Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
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RR Donnelley Reports Fourth Quarter and Full-Year 2004 Results
CHICAGO, March 1 /PRNewswire-FirstCall/ -- R.R. Donnelley & Sons Company
(NYSE:RRD) today reported fourth-quarter 2004 earnings from continuing
operations of $148.8 million or $0.66 per diluted share on net sales of $2.1
billion compared to earnings from continuing operations of $109.1 million or
$0.95 per diluted share on net sales of $1.2 billion in the fourth quarter of
2003. The fourth-quarter 2004 results from continuing operations include
restructuring ($10.1 million), integration ($5.6 million) and impairment ($5.6
million) charges totaling $21.3 million, primarily related to the ongoing
integration of our February 27, 2004 acquisition of Moore Wallace. Also
included in the fourth quarter of 2004 results are a non-cash write-down of the
company's investment in affordable housing of $14.4 million and a net tax
benefit totaling $37.6 million, primarily resulting from the reversal of tax
contingencies upon the expiration of certain state statutory limitations of
$30.5 million and the reversal of a non-US deferred tax valuation allowance of
$7.1 million. Results from continuing operations in the fourth quarter of 2003
included restructuring and impairment charges of $3.2 million, a non-cash
write-down of the company's investment in affordable housing of $7.3 million, a
gain on the disposition of an investment of $1.4 million and a tax benefit of
$45.8 million related to the favorable resolution of Internal Revenue Service
(IRS) audits and refundable income taxes in Latin America due to the
realization of tax loss carrybacks. The company announced, on December 16,
2004, its intention to sell its Peak Technologies business. Accordingly,
effective with the fourth quarter of 2004, Peak Technologies is reported as a
discontinued operation along with the package logistics business and Momentum
Logistics, Inc. (MLI), both of which were reported as discontinued operations,
effective in the third quarter of 2004 (see discussion below). Net earnings,
which include discontinued operations, were $136.8 million or $0.61 per diluted
share in the fourth quarter of 2004 compared to $97.7 million or $0.85 per
diluted share in the fourth quarter of 2003.
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 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 earnings from continuing operations totaled $132.3 million or $0.59
per diluted share in the fourth quarter of 2004 compared to $66.4 million or
$0.58 per diluted share in the fourth quarter of 2003. The fourth quarter of
2003 non-GAAP earnings from continuing operations include approximately $0.03
per diluted share resulting from the reversal of excess employee incentive
accruals that were expensed in prior quarters. Fourth-quarter non-GAAP earnings
from continuing operations exclude restructuring and impairment charges and a
non-cash write-down of the company's investment in affordable housing in both
2004 and 2003. Also excluded are integration charges in the fourth quarter of
2004 and a gain on the disposition of an investment in the fourth quarter of
2003. The company used an effective tax rate of 38.3% in the fourth quarter of
both years, which it believes is its pro forma annual tax rate, in calculating
non-GAAP earnings. A reconciliation of GAAP earnings to non-GAAP earnings for
these adjustments is presented in the attached tables.
"Our strong operating performance in the fourth quarter capped off a very
successful 2004," said Mark A. Angelson, RR Donnelley's Chief Executive
Officer. "During the fourth quarter, our Integrated Print Communications
business delivered strong sales growth and margin expansion and our Publishing
and Retail Services business continued to win new business, post top-line
growth and generate a strong operating margin."
Angelson added, "For the full year, non-GAAP operating margin improved to 9.0%
and we generated cash flow from continuing operations of $759 million, driven
by top line growth, merger related and other cost savings and productivity
enhancements. Looking forward, we will continue to focus on these drivers of
profitability and on growing our business."
Business Review (Continuing Operations)
RR Donnelley's acquisition of Moore Wallace was completed on February 27, 2004.
The reported financials for the company, therefore, do not include the results
of Moore Wallace in 2003 and for approximately the first two months of 2004.
Following are the results for the company and each reportable segment.
Summary
Net sales in the quarter were $2.1 billion, up 77% from the same quarter in
2003, primarily due to the acquisition of Moore Wallace and increased volume in
the book and financial print businesses, international markets and the
Publishing and Retail Services segment. Gross margin was 27.4% in the fourth
quarter of 2004 compared to 27.2% in the fourth quarter of 2003, as the
benefits from restructuring and cost reduction actions and procurement savings
were offset, in part, by incremental costs of employee incentives, primarily
due to the reversal of incentive accruals in the fourth quarter of 2003, and
integration expenses. Selling, general and administrative expense, as a
percentage of net sales, was 11.4% in the fourth quarter of 2004 compared to
11.3% in the fourth quarter of 2003, as the benefit of cost reduction actions
was offset by increased costs of bad debt, pension and post retirement
benefits, Sarbanes-Oxley Act compliance, and integration. Operating margin in
the fourth quarter of 2004 increased to 10.4% from 10.1% in last year's fourth
quarter, despite increased restructuring, integration and impairment charges in
the fourth quarter of 2004.
Excluding restructuring, integration and impairment charges in the fourth
quarter of both years, non-GAAP operating margin for the fourth quarter of 2004
was 11.4% compared to 10.4% for the fourth quarter of 2003, primarily as a
result of increased volume and the benefit of cost reduction actions.
Reconciliations of GAAP operating income and margin to non-GAAP operating
income and margin are presented in the attached tables.
Segments
The company reports its results in four reportable segments, 1) Integrated
Print Communications and Global Solutions, 2) Publishing and Retail Services,
3) Forms and Labels and 4) Corporate. During the fourth quarter of 2004, the
company finalized the allocation of the purchase price of Moore Wallace and,
accordingly, has allocated the amortization of identifiable intangibles to each
operating segment (see attached schedules for conforming 2004 quarterly results
by segment).
The Integrated Print Communications and Global Solutions segment includes our
1) book, 2) direct mail, 3) financial print, 4) business communications
services, 5) short-run commercial print, 6) European and 7) Asian businesses.
Net sales for the Integrated Print Communications and Global Solutions segment
more than doubled to $835.3 million from the fourth quarter of 2003, primarily
due to the acquisition of Moore Wallace ($396.1 million) as well as increased
sales in our book, financial print and international businesses. Operating
margin, which was negatively impacted by restructuring, integration and
impairment charges of $6.9 million in the fourth quarter of 2004 and
restructuring charges of $0.9 million in the fourth quarter of 2003, nearly
doubled to 12.7% in the fourth quarter of 2004. Excluding restructuring,
impairment and integration charges, non-GAAP operating margin increased to
13.5% in the fourth quarter of 2004 from 6.7% in the fourth quarter of 2003,
primarily as a result of increased sales volume and the benefit of cost
reduction actions.
The Publishing and Retail Services segment includes our 1) magazine, catalog
and retail, 2) directories, 3) logistics and 4) premedia businesses. Net sales
for the Publishing and Retail Services segment increased 5.8% to $832.6 million
due to the acquisition of Moore Wallace's logistics business and volume
increases in the magazine, catalog and retail and logistics businesses.
Operating margin, which was negatively impacted by restructuring, impairment
and integration charges of $1.8 million in the fourth quarter of 2004 and net
restructuring and impairment charges of $0.3 million in the fourth quarter of
2003 was 14.8% in the fourth quarter of 2004 compared to 15.3% in the fourth
quarter of 2003. Excluding restructuring, impairment and integration charges,
non-GAAP operating margin decreased to 15.0% in the fourth quarter of 2004 from
15.3% in the fourth quarter of 2003. Operating margin in the fourth quarter of
2003 was positively impacted by a $5.2 million (or approximately 66 basis
points) reversal of excess employee incentive accruals that were expensed in
prior quarters. The Publishing and Retail Services segment continued to
realize benefits from volume increases and cost reduction efforts.
The Forms and Labels segment includes our 1) forms, 2) labels and 3) Latin
American businesses. Net sales for the Forms and Labels segment increased to
$443.9 million in the fourth quarter of 2004 from $39.8 million in the fourth
quarter of 2003, primarily due to the acquisition of Moore Wallace. The Forms
and Labels segment continued to be the company's most price competitive
business, as excess capacity in the industry has led to aggressive discounting.
Operating margin, which was negatively impacted by restructuring, integration
and impairment charges of $10.1 million in the fourth quarter of 2004 and net
restructuring and impairment charges of $3.1 million in the fourth quarter of
2003 increased to 5.3% from a loss in the prior year's fourth quarter.
Excluding restructuring, impairment and integration charges, non-GAAP operating
margin increased to 7.6% in the fourth quarter of 2004 from a loss in the
fourth quarter of 2003 due to the acquisition of Moore Wallace and improved
performance in Latin America.
Corporate operating expenses increased by $15.2 million from the fourth quarter
of 2003 to $32.9 million in the fourth quarter of 2004. The increase is
primarily attributable to the acquisition of Moore Wallace and additional costs
of restructuring, impairment and integration, Sarbanes-Oxley Act compliance,
employee incentives and pension and post retirement benefits.
Full-Year Results
The company reported earnings from continuing operations of $264.9 million or
$1.30 per diluted share on net sales of $7.2 billion for the full year of 2004
compared to earnings from continuing operations of $191.9 million or $1.67 per
diluted share on net sales of $4.2 billion for the full year of 2003. Results
from continuing operations include restructuring ($85.0 million), integration
($80.8 million) and impairment ($22.4 million) charges totaling $188.2 million
for the full year of 2004, primarily related to the ongoing integration of our
acquisition of Moore Wallace and included restructuring and impairment charges
of $12.5 million for the full year of 2003. Operating margin for the full year
of 2004 decreased to 6.4% from 7.0% for the full year of 2003 due to increased
restructuring, impairment and integration charges. Excluding restructuring,
integration and impairment charges in both 2004 and 2003, non-GAAP operating
margin increased to 9.0% for the full year of 2004 from 7.3% for the full year
of 2003, primarily as a result of increased volume and the benefit of cost
reduction efforts. Results from continuing operations for the full year of
2004 also include a non-cash write-down of the company's investment in
affordable housing that was nearly offset by the net gain on the disposition of
investments, and a net tax benefit totaling $37.6 million, primarily resulting
from the reversal of tax contingencies upon the expiration of certain state
statutory limitations of $30.5 million and the reversal of a non-US deferred
tax valuation allowance of $7.1 million. Results from continuing operations
for the full year of 2003 also included a non-cash write-down of the company's
investment in affordable housing of $7.3 million, a gain on the disposition of
investments of $5.6 million and a tax benefit of $45.8 million related to the
favorable resolution of Internal Revenue Service (IRS) audits and refundable
income taxes in Latin America due to the realization of tax loss carrybacks.
Net earnings, which include discontinued operations and, in 2004, a $6.6
million net charge for the cumulative effect of a change in an accounting
principle (adoption of FIN 46R further discussed on attached reconciling
schedules), were $178.3 million or $0.88 per diluted share for the full year of
2004 compared to $176.5 million or $1.54 per diluted share for the full year of
2003.
Non-GAAP earnings from continuing operations totaled $337.0 million or $1.65
per diluted share in the full year of 2004 compared to $149.6 million or $1.31
per diluted share in the full year of 2003. Full-year non-GAAP earnings from
continuing operations exclude restructuring and impairment charges, a non-cash
write-down of the company's investment in affordable housing and net gains on
the disposition of investments in both 2004 and 2003. Also excluded are
integration charges and the cumulative effect of a change in an accounting
principle in 2004. The company used an effective tax rate of 38.3% in both
years, which it believes is its pro forma annual tax rate, in calculating
non-GAAP earnings. A reconciliation of GAAP earnings to non-GAAP earnings for
these adjustments is presented in the attached tables.
Restructuring Detail
In connection with the ongoing integration of Moore Wallace, the company
recorded pre-tax restructuring charges in continuing operations of $10.1
million in the fourth quarter of 2004. For the full year of 2004, the company
recorded $85.0 million of restructuring charges in continuing operations,
substantially all of which have required or will require cash payments.
Restructuring charges were applied as follows:
Three months Twelve months
ended ended
$ in Millions 12/31/2004 12/31/2004
Severance $8.9 $81.6
Facility 1.2 3.4
Total $10.1 $85.0
Payments associated with these severance actions are expected to be
substantially completed by June 2005. During 2004, the company eliminated
approximately 3,214 positions (799 positions in discontinued operations).
Discontinued Operations
During the fourth quarter of 2004, the company announced its intention to sell
its Peak Technologies business. During the third quarter of 2004, the company
entered into an agreement to sell its package logistics business, the sale of
which closed on October 29, 2004, and completed the shutdown of its MLI
business. Accordingly, Peak Technologies, the package logistics business and
MLI are reported as discontinued operations. The company has also conformed
prior period financial results to reflect Peak Technologies, package logistics
and MLI as discontinued operations in all periods presented.
The company recorded a net loss from discontinued operations of $12.0 million
during the fourth quarter of 2004 and $80.0 million during the full year of
2004.
Conference Call
RR Donnelley will host a conference call to discuss its fourth quarter and
full-year results on Tuesday, March 1, 2005, at 10:00 am Eastern Time (9:00 am
Central Time). The company will provide a live webcast of the earnings
conference call, which can be accessed via the Internet at
http://www.rrdonnelley.com/ ("Investors"). 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 3520113.
About RR Donnelley
RR Donnelley (NYSE:RRD) is the world's premier full-service global print
provider and the largest printing company in North America, serving customers
in the publishing, healthcare, advertising, retail, telecommunications,
technology, financial services and many other industries. Founded more than
140 years ago, the company provides solutions in commercial printing, forms and
labels, direct mail, financial printing, print fulfillment, business
communication outsourcing, logistics, online services, digital photography,
color services, and content and database management. The largest companies in
the world and others rely on RR Donnelley's scale, scope and insight through a
comprehensive range of online tools, variable printing services and
market-specific solutions. For more information, 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.
Many of the factors that could cause material differences in the expected
results of RR Donnelley relate to the integration of Moore Wallace
Incorporated, which was acquired by RR Donnelley on February 27, 2004. These
factors include, without limitation, the following: the development and
execution of comprehensive plans for asset rationalization, the ability to
eliminate duplicative overhead without excessive cost or adversely affecting
the business, the potential loss of customers and employees as a result of the
transaction, the ability to achieve procurement savings by leveraging total
spending across the organization, the success of the organization in leveraging
its comprehensive product offering to the combined customer base as well as the
ability of the organization to complete the integration of the combined
companies without losing focus on the business. In addition, the ability of
the combined company to achieve the expected net sales, accretion and synergy
savings will also be affected by the effects of competition (in particular the
response to the transaction in the marketplace), the effects of pricing of
paper and other raw materials and fuel price fluctuations and shortages of
supply, the rate of migration from paper-based forms to digital formats, the
impact of currency fluctuations in the countries in which RR Donnelley
operates, general economic and other factors beyond the combined company's
control, 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. RR Donnelley disclaims any obligation to
update or revise any forward-looking statements.
R. R. Donnelley and Sons Company
Consolidated Balance Sheets
At December 31, 2004 and 2003
IN MILLIONS, EXCEPT PER SHARE DATA
(UNAUDITED)
December 31,
2004 2003
Assets
Current Assets
Cash and cash
equivalents $641.8 $60.8
Receivables, less
allowance for doubtful
accounts 1,259.0 691.5
Inventories 422.0 154.3
Prepaid expenses and
other current assets 44.1 22.4
Deferred income taxes 239.9 22.5
Total Current Assets 2,606.8 951.5
Property, plant and
equipment - net 1,924.5 1,279.1
Prepaid pension cost 498.3 314.4
Goodwill 2,472.7 167.8
Other intangible assets
- net 666.1 5.4
Other assets 288.7 252.6
Assets of discontinued
operations 102.8 232.5
Total Assets $8,559.9 $3,203.3
Liabilities
Current Liabilities
Accounts payable $470.4 $282.7
Accrued liabilities 868.3 400.4
Short-term debt 204.5 175.1
Total Current Liabilities 1,543.2 858.2
Long-term debt 1,581.2 750.4
Postretirement benefits 336.9 12.0
Deferred income taxes 576.3 221.8
Other liabilities 534.5 323.4
Liabilities from
discontinued operations 50.9 54.3
Total Liabilities 4,623.0 2,220.1
Shareholders' Equity
Preferred stock, $1.00 par value - -
Authorized: 2.0 shares;
Issued: None
Common stock, $1.25 par value
Authorized: 500.0 shares
Issued: 243.0 shares in
2004 (140.9 shares -
2003) 303.7 176.1
Additional paid in capital 2,856.7 132.4
Retained earnings 1,541.8 1,641.7
Accumulated other
comprehensive loss (126.8) (123.7)
Unearned compensation (30.3) (2.9)
Treasury stock, at cost,
20.6 shares in 2004 (608.2) (840.4)
(27.2 shares - 2003)
Total Shareholders' Equity 3,936.9 983.2
Total Liabilities and
Shareholders' Equity $8,559.9 $3,203.3
R. R. Donnelley and Sons Company
Consolidated Statements of Operations
Three Months and Years Ended December 31, 2004 and 2003
(In millions, except per share data)
(UNAUDITED)
Three months ended December 31,
ADJUSTMENTS ADJUSTMENTS
2004 TO NON-GAAP 2004 2003 TO NON-GAAP 2003
GAAP (1) NON-GAAP GAAP (1) NON-GAAP
Net sales $2,111.8 $- $2,111.8 $1,194.9 $- $1,194.9
Cost of sales 1,534.1 (3.1) 1,531.0 869.6 869.6
Selling, general
and
administrative
expenses 240.5 (2.5) 238.0 134.7 134.7
Restructuring and
impairments - net 15.7 (15.7) - 3.2 (3.2) -
Depreciation and
amortization 101.5 101.5 66.7 66.7
Total operating
expenses 1,891.8 (21.3) 1,870.5 1,074.2 (3.2) 1,071.0
Operating income
from continuing
operations 220.0 21.3 241.3 120.7 3.2 123.9
Interest expense
- net 22.7 - 22.7 14.6 - 14.6
Investment and
other income
(expense) (22.1) 14.4 (7.7) (7.8) 5.9 (1.9)
Earnings from
continuing
operations
before taxes,
minority
interest and
cumulative
effect of
change in
accounting
principle 175.2 35.7 210.9 98.3 9.1 107.4
Income tax expense 28.6 52.2 80.8 (10.7) 51.8 41.1
Minority interest (2.2) (2.2) (0.1) (0.1)
Earnings (Loss)
from continuing
operations before
cumulative effect
of change in
accounting
principle 148.8 (16.5) 132.3 109.1 (42.7) 66.4
Income (loss)
from
discontinued
operations - net (12.0) 12.0 - (11.4) 11.4 -
Earnings (Loss)
before cumulative
effect of change
in accounting
principle 136.8 (4.5) 132.3 97.7 (31.3) 66.4
Cumulative effect
of change in
accounting
principle - net
of tax - - - - - -
Net earnings
(loss) $136.8 $(4.5) $132.3 $97.7 $(31.3) $66.4
Earnings per share:
Basic
Earnings from
continuing
operations
before
cumulative
effect of
change in
accounting
principle $0.67 $0.60 $0.96 $0.59
Loss from
discontinued
operations (0.05) - (0.10) -
Cumulative effect
of change in
accounting
principle -
net of tax - - - -
Net earnings $0.62 $0.60 $0.86 $0.59
Diluted
Earnings from
continuing
operations
before
cumulative
effect of
change in
accounting
principle $0.66 $0.59 $0.95 $0.58
Loss from
discontinued
operations (0.05) - (0.10) -
Cumulative effect
of change in
accounting
principle -
net of tax - - - -
Net earnings $0.61 $0.59 $0.85 $0.58
Weighted average
common shares
outstanding
Basic 220.6 220.6 113.3 113.3
Diluted 222.6 222.6 114.3 114.3
R. R. Donnelley and Sons Company
Consolidated Statements of Operations
Three Months and Years Ended December 31, 2004 and 2003
(In millions, except per share data)
(UNAUDITED)
Years ended December 31,
ADJUSTMENTS ADJUSTMENTS
2004 TO NON-GAAP 2004 2003 TO NON-GAAP 2003
GAAP (1) NON-GAAP GAAP (1) NON-GAAP
Net sales $7,156.4 $- $7,156.4 $4,182.6 $- $4,182.6
Cost of sales 5,269.6 (72.2) 5,197.4 3,085.6 3,085.6
Selling, general
and
administrative
expenses 934.7 (8.6) 926.1 521.5 521.5
Restructuring and
impairments - net 107.4 (107.4) - 12.5 (12.5) -
Depreciation and
amortization 385.5 385.5 270.3 270.3
Total operating
expenses 6,697.2 (188.2) 6,509.0 3,889.9 (12.5) 3,877.4
Operating income
from continuing
operations 459.2 188.2 647.4 292.7 12.5 305.2
Interest expense
- net 85.9 - 85.9 51.4 - 51.4
Investment and
other income
(expense) (16.5) 0.1 (16.4) (12.9) 1.7 (11.2)
Earnings from
continuing
operations
before taxes,
minority
interest and
cumulative
effect of
change in
accounting
principle 356.8 188.3 545.1 228.4 14.2 242.6
Income tax expense 92.6 116.2 208.8 36.4 56.5 92.9
Minority interest (0.7) (0.7) 0.1 0.1
Earnings (Loss)
from continuing
operations before
cumulative effect
of change in
accounting
principle 264.9 72.1 337.0 191.9 (42.3) 149.6
Income (loss) from
discontinued
operations - net (80.0) 80.0 - (15.4) 15.4 -
Earnings (Loss)
before cumulative
effect of change
in accounting
principle 184.9 152.1 337.0 176.5 (26.9) 149.6
Cumulative effect
of change in
accounting
principle - net
of tax (6.6) 6.6 - - - -
Net earnings
(loss) $178.3 $158.7 $337.0 $176.5 $(26.9) $149.6
Earnings per share:
Basic
Earnings from
continuing
operations
before
cumulative
effect of
change in
accounting
principle $1.31 $1.67 $1.70 $1.32
Loss from
discontinued
operations (0.40) - (0.14) -
Cumulative effect
of change in
accounting
principle -
net of tax (0.03) - - -
Net earnings $0.88 $1.67 $1.56 $1.32
Diluted
Earnings from
continuing
operations
before
cumulative
effect of
change in
accounting
principle $1.30 $1.65 $1.67 $1.31
Loss from
discontinued
operations (0.39) - (0.13) -
Cumulative effect
of change in
accounting
principle -
net of tax (0.03) - - -
Net earnings $0.88 $1.65 $1.54 $1.31
Weighted average
common shares
outstanding
Basic 202.3 202.3 113.3 113.3
Diluted 204.2 204.2 114.3 114.3
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 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.
(1) Please see the following schedules "Reconciliation of GAAP Net
Earnings (Loss) to Non-GAAP Net Earnings (Loss)" for descriptions of
the adjustments, one schedule for the three months ended December 31,
2004 and December 31, 2003 and a second schedule for the twelve
months ended December 31, 2004 and December 31, 2003.
Reconciliation of GAAP Net Earnings to Non-GAAP Net Earnings
IN MILLIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
December 31, 2004 December 31, 2003
NON-GAAP ADJUSTMENTS TO NET EARNINGS
(LOSS):
Integration charges (1) $5.6 $-
Restructuring charges (2) 10.1 0.4
Impairment charges (3) 5.6 2.8
Total non-GAAP adjustments to
operating income from continuing
operations 21.3 3.2
Loss on disposition/write-down of
investments - net (4) 14.4 5.9
Total non-GAAP adjustments to
investment and other income 14.4 5.9
Total non-GAAP adjustments to
continuing operations earnings
before tax 35.7 9.1
Income tax adjustment (5) (52.2) (51.8)
Loss from discontinued operations -
net (6) 12.0 11.4
TOTAL NON-GAAP ADJUSTMENTS TO NET
EARNINGS (LOSS) $(4.5) $(31.3)
(1) Amount represents post-acquisition integration charges.
(2) Amount represents restructuring charges.
(3) Amount represents impairment charges.
(4) Amount represents the non-cash write-down of the company's investment
in affordable housing during the three months ended December 31,
2004, and the non-cash write-down of the company's investment in
affordable housing of $7.3 million, partially offset by a gain on the
disposition of an investment of $1.4 million during the three months
ended December 31, 2003.
(5) Amount represents the tax effect of the reconciling items and
adjustments to reflect the company's pro forma effective tax rate of
38.3%.
(6) Amount represents loss from discontinued operations, net of tax.
Reconciliation of GAAP Net Earnings to Non-GAAP Net Earnings
IN MILLIONS
(UNAUDITED)
Twelve Months Twelve Months
Ended Ended
December 31, 2004 December 31, 2003
NON-GAAP ADJUSTMENTS TO NET EARNINGS
(LOSS):
Integration charges (1) $80.8 $-
Restructuring charges (2) 85.0 8.8
Impairment charges (3) 22.4 3.7
Total non-GAAP adjustments to
operating income from continuing
operations 188.2 12.5
Loss on disposition/write-down of
investments - net (4) 0.1 1.7
Total non-GAAP adjustments to
investment and other income 0.1 1.7
Total non-GAAP adjustments to
continuing operations earnings
before tax 188.3 14.2
Income tax adjustment (5) (116.2) (56.5)
Loss from discontinued operations -
net (6) 80.0 15.4
Cumulative effect of change in
accounting principle (7) 6.6 -
TOTAL NON-GAAP ADJUSTMENTS TO NET
EARNINGS (LOSS) $158.7 $(26.9)
(1) Amount includes adjustments to cost of sales for fair market value
of acquired inventory and backlog ($66.9 million) and other
post-acquisition integration charges ($13.9 million).
(2) Amount represents restructuring charges.
(3) Amount represents impairment charges.
(4) Amount represents the non-cash write-down of the company's investment
in affordable housing of $14.4 million, mostly offset by a net gain
on the disposition of investments in Latin America of $14.3 million,
during the twelve months ended December 31, 2004, and the non-cash
write-down of the company's investment in affordable housing of
$7.3 million, partially offset by the net gain on the disposition of
investments of $5.6 million during the twelve months ended December
31, 2003.
(5) Amount represents the tax effect of the reconciling items and
adjustments to reflect the company's pro forma effective tax rate of
38.3%.
(6) Amount represents loss from discontinued operations, net of tax.
(7) During the three months ended March 31, 2004, the company recorded a
cumulative effect of a change in accounting principle reflecting the
adoption of the Financial Accounting Standards Board Interpretation
No. 46R "Consolidation of Variable Interest Entities." The change
reflects the difference between the carrying amount of the company's
investments in certain partnerships related to affordable housing and
the underlying carrying values of the partnerships upon consolidating
these entities into the company's financial statements.
R. R. Donnelley and Sons Company
Segment GAAP to Non-GAAP Operating Income (Loss) and Margin Reconciliation
For the three and twelve months ended December 31, 2004 and 2003
$ IN MILLIONS
(UNAUDITED)
Integrated
Print
Communications
and Publishing Forms
Global and Retail and Consoli-
Solutions Services Labels Corporate dated
Three Months Ended
December 31, 2004
Net sales $835.3 $832.6 $443.9 $- $2,111.8
Operating expenses 729.4 709.2 420.3 32.9 1,891.8
Operating income (loss) 105.9 123.4 23.6 (32.9) 220.0
Operating margin % 12.7% 14.8% 5.3% nm 10.4%
Non-GAAP Adjustments
Restructuring charges 3.6 0.6 5.4 0.5 10.1
Impairment charges 1.2 0.8 3.6 - 5.6
Integration charges 2.1 0.4 1.1 2.0 5.6
Total Non-GAAP
Adjustments 6.9 1.8 10.1 2.5 21.3
Operating income (loss)
before restructuring,
impairment and
integration charges $112.8 $125.2 $33.7 $(30.4) $241.3
Operating margin before
restructuring,
impairment and
integration charges % 13.5% 15.0% 7.6% nm 11.4%
Depreciation and
amortization $36.3 $40.0 $16.7 $8.5 $101.5
Capital expenditures $24.0 $85.4 $7.4 $4.9 $121.7
Twelve Months Ended
December 31, 2004
Net sales $2,878.3 $2,811.8 $1,466.3 $- $7,156.4
Operating expenses 2,551.5 2,505.1 1,414.2 226.4 6,697.2
Operating income (loss) 326.8 306.7 52.1 (226.4) 459.2
Operating margin % 11.4% 10.9% 3.6% nm 6.4%
Non-GAAP Adjustments
Restructuring charges 19.5 25.1 20.7 19.7 85.0
Impairment charges 2.8 15.2 4.4 - 22.4
Integration charges 21.1 0.4 52.5 6.8 80.8
Total Non-GAAP
Adjustments 43.4 40.7 77.6 26.5 188.2
Operating income (loss)
before restructuring,
impairment and
integration charges $370.2 $347.4 $129.7 $(199.9) $647.4
Operating margin before
restructuring,
impairment and
integration charges % 12.9% 12.4% 8.8% nm 9.0%
Depreciation and
amortization $131.8 $165.2 $55.0 $33.5 $385.5
Capital expenditures $88.6 $144.3 $14.5 $17.8 $265.2
Three Months Ended
December 31, 2003
Net sales $368.2 $786.9 $39.8 $- $1,194.9
Operating expenses 344.5 666.8 45.2 17.7 1,074.2
Operating income (loss) 23.7 120.1 (5.4) (17.7) 120.7
Operating margin % 6.4% 15.3% (13.6%) nm 10.1%
Non-GAAP Adjustments
Restructuring charges 0.9 0.6 (0.1) (1.0) 0.4
Impairment charges - (0.3) 3.2 (0.1) 2.8
Integration charges - - - - -
Total Non-GAAP
Adjustments 0.9 0.3 3.1 (1.1) 3.2
Operating income (loss)
before restructuring,
impairment and
integration charges $24.6 $120.4 $(2.3) $(18.8) $123.9
Operating margin before
restructuring,
impairment and
integration charges % 6.7% 15.3% (5.8%) nm 10.4%
Depreciation and
amortization $17.7 $42.1 $1.6 $5.3 $66.7
Capital expenditures $10.4 $41.7 $2.9 $5.2 $60.2
Twelve Months Ended
December 31, 2003
Net sales $1,441.0 $2,608.8 $132.8 $- $4,182.6
Operating expenses 1,320.4 2,297.4 154.5 117.6 3,889.9
Operating income (loss) 120.6 311.4 (21.7) (117.6) 292.7
Operating margin % 8.4% 11.9% (16.3%) nm 7.0%
Non-GAAP Adjustments
Restructuring charges 5.0 2.6 1.0 0.2 8.8
Impairment charges 0.3 0.2 3.2 - 3.7
Integration charges - - - - -
Total Non-GAAP
Adjustments 5.3 2.8 4.2 0.2 12.5
Operating income (loss)
before restructuring,
impairment and
integration charges $125.9 $314.2 $(17.5) $(117.4) $305.2
Operating margin before
restructuring,
impairment and
integration charges % 8.7% 12.0% (13.2%) nm 7.3%
Depreciation and
amortization $73.5 $169.2 $6.6 $21.0 $270.3
Capital expenditures $36.3 $129.8 $5.0 $21.8 $192.9
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 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.
R. R. Donnelley and Sons Company
Segment GAAP to Non-GAAP Operating Income (Loss) and Margin Reconciliation
Quarterly results by segment for nine months ended September 30, 2004
$ IN MILLIONS
(UNAUDITED)
During the fourth quarter of 2004, the company finalized the allocation
of the purchase price of Moore Wallace and, accordingly, has allocated
the amortization of identifiable intangibles to each operating segment.
This schedule conforms 2004 first quarter through 2004 third quarter
results by segment.
Integrated
Print
Communications
and Publishing Forms
Global and Retail and Consoli-
Solutions Services Labels Corporate dated
Three Months Ended March 31,
2004
Net sales $481.6 $628.3 $178.8 $- $1,288.7
Operating expenses 456.9 592.4 217.4 70.6 1,337.3
Operating income (loss) 24.7 35.9 (38.6) (70.6) (48.6)
Operating margin % 5.1% 5.7% (21.6%) nm (3.8%)
Non-GAAP Adjustments
Restructuring charges 1.6 6.7 3.0 8.6 19.9
Impairment charges 0.9 13.4 - - 14.3
Integration charges 17.5 - 50.1 0.6 68.2
Total Non-GAAP Adjustments 20.0 20.1 53.1 9.2 102.4
Operating income (loss) before
restructuring, impairment and
integration charges $44.7 $56.0 $14.5 $(61.4) $53.8
Operating margin before
restructuring, impairment and
integration charges % 9.3% 8.9% 8.1% nm 4.2%
Depreciation and amortization $23.8 $41.7 $7.3 $6.4 $79.2
Capital expenditures $8.4 $16.9 $1.0 $0.5 $26.8
Three Months Ended June 30,
2004
Net sales $765.5 $655.0 $422.4 $- $1,842.9
Operating expenses 676.4 609.5 390.4 69.1 1,745.4
Operating income (loss) 89.1 45.5 32.0 (69.1) 97.5
Operating margin % 11.6% 6.9% 7.6% nm 5.3%
Non-GAAP Adjustments
Restructuring charges 10.7 17.0 3.5 9.0 40.2
Impairment charges - 0.1 - - 0.1
Integration charges 0.1 - 0.7 1.8 2.6
Total Non-GAAP Adjustments 10.8 17.1 4.2 10.8 42.9
Operating income (loss) before
restructuring, impairment and
integration charges $99.9 $62.6 $36.2 $(58.3) $140.4
Operating margin before
restructuring, impairment and
integration charges % 13.1% 9.6% 8.6% nm 7.6%
Depreciation and amortization $35.8 $42.0 $15.2 $11.1 $104.1
Capital expenditures $35.6 $19.3 $2.4 $5.4 $62.7
Three Months Ended September
30, 2004
Net sales $795.9 $695.9 $421.2 $- $1,913.0
Operating expenses 688.8 594.0 386.1 53.8 1,722.7
Operating income (loss) 107.1 101.9 35.1 (53.8) 190.3
Operating margin % 13.5% 14.6% 8.3% nm 9.9%
Non-GAAP Adjustments
Restructuring charges 3.6 0.8 8.8 1.6 14.8
Impairment charges 0.7 0.9 0.8 - 2.4
Integration charges 1.4 - 0.6 2.4 4.4
Total Non-GAAP Adjustments 5.7 1.7 10.2 4.0 21.6
Operating income (loss) before
restructuring, impairment and
integration charges $112.8 $103.6 $45.3 $(49.8) $211.9
Operating margin before
restructuring, impairment and
integration charges % 14.2% 14.9% 10.8% nm 11.1%
Depreciation and amortization $35.9 $41.5 $15.8 $7.5 $100.7
Capital expenditures $20.6 $22.7 $3.7 $7.0 $54.0
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 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.
R. R. Donnelley and Sons Company
Condensed Consolidated Statements of Cash Flows
For the years ended December 31, 2004 and 2003
IN MILLIONS
(UNAUDITED)
2004 2003
Operating Activities
Net earnings $178.3 $176.5
Net loss from discontinued
operations 80.0 15.4
Adjustment to reconcile net
earnings from continuing
operations to cash provided by
operating activities 620.4 260.5
Changes in operating assets and
liabilities (119.3) (73.3)
Net cash provided by operating
activities of continuing operations 759.4 379.1
Net cash provided by (used in)
investing activities of continuing
operations (119.5) (158.6)
Net cash used in financing activities
of continuing operations (191.8) (170.3)
Effect of exchange rates on cash and
cash equivalents 17.3 2.1
Cash flow impact from discontinued
operations 115.6 (52.0)
Net increase in cash and cash
equivalents 581.0 0.3
Cash and cash equivalents at
beginning of period 60.8 60.5
Cash and cash equivalents at end of
period $641.8 $60.8
DATASOURCE: R.R. Donnelley & Sons Company
CONTACT: Media, Doug Fitzgerald, Sr. Vice President, Marketing &
Communications, +1-312-326-7740, or , or Investors,
Dan Leib, Vice President, Investor Relations, +1-312-326-7710, or
, both of R.R. Donnelley & Sons Company
Web site: http://www.rrdonnelley.com/