Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
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RR Donnelley Reports Second Quarter 2004 Results
Second Quarter 2004 Highlights
CHICAGO, Aug. 4 /PRNewswire-FirstCall/ -- R.R. Donnelley & Sons Company
(NYSE:RRD) today reported second quarter 2004 net sales of $2.0 billion and a
net loss of $12.5 million or $0.06 per share, compared with net earnings for
the second quarter of 2003 of $19.3 million or $0.17 per diluted share. The
second quarter 2004 results include restructuring, impairment and integration
charges of $133.6 million, comprised of a non-cash impairment charge of $89.1
million ($53.6 million net of tax) related to the pending disposition of our
package logistics business and $44.5 million of restructuring ($41.8 million),
impairment ($0.1 million) and integration ($2.6 million) charges primarily
related to the ongoing integration efforts following our February 27, 2004
acquisition of Moore Wallace. The second quarter of 2003 included
restructuring and impairment charges of $5.3 million.
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.
Non-GAAP net earnings for the second quarter of 2004 totaled $68.6 million, or
$0.31 per diluted share. Non-GAAP net earnings for this period excluded
restructuring, impairment and integration charges. The company used an
effective tax rate of 38.3% in calculating non-GAAP net earnings. A
reconciliation of GAAP net earnings to non-GAAP net earnings for these
adjustments is presented in the attached tables.
"I am pleased with our progress in the second quarter, particularly with the
integration of our acquisition of Moore Wallace, acquisition-related and other
cost savings achievements, the near 7% top-line growth in the Publishing and
Retail Services segment and the recent CIGNA cross-platform win," said Mark A.
Angelson, RR Donnelley's Chief Executive Officer. "We are benefiting from a
strengthening economy, but we are also demonstrating that our platform can be
leveraged to deliver superior products and services while offering cost savings
to our clients.
"Our recent announcement of our agreement to sell the package logistics
business is an important step for us. The sale will allow us to exit a
non-core business that has required considerable management time in the past,
and the continued ownership of which would be inconsistent with our strategic
and financial goals. At the same time, we retain control over the distribution
of our printed material."
Angelson added, "While much work lies ahead, this quarter's results continue to
demonstrate the commitment and performance of RR Donnelley's employees and the
vast potential of the new RR Donnelley platform."
Business Review
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 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 $2.0 billion, up 78% from the same quarter in
2003, primarily as a result of the acquisition of Moore Wallace. Gross margin
improved to 25.3% from 22.3% in last year's second quarter, primarily due to
the benefits achieved from restructuring and cost reduction actions. Selling,
general and administrative expenses, as a percentage of net sales, increased
from 11.5% in the second quarter of 2003 to 13.3% in the second quarter of
2004, primarily as a result of increased employee incentive costs and increased
postretirement, insurance and litigation provisions. Increased restructuring,
impairment and integration charges in the second quarter of 2004 relative to
the second quarter of 2003 negatively impacted operating margin. Operating
margin for the quarter was 0.3%, compared to 4.3% for last year's second
quarter.
Excluding restructuring, impairment and integration charges in the second
quarter of both years, non-GAAP operating margin for the second quarter of 2004
was 6.9% compared to 4.7% for the second quarter last year, primarily as a
result of increased volume in our Publishing and Retail Services segment and
the benefits of cost reduction actions. Reconciliations of operating income
and margin to non-GAAP operating income and margin are presented in the
attached tables.
Segments
During the second quarter, the company realigned its segments and now reports
its results, for all periods presented, in five reportable segments, 1)
Publishing and Retail Services, 2) Integrated Print Communications and Global
Solutions, 3) Forms and Labels, 4) Logistics and 5) Corporate.
The Publishing and Retail Services segment includes 1) magazine, catalog and
retail, 2) directories and 3) premedia. Net sales for the Publishing and
Retail Services segment increased 6.7% to $550.8 million due to volume
increases across all businesses in the segment. Operating margin declined by
approximately 150 basis points to 7.0% in the second quarter of 2004 from the
second quarter of 2003, primarily due to an increase in restructuring and
impairment charges, which were $15.3 million in the second quarter of 2004 and
$1.8 million in the second quarter of 2003.
Excluding restructuring and impairment charges, increased volume and lower
selling and administrative costs resulted in operating margin expansion to 9.8%
in the second quarter of 2004 from 8.9% in the second quarter of 2003.
The Integrated Print Communications and Global Solutions segment includes 1)
financial print, 2) book, 3) direct mail, 4) business communications services,
5) short-run commercial print, 6) Europe and 7) Asia. Net sales for the
Integrated Print Communications and Global Solutions segment more than doubled
to $765.5 million from the second quarter of 2003, primarily as a result of the
acquisition of Moore Wallace ($364.0 million) as well as increased sales in
financial print and international markets. Operating margin, which was
negatively impacted by restructuring and integration charges of $10.8 million
in the second quarter of 2004 and restructuring and impairment charges of $2.5
million in the second quarter of 2003, increased approximately 160 basis points
to 12.3% in the second quarter of 2004. Excluding restructuring, impairment and
integration charges, operating margin increased to 13.7% in the second quarter
of 2004 from 11.3% in the second quarter of 2003, primarily as a result of
increased sales volume and the benefits from restructuring and cost reductions
in the financial print business.
The Forms and Labels segment includes 1) forms, 2) labels, 3) Peak and 4) Latin
America. Net sales for the Forms and Labels segment increased to $478.7
million in the second quarter of 2004 from $32.6 million in the second quarter
of 2003, primarily as a result of the acquisition of Moore Wallace. The forms
and labels business continued to be negatively impacted by electronic
substitution for multi-part paper forms. Operating margin, which was
negatively impacted by restructuring and integration charges of $5.2 million in
the second quarter of 2004 and $1.0 million in the second quarter of 2003,
increased to 7.4% from a loss in the prior year's second quarter. Excluding
restructuring and integration charges, operating margin increased to 8.4% in
the second quarter of 2004 from a loss in the second quarter of 2003, primarily
as a result of the acquisition of Moore Wallace and improved performance in
Latin America.
The Logistics segment includes 1) print logistics and 2) package logistics.
Net sales for the Logistics segment increased 8.8% to $233.8 million due to the
acquisition of Moore Wallace, which more than offset volume declines in the
package logistics business, resulting primarily from the shutdown of Momentum
Logistics, Inc.'s business-to-business activities. During the second quarter of
2004, Logistics had an operating loss of $82.0 million. This reflected
restructuring and impairment charges totaling $91.5 million, of which $89.1
million ($53.6 million net of tax) was a non-cash impairment charge related to
the pending disposition of our package logistics business. Excluding
restructuring and impairment charges, operating margin increased to 4.1% in the
second quarter of 2004 from 0.5% in the second quarter of 2003, primarily as a
result of benefits from cost reduction actions and improved efficiency.
Corporate operating expenses increased by $47.1 million from the second quarter
of 2003 to $78.9 million in the second quarter of 2004. The increase is
primarily attributable to the acquisition of Moore Wallace, restructuring and
integration charges of $10.8 million, increased employee incentive costs and
increased insurance and litigation provisions.
Six-Month Results
For the first six months of 2004, the company reported net sales of $3.5
billion and a net loss of $71.3 million or $0.39 per share, compared with net
earnings of $25.1 million or $0.22 per diluted share for the first six months
of 2003. The first six month's results of 2004 include restructuring,
impairment and integration charges of $251.9 million, comprised of a non-cash
impairment charge of $89.1 million ($53.6 million net of tax) related to the
pending disposition of our package logistics business and $162.8 million in
restructuring ($64.1 million), impairment ($27.9 million) and integration
($70.8 million) charges primarily related to the ongoing integration efforts
following our February 27, 2004 acquisition of Moore Wallace. During the first
six months of 2004, the company recognized a gain on the sale of an investment
of $15.3 million (pre-tax) and a $6.6 million net charge for the cumulative
effect of a change in an accounting principle (adoption of FIN 46 further
discussed on attached reconciling schedules). Results for the first half of
2003 included restructuring and impairment charges of $7.9 million.
Non-GAAP net earnings for the first six months of 2004 totaled $86.2 million,
or $0.46 per diluted share. Non-GAAP net earnings for this period excluded
restructuring, impairment and integration charges, gain on the disposal of an
investment and the cumulative effect of a change in an accounting principle.
The company used an effective tax rate of 38.3% in calculating non-GAAP net
earnings. A reconciliation of GAAP net earnings to non-GAAP net earnings for
these adjustments is presented in the attached tables.
Integration Detail
Continuing the integration of our acquisition of Moore Wallace, the company
recorded pre-tax restructuring charges of $41.8 million in the second quarter
of 2004. Through the first six months of 2004, the company recorded $64.1
million of restructuring charges, substantially all of which will require cash
payments.
Restructuring charges were applied as follows:
2nd Quarter First Half
$ in Millions 2004 2004
Severance $41.4 $63.0
Facility 0.4 1.1
Total $41.8 $64.1
Payments associated with these severance actions will be substantially
completed by June 2005. Through the first six months of 2004, the company has
eliminated approximately 2,175 positions.
Outlook - 2004 Non-GAAP EPS Increased
For the full year 2004, RR Donnelley is targeting non-GAAP earnings per diluted
share of $1.55, an increase of $0.05 per diluted share from previous guidance.
Guidance for the quarter ended September 30, 2004 will be provided later in the
quarter.
Non-GAAP net earnings exclude certain items that are unrelated to the ongoing
operations of the business. These items include charges that are not currently
determinable. For that reason, the company is unable to provide GAAP earnings
estimates at this time.
Historical Pro forma / Non-GAAP Information Posted to Company Website
The company has received several requests from shareholders and analysts for
pro forma comparative financial data reflecting the company's new segments. We
have been specifically asked to provide "non-GAAP" comparative data for the new
segments that combine the company's and Moore Wallace's results of operations,
and eliminate significant non-comparable items such as restructuring,
impairment and integration charges as well as the cost of sales impact
resulting from inventory step-ups and backlog valuations recorded in purchase
accounting.
The company has posted to its website, http://www.rrdonnelley.com/ , tables and
explanations presenting unaudited, pro forma and non-GAAP net sales and
operating income of the new segments for the four quarters of 2003 and the
first quarter of 2004. To the extent possible, the data has been reconciled to
the reported results of the company and Moore Wallace for all periods
presented. Please refer to the qualifying language on the website.
Conference Call
RR Donnelley will host a conference call to discuss its second quarter results
on Thursday, August 5, 2004, 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/ ("Investor
Relations"). For those unable to participate on the live call, a replay will
be archived on the company's website for 30 days after the call.
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, technology, financial
services, and many other industries. Founded 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, 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 website 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 press 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 Securities and Exchange Commission (SEC). Readers are strongly
encouraged to read the full cautionary statements described 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 June 30, 2004 and December 31, 2003
IN MILLIONS, EXCEPT PER SHARE DATA
At June 30, At December 31,
2004 2003
(Unaudited)
Assets
Current Assets
Cash and cash equivalents $275.4 $60.8
Receivables, less allowance
for doubtful accounts of
$41.4 in 2004 ($26.8 in 2003) 1,249.7 738.5
Inventories 460.8 154.3
Prepaid expenses and other
current assets 45.7 79.8
Deferred income taxes 227.2 -
Total Current Assets 2,258.8 1,033.4
Property, plant and equipment
- net 1,899.5 1,297.4
Prepaid pension cost 465.8 314.4
Goodwill 2,631.6 317.5
Other intangible assets - net 693.9 6.9
Other assets 325.1 253.3
Total Assets $8,274.7 $3,222.9
Liabilities
Current Liabilities
Accounts payable $501.4 $304.0
Accrued liabilities 819.8 427.4
Short-term debt 39.2 175.9
Income taxes 12.5 6.8
Deferred income taxes - 3.4
Total Current Liabilities 1,372.9 917.5
Long-term debt 1,748.5 752.5
Postretirement benefits 336.0 12.0
Deferred income taxes 528.1 234.0
Other liabilities 554.2 323.7
Total Liabilities 4,539.7 2,239.7
Shareholders' Equity
Preferred stock, $1.00 par value
Authorized shares: 2.0; Issued
shares: None - -
Common stock, $1.25 par value
Authorized shares: 500.0
Issued shares: 243.0 in 2004
(140.9 in 2003) 303.7 176.1
Additional paid in capital 2,842.1 132.4
Retained earnings 1,414.4 1,641.7
Accumulated other comprehensive
loss (125.1) (123.7)
Unearned compensation (39.3) (2.9)
Reacquired common stock, at cost,
25.7 shares in 2004 (27.2 in 2003) (660.8) (840.4)
Total Shareholders' Equity 3,735.0 983.2
Total Liabilities and Shareholders'
Equity $8,274.7 $3,222.9
R. R. Donnelley and Sons Company
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2004 and 2003
(In millions, except per share data)
(UNAUDITED)
Three months ended June 30,
ADJUSTMENTS ADJUSTMENTS
TO TO
2004 NON-GAAP 2004 2003 NON-GAAP 2003
GAAP (1) NON-GAAP GAAP (1) NON-GAAP
Net sales $2,028.8 - $2,028.8 $1,142.5 - $1,142.5
Cost of sales 1,515.9 (0.3) 1,515.6 887.3 887.3
Selling, general
and administrative
expense 269.2 (2.3) 266.9 131.7 131.7
Restructuring and
impairments - net 131.0 (131.0) - 5.3 (5.3) -
Depreciation and
amortization 105.9 105.9 69.3 69.3
Total operating
expenses 2,022.0 (133.6) 1,888.4 1,093.6 (5.3) 1,088.3
Income (loss) from
operations 6.8 133.6 140.4 48.9 5.3 54.2
Interest expense -
net 23.7 - 23.7 12.2 - 12.2
Investment and
other income
(expense) (4.4) - (4.4) (5.4) - (5.4)
Earnings (loss)
before income taxes,
minority interest
and cumulative
effect of change in
accounting principle (21.3) 133.6 112.3 31.3 5.3 36.6
Income tax expense
(benefit) (9.5) 52.5 43.0 11.8 2.0 13.8
Minority interest 0.7 - 0.7 0.2 - 0.2
Net earnings (loss)
before cumulative
effect of change in
accounting principle (12.5) 81.1 68.6 19.3 3.3 22.6
Cumulative effect
of change in
principle - net of
tax - - - - - -
Net earnings
(loss) $(12.5) $81.1 $68.6 $19.3 $3.3 $22.6
Earnings per share:
Basic
Net earnings (loss)
before cumulative
effect of change
in accounting
principle $(0.06) $0.31 $0.17 $0.20
Cumulative effect
of change in
principle - net of
tax - - - -
Net earnings (loss) $(0.06) $0.31 $0.17 $0.20
Diluted
Net earnings (loss)
before cumulative
effect of change
in accounting
principle $(0.06) $0.31 $0.17 $0.20
Cumulative effect
of change in
principle - net of
tax - - - -
Net earnings (loss) $(0.06) $0.31 $0.17 $0.20
Weighted average
common shares
outstanding
Basic 218.0 218.0 113.1 113.1
Diluted 218.0 219.8 114.2 114.2
NOTE:
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.
(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 June 30, 2004
and June, 30 2003 and a second schedule for the six months ended June 30,
2004 and June 30, 2003.
R. R. Donnelley and Sons Company
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2004 and 2003
(In millions, except per share data)
(UNAUDITED)
Six months ended June 30,
ADJUSTMENTS ADJUSTMENTS
TO TO
2004 NON-GAAP 2004 2003 NON-GAAP 2003
GAAP (1) NON-GAAP GAAP (1) NON-GAAP
Net sales $3,475.0 - $3,475.0 $2,216.3 - $2,216.3
Cost of sales 2,689.6 (67.7) 2,621.9 1,728.3 1,728.3
Selling, general
and administrative
expense 478.1 (3.1) 475.0 267.1 267.1
Restructuring and
impairments - net 181.1 (181.1) - 7.9 (7.9) -
Depreciation and
amortization 186.8 186.8 137.7 137.7
Total operating
expenses 3,535.6 (251.9) 3,283.7 2,141.0 (7.9) 2,133.1
Income (loss) from
operations (60.6) 251.9 191.3 75.3 7.9 83.2
Interest expense -
net 40.7 - 40.7 24.6 - 24.6
Investment and
other income
(expense) 6.2 (15.3) (9.1) (9.9) - (9.9)
Earnings (loss)
before income taxes,
minority interest
and cumulative
effect of change in
accounting principle (95.1) 236.6 141.5 40.8 7.9 48.7
Income tax expense
(benefit) (31.5) 85.7 54.2 15.4 3.0 18.4
Minority interest 1.1 - 1.1 0.3 - 0.3
Net earnings (loss)
before cumulative
effect of change in
accounting principle (64.7) 150.9 86.2 25.1 4.9 30.0
Cumulative effect
of change in
principle - net of
tax (6.6) 6.6 - - - -
Net earnings
(loss) $(71.3) $157.5 $86.2 $25.1 $4.9 $30.0
Earnings per share:
Basic
Net earnings (loss)
before cumulative
effect of change
in accounting
principle $(0.35) $0.47 $0.22 $0.27
Cumulative effect
of change in
principle - net of
tax (0.04) - - -
Net earnings (loss) $(0.39) $0.47 $0.22 $0.27
Diluted
Net earnings (loss)
before cumulative
effect of change
in accounting
principle $(0.35) $0.46 $0.22 $0.26
Cumulative effect
of change in
principle - net of
tax (0.04) - - -
Net earnings (loss) $(0.39) $0.46 $0.22 $0.26
Weighted average
common shares
outstanding
Basic 184.6 184.6 113.1 113.1
Diluted 184.6 186.5 113.8 113.8
NOTE:
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.
(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 June 30, 2004
and June, 30 2003 and a second schedule for the six months ended June 30,
2004 and June 30, 2003.
Reconciliation of GAAP Net Earnings (Loss) to Non-GAAP Net Earnings (Loss)
In millions
(Unaudited)
Three Months Three Months
Ended Ended
June 30, June 30,
2004 2003
NON-GAAP ADJUSTMENTS TO NET EARNINGS (LOSS):
Integration charges (1) $2.6 $---
Restructuring and impairment charges (2) 131.0 5.3
Total non-GAAP adjustments to
income from operations 133.6 5.3
Total non-GAAP adjustments to
earnings before taxes 133.6 5.3
Income tax adjustment (3) (52.5) (2.0)
TOTAL NON-GAAP ADJUSTMENTS TO NET EARNINGS (LOSS) $81.1 $3.3
(1) Amount represents integration charges of $2.6 million.
(2) Amount for the three months ended June 30, 2004, includes
$41.8 million for restructuring charges and $89.2 million for asset
impairment charges. Amount for the three months ended June 30,
2003, includes $4.8 million for restructuring charges and
$0.5 million for asset impairment charges.
(3) Amount represents the tax effect of the reconciling items and an
adjustment for the three months ended June 30, 2004, to reflect the
company's pro forma effective tax rate of 38.3%.
Reconciliation of GAAP Net Earnings (Loss) to Non-GAAP Net Earnings (Loss)
In millions
(Unaudited)
Six Months Six Months
Ended Ended
June 30, June 30,
2004 2003
NON-GAAP ADJUSTMENTS TO NET EARNINGS (LOSS):
Integration charges (1) $70.8 $---
Restructuring and impairment charges (2) 181.1 7.9
Total non-GAAP adjustments to
income from operations 251.9 7.9
Gain on disposition of investment (3) (15.3) ---
Total non-GAAP adjustments to
investment and other income (15.3) ---
Total non-GAAP adjustments to
earnings before taxes 236.6 7.9
Income tax adjustment (4) (85.7) (3.0)
Cumulative effect of change
in accounting principle (5) 6.6 ---
TOTAL NON-GAAP ADJUSTMENTS TO NET EARNINGS (LOSS) $157.5 $4.9
(1) Amount includes adjustments to cost of sales for fair market value
of acquired inventory and backlog ($66.9 million) and other
integration charges ($3.9 million).
(2) Amount for the six months ended June 30, 2004, includes
$64.1 million for restructuring charges and $117.0 million for asset
impairment charges. Amounts for the six months ended June 30, 2003,
includes $7.4 million for restructuring charges and $0.5 million for
asset impairment charges.
(3) Amount represents the gain on the sale of an investment held in
Latin America during the three months ended March 31, 2004.
(4) Amount represents the tax effect of the reconciling items and an
adjustment for the six months ended June 30, 2004, to reflect the
company's pro forma effective tax rate of 38.3%.
(5) 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. 46 "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 and Margin Reconciliation
For the three and six months ended June 30, 2004 and 2003
$ in millions
(UNAUDITED)
Integrated
Print
Communi-
Publishing cations
and and Forms
Retail Global and Consoli-
Services Solutions Labels Logistics Corporate dated
Three Months
Ended
June 30, 2004
Net sales $550.8 $765.5 $478.7 $233.8 - $2,028.8
Operating
expense 512.2 671.6 443.5 315.8 78.9 2,022.0
Operating income
(loss) 38.6 93.9 35.2 (82.0) (78.9) 6.8
Operating
margin % 7.0% 12.3% 7.4% -35.1% nm 0.3%
Non-GAAP
Adjustments
Restructuring
charges 15.2 10.7 4.5 2.4 9.0 41.8
Impairment
charges 0.1 - - 89.1 - 89.2
Integration
charges - 0.1 0.7 - 1.8 2.6
Total Non-GAAP
Adjustments 15.3 10.8 5.2 91.5 10.8 133.6
Operating income
(loss) before
restructuring,
impairment and
integration
charges $53.9 $104.7 $40.4 $9.5 ($68.1) $140.4
Operating Margin
before
restructuring,
impairment and
integration
charges % 9.8% 13.7% 8.4% 4.1% nm 6.9%
Six Months
Ended
June 30, 2004
Net sales $1,086.1 $1,247.1 $679.9 $461.9 - $3,475.0
Operating
expense 1,011.7 1,127.0 681.8 562.4 152.7 3,535.6
Operating
income (loss) 74.4 120.1 (1.9) (100.5) (152.7) (60.6)
Operating
margin % 6.9% 9.6% -0.3% -21.8% nm -1.7%
Non-GAAP
Adjustments
Restructuring
charges 20.0 12.3 7.5 6.7 17.6 64.1
Impairment
charges 13.5 0.9 - 102.6 - 117.0
Integration
charges - 17.7 50.7 - 2.4 70.8
Total Non-GAAP
Adjustments 33.5 30.9 58.2 109.3 20.0 251.9
Operating income
(loss) before
restructuring,
impairment and
integration
charges $107.9 $151.0 $56.3 $8.8 ($132.7) $191.3
Operating Margin
before
restructuring,
impairment and
integration
charges % 9.9% 12.1% 8.3% 1.9% nm 5.5%
Three Months
Ended
June 30, 2003
Net sales $516.4 $378.7 $32.6 $214.8 - $1,142.5
Operating
expense 472.3 338.3 37.5 213.7 31.8 1,093.6
Operating
income (loss) 44.1 40.4 (4.9) 1.1 (31.8) 48.9
Operating
margin % 8.5% 10.7% -15.0% 0.5% nm 4.3%
Non-GAAP
Adjustments
Restructuring
charges 1.8 2.0 1.0 - - 4.8
Impairment
charges - 0.5 - - - 0.5
Integration
charges - - - - - -
Total Non-GAAP
Adjustments 1.8 2.5 1.0 - - 5.3
Operating income
(loss) before
restructuring,
impairment and
integration
charges $45.9 $42.9 ($3.9) $1.1 ($31.8) $54.2
Operating Margin
before
restructuring,
impairment and
integration
charges % 8.9% 11.3% -12.0% 0.5% nm 4.7%
Six Months
Ended
June 30, 2003
Net sales $1,031.8 $699.3 $60.6 $424.6 - $2,216.3
Operating
expense 940.4 639.6 71.4 418.8 70.8 2,141.0
Operating
income (loss) 91.4 59.7 (10.8) 5.8 (70.8) 75.3
Operating
margin % 8.9% 8.5% -17.8% 1.4% nm 3.4%
Non-GAAP
Adjustments
Restructuring
charges 2.0 3.2 1.1 - 1.1 7.4
Impairment
charges - 0.5 - - - 0.5
Integration
charges - - - - - -
Total Non-GAAP
Adjustments 2.0 3.7 1.1 - 1.1 7.9
Operating income
(loss) before
restructuring,
impairment and
integration
charges $93.4 $63.4 ($9.7) $5.8 ($69.7) $83.2
Operating Margin
before
restructuring,
impairment and
integration
charges % 9.1% 9.1% -16.0% 1.4% nm 3.8%
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
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2004 and 2003
In millions
(Unaudited)
June 30, June 30,
2004 2003
OPERATING ACTIVITIES
Net earnings (loss) before cumulative
effect of change in accounting $(71.3) $25.1
Adjustments to reconcile net earnings
(loss) before cumulative effect of
accounting change to cash provided
by operating activities 377.0 143.1
Changes in operating assets and liabilities 22.9 (13.7)
Net cash provided by operating activities 328.6 154.5
INVESTING ACTIVITIES
Net cash provided by (used in)
investing activities 25.9 (112.4)
FINANCING ACTIVITIES
Net cash used in financing activities (139.4) (53.3)
Effect of exchange rates on
cash and cash equivalents (0.5) .4
Net increase (decrease) in
cash and cash equivalents 214.6 (10.8)
Cash and cash equivalents at beginning of period 60.8 60.5
Cash and cash equivalents at end of period $275.4 $49.7
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/