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RR Donnelley Reports Second-Quarter 2011 Results

08/03/2011

Highlights:

  • Second-quarter 2011 net sales of $2.6 billion increased 8.9% compared to the second quarter of 2010
  • Second-quarter 2011 GAAP earnings per diluted share of $0.06 compared to $0.42 in the second quarter of 2010
  • Second-quarter 2011 non-GAAP earnings per diluted share of $0.53 increased nearly 13% from $0.47 in the second quarter of 2010
  • Reaffirms projected full-year operating cash flow less capital expenditures of approximately $600 million

CHICAGO, Aug. 3, 2011 (GLOBE NEWSWIRE) -- R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported second-quarter net earnings attributable to common shareholders of $12.2 million, or $0.06 per diluted share, on net sales of $2.6 billion compared to $88.8 million, or $0.42 per diluted share, on net sales of $2.4 billion in the second quarter of 2010. The second-quarter net earnings attributable to common shareholders included pre-tax charges for restructuring ($51.4 million) and impairment ($24.3 million, non-cash), a loss on debt extinguishment related to the tender offers on the 2015, 2017 and 2019 Notes ($68.6 million),and acquisition-related costs ($0.9 million) totaling $145.2 million, partially offset by a pre-tax gain on an investment of $9.8 million in 2011, compared to charges for restructuring ($9.2 million) and impairment ($1.5 million, non-cash) and acquisition-related costs ($3.3 million) totaling $14.0 million in 2010. 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 $105.6 million, or $0.53 per diluted share, in the second quarter of 2011 compared to $99.5 million, or $0.47 per diluted share, in the second quarter of 2010. Second-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges and acquisition expenses for both years. In addition, second-quarter 2011 non-GAAP net earnings attributable to common shareholders exclude the loss on debt extinguishment and the investment gain. For non-GAAP comparison purposes, the effective tax rate decreased to 19.5% in the second quarter of 2011 from 26.2% in the second quarter of 2010, primarily due to the release of reserves related to the resolution of certain state audits and the release of valuation allowances on certain 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.

"Our platform, like our customers, felt the economic challenges during the second quarter," said Thomas J. Quinlan III , RR Donnelley's President and Chief Executive Officer. "Over the past month or so, customer demand in a variety of our offerings appears to be firming up, so we begin the second half of the year with renewed optimism."

Quinlan continued, "The share repurchase program and successful bond offering that we launched in the second quarter demonstrate the confidence that management and investors alike have in our ability to continue to drive strong cash flow. We remain on track to deliver approximately $600 million of operating cash flow less capital expenditures for the full year." 

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 $2.6 billion, up 8.9% from the second quarter of 2010, including increased sales related to the acquisition of Bowne.  Pro forma for acquisitions, net sales grew by 0.3%. Changes in foreign exchange rates accounted for $46.0 million of the increase from the second quarter of 2010.  Gross margin of 24.5% in the second quarter of 2011 was flat to the second quarter of 2010 as productivity efforts, the acquisition of Bowne, lower variable compensation expense and a higher recovery on print-related by-products were offset by lower volume, primarily in books and directories, and pricing pressure. SG&A expense as a percentage of net sales in the second quarter of 2011 increased to 11.8% from 11.1% in the second quarter of 2010 primarily due to the acquisition of Bowne and higher pension and other benefits-related expenses. Operating earnings were negatively impacted by restructuring and impairment charges and acquisition expenses of $76.6 million in the second quarter of 2011 and $14.0 million in the second quarter of 2010, resulting in operating income of $116.1 million in 2011 and $175.3 million in 2010. Operating margin was 4.4% in 2011 and 7.3% in 2010.

Excluding restructuring and impairment charges and acquisition expenses, non-GAAP operating margin declined to 7.3% in the second quarter of 2011 from 7.9% in the second quarter of 2010. Changes in foreign exchange rates, primarily due to export sales from certain international operations, and higher pass-through paper sales unfavorably impacted non-GAAP operating margin by approximately 29 basis points. The remainder of the margin decline was primarily due to lower volume, continued pricing pressure and higher unallocated Corporate costs for pension and other benefits-related expenses, which more than offset the impact of productivity initiatives and lower variable compensation expense.

Segments

Net sales for the U.S. Print and Related Services segment in the quarter increased 6.2% from the second quarter of 2010 to $1.9 billion primarily due to the acquisition of Bowne and volume increases in commercial, logistics and financial print, partially offset by volume declines in books and directories and continued pricing pressure across the segment. Pro forma for acquisitions, net sales in the US Print and Related Services segment decreased by $50.7 million, or 2.6%, primarily due to volume declines in books and directories and continued pricing pressure across the segment. The segment's operating income, which was negatively impacted by charges for restructuring and impairment of $65.1 million in the second quarter of 2011 and $3.5 million in the second quarter of 2010, decreased to $132.8 million in the second quarter of 2011 from $179.5 million in the second quarter of 2010. Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin improved to 10.3% in the second quarter of 2011 from 10.1% in the second quarter of 2010, due to productivity initiatives, lower variable compensation expense and a higher recovery on print-related by-products, which more than offset the impact of volume declines and continued pricing pressure.

Net sales for the International segment in the quarter increased 17.2% from the second quarter of 2010 to $702.5 million, including increased sales related to the acquisition of Bowne. Pro forma for acquisitions, net sales grew by $58.5 million, or 9.1% as changes in foreign exchange rates and increased volume offset the impact of continued pricing pressure. The segment's operating income, which was negatively impacted by charges for restructuring and impairment of $9.8 million in the second quarter of 2011 and $6.5 million in the second quarter of 2010, improved to $43.6 million in the second quarter of 2011 from $42.7 million in the second quarter of 2010. Excluding the restructuring and impairment charges, the segment's non-GAAP operating margin declined to 7.6% in the second quarter of 2011 from 8.2% in the second quarter of 2010 as the 99 basis point impact from changes in foreign exchange rates, primarily due to export sales from certain operations, as well as pricing pressure more than offset the benefits of increased volume and productivity efforts.   

Unallocated Corporate operating expenses increased to $60.3 million in the second quarter of 2011 as compared to $46.9 million in the second quarter of 2010. Excluding restructuring and impairment charges of $0.8 million and acquisition expenses of $0.9 million in the second quarter of 2011 and restructuring and impairment charges of $0.7 million and acquisition expenses of $3.3 million in the second quarter of 2010, unallocated Corporate operating expenses increased $15.7 million to $58.6 million in the second quarter of 2011. Higher pension and other benefits-related expenses and the acquisition of Bowne were the primary factors contributing to the increase. 

Conference Call

RR Donnelley will host a conference call and simultaneous webcast to discuss its second-quarter results today, Wednesday, August 3, 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 30234679. 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. 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 
Condensed Consolidated Balance Sheets
As of June 30, 2011 and December 31, 2010
(UNAUDITED)
(In millions, except per share data)
 
     
   June 30, 2011   December 31, 2010 
Assets     
Current Assets     
Cash and cash equivalents   $ 363.0  $ 519.1
Receivables, less allowance for doubtful accounts  2,011.0 1,922.9
Income taxes receivable  68.0 49.3
Inventories  580.0 560.6
Prepaid expenses and other current assets  145.7 115.4
Total Current Assets   3,167.7  3,167.3
Property, plant and equipment - net  2,031.5 2,138.7
Goodwill  2,619.5 2,526.8
Other intangible assets - net  727.3 775.0
Other noncurrent assets  480.2 475.4
Total Assets   $ 9,026.2  $ 9,083.2
     
Liabilities     
Current Liabilities     
Accounts payable   $ 924.7  $ 939.8
Accrued liabilities  815.8 902.2
Short-term and current portion of long-term debt  649.6 131.4
Total Current Liabilities   2,390.1  1,973.4
Long-term debt  3,427.7 3,398.6
Pension liability  530.0 533.0
Postretirement benefit obligations  220.9 287.4
Deferred income taxes  190.7 174.5
Other noncurrent liabilities  460.1 470.9
Total Liabilities   7,219.5  6,837.8
Equity     
     
Common stock, $1.25 par value   303.7  303.7
Authorized shares: 500.0     
Issued shares: 243.0 in 2011 and 2010     
Additional paid-in capital  2,779.6 2,907.0
Retained earnings  608.7 670.2
Accumulated other comprehensive loss  (375.7) (490.4)
Treasury stock, at cost, 55.2 shares in 2011 (2010 - 36.4 shares)  (1,528.9) (1,166.2)
Total shareholders' equity  1,787.4 2,224.3
Noncontrolling interests  19.3 21.1
Total Equity   1,806.7  2,245.4
Total Liabilities and Equity   $ 9,026.2  $ 9,083.2
 
 
R. R. Donnelley & Sons Company 
Condensed Consolidated Statements of Operations 
Three and Six Months Ended June 30, 2011 and 2010 
(In millions, except per share data) 
(UNAUDITED) 
   
   Three Months Ended June 30, 
   2 0 1 1
GAAP 
 ADJUSTMENTS
TO NON-GAAP 
 2 0 1 1
NON-GAAP 
 2 0 1 0
GAAP 
 ADJUSTMENTS
TO NON-GAAP 
 2 0 1 0
NON-GAAP 
Net sales             
Products   $&nbs

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