Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
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RR Donnelley Reports Third Quarter 2004 Results
CHICAGO, Nov. 4 /PRNewswire-FirstCall/ -- R.R. Donnelley & Sons Company
(NYSE:RRD) today reported third quarter 2004 net earnings from continuing
operations of $114.4 million or $0.52 per diluted share on net sales of $2.0
billion compared to net earnings from continuing operations of $57.9 million or
$0.51 per diluted share on net sales of $1.1 billion in the third quarter of
2003. The third quarter 2004 results from continuing operations include
restructuring ($14.8 million), integration ($4.4 million) and impairment ($2.4
million) charges totaling $21.6 million, primarily related to the ongoing
integration efforts following our February 27, 2004 acquisition of Moore
Wallace. The effective tax rate in the third quarter of 2004 was 29.4%,
primarily due to a tax benefit resulting from a loss on the disposition of an
investment in Latin America. Results from continuing operations in the third
quarter of 2003 included restructuring and impairment charges of $1.4 million
and a $4.2 million gain on the disposition of an investment. Effective with
the third quarter of 2004, the package logistics business and Momentum
Logistics, Inc. (MLI) are reported as discontinued operations (see discussion
below). Net income, which includes discontinued operations, was $112.8 million
or $0.51 per diluted share in the third quarter of 2004 compared to $53.8
million or $0.47 per diluted share in the third 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 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 from continuing operations totaled $113.9 million or
$0.51 per diluted share in the third quarter of 2004 compared to $53.6 million
or $0.47 per diluted share in the third quarter of 2003. Non-GAAP net earnings
from continuing operations excluded restructuring, integration and impairment
charges and a loss on the disposition of an investment in the third quarter of
2004 and excluded restructuring and impairment charges and a gain on the
disposition of an investment in the third quarter of 2003. The company used an
effective tax rate of 38.3%, which it believes is its pro forma annual tax
rate, 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.
"Our strong third quarter results reflect our cost reduction actions and our
enhanced focus on providing solutions for customers. Our Integrated Print
business had an outstanding quarter, with strong sales growth and margin
expansion," said Mark A. Angelson, RR Donnelley's Chief Executive Officer. "Our
Publishing and Retail Services business posted its third consecutive quarter of
sales growth and announced a number of new wins that should benefit future
periods."
Angelson added, "The integration of the Moore Wallace acquisition is
progressing well and our team remains focused on completing the integration and
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 $2.0 billion, up 87% from the same quarter in
2003, primarily as a result of the acquisition of Moore Wallace and increased
volume in the financial print business and the Publishing and Retail Services
segment. Gross margin improved to 29.0% from 27.8% in last year's third
quarter, primarily due to the benefits achieved from restructuring and cost
reduction actions and incremental procurement savings. Selling, general and
administrative expenses, as a percentage of net sales, increased from 12.0% in
the third quarter of 2003 to 13.5% in the third quarter of 2004, primarily as a
result of increased costs for employee incentives, post retirement benefits,
Sarbanes-Oxley Act compliance and litigation. Operating margin in the third
quarter of 2004 increased to 9.4% from 9.2% in last year's third quarter,
despite increased restructuring, integration and impairment charges in the
third quarter of 2004.
Excluding restructuring, integration and impairment charges in the third
quarter of both years, non-GAAP operating margin for the third quarter of 2004
was 10.5% compared to 9.4% for the third quarter last year, primarily as a
result of increased volume and the benefit 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 third quarter, as a result of the pending sale of the company's
package logistics business and the shutdown of MLI, management revised its
reportable segments to eliminate the previously reported Logistics segment and
to aggregate the remaining logistics operations (primarily print logistics)
with the company's Publishing and Retail Services segment, resulting in four
reportable segments, 1) Publishing and Retail Services, 2) Integrated Print
Communications and Global Solutions, 3) Forms and Labels and 4) Corporate.
The Publishing and Retail Services segment includes 1) Magazine, Catalog and
Retail, 2) Directories, 3) Logistics and 4) Premedia. Net sales for the
Publishing and Retail Services segment increased 7.5% to $695.9 million due to
the acquired Moore Wallace logistics business and volume increases in the
magazine, catalog and retail and logistics businesses. Increased advertising
pages and the impact of new assignments offset pricing pressure. Operating
margin increased by approximately 10 basis points to 14.6% in the third quarter
of 2004 from the third quarter of 2003. Restructuring and impairment charges
increased to $1.7 million in the third quarter of 2004 from a $0.5 million
impairment charge in the third quarter of 2003.
Excluding restructuring and impairment charges, operating margin expanded to
14.9% in the third quarter of 2004 from 14.6% in the third quarter of 2003 due
to increased volume, benefits from our procurement initiatives and the
inclusion of the Moore Wallace logistics business in this segment.
The Integrated Print Communications and Global Solutions segment includes 1)
Book, 2) Direct Mail, 3) Financial Print, 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 $795.9 million from the third quarter of 2003, primarily as a result of the
acquisition of Moore Wallace ($379.7 million) as well as increased sales in
financial print and international markets. The book business, driven by
strengthening sales to the education market, also posted positive sales growth.
Operating margin, which was negatively impacted by restructuring, integration
and impairment charges of $5.7 million in the third quarter of 2004 and
restructuring and impairment charges of $0.7 million in the third quarter of
2003, increased approximately 400 basis points to 14.1% in the third quarter of
2004. Excluding restructuring, impairment and integration charges, operating
margin increased to 14.8% in the third quarter of 2004 from 10.3% in the third
quarter of 2003, primarily as a result of increased sales volume and the
benefit of cost reduction actions.
The Forms and Labels segment includes 1) Forms, 2) Labels 3) Latin America and
4) Peak. Net sales for the Forms and Labels segment increased to $476.7
million in the third quarter of 2004 from $32.4 million in the third quarter of
2003, primarily as a result of 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 increased to 7.6% from a loss in the prior year's third
quarter. Excluding restructuring, integration and impairment charges, which
were $10.2 million in the third quarter of 2004 and $0 in the third quarter of
2003, operating margin increased to 9.8% in the third quarter of 2004 from a
loss in the third quarter of 2003 due to the acquisition of Moore Wallace and
improved performance in Latin America.
Corporate operating expenses increased by $35.2 million from the third quarter
of 2003 to $64.3 million in the third quarter of 2004. The increase is
primarily attributable to the acquisition of Moore Wallace and the associated
amortization of intangibles, additional restructuring, integration and
impairment charges of $3.8 million and increased costs for employee incentives,
Sarbanes-Oxley Act compliance and litigation. Excluding restructuring and
integration charges, corporate costs in the third quarter of 2004 sequentially
decreased by $7.8 million from the second quarter of 2004, reflecting the
benefit of cost reduction actions.
Nine-Month Results
The company reported net earnings from continuing operations of $114.4 million
or $0.57 per diluted share on net sales of $5.2 billion for the first nine
months of 2004 compared to net earnings from continuing operations of $82.8
million or $0.73 per diluted share on net sales of $3.0 billion for the first
nine months of 2003. Results from continuing operations during the first nine
months of 2004 include restructuring ($75.9 million), integration ($75.2
million) and impairment ($16.8 million) charges totaling $167.9 million,
primarily related to the ongoing integration efforts following the acquisition
of Moore Wallace. These results also include a net gain on the disposition of
investments of $14.3 million (pre-tax).
Results from continuing operations for the first nine months of 2003 included
restructuring and impairment charges of $9.3 million and a $4.2 million gain on
the disposition of an investment. Net income, which includes 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 46 further discussed on
attached reconciling schedules), was $41.6 million or $0.21 per diluted share
for the first nine months of 2004 compared to $78.8 million or $0.69 per
diluted share for the first nine months of 2003.
Non-GAAP net earnings from continuing operations totaled $201.4 million or
$1.02 per diluted share in the first nine months of 2004 compared to $83.1
million or $0.73 per diluted share in the first nine months of 2003. Non-GAAP
net earnings from continuing operations excluded restructuring, impairment and
integration charges, the net gain on the disposition of investments and the
cumulative effect of a change in an accounting principle in the first nine
months of 2004 and excluded restructuring and impairment charges and the gain
on the disposition of an investment in the first nine months of 2003. The
company used an effective tax rate of 38.3%, which it believes is its pro forma
annual tax rate, 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.
Restructuring Detail
Continuing the integration of our acquisition of Moore Wallace, the company
recorded pre-tax restructuring charges in continuing operations of $14.8
million in the third quarter of 2004. Through the first nine months of 2004,
the company recorded $75.9 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 Nine months
ended ended
$ in Millions 9/30/2004 9/30/2004
Severance $12.9 $73.7
Facility 1.9 2.2
Total $14.8 $75.9
Payments associated with these severance actions are expected to be
substantially completed by June 2005. Through the first nine months of 2004,
the company has eliminated approximately 2,955 positions (750 positions in
discontinued operations).
Discontinued Operations
During the third quarter of 2004, the company entered into an agreement to sell
its package logistics business and completed the shutdown of MLI. The sale of
the package logistics business closed on October 29, 2004.
The results of operations and financial position of the package logistics
business and MLI are reported as discontinued operations beginning in the third
quarter of 2004.
The company has also conformed prior period financial results to reflect
package logistics and MLI as discontinued operations in all periods presented.
The net loss from discontinued operations was $1.6 million in the third quarter
of 2004 and included pre-tax restructuring and impairment charges of $3.4
million at MLI. The net loss from discontinued operations was $66.2 million in
the first nine months of 2004 and included pre-tax restructuring and impairment
charges of $108.5 million; $89.4 million at the package logistics business and
$19.1 million at MLI.
Conference Call
RR Donnelley will host a conference call to discuss its third quarter results
on Thursday, November 4, 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 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 September 30, 2004 and December 31, 2003
IN MILLIONS, EXCEPT PER SHARE DATA
(UNAUDITED)
At September At December
30, 2004 31, 2003
Assets
Current Assets
Cash and cash equivalents $416.5 $60.8
Receivables, less allowance
for doubtful accounts of
$51.2 ($26.8 in 2003) 1,332.1 690.2
Inventories 517.0 154.3
Prepaid expenses and other current
assets 44.2 22.4
Deferred income taxes 200.2 51.6
Total Current Assets 2,510.0 979.3
Property, plant and equipment - net 1,854.3 1,279.1
Prepaid pension cost 468.1 314.4
Goodwill 2,561.3 167.8
Other intangible assets - net 683.3 5.4
Other assets 311.3 252.6
Assets of discontinued operations 129.9 227.3
Total Assets $8,518.2 $3,225.9
Liabilities
Current Liabilities
Accounts payable $518.9 $282.7
Accrued liabilities 941.4 423.0
Short-term debt 199.2 175.1
Total Current Liabilities 1,659.5 880.8
Long-term debt 1,583.2 750.4
Postretirement benefits 340.1 12.0
Deferred income taxes 594.4 221.8
Other liabilities 543.4 323.4
Liabilities of discontinued operations 28.1 54.3
Total Liabilities 4,748.7 2,242.7
Shareholders' Equity
Preferred stock, $1.00 par value
Authorized shares: 2.0; Issued: None - -
Common stock, $1.25 par value
Authorized shares: 500.0
Issued shares: 243.0 in 2004
(2003 - 140.9) 303.7 176.1
Additional paid in capital 2,845.7 132.4
Retained earnings 1,414.0 1,641.7
Accumulated other comprehensive loss (105.0) (123.7)
Unearned compensation (34.7) (2.9)
Reacquired common stock, at cost,
22.1 in 2004 (27.2 in 2003) (654.2) (840.4)
Total Shareholders' Equity 3,769.5 983.2
Total Liabilities and Shareholders'
Equity $8,518.2 $3,225.9
R. R. Donnelley and Sons Company
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2004 and 2003
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three months ended September 30,
ADJUSTMENTS ADJUSTMENTS
TO TO
2004 NON-GAAP 2004 2003 NON-GAAP 2003
GAAP (a) NON-GAAP GAAP (a) NON-GAAP
Net sales $1,968.5 $- $1,968.5 $1,053.3 $- $1,053.3
Cost of sales 1,397.8 (1.4) 1,396.4 760.8 760.8
Selling, general
and administrative
expense 266.7 (3.0) 263.7 125.9 125.9
Restructuring and
impairments - net 17.2 (17.2) - 1.4 (1.4) -
Depreciation and
amortization 101.0 101.0 68.1 68.1
Total operating
expenses 1,782.7 (21.6) 1,761.1 956.2 (1.4) 954.8
Income from
continuing
operations 185.8 21.6 207.4 97.1 1.4 98.5
Interest expense -
net 22.5 - 22.5 12.3 - 12.3
Investment and
other income
(expense) (0.6) 0.9 0.3 4.8 (4.2) 0.6
Earnings from continuing
operations before taxes,
minority interest and
cumulative effect of
change in accounting
principle 162.7 22.5 185.2 89.6 (2.8) 86.8
Income tax expense 47.9 23.0 70.9 31.7 1.5 33.2
Minority interest 0.4 0.4 - -
Net earnings from
continuing
operations before
cumulative effect of
change in accounting
principle 114.4 (0.5) 113.9 57.9 (4.3) 53.6
Income (loss) from
discontinued
operations - net (1.6) 1.6 - (4.1) 4.1 -
Net earnings before
cumulative effect of
change in accounting
principle 112.8 1.1 113.9 53.8 (0.2) 53.6
Cumulative effect of
change in accounting
principle - net of tax - - - - - -
Net earnings $112.8 $1.1 $113.9 $53.8 $(0.2) $53.6
Earnings per share:
Basic
Net earnings from
continuing
operations before
cumulative effect
of change in
accounting
principle $0.52 $0.52 $0.51 $0.47
Loss from discontinued
operations (0.01) - (0.04) -
Cumulative effect
of change in
accounting
principle - net of tax - - - -
Net earnings $0.51 $0.52 $0.47 $0.47
Diluted
Net earnings from
continuing
operations before
cumulative effect
of change in
accounting
principle $0.52 $0.51 $0.51 $0.47
Loss from discontinued
operations (0.01) - (0.04) -
Cumulative effect of
change in accounting
principle - net of
tax - - - -
Net earnings $0.51 $0.51 $0.47 $0.47
Weighted average
common shares
outstanding
Basic 219.3 219.3 113.3 113.3
Diluted 221.5 221.5 114.6 114.6
R. R. Donnelley and Sons Company
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2004 and 2003
(IN MILLIONS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Nine months ended September 30,
ADJUSTMENTS ADJUSTMENTS
TO TO
2004 NON-GAAP 2004 2003 NON-GAAP 2003
GAAP (a) NON-GAAP GAAP (a) NON-GAAP
Net sales $5,178.8 $- $5,178.8 $2,987.7 $- $2,987.7
Cost of sales 3,829.4 (69.1) 3,760.3 2,216.0 2,216.0
Selling, general
and administrative
expense 739.2 (6.1) 733.1 386.8 386.8
Restructuring and
impairments - net 92.7 (92.7) - 9.3 (9.3) -
Depreciation and
amortization 284.8 284.8 203.6 203.6
Total operating
expenses 4,946.1 (167.9) 4,778.2 2,815.7 (9.3) 2,806.4
Income from
continuing
operations 232.7 167.9 400.6 172.0 9.3 181.3
Interest expense - net 63.1 - 63.1 36.8 - 36.8
Investment and
other income
(expense) 5.6 (14.3) (8.7) (5.1) (4.2) (9.3)
Earnings from
continuing
operations before
taxes, minority
interest and
cumulative effect of
change in accounting
principle 175.2 153.6 328.8 130.1 5.1 135.2
Income tax expense 59.3 66.6 125.9 47.0 4.8 51.8
Minority interest 1.5 1.5 0.3 0.3
Net earnings from
continuing operations
before cumulative
effect of change in
accounting principle 114.4 87.0 201.4 82.8 0.3 83.1
Income (loss) from
discontinued
operations - net (66.2) 66.2 - (4.0) 4.0 -
Net earnings before
cumulative effect of
change in accounting
principle 48.2 153.2 201.4 78.8 4.3 83.1
Cumulative effect
of change in
accounting
principle - net of
tax (6.6) 6.6 - - - -
Net earnings $41.6 $159.8 $201.4 $78.8 $4.3 $83.1
Earnings per share:
Basic
Net earnings from
continuing
operations before
cumulative effect
of change in
accounting
principle $0.58 $1.03 $0.74 $0.73
Loss from
discontinued
operations (0.34) - (0.04) -
Cumulative effect
of change in
accounting
principle - net of
tax (0.03) - - -
Net earnings $0.21 $1.03 $0.70 $0.73
Diluted
Net earnings from
continuing
operations before
cumulative effect
of change in
accounting
principle $0.57 $1.02 $0.73 $0.73
Loss from
discontinued
operations (0.33) (0.04) -
Cumulative effect
of change in
accounting
principle - net of
tax (0.03) - - -
Net earnings $0.21 $1.02 $0.69 $0.73
Weighted average
common shares
outstanding
Basic 196.2 196.2 113.2 113.2
Diluted 198.2 198.2 114.0 114.0
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 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.
(a) Please see the following schedules "Reconciliation of GAAP Net
Earnings to Non-GAAP Net Earnings" for descriptions of the
adjustments, one schedule for the three months ended September 30,
2004 and September 30, 2003 and a second schedule for the nine months
ended September 30, 2004 and September 30, 2003.
Reconciliation of GAAP Net Earnings to Non-GAAP Net Earnings
IN MILLIONS
(UNAUDITED)
Three Months Three Months
Ended Ended
September September
30, 2004 30, 2003
NON-GAAP ADJUSTMENTS TO NET
EARNINGS:
Integration charges (a) $4.4 $-
Restructuring and impairment
charges (b) 17.2 1.4
Total non-GAAP adjustments to income
from continuing operations 21.6 1.4
(Gain) loss on disposition of
investments (c) 0.9 (4.2)
Total non-GAAP adjustments to
investment and other income 0.9 (4.2)
Total non-GAAP adjustments to
continuing operations earnings
before tax 22.5 (2.8)
Income tax adjustment (d) (23.0) (1.5)
Loss from discontinued operations -
net (e) 1.6 4.1
TOTAL NON-GAAP ADJUSTMENTS TO NET
EARNINGS $1.1 $(0.2)
(a) Amount represents post-acquisition integration charges of
$4.4 million.
(b) Amount for the three months ended September 30, 2004, includes
$14.8 million for restructuring charges and $2.4 million for asset
impairment charges. Amount for the three months ended September 30,
2003, includes $0.5 million for restructuring charges and
$0.9 million for asset impairment charges.
(c) Amount represents the pre-tax loss on the sale of an investment in
Latin America during the three months ended September 30, 2004, and
the pre-tax gain from the sale of an equity investment during the
three months ended September 30, 2003.
(d) Amount represents the tax effect of the reconciling items and an
adjustment for the three months ended September 30, 2004 and
September 30, 2003, to reflect the company's pro forma effective tax
rate of 38.3%.
(e) Amount represents loss from discontinued operations, net of tax.
Reconciliation of GAAP Net Earnings to Non-GAAP Net Earnings
IN MILLIONS
(UNAUDITED)
Nine Months Nine Months
Ended Ended
September September
30, 2004 30, 2003
NON-GAAP ADJUSTMENTS TO NET
EARNINGS:
Integration charges (a) $75.2 $-
Restructuring and impairment charges (b) 92.7 9.3
Total non-GAAP adjustments to income
from continuing operations 167.9 9.3
Gain on disposition of investments (c) (14.3) (4.2)
Total non-GAAP adjustments to
investment and other income (14.3) (4.2)
Total non-GAAP adjustments to
continuing operations earnings
before tax 153.6 5.1
Income tax adjustment (d) (66.6) (4.8)
Loss from discontinued operations -
net (e) 66.2 4.0
Cumulative effect of change in
accounting principle (f) 6.6 -
TOTAL NON-GAAP ADJUSTMENTS TO NET EARNINGS $159.8 $4.3
(a) 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 ($8.3 million).
(b) Amount for the nine months ended September 30, 2004, includes
$75.9 million for restructuring charges and $16.8 million for asset
impairment charges. Amount for the nine months ended September 30,
2003, includes $8.4 million for restructuring charges and
$0.9 million for asset impairment charges.
(c) Amount represents the net pre-tax gain on the sale of investments in
Latin America during the nine months ended September 30, 2004, and
the pre-tax gain from the sale of an equity investment during the
nine months ended September 30, 2003.
(d) Amount represents the tax effect of the reconciling items and an
adjustment for the nine months ended September 30, 2004 and September
30, 2003, to reflect the company's pro forma effective tax rate of
38.3%.
(e) Amount represents loss from discontinued operations, net of tax.
(f) 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 nine months ended September 30, 2004 and 2003
$ IN MILLIONS
(UNAUDITED)
Integrated
Print
Communications
Publishing and
and Retail Global Forms and Consoli-
Services Solutions Labels Corporate dated
Three Months Ended
September 30, 2004
Net sales $695.9 $795.9 $476.7 $- $1,968.5
Operating expense 594.0 684.0 440.4 64.3 1,782.7
Operating income
(loss) 101.9 111.9 36.3 (64.3) 185.8
Operating
margin % 14.6% 14.1% 7.6% nm 9.4%
Non-GAAP Adjustments
Restructuring charges 0.8 3.6 8.8 1.6 14.8
Impairment charges 0.9 0.7 0.8 - 2.4
Integration charges - 1.4 0.6 2.4 4.4
Total Non-GAAP
Adjustments 1.7 5.7 10.2 4.0 21.6
Operating income
(loss) before
restructuring,
impairment and
integration charges $103.6 $117.6 $46.5 $(60.3) $207.4
Operating margin
before restructuring,
impairment and
integration charges % 14.9% 14.8% 9.8% nm 10.5%
Nine Months Ended
September 30, 2004
Net sales $1,979.3 $2,043.0 $1,156.5 $- $5,178.8
Operating expense 1,796.0 1,810.9 1,121.5 217.7 4,946.1
Operating income
(loss) 183.3 232.1 35.0 (217.7) 232.7
Operating
margin % 9.3% 11.4% 3.0% nm 4.5%
Non-GAAP Adjustments
Restructuring charges 24.6 15.9 16.3 19.1 75.9
Impairment charges 14.4 1.6 0.8 - 16.8
Integration charges - 19.1 51.3 4.8 75.2
Total Non-GAAP
Adjustments 39.0 36.6 68.4 23.9 167.9
Operating income
(loss) before
restructuring,
impairment and
integration charges $222.3 $268.7 $103.4 $(193.8) $400.6
Operating margin
before restructuring,
impairment and
integration charges % 11.2% 13.2% 8.9% nm 7.7%
Three Months Ended
September 30, 2003
Net sales $647.4 $373.5 $32.4 $- $1,053.3
Operating expense 553.3 335.9 37.9 29.1 956.2
Operating income
(loss) 94.1 37.6 (5.5) (29.1) 97.1
Operating
margin % 14.5% 10.1% (17.0)% nm 9.2%
Non-GAAP Adjustments
Restructuring charges - 0.4 - 0.1 0.5
Impairment charges 0.5 0.3 - 0.1 0.9
Integration charges - - - - -
Total Non-GAAP
Adjustments 0.5 0.7 - 0.2 1.4
Operating income
(loss) before
restructuring,
impairment and
integration charges $94.6 $38.3 $(5.5) $(28.9) $98.5
Operating margin
before restructuring,
impairment and
integration charges % 14.6% 10.3% (17.0)% nm 9.4%
Nine Months Ended
September 30, 2003
Net sales $1,821.9 $1,072.8 $93.0 $- $2,987.7
Operating expense 1,630.6 975.9 109.3 99.9 2,815.7
Operating income
(loss) 191.3 96.9 (16.3) (99.9) 172.0
Operating
margin % 10.5% 9.0% (17.5)% nm 5.8%
Non-GAAP Adjustments
Restructuring charges 2.0 4.1 1.1 1.2 8.4
Impairment charges 0.5 0.3 - 0.1 0.9
Integration charges - - - - -
Total Non-GAAP
Adjustments 2.5 4.4 1.1 1.3 9.3
Operating income
(loss) before
restructuring,
impairment and
integration charges $193.8 $101.3 $(15.2) $(98.6) $181.3
Operating margin
before restructuring,
impairment and
integration charges % 10.6% 9.4% (16.3)% nm 6.1%
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 and Sons Company
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2004 and 2003
IN MILLIONS
(UNAUDITED)
September 30, September 30,
2004 2003
Operating Activities
Net earnings $41.6 $78.8
Net loss from discontinued
operations 66.2 4.0
Adjustment to reconcile net
earnings from continuing
operations before cumulative
effect of change in accounting principle 493.6 245.8
Changes in operating assets and
liabilities (76.3) (77.2)
Net cash provided by operating
activities of continuing operations 525.1 251.4
Net cash provided by (used in)
investing activities of continuing
operations 2.7 (100.6)
Net cash used in financing activities
of continuing operations (180.5) (111.7)
Effect of exchange rates on cash and
cash equivalents 3.4 1.3
Net cash provided by (used in)
discontinued operations 5.0 (35.3)
Net increase in cash and cash
equivalents 355.7 5.1
Cash and cash equivalents at
beginning of period 60.8 60.5
Cash and cash equivalents at end of
period $416.5 $65.6
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/