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 | $ 2,356.9 | $ -- | $ 2,356.9 | $ 2,157.4 | $ -- | $ 2,157.4 |
| Services | 266.5 | -- | 266.5 | 251.2 | -- | 251.2 |
| Total net sales | 2,623.4 | -- | 2,623.4 | 2,408.6 | -- | 2,408.6 |
| Products cost of sales (exclusive of depreciation and amortization shown below) | 1,777.2 | -- | 1,777.2 | 1,636.1 | -- | 1,636.1 |
| Services cost of sales (exclusive of depreciation and amortization shown below) | 204.4 | -- | 204.4 | 183.5 | -- | 183.5 |
| Selling, general and administrative expenses (exclusive of depreciation and amortization shown below) | 309.3 | (0.9) | 308.4 | 268.2 | (3.3) | 264.9 |
| Restructuring and impairment charges | 75.7 | (75.7) | -- | 10.7 | (10.7) | -- |
| Depreciation and amortization | 140.7 | -- | 140.7 | 134.8 | -- | 134.8 |
| Total operating expenses | 2,507.3 | (76.6) | 2,430.7 | 2,233.3 | (14.0) | 2,219.3 |
| Income from operations | 116.1 | 76.6 | 192.7 | 175.3 | 14.0 | 189.3 |
| Interest expense - net | 61.3 | -- | 61.3 | 52.8 | -- | 52.8 |
| Investment and other income (expense) - net | 10.0 | (9.8) | 0.2 | (0.8) | -- | (0.8) |
| Loss on debt extinguishment | (68.6) | 68.6 | -- | -- | -- | -- |
| Earnings (loss) before income taxes | (3.8) | 135.4 | 131.6 | 121.7 | 14.0 | 135.7 |
| Income tax expense (benefit) | (16.3) | 42.0 | 25.7 | 32.2 | 3.3 | 35.5 |
| Net earnings | 12.5 | 93.4 | 105.9 | 89.5 | 10.7 | 100.2 |
| Less: Income (loss) attributable to noncontrolling interests | 0.3 | -- | 0.3 | 0.7 | -- | 0.7 |
| Net earnings attributable to common | ||||||
| shareholders | $ 12.2 | $ 93.4 | $ 105.6 | $ 88.8 | $ 10.7 | $ 99.5 |
| Earnings per share attributable to common shareholders: | ||||||
| Basic net earnings per share | $ 0.06 | $ 0.54 | $ 0.43 | $ 0.48 | ||
| Diluted net earnings per share | $ 0.06 | $ 0.53 | $ 0.42 | $ 0.47 | ||
| Weighted average common shares outstanding: | ||||||
| Basic | 196.7 | 196.7 | 206.3 | 206.3 | ||
| Diluted | 199.5 | 199.5 | 209.9 | 209.9 | ||
| Six 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 | $ 4,623.3 | $ -- | $ 4,623.3 | $ 4,328.3 | $ -- | $ 4,328.3 |
| Services | 583.6 | -- | 583.6 | 495.4 | -- | 495.4 |
| Total net sales | 5,206.9 | -- | 5,206.9 | 4,823.7 | -- | 4,823.7 |
| Products cost of sales (exclusive of depreciation and amortization shown below) | 3,504.0 | -- | 3,504.0 | 3,296.9 | -- | 3,296.9 |
| Services cost of sales (exclusive of depreciation and amortization shown below) | 433.8 | -- | 433.8 | 364.4 | -- | 364.4 |
| Selling, general and administrative expenses (exclusive of depreciation and amortization shown below) | 636.2 | (1.3) | 634.9 | 541.7 | (5.3) | 536.4 |
| Restructuring and impairment charges | 126.5 | (126.5) | -- | 26.2 | (26.2) | -- |
| Depreciation and amortization | 280.9 | -- | 280.9 | 273.4 | -- | 273.4 |
| Total operating expenses | 4,981.4 | (127.8) | 4,853.6 | 4,502.6 | (31.5) | 4,471.1 |
| Income from operations | 225.5 | 127.8 | 353.3 | 321.1 | 31.5 | 352.6 |
| Interest expense - net | 119.2 | -- | 119.2 | 108.5 | -- | 108.5 |
| Investment and other income (expense) - net | 9.8 | (9.8) | -- | (9.8) | 8.9 | (0.9) |
| Loss on debt extinguishment | (68.6) | 68.6 | -- | -- | -- | -- |
| Earnings (loss) before income taxes | 47.5 | 186.6 | 234.1 | 202.8 | 40.4 | 243.2 |
| Income tax expense (benefit) | 0.7 | 58.5 | 59.2 | 64.6 | 9.2 | 73.8 |
| Net earnings | 46.8 | 128.1 | 174.9 | 138.2 | 31.2 | 169.4 |
| Less: Income (loss) attributable to noncontrolling interests | 0.7 | -- | 0.7 | (3.2) | 3.6 | 0.4 |
| Net earnings attributable to common | ||||||
| shareholders | $ 46.1 | $ 128.1 | $ 174.2 | $ 141.4 | $ 27.6 | $ 169.0 |
| Earnings per share attributable to common shareholders: | ||||||
| Basic net earnings per share | $ 0.23 | $ 0.86 | $ 0.69 | $ 0.82 | ||
| Diluted net earnings per share | $ 0.23 | $ 0.85 | $ 0.68 | $ 0.81 | ||
| Weighted average common shares outstanding: | ||||||
| Basic | 201.9 | 201.9 | 206.0 | 206.0 | ||
| Diluted | 204.5 | 204.5 | 209.4 | 209.4 | ||
| 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 June 30, 2011 | Three Months Ended June 30, 2010 | |||||||
|
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 | $ 116.1 | 4.4% | $ 12.2 | $ 0.06 | $ 175.3 | 7.3% | $ 88.8 | $ 0.42 |
| Non-GAAP adjustments: | ||||||||
| Restructuring and impairment charges (1) | 75.7 | 2.9% | 57.8 | 0.29 | 10.7 | 0.5% | 7.6 | 0.04 |
| Acquisition-related expenses (2) | 0.9 | -- | 0.8 | 0.01 | 3.3 | 0.1% | 3.1 | 0.01 |
| Gain on Helium investment (3) | -- | -- | (9.5) | (0.05) | -- | -- | -- | -- |
| Losses related to debt extinguishment (4) | -- | -- | 44.3 | 0.22 | -- | -- | -- | -- |
| Total Non-GAAP adjustments | 76.6 | 2.9% | 93.4 | 0.47 | 14.0 | 0.6% | 10.7 | 0.05 |
| Non-GAAP measures | $ 192.7 | 7.3% | $ 105.6 | $ 0.53 | $ 189.3 | 7.9% | $ 99.5 | $ 0.47 |
| (1) Restructuring and impairment charges (pre-tax): Operating results for the three months ended June 30, 2011 and 2010 were affected by the following restructuring and impairment charges: | ||||||||
| 2011 | 2010 | |||||||
| Employee termination costs (a) | $ 29.2 | $ 6.1 | ||||||
| Other charges (b) | 22.2 | 3.1 | ||||||
| Total restructuring expense | 51.4 | 9.2 | ||||||
| Total impairment charges (c) | 24.3 | 1.5 | ||||||
| Total restructuring and impairment charges | $ 75.7 | $ 10.7 | ||||||
| (a) employee termination costs resulted from the reorganization of certain operations and the exiting of certain business activities. | ||||||||
| (b) includes lease termination and other facility costs. In addition, 2011 includes multi-employer pension plan partial withdrawal charges primarily attributable to the closing of three manufacturing facilities in the U.S. Print and Related Services segment. | ||||||||
| (c) impairment charges related to the impairment of other long-lived assets. | ||||||||
| (2) Acquisition-related expenses: Legal, accounting and other expenses associated with acquisitions completed or contemplated. | ||||||||
| (3) Gain on Helium investment: A pre-tax gain of $9.8 million resulted from the acquisition of Helium, in which the Company previously held an equity investment. The pre-tax gain is net of the Company's portion of the transaction costs incurred by Helium as a result of the acquisition. | ||||||||
| (4) Losses related to debt extinguishment: Pre-tax loss of $68.6 million on the repurchase of $416.2 million of senior notes due February 1, 2019, January 15, 2017 and May 15, 2015. | ||||||||
| R.R. Donnelley & Sons Company | ||||||||
| Reconciliation of GAAP to Non-GAAP Measures | ||||||||
| IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA | ||||||||
| (UNAUDITED) | ||||||||
| Six Months Ended June 30, 2011 | Six Months Ended June 30, 2010 | |||||||
|
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 | $ 225.5 | 4.3% | $ 46.1 | $ 0.23 | $ 321.1 | 6.7% | $ 141.4 | $ 0.68 |
| Non-GAAP adjustments: | ||||||||
| Restructuring and impairment charges (1) | 126.5 | 2.4% | 92.1 | 0.44 | 26.2 | 0.5% | 18.2 | 0.09 |
| Acquisition-related expenses (2) | 1.3 | 0.1% | 1.2 | 0.01 | 5.3 | 0.1% | 4.9 | 0.02 |
| Gain on Helium investment (3) | -- | -- | (9.5) | (0.05) | -- | -- | -- | -- |
| Losses related to debt extinguishment (4) | -- | -- | 44.3 | 0.22 | -- | -- | -- | -- |
| Venezuela devaluation (5) | -- | -- | -- | -- | -- | -- | 4.5 | 0.02 |
| Total Non-GAAP adjustments | 127.8 | 2.5% | 128.1 | 0.62 | 31.5 | 0.6% | 27.6 | 0.13 |
| Non-GAAP measures | $ 353.3 | 6.8% | $ 174.2 | $ 0.85 | $ 352.6 | 7.3% | $ 169.0 | $ 0.81 |
| (1) Restructuring and impairment charges (pre-tax): Operating results for the six months ended June 30, 2011 and 2010 were affected by the following restructuring and impairment charges: | ||||||||
| 2011 | 2010 | |||||||
| Employee termination costs (a) | $ 54.0 | $ 15.3 | ||||||
| Other charges (b) | 40.1 | 8.4 | ||||||
| Total restructuring expense | 94.1 | 23.7 | ||||||
| Total impairment charges (c) | 32.4 | 2.5 | ||||||
| Total restructuring and impairment charges | $ 126.5 | $ 26.2 | ||||||
| (a) employee termination costs resulted from the reorganization of certain operations and the exiting of certain business activities. | ||||||||
| (b) includes lease termination and other facility costs. In addition, 2011 includes multi-employer pension plan partial withdrawal charges primarily attributable to the closing of three manufacturing facilities in the U.S. Print and Related Services segment. | ||||||||
| (c) impairment charges related to the impairment of other long-lived assets. | ||||||||
| (2) Acquisition-related expenses: Legal, accounting and other expenses associated with acquisitions completed or contemplated. | ||||||||
| (3) Gain on Helium investment: A pre-tax gain of $9.8 million resulted from the acquisition of Helium, in which the Company previously held an equity investment. The pre-tax gain is net of the Company's portion of the transaction costs incurred by Helium as a result of the acquisition. | ||||||||
| (4) Losses related to debt extinguishment: Pre-tax loss of $68.6 million on the repurchase of $416.2 million of senior notes due February 1, 2019, January 15, 2017 and May 15, 2015. | ||||||||
| (5) 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 June 30, 2011 and 2010 | ||||
| $ IN MILLIONS | ||||
| (UNAUDITED) | ||||
|
U.S. Print and Related Services |
International |
Corporate |
Consolidated |
|
| Three Months Ended June 30, 2011 | ||||
| Net sales | $ 1,920.9 | $ 702.5 | $ -- | $ 2,623.4 |
| Operating expense | 1,788.1 | 658.9 | 60.3 | 2,507.3 |
| Operating income (loss) | 132.8 | 43.6 | (60.3) | 116.1 |
| Operating margin % | 6.9% | 6.2% | nm | 4.4% |
| Non-GAAP Adjustments | ||||
| Restructuring charges | 41.5 | 9.3 | 0.6 | 51.4 |
| Impairment charges | 23.6 | 0.5 | 0.2 | 24.3 |
| Acquisition-related expenses | -- | -- | 0.9 | 0.9 |
| Total Non-GAAP adjustments | 65.1 | 9.8 | 1.7 | 76.6 |
| Non-GAAP income (loss) from operations | $ 197.9 | $ 53.4 | $ (58.6) | $ 192.7 |
| Non-GAAP operating margin % | 10.3% | 7.6% | nm | 7.3% |
| Depreciation and amortization | 98.9 | 31.6 | 10.2 | 140.7 |
| Capital expenditures | 38.1 | 21.1 | 21.9 | 81.1 |
| Three Months Ended June 30, 2010 | ||||
| Net sales | $ 1,809.3 | $ 599.3 | $ -- | $ 2,408.6 |
| Operating expense | 1,629.8 | 556.6 | 46.9 | 2,233.3 |
| Operating income (loss) | 179.5 | 42.7 | (46.9) | 175.3 |
| Operating margin % | 9.9% | 7.1% | nm | 7.3% |
| Non-GAAP Adjustments | ||||
| Restructuring charges | 2.5 | 6.2 | 0.5 | 9.2 |
| Impairment charges | 1.0 | 0.3 | 0.2 | 1.5 |
| Acquisition-related expenses | -- | -- | 3.3 | 3.3 |
| Total Non-GAAP adjustments | 3.5 | 6.5 | 4.0 | 14.0 |
| Non-GAAP income (loss) from operations | $ 183.0 | $ 49.2 | $ (42.9) | $ 189.3 |
| Non-GAAP operating margin % | 10.1% | 8.2% | nm | 7.9% |
| Depreciation and amortization | 98.7 | 28.1 | 8.0 | 134.8 |
| Capital expenditures | 18.5 | 17.7 | 18.4 | 54.6 |
| R. R. Donnelley & Sons Company | ||||
| Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation | ||||
| For the Six Months Ended June 30, 2011 and 2010 | ||||
| $ IN MILLIONS | ||||
| (UNAUDITED) | ||||
|
U.S. Print and Related Services |
International |
Corporate |
Consolidated |
|
| Six Months Ended June 30, 2011 | ||||
| Net sales | $ 3,862.0 | $ 1,344.9 | $ -- | $ 5,206.9 |
| Operating expense | 3,587.3 | 1,257.2 | 136.9 | 4,981.4 |
| Operating income (loss) | 274.7 | 87.7 | (136.9) | 225.5 |
| Operating margin % | 7.1% | 6.5% | nm | 4.3% |
| Non-GAAP Adjustments | ||||
| Restructuring charges | 72.8 | 18.0 | 3.3 | 94.1 |
| Impairment charges | 30.5 | 1.0 | 0.9 | 32.4 |
| Acquisition-related expenses | -- | -- | 1.3 | 1.3 |
| Total Non-GAAP adjustments | 103.3 | 19.0 | 5.5 | 127.8 |
| Non-GAAP income (loss) from operations | $ 378.0 | $ 106.7 | $ (131.4) | $ 353.3 |
| Non-GAAP operating margin % | 9.8% | 7.9% | nm | 6.8% |
| Depreciation and amortization | 198.8 | 62.0 | 20.1 | 280.9 |
| Capital expenditures | 55.4 | 46.9 | 25.9 | 128.2 |
| Six Months Ended June 30, 2010 | ||||
| Net sales | $ 3,646.1 | $ 1,177.6 | $ -- | $ 4,823.7 |
| Operating expense | 3,302.8 | 1,101.2 | 98.6 | 4,502.6 |
| Operating income (loss) | 343.3 | 76.4 | (98.6) | 321.1 |
| Operating margin % | 9.4% | 6.5% | nm | 6.7% |
| Non-GAAP Adjustments | ||||
| Restructuring charges | 7.4 | 15.7 | 0.6 | 23.7 |
| Impairment charges | 2.0 | 0.3 | 0.2 | 2.5 |
| Acquisition-related expenses | -- | -- | 5.3 | 5.3 |
| Total Non-GAAP adjustments | 9.4 | 16.0 | 6.1 | 31.5 |
| Non-GAAP income (loss) from operations | $ 352.7 | $ 92.4 | $ (92.5) | $ 352.6 |
| Non-GAAP operating margin % | 9.7% | 7.8% | nm | 7.3% |
| Depreciation and amortization | 199.7 | 57.8 | 15.9 | 273.4 |
| Capital expenditures | 44.6 | 30.1 | 19.8 | 94.5 |
| R. R. Donnelley & Sons Company | ||
| Condensed Consolidated Statements of Cash Flows | ||
| For the Six Months Ended June 30, 2011 and 2010 | ||
| IN MILLIONS | ||
| (UNAUDITED) | ||
| 2011 | 2010 | |
| Operating Activities | ||
| Net earnings | $ 46.8 | $ 138.2 |
| Adjustment to reconcile net earnings to cash provided by operating activities | 373.5 | 285.6 |
| Changes in operating assets and liabilities | (252.2) | (154.7) |
| Net cash provided by operating activities | $ 168.1 | $ 269.1 |
| Net cash used in investing activities | $ (208.4) | $ (102.0) |
| Net cash used in financing activities | $ (134.4) | $ (35.3) |
| Effect of exchange rate on cash and cash equivalents | 18.6 | (15.2) |
| Net (decrease) increase in cash and cash equivalents | $ (156.1) | $ 116.6 |
| Cash and cash equivalents at beginning of period | 519.1 | 499.2 |
| Cash and cash equivalents at end of period | $ 363.0 | $ 615.8 |
| R.R. Donnelley & Sons Company | |||
| Revenue Reconciliation Reported to Pro Forma | |||
| For the Three Months Ended June 30, 2011 and 2010 | |||
| $ IN MILLIONS | |||
| (UNAUDITED) | |||
|
Reported net sales |
Adjustment for net sales of acquired businesses |
Pro forma net sales |
|
| Three Months Ended June 30, 2011 | |||
| U.S. Print and Related Services | $ 1,920.9 | $ 0.8 | $ 1,921.7 |
| International | 702.5 | -- | 702.5 |
| Consolidated | $ 2,623.4 | $ 0.8 | $ 2,624.2 |
| Three Months Ended June 30, 2010 | |||
| U.S. Print and Related Services | $ 1,809.3 | $ 163.1 | $ 1,972.4 |
| International | 599.3 | 44.7 | 644.0 |
| Consolidated | $ 2,408.6 | $ 207.8 | $ 2,616.4 |
| Net sales change | |||
| U.S. Print and Related Services | 6.2% | (2.6%) | |
| International | 17.2% | 9.1% | |
| Consolidated | 8.9% | 0.3% | |
| The reported results of the Company include the results of acquired businesses from the acquisition date forward. The Company has provided this schedule to reconcile reported net sales for the quarter ended June 30, 2011 and 2010 to pro forma net sales as if the acquisitions took place at the beginning of the respective periods. | |||
| For the quarter ended June 30, 2011, the adjustment for net sales of acquired businesses reflects the net sales of Journalism Online (acquired March 24, 2011) and Helium, Inc. (acquired June 21, 2011) . | |||
| For the quarter ended June 30, 2010, the adjustment for net sales of acquired businesses reflects the net sales of Bowne & Co., Inc. (acquired November 24, 2010), Nimblefish Technologies (acquired December 14, 2010), 8touches (acquired December 31, 2010), Journalism Online (acquired March 24, 2011) and Helium, Inc. (acquired June 21, 2011). | |||
| R.R. Donnelley & Sons Company | |||
| Revenue Reconciliation Reported to Pro Forma | |||
| For the Six Months Ended June 30, 2011 and 2010 | |||
| $ IN MILLIONS | |||
| (UNAUDITED) | |||
|
Reported net sales |
Adjustment for net sales of acquired businesses |
Pro forma net sales |
|
| Six Months Ended June 30, 2011 | |||
| U.S. Print and Related Services | $ 3,862.0 | $ 1.7 | $ 3,863.7 |
| International | 1,344.9 | -- | 1,344.9 |
| Consolidated | $ 5,206.9 | $ 1.7 | $ 5,208.6 |
| Six Months Ended June 30, 2010 | |||
| U.S. Print and Related Services | $ 3,646.1 | $ 305.6 | $ 3,951.7 |
| International | 1,177.6 | 81.2 | 1,258.8 |
| Consolidated | $ 4,823.7 | $ 386.8 | $ 5,210.5 |
| Net sales change | |||
| U.S. Print and Related Services | 5.9% | (2.2%) | |
| International | 14.2% | 6.8% | |
| Consolidated | 7.9% | ---% | |
| The reported results of the Company include the results of acquired businesses from the acquisition date forward. The Company has provided this schedule to reconcile reported net sales for the six months ended June 30, 2011 and 2010 to pro forma net sales as if the acquisitions took place at the beginning of the respective periods. | |||
| For the six months ended June 30, 2011, the adjustment for net sales of acquired businesses reflects the net sales of Journalism Online (acquired March 24, 2011) and Helium, Inc. (acquired June 21, 2011). | |||
| For the six months ended June 30, 2010, the adjustment for net sales of acquired businesses reflects the net sales of Bowne & Co., Inc. (acquired November 24, 2010), Nimblefish Technologies (acquired December 14, 2010), 8touches (acquired December 31, 2010), Journalism Online (acquired March 24, 2011) and Helium, Inc. (acquired June 21, 2011). | |||
| R.R. Donnelley & Sons Company | ||
| Liquidity Summary | ||
| As of June 30, 2011 and December 31, 2010 | ||
| $ IN MILLIONS | ||
| (UNAUDITED) | ||
| Total Liquidity (1) | June 30, 2011 | December 31, 2010 |
| Cash (2) | $ 363.0 | $ 519.1 |
| Committed Credit Agreement (3) | 1,396.5 | 1,503.0 |
| 1,759.5 | 2,022.1 | |
| Usage | ||
| Borrowings under Facility | 475.0 | 120.0 |
| Net Available Liquidity | $ 1,284.5 | $ 1,902.1 |
| (1) Liquidity does not include credit facilities of non-U.S. subsidiaries, which are uncommitted facilities. | ||
| (2) Approximately 89% of the cash as of June 30, 2011 and 85% as of December 31, 2010 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. In addition, repatriation of some foreign cash is further restricted by local laws. | ||
| (3) $1.75 billion unsecured and committed credit agreement (the "Credit Agreement") expiring on December 17, 2013. The Credit Agreement 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 June 30, 2011 and existing term debt at that date, the total amount available under the Credit Agreement is $1,396.5 million ($353.5 million less than the $1.75 billion stated amount), including the $475 million borrowed under it at June 30, 2011. Thus, the Company could have incurred up to $921.5 million of additional debt under the Credit Agreement or otherwise in aggregate and not be in violation of its financial covenant. | ||