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RR Donnelley Reports Second-Quarter 2010 Results

Unallocated Corporate operating expenses increased to $46.9 million in the second quarter of 2010 as compared to $26.4 million in the second quarter of 2009. Excluding acquisition expenses of $3.3 million and restructuring and impairment charges of $0.7 million in the second quarter of 2010 and acquisition expenses of $1.4 million and restructuring charges of $1.3 million in the second quarter of 2009, unallocated Corporate operating expenses increased by $19.2 million to $42.9 million in the second quarter of 2010. Higher pension and other benefits-related expenses, LIFO inventory provisions and incentive compensation expense, partially offset by lower bad debt expense, 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 4, 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 706.634.1139. 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 706.645.9291, passcode 86637047.

About RR Donnelley

RR Donnelley (NASDAQ: RRD) is a global provider of integrated communications. Founded more than 145 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, 2010 and December 31, 2009

(UNAUDITED)

(In millions, except per share data)

 

   
June 30, 2010   December 31, 2009
Assets  
Current Assets
Cash and cash equivalents $ 615.8 $ 499.2
Restricted cash equivalents 45.9 -
Receivables, less allowance for doubtful accounts 1,686.1 1,675.9
Income taxes receivable 36.4 63.2
Inventories 535.0 561.8
Prepaid expenses and other current assets   166.6       160.8  
Total Current Assets   3,085.8       2,960.9  
Property, plant and equipment - net 2,110.8 2,271.4
Goodwill 2,309.7 2,333.3
Other intangible assets - net 684.8 747.4
    Other noncurrent assets       414.7       434.6  
Total Assets       $ 8,605.8     $ 8,747.6  
 

Liabilities

Current Liabilities
Accounts payable $ 821.3 $ 886.4
Accrued liabilities 784.4 813.4
Short-term and current portion of long-term debt   9.9       339.9  
Total Current Liabilities   1,615.6       2,039.7  
Long-term debt 3,396.0 2,982.5
Pension liability 503.0 509.8
Postretirement benefit obligations 330.4 324.5
Deferred income taxes 169.7 205.5
    Other noncurrent liabilities       453.4       524.6  
Total Liabilities         6,468.1       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 2,894.5 2,906.2
Retained earnings 697.2 662.9
Accumulated other comprehensive loss (611.8 ) (545.0 )
Treasury stock, at cost, 36.4 shares in 2010 (2009 - 37.3 shares)   (1,168.0 )     (1,193.8 )
Total shareholders' equity 2,115.6 2,134.0
  Noncontrolling interests       22.1       27.0  
Total Equity         2,137.7       2,161.0  
Total Liabilities and Equity     $ 8,605.8     $ 8,747.6  
 

R. R. Donnelley & Sons Company

Condensed Consolidated Statements of Operations

Three and Six Months Ended June 30, 2010 and 2009

(In millions, except per share data)

(UNAUDITED)

 
 
                           
Three Months Ended June 30, Six Months Ended June 30,

2 0 10

GAAP

ADJUSTMENTS

TO NON-GAAP

2 0 10

NON-GAAP

2 0 0 9

GAAP

ADJUSTMENTS

TO NON-GAAP

2 0 0 9

NON-GAAP

2 010

GAAP

ADJUSTMENTS

TO NON-GAAP

2 0 10

NON-GAAP

2 0 0 9

GAAP

ADJUSTMENTS

TO NON-GAAP

2 0 0 9

NON-GAAP

                               
Net sales   $ 2,408.6   $ -   $ 2,408.6     $ 2,355.6   $ -   $ 2,355.6   $ 4,823.7   $ -   $ 4,823.7     $ 4,811.2   $ -   $ 4,811.2  
 

Cost of sales (exclusive of depreciation and amortization shown below)

1,819.6 - 1,819.6 1,756.3 - 1,756.3 3,661.3 - 3,661.3 3,639.1 - 3,639.1

Selling, general and administrative expenses (exclusive of depreciation andamortization shown below)

268.2 (3.3 ) 264.9 272.4 (1.4 ) 271.0 541.7 (5.3 ) 536.4 555.6 (1.4 ) 554.2
Restructuring and impairment charges 10.7 (10.7 ) - 48.2 (48.2 ) - 26.2 (26.2 ) - 102.4 (102.4 ) -
Depreciation and amortization   134.8     -     134.8       143.7     -     143.7     273.4     -     273.4       291.7     -     291.7  
Total operating expenses     2,233.3     (14.0 )   2,219.3       2,220.6     (49.6 )   2,171.0     4,502.6     (31.5 )   4,471.1       4,588.8     (103.8 )   4,485.0  
Income from operations     175.3     14.0     189.3       135.0     49.6     184.6     321.1     31.5     352.6       222.4     103.8     326.2  
 
Interest expense - net 52.8 - 52.8 60.0 - 60.0 108.5 - 108.5 119.1 - 119.1
Investment and other expense (0.8 ) - (0.8 ) (1.0 ) - (1.0 ) (9.8 ) 8.9 (0.9 ) (1.3 ) - (1.3 )
                               
Earnings before income taxes     121.7     14.0     135.7       74.0     49.6     123.6     202.8     40.4     243.2       102.0     103.8     205.8  
 
Income tax expense 32.2 3.3 35.5 47.8 (1.5 ) 46.3 64.6 9.2 73.8 59.4 17.4 76.8
                               
Net earnings     89.5     10.7     100.2       26.2     51.1     77.3     138.2     31.2     169.4       42.6     86.4     129.0  
 
Less: Income (loss) attributable to noncontrolling interests 0.7 - 0.7 1.0 - 1.0 (3.2 ) 3.6 0.4 3.5 - 3.5
                               
Net earnings attributable to common shareholders   $ 88.8   $ 10.7   $ 99.5     $ 25.2   $ 51.1   $ 76.3   $ 141.4   $ 27.6   $ 169.0     $ 39.1   $ 86.4   $ 125.5  
 
Earnings per share attributable to common shareholders
Basic net earnings per share $ 0.43 $ 0.48 $ 0.12 $ 0.37 $ 0.69 $ 0.82 $ 0.19 $ 0.61
Diluted net earnings per share $ 0.42 $ 0.47 $ 0.12 $ 0.37 $ 0.68 $ 0.81 $ 0.19 $ 0.61
Weighted average common shares outstanding:
Basic 206.3 206.3 205.2 205.2 206.0 206.0 205.2 205.2
Diluted 209.9 209.9 207.7 207.7 209.4 209.4 207.2 207.2
 

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, 2010 Three Months Ended June 30, 2009

Income from

operations

Operating

margin

Net earnings

attributable to

common

shareholders

Net earnings

attributable to

common

shareholders per

diluted share

Income from

continuing

operations

Operating margin

Net earnings

attributable to

common

shareholders

Net earnings

attributable to

common

shareholders per

diluted share

GAAP basis measures $ 175.3 7.3 % $ 88.8 $ 0.42 $ 135.0 5.7 % $ 25.2 $ 0.12
 
Non-GAAP adjustments:
Restructuring and impairment charges (1) 10.7 0.5 % 7.6 0.04 48.2 2.0 % 50.2 0.25
Acquisition-related expenses (2)   3.3     0.1 %     3.1     0.01   1.4   0.1 %     0.9     -
Total Non-GAAP adjustments   14.0     0.6 %     10.7     0.05   49.6   2.1 %     51.1     0.25
Non-GAAP measures $ 189.3     7.9 %   $ 99.5   $ 0.47 $ 184.6   7.8 %   $ 76.3   $ 0.37
 
 
 

(1)Restructuring and impairment charges (pre-tax): Operating results for the three months ended June 30, 2010 and 2009 were affected by the following restructuring and impairment charges:

 

2010

2009

Employee termination costs (a) $ 6.1 $ 24.8
Lease termination and other facility closure costs   3.1     15.3  
Total restructuring expense 9.2 40.1
Total impairment charges (b)   1.5     8.1  
Total restructuring and impairment charges $ 10.7   $ 48.2  
 
(a) employee termination costs resulted from the reorganization of certain operations and the exiting of certain business activities.
(b) 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.
 

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, 2010 Six Months Ended June 30, 2009

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 $ 321.1 6.7 % $ 141.4 $ 0.68 $ 222.4 4.6 % $ 39.1 $ 0.19
 
Non-GAAP adjustments:
Restructuring and impairment charges (1) 26.2 0.5 % 18.2 0.09 102.4 2.1 % 85.5 0.42
Acquisition-related expenses (2) 5.3 0.1 % 4.9 0.02 1.4 0.1 % 0.9 -
Venezuela devaluation (3)   -     -       4.5     0.02   -   -       -     -
Total Non-GAAP adjustments   31.5     0.6 %     27.6     0.13   103.8   2.2 %     86.4     0.42
Non-GAAP measures $ 352.6     7.3 %   $ 169.0   $ 0.81 $ 326.2   6.8 %   $ 125.5   $ 0.61
 
 
 
(1)Restructuring and impairment charges (pre-tax): Operating results for the six months ended June 30, 2010 and 2009 were affected by the following restructuring and impairment charges:
 

2010

2009

Employee termination costs (a) $ 15.3 $ 63.8
Lease termination and other facility closure costs   8.4     17.7  
Total restructuring expense 23.7 81.5
Total impairment charges (b)   2.5     20.9  
Total restructuring and impairment charges $ 26.2   $ 102.4  
 
(a) employee termination costs resulted from the reorganization of certain operations and the exiting of certain business activities.
(b) 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)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, 2010 and 2009

$ IN MILLIONS

(UNAUDITED)

       

U.S. Print and

Related Services

  International   Corporate     Consolidated
 

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 continuing 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
 

Three Months Ended June 30, 2009

Net sales $ 1,781.2 $ 574.4 $ - $ 2,355.6
Operating expense   1,642.7       551.5       26.4       2,220.6  
Operating income (loss) 138.5 22.9 (26.4 ) 135.0
Operating margin % 7.8 % 4.0 % nm 5.7 %
 

Non-GAAP Adjustments

Restructuring charges 21.1 17.7 1.3 40.1
Impairment charges 4.9 3.2 - 8.1
Acquisition-related expenses   -       -       1.4       1.4  
Total Non-GAAP adjustments 26.0 20.9 2.7 49.6
 
Non-GAAP income (loss) from continuing operations $ 164.5 $ 43.8 $ (23.7 ) $ 184.6
Non-GAAP operating margin % 9.2 % 7.6 % nm 7.8 %
 
Depreciation and amortization 104.7 30.7 8.3 143.7
Capital expenditures 19.0 12.8 5.4 37.2
 

R. R. Donnelley & Sons Company

Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation

For the Six Months Ended June 30, 2010 and 2009

$ IN MILLIONS

(UNAUDITED)

       

U.S. Print and

Related Services

  International   Corporate     Consolidated
 

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
 

Six Months Ended June 30, 2009

Net sales $ 3,688.6 $ 1,122.6 $ - $ 4,811.2
Operating expense   3,435.7       1,083.2       69.9       4,588.8  
Operating income (loss) 252.9 39.4 (69.9 ) 222.4
Operating margin % 6.9 % 3.5 % nm 4.6 %
 

Non-GAAP Adjustments

Restructuring charges 45.4 31.6 4.5 81.5
Impairment charges 13.3 7.6 - 20.9
Acquisition-related expenses   -       -       1.4       1.4  
Total Non-GAAP adjustments 58.7 39.2 5.9 103.8
 
Non-GAAP income (loss) from operations $ 311.6 $ 78.6 $ (64.0 ) $ 326.2
Non-GAAP operating margin % 8.4 % 7.0 % nm 6.8 %
 
Depreciation and amortization 212.4 61.0 18.3 291.7
Capital expenditures 54.7 29.0 8.4 92.1
 

R. R. Donnelley & Sons Company

Consolidated Statements of Cash Flows

For the Six Months Ended June 30, 2010 and 2009

IN MILLIONS

(UNAUDITED)

       
   
2010 2009

Operating Activities

 
Net earnings $ 138.2 $ 42.6
Adjustment to reconcile net loss to cash provided by operating activities 285.6 367.5
  Changes in operating assets and liabilities       (154.7 )   440.6  
Net cash provided by operating activities     $ 269.1   $ 850.7  
               
Net cash used in investing activities     $ (102.0 ) $ (112.4 )
               
Net cash used in financing activities     $ (35.3 ) $ (615.8 )
 
Effect of exchange rate on cash and cash equivalents (15.2 ) 24.4
               
Net increase in cash and cash equivalents     $ 116.6   $ 146.9  
 
Cash and cash equivalents at beginning of period 499.2 324.0
               
Cash and cash equivalents at end of period     $ 615.8   $ 470.9  
 

R.R. Donnelley & Sons Company

Liquidity Summary

As of June 30, 2010 and December 31, 2009

$ IN MILLIONS

(UNAUDITED)

     
 

Total Liquidity (1)

June 30, 2010 December 31, 2009

Cash (2)

$ 615.8 $ 499.2

Committed Credit Facility ("Facility") (3)

  1,244.9   1,401.2
1,860.7 1,900.4

Usage

Borrowings under Facility   -   -
- -
 
Net Available Liquidity $ 1,860.7 $ 1,900.4
 
 
(1)Liquidity does not include credit facilities of non-U.S. subsidiaries, which are uncommitted facilities.
 
(2)Approximately 53% of the cash as of June 30, 2010 and 83% as of December 31, 2009 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.
 
(3)$2 billion committed credit facility maturing on January 6, 2012. The Facility 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, 2010 and existing term debt at that date, the Company could have incurred up to $1,244.9 million of additional debt under the Facility or otherwise in aggregate and not be in violation of its financial covenants. The $1,244.9 million of maximum additional debt is $755.1 million less than the amount otherwise available under the $2 billion committed Facility. As this total debt covenant is calculated using the results of operations for the trailing twelve months, it does not consider the impact of any future operating results that might be achieved if the $1,244.9 million of additional available debt were deployed in future operating activities.




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