.9 million and acquisition expenses of $0.1 million in the fourth quarter of 2009, unallocated Corporate operating expenses increased by $36.9 million to $73.7 million in the fourth quarter of 2010. Higher pension and other benefits-related expenses and a higher provision for bad debt were the primary factors contributing to the increase. 

Conference Call

RR Donnelley will host a conference call and simultaneous webcast to discuss its fourth-quarter results today, Tuesday, February 22, 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 and use confirmation number 28951693.  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 5053580#.

About RR Donnelley

RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. Founded more than 146 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 
Consolidated Balance Sheets
As of December 31, 2010 and December 31, 2009
(UNAUDITED)
(In millions, except per share data)
   
   December 31, 2010   December 31, 2009 
 Assets     
 Current Assets     
 Cash and cash equivalents   $ 519.1  $ 499.2
 Receivables, less allowance for doubtful accounts  1,922.9 1,675.9
 Income taxes receivable  49.3 63.2
 Inventories  560.6 561.8
 Prepaid expenses and other current assets  115.4 160.8
 Total Current Assets   3,167.3  2,960.9
 Property, plant and equipment - net  2,138.7 2,271.4
 Goodwill  2,526.8 2,333.3
 Other intangible assets - net  775.0 747.4
 Other noncurrent assets  475.4 434.6
 Total Assets   $ 9,083.2  $ 8,747.6
     
 Liabilities     
 Current Liabilities     
 Accounts payable   $ 939.8  $ 886.4
 Accrued liabilities  902.2 813.4
 Short-term and current portion of long-term debt  131.4 339.9
 Total Current Liabilities   1,973.4  2,039.7
 Long-term debt  3,398.6 2,982.5
 Pension liability  533.0 509.8
 Postretirement benefit obligations  287.4 324.5
 Deferred income taxes  174.5 205.5
 Other noncurrent liabilities  470.9 524.6
 Total Liabilities   6,837.8  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  2,907.0 2,906.2
 Retained earnings  670.2 662.9
 Accumulated other comprehensive loss  (490.4) (545.0)
 Treasury stock, at cost, 36.4 shares in 2010 (2009 - 37.3 shares)  (1,166.2) (1,193.8)
 Total shareholders' equity  2,224.3 2,134.0
 Noncontrolling interests  21.1 27.0
 Total Equity   2,245.4  2,161.0
 Total Liabilities and Equity   $ 9,083.2  $ 8,747.6
 
 R. R. Donnelley & Sons Company 
 Condensed Consolidated Statements of Operations 
Three and Twelve Months Ended December 31, 2010 and 2009 
 (In millions, except per share data) 
 (UNAUDITED) 
     
   Three Months Ended December 31,   Twelve Months Ended December 31, 
   2010
GAAP 
 ADJUSTMENTS
TO NON-
GAAP 
 2010
NON-GAAP 
 2009
GAAP 
 ADJUSTMENTS
TO NON-
GAAP 
 2009
NON-GAAP 
 2010
GAAP 
 ADJUSTMENTS
TO NON-

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