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RR Donnelley Reports Third-Quarter 2013 Results

11/05/2013

CHICAGO, Nov. 5, 2013 (GLOBE NEWSWIRE) -- R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported financial results for the third quarter of 2013.

Third-quarter 2013 highlights:

  • Net sales of $2.6 billion grew 4.2% from the third quarter of 2012; organic revenue growth of 2.2% in the quarter
  • GAAP net earnings attributable to common shareholders of $14.7 million, or $0.08 per diluted share
  • Non-GAAP net earnings attributable to common shareholders of $69.3 million, or $0.38 per diluted share
  • Non-GAAP adjusted EBITDA of $280.1 million, or 10.7% of net sales
  • Free cash flow of $193.9 million exceeded the third quarter of 2012 by $100.6 million; on a year-to-date basis, free cash flow was better than last year by $158 million
  • Company updates revenue, margin and other guidance for full-year 2013; re-affirms free cash flow guidance

"As we communicated in our October 24th announcement, we are very pleased with our third-quarter performance. We have shown steady improvement over the past four quarters in our top-line performance, reflecting positive trends in a number of our offerings," said Thomas J. Quinlan III , R.R. Donnelley's President and Chief Executive Officer. "In addition, our free cash flow remained strong in the quarter, improving $101 million from the third quarter of 2012, contributing to a year-to-date free cash flow that exceeded the prior year by $158 million. Our third-quarter cash flow performance was in line with our expectations, and we are reiterating our full-year guidance in the range of $400 million to $500 million. This level of cash flow provides us the ability to migrate toward our targeted gross leverage range of 2.25x to 2.75x on a long-term sustainable basis." Quinlan continued, "We look forward to completing the acquisition of Consolidated Graphics, expected in the first quarter of 2014."

Net sales in the quarter were $2.6 billion, up $106.1 million, or 4.2%, from the third quarter of 2012. After adjusting for the impact of acquisitions, changes in foreign exchange rates, pass-through paper sales and the 2012 rebate adjustment, organic sales grew by 2.2% from the third quarter of 2012, driven by volume growth in many offerings, a timing shift of a project in Latin America and an increase in pass-through postage revenue.

GAAP Earnings

Third-quarter 2013 net earnings attributable to common shareholders were $14.7 million, or $0.08 per diluted share, compared to net earnings attributable to common shareholders of $71.4 million, or $0.39 per diluted share, in the third quarter of 2012. Third-quarter net earnings attributable to common shareholders included pre-tax charges and expenses, detailed in the attached schedules, of $85.5 million and $15.2 million in 2013 and 2012, respectively, as well as an $11.0 million income tax adjustment in 2012, all of which were excluded from the presentation of non-GAAP net earnings attributable to common shareholders. Additional details regarding the amount and nature of these and other items are included in the attached schedules.

Non-GAAP Earnings

Third-quarter 2013 non-GAAP adjusted EBITDA was $280.1 million or 10.7% of net sales. Compared to the third quarter of 2012, non-GAAP adjusted EBITDA and non-GAAP adjusted EBITDA margin were lower by $40.8 million and 210 basis points, respectively. The unfavorable variances were primarily due to the impact of non-comparable items totaling approximately $59 million, which included higher variable compensation expense, lower pension and other postretirement benefits income, and higher workers compensation expense and LIFO inventory provisions in 2013, as well as the office products rebate adjustment in 2012.

Non-GAAP net earnings attributable to common shareholders totaled $69.3 million, or $0.38 per diluted share, in the third quarter of 2013 compared to $92.9 million, or $0.51 per diluted share, in the third quarter of 2012. Third-quarter non-GAAP net earnings attributable to common shareholders exclude pre-tax charges and expenses of $85.5 million and $15.2 million in 2013 and 2012, respectively, as well as, in 2012, an $11.0 million income tax adjustment. A reconciliation of net earnings attributable to common shareholders to non-GAAP adjusted EBITDA and non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

Outlook

The Company has updated its full-year 2013 guidance, most notably with respect to revenue and non-GAAP adjusted EBITDA margin. While expectations for EBITDA in absolute dollars have not changed since the Company first provided 2013 guidance back in February, growth in pass-through postage revenue has exceeded expectations and is the primary driver of the increase in the range for full-year revenue guidance. The pass-through nature of this revenue has the effect of reducing non-GAAP adjusted EBITDA margin, and is reflected in the Company's updated guidance, as set forth below:

     
  Guidance Previous Guidance
Revenue $10.35 to $10.45 billion $10.1 to $10.3 billion
Non-GAAP adjusted EBITDA margin 11.0% to 11.2% 11.2% to 11.4%
Depreciation and amortization $435 to $440 million $450 to $460 million
Interest expense Approximately $260 million $250 to $255 million
Non-GAAP effective tax rate 33% to 35% 33% to 35%
Diluted share count 183 to 185 million 183 to 185 million
Capital expenditures $200 to $225 million $200 to $225 million
Free cash flow $400 to $500 million $400 to $500 million
     

Conference Call

RR Donnelley will host a conference call and simultaneous webcast to discuss its third-quarter results today, Tuesday, November 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 must register in advance at http://www.meetme.net/rrd.   After registering, participants will receive dial-in numbers, a passcode, and a personal identification number (PIN) that is used to uniquely identify their presence and automatically join them into the audio conference. 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 increase 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 non-GAAP Information

This news release contains certain non-GAAP measures. The Company believes that these 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 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.

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 sales forces, 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 debt and the capital markets and the reliability of the participants to the Company's 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, 2013 and December 31, 2012
(UNAUDITED)
(in millions, except per share data)
     
   September 30, 2013   December 31, 2012 
Assets    
     
Cash and cash equivalents   $ 462.8  $ 430.7
Receivables, less allowances for doubtful accounts  1,916.1 1,878.8
Inventories  538.6 510.2
Prepaid expenses and other current assets  141.1 157.7
Total Current Assets   3,058.6  2,977.4
Property, plant and equipment - net  1,450.9 1,616.6
Goodwill  1,435.0 1,436.4
Other intangible assets - net  335.0 382.9
Deferred income taxes  449.4 445.1
Other noncurrent assets  373.1 404.3
Total Assets   $ 7,102.0  $ 7,262.7
     
Liabilities    
     
Accounts payable   $ 1,100.3  $ 1,210.3
Accrued liabilities  780.8 825.2
Short-term and current portion of long-term debt  275.9 18.4
Total Current Liabilities   2,157.0  2,053.9
Long-term debt  3,240.1 3,420.2
Pension liabilities  1,087.7 1,150.5
Other postretirement benefits plan liabilities  242.3 241.7
Other noncurrent liabilities  338.5 327.7
Total Liabilities   7,065.6  7,194.0
     
Equity    
     
Common stock, $1.25 par value   303.7  303.7
Authorized shares: 500.0     
Issued shares: 243.0 in 2013 and 2012     
Additional paid-in capital  2,797.8 2,839.4
Accumulated deficit  (530.2) (496.1)
Accumulated other comprehensive loss  (1,039.3) (1,029.2)
Treasury stock, at cost, 61.2 shares in 2013 (2012 - 62.6 shares)  (1,513.1) (1,565.0)
Total RR Donnelley shareholders' equity  18.9 52.8
Noncontrolling interests  17.5 15.9
Total Equity   36.4  68.7
Total Liabilities and Equity   $ 7,102.0  $ 7,262.7
 
 
 
 R. R. Donnelley & Sons Company 
 Condensed Consolidated Statements of Operations 
 For the Three and Nine Months Ended September 30, 2013 and 2012 
 (UNAUDITED) 
 (in millions, except per share data) 
                           
       
   For the Three Months Ended September 30,     For the Nine Months Ended September 30, 
   2 0 1 3
GAAP 
 

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