Donnelley (R.R.) & Sons Co. (NYSE:RRD.WI)
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CHICAGO, Nov. 7 /PRNewswire-FirstCall/ -- R.R. Donnelley & Sons Company (NYSE:RRD) today reported third-quarter 2006 net earnings from continuing operations of $165.1 million or $0.75 per diluted share on net sales of $2.3 billion compared to net earnings from continuing operations of $127.3 million or $0.59 per diluted share on net sales of $2.2 billion in the third quarter of 2005. The third-quarter 2006 net earnings from continuing operations included pre-tax restructuring charges of $6.6 million, substantially all of which were associated with the reorganization of certain operations and the exiting of certain business activities. Net earnings from continuing operations in the third quarter of 2005 included pre-tax charges for restructuring ($3.2 million), impairment ($2.3 million) and integration ($1.3 million) totaling $6.8 million, primarily related to the integration of the 2004 acquisition of Moore Wallace. The company's effective tax rate decreased to 27.2% in the third quarter of 2006 from 35.2% in the third quarter of 2005, primarily reflecting the tax benefit from the realization of a deferred tax asset. Loss from discontinued operations was $0.4 million in the third quarter of 2006 and $25.2 million, primarily reflecting the results of Peak Technologies, in the third quarter of 2005. Including discontinued operations, net earnings were $164.7 million or $0.75 per diluted share in the third quarter of 2006 compared to net earnings of $102.1 million or $0.47 per diluted share in the third quarter of 2005.
The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the company's operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
Non-GAAP net earnings from continuing operations totaled $146.2 million or $0.67 per diluted share in the third quarter of 2006 compared to $134.1 million or $0.62 per diluted share in the third quarter of 2005. Non-GAAP net earnings from continuing operations exclude restructuring charges and the tax benefit from the realization of a deferred tax asset in the third quarter of 2006 and exclude charges for restructuring, impairment and integration in the third quarter of 2005. A reconciliation of GAAP net earnings to non-GAAP net earnings for these adjustments is presented in the attached tables.
"We are pleased with our third-quarter results," said Mark A. Angelson, RR Donnelley's Chief Executive Officer. "Sales leverage coupled with strong cost control expanded margins in the quarter. Our Publishing and Retail Services segment delivered strong operating margin expansion and solid revenue growth."
Angelson added, "Our planned combination with Banta Corporation will benefit customers, employees and investors. The considerable overlap between the two companies creates immediate opportunities for cross-selling, procurement, manufacturing, premedia and logistics synergies. Importantly, our strong balance sheet and liquidity position enabled us to be opportune in the highly fragmented print market."
Business Review (Continuing Operations)
Following are the results for the company and each reportable segment.
Summary
Net sales in the quarter were $2.3 billion, up 5.7% from the third quarter of 2005. The increase was primarily due to new customer wins and increased volume with existing customers, favorable foreign exchange comparisons and acquisitions, offset in part by continued price pressure. The gross margin rate decreased to 28.2% in the third quarter of 2006 from 28.4% in the third quarter of 2005, reflecting price pressure, business mix shift and higher energy prices that more than offset the benefits from higher sales volume and our productivity efforts. SG&A expense as a percentage of net sales decreased to 11.6% in the third quarter of 2006 from 12.2% in the third quarter of 2005 reflecting the benefits of our cost reduction efforts and lower integration expenses in the third quarter of 2006. Operating margin, which was negatively impacted by restructuring charges of $6.6 million in the third quarter of 2006 and by charges for restructuring, impairment and integration totaling $6.8 million in the third quarter of 2005, was 11.3% in the third quarter of 2006 compared to 10.8% in the third quarter of 2005.
Excluding charges for restructuring, impairment and integration, the non- GAAP operating margin in the third quarter of 2006 was 11.6% compared to 11.1% in the third quarter of 2005. The benefits of our productivity efforts and increased volume more than offset price pressure. 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) Publishing and Retail Services, 2) Integrated Print Communications, 3) Forms and Labels and 4) Corporate.
The Publishing and Retail Services segment includes: our 1) magazine, catalog and retail, 2) directories, 3) book, 4) European, 5) Asian, 6) logistics and 7) premedia businesses. Net sales for the Publishing and Retail Services segment increased 7.2% to $1.2 billion from the third quarter of 2005 primarily due to the acquisitions in 2005 of Spencer Press, Poligrafia, the Charlestown, Indiana print operations of Adplex-Rhodes and the book business of the Asia Printers Group, and sales increases in our international operations. The segment's operating margin, which was negatively impacted by restructuring charges of $0.9 million in the third quarter of 2006 and by charges for restructuring and impairment totaling $1.1 million in the third quarter of 2005, was 17.3% in the third quarter of 2006 compared to 16.3% in the third quarter of 2005. Excluding restructuring and impairment charges, the segment's non-GAAP operating margin in the third quarter of 2006 was 17.4% compared to 16.4% in the third quarter of 2005, primarily resulting from increased sales volume and the benefits of our productivity initiatives that more than offset the impact of price pressure.
The Integrated Print Communications segment includes: our 1) direct mail and business communications services, 2) financial print, 3) short-run commercial print and 4) business process outsourcing (The Astron Group and OfficeTiger) businesses. Net sales for the Integrated Print Communications segment increased 4.5% to $689.0 million from the third quarter of 2005, primarily due to sales growth in our short-run commercial print and financial print businesses as well as the acquisition of OfficeTiger, offset in part by lower sales in our business communications services business. The segment's operating margin, which was negatively impacted by restructuring charges of $2.8 million in the third quarter of 2006 and by charges for restructuring and impairment totaling $2.0 million in the third quarter of 2005, decreased to 7.8% in the third quarter of 2006 from 10.2% in the third quarter of 2005. Excluding restructuring and impairment charges, the segment's non-GAAP operating margin decreased to 8.2% in the third quarter of 2006 from 10.5% in the third quarter of 2005. This decrease was due to mix shift to lower margin businesses, continued price pressure, the performance of Astron's print-based businesses and volume declines in business communications services.
The Forms and Labels segment includes: our 1) forms, 2) labels, 3) office products, 4) Latin American and 5) Canadian businesses. Net sales for the segment increased 3.7% to $422.3 million in the third quarter of 2006 from the third quarter of 2005, primarily due to favorable foreign exchange rates and increased volume in our Latin American and U.S. labels businesses. The segment's operating margin, which was negatively impacted by restructuring charges of $0.6 million in the third quarter of 2006 and by charges for restructuring and integration totaling $1.5 million in the third quarter of 2005, increased to 10.0% in the third quarter of 2006 from 9.7% in the third quarter of 2005. Excluding restructuring, impairment and integration charges, non-GAAP operating margin was 10.1% in the third quarter of both 2006 and 2005, as continued price pressure offset the impact of increased sales volume and the benefits of our productivity efforts.
Corporate operating expenses decreased to $42.8 million in the third quarter of 2006 from $52.4 million in the third quarter of 2005. Excluding charges for restructuring of $2.3 million in the third quarter of 2006 and restructuring and integration totaling $2.2 million in the third quarter of 2005, corporate operating expenses decreased $9.7 million to $40.5 million from the third quarter of the prior year primarily reflecting the benefit of our productivity efforts.
Outlook -- 2006 Full-Year Non-GAAP EPS from Continuing Operations Reaffirmed
For the full year of 2006, RR Donnelley is projecting non-GAAP net earnings per diluted share from continuing operations to be in the range of $2.45 to $2.50, but trending toward the high end of the range. This guidance includes the expected dilutive impact from both the acquisition of OfficeTiger and the adoption, in the first quarter of 2006, of SFAS No. 123(R) -- Share- Based Payment, and assumes no shares repurchased under the authorization available to the company. The non-GAAP effective tax rate for 2006 is expected to be approximately 35.2%.
GAAP net earnings per diluted share from continuing operations in 2006 may include restructuring, impairment and integration charges, the resolution of certain tax items and other items that are not currently determinable, but may be significant. For that reason, the company is unable to provide full-year GAAP net earnings estimates at this time.
Conference Call
RR Donnelley will host a conference call and simultaneous webcast to discuss its third-quarter results today, Tuesday, November 7, 2006, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The live webcast will be accessible on RR Donnelley's web site: http://www.rrdonnelley.com/ . Individuals wishing to participate can join the conference call by dialing (800) 657-1263 (toll-free domestic); passcode: 8068924. 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 (877) 519- 4471; passcode: 8068924.
About RR Donnelley
RR Donnelley (NYSE:RRD) is the world's premier full-service provider of print and related services, including business process outsourcing. Founded more than 140 years ago, the company provides solutions in commercial printing, direct mail, financial printing, print fulfillment, labels, forms, logistics, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management to customers in the publishing, healthcare, advertising, retail, technology, financial services and many other industries. 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. The company does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. The factors that could cause material differences in the expected results of RR Donnelley include, without limitation, the following: the successful execution and integration of acquisitions and the performance of the company's businesses following acquisitions; the ability to implement comprehensive plans for the execution of cross-selling, cost containment, asset rationalization and other key strategies; competitive pressures in all markets in which the company operates; factors that affect customer demand, including changes in postal rates and postal regulations, changes in the capital markets, changes in advertising markets, the rate of migration from paper-based forms to digital format, customers' budgetary constraints and customers' changes in short-range and long-range plans; shortages or changes in availability, or increases in costs of, key materials (such as ink, paper and fuel); and other risks and uncertainties described in RR Donnelley's periodic filings with the Securities and Exchange Commission (SEC). Readers are strongly encouraged to read the full cautionary statements contained in RR Donnelley's filings with the SEC.
R. R. Donnelley & Sons Company
Consolidated Balance Sheets
As of September 30, 2006 and December 31, 2005
(UNAUDITED)
(In millions, except per share data)
September 30, December 31,
2006 2005
Assets
Current Assets
Cash and cash equivalents $250.7 $366.7
Receivables, less allowance
for doubtful accounts 1,654.9 1,529.1
Inventories 552.6 481.4
Prepaid expenses and other
current assets 80.6 67.5
Deferred income taxes 144.8 177.0
Total Current Assets 2,683.6 2,621.7
Property, plant and equipment
- net 2,126.3 2,138.6
Goodwill 2,985.8 2,750.7
Other intangible assets - net 1,145.0 1,094.3
Prepaid pension cost 518.8 514.1
Other noncurrent assets 304.9 254.3
Total Assets $9,764.4 $9,373.7
Liabilities
Current Liabilities
Accounts payable 721.4 718.1
Accrued liabilities 854.0 826.9
Short-term debt and current
portion of long-term debt 255.4 269.1
Total Current Liabilities 1,830.8 1,814.1
Long-term debt 2,358.0 2,365.4
Postretirement benefit
obligations 331.5 330.6
Deferred income taxes 584.9 596.8
Other noncurrent liabilities 608.9 541.2
Liabilities from discontinued
operations 3.5 1.4
Total Liabilities $5,717.6 $5,649.5
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 2006
and 2005 303.7 303.7
Additional paid-in capital 2,859.3 2,888.2
Retained earnings 1,672.7 1,439.4
Accumulated other comprehensive
loss (39.9) (90.2)
Unearned compensation - (44.9)
Treasury stock, at cost, 24.8 shares
in 2006 (2005 - 25.5 shares) (749.0) (772.0)
Total Shareholders' Equity $4,046.8 $3,724.2
Total Liabilities and Shareholders'
Equity $9,764.4 $9,373.7
R. R. Donnelley & Sons Company
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2006 and 2005
(In millions, except per share data)
(UNAUDITED)
Three months ended September 30,
ADJUSTMENTS 2006 ADJUSTMENTS 2005
2006 TO NON- 2005 TO NON-
GAAP NON-GAAP GAAP GAAP NON-GAAP GAAP
Net sales $2,308.7 $- $2,308.7 $2,183.7 $- $2,183.7
Cost of sales
(exclusive of
depreciation and
amortization shown
below) 1,656.8 - 1,656.8 1,562.9 - 1,562.9
Selling, general
and administrative
expenses (exclusive
of depreciation
and amortization
shown below) 268.5 - 268.5 266.2 (1.3) 264.9
Restructuring and
impairment charges
- net 6.6 (6.6) - 5.5 (5.5) -
Depreciation and
amortization 116.0 - 116.0 113.0 - 113.0
Total operating
expenses 2,047.9 (6.6) 2,041.3 1,947.6 (6.8) 1,940.8
Income from
continuing
operations 260.8 6.6 267.4 236.1 6.8 242.9
Interest expense
- net 35.2 - 35.2 32.0 - 32.0
Investment and other
income (expense) - net 0.5 - 0.5 (7.6) - (7.6)
Earnings from continuing
operations before
income taxes and
minority interest 226.1 6.6 232.7 196.5 6.8 203.3
Income tax expense 61.4 25.5 86.9 69.2 - 69.2
Minority interest (0.4) - (0.4) - - -
Net earnings from
continuing
operations 165.1 (18.9) 146.2 127.3 6.8 134.1
Income (loss) from
discontinued
operations - net
of tax (0.4) 0.4 - (25.2) 25.2 -
Net earnings $164.7 $(18.5) $146.2 $102.1 $32.0 $134.1
Earnings per share:
Basic:
Net earnings from
continuing
operations $0.76 $0.68 $0.59 $0.62
Income (loss) from
discontinued
operations, net of
tax - - (0.12) -
Net earnings $0.76 $0.68 $0.47 $0.62
Diluted:
Net earnings from
continuing operations $0.75 $0.67 $0.59 $0.62
Income (loss) from
discontinued
operations, net of
tax - - (0.12) -
Net earnings $0.75 $0.67 $0.47 $0.62
Weighted average
common shares
outstanding:
Basic 216.4 216.4 215.1 215.1
Diluted 218.8 218.8 217.0 217.0
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.
R. R. Donnelley & Sons Company
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 2006 and 2005
(In millions, except per share data)
(UNAUDITED)
Nine months ended September 30,
ADJUSTMENTS 2006 ADJUSTMENTS 2005
2006 TO NON- 2005 TO NON-
GAAP NON-GAAP GAAP GAAP NON-GAAP GAAP
Net sales $6,849.3 $- $6,849.3 $6,042.3 $- $6,042.3
Cost of sales
(exclusive of
depreciation and
amortization shown
below) 4,966.2 - 4,966.2 4,329.1 (0.1) 4,329.0
Selling, general
and administrative
expenses (exclusive
of depreciation
and amortization
shown below) 805.8 - 805.8 750.9 (6.3) 744.6
Restructuring and
impairment charges
- net 37.8 (37.8) - 42.1 (42.1) -
Depreciation and
amortization 345.0 - 345.0 311.4 - 311.4
Total operating
expenses 6,154.8 (37.8) 6,117.0 5,433.5 (48.5) 5,385.0
Income from
continuing
operations 694.5 37.8 732.3 608.8 48.5 657.3
Interest expense - net 105.7 - 105.7 76.8 - 76.8
Investment and other
income (expense) - net (4.0) - (4.0) (11.9) - (11.9)
Earnings from continuing
operations before
income taxes and
minority interest 584.8 37.8 622.6 520.1 48.5 568.6
Income tax expense 182.1 37.1 219.2 188.8 18.0 206.8
Minority interest (1.0) - (1.0) (0.5) - (0.5)
Net earnings from
continuing
operations 403.7 0.7 404.4 331.8 30.5 362.3
Income (loss) from
discontinued
operations - net
of tax (1.9) 1.9 - (32.1) 32.1 -
Net earnings $401.8 $2.6 $404.4 $299.7 $62.6 $362.3
Earnings per share:
Basic:
Net earnings from
continuing operations $1.87 $1.87 $1.55 $1.69
Income (loss) from
discontinued
operations, net
of tax (0.01) - (0.15) -
Net earnings $1.86 $1.87 $1.40 $1.69
Diluted:
Net earnings from
continuing operations $1.85 $1.85 $1.53 $1.67
Income (loss) from
discontinued operations,
net of tax (0.01) - (0.15) -
Net earnings $1.84 $1.85 $1.38 $1.67
Weighted average
common shares
outstanding:
Basic 216.1 216.1 214.7 214.7
Diluted 218.7 218.7 216.4 216.4
The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful because that information is an appropriate measure for evaluating the company's operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management's effectiveness with specific reference to this indicator. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures
IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA
(UNAUDITED)
Three months ended September 30, 2006
Net
Income earnings
from per
continuing Operating Net diluted
operations margin earnings share
GAAP basis measures $260.8 11.3% $164.7 $0.75
Non-GAAP adjustments:
Restructuring and impairment
charges, net (1) 6.6 0.3% 4.6 0.03
Integration charges (2) - - - -
Income tax adjustments (3) - - (23.5) (0.11)
Net loss from discontinued
operations (4) - - 0.4 -
Total non-GAAP adjustments 6.6 0.3% (18.5) (0.08)
Non-GAAP measures $267.4 11.6% $146.2 $0.67
(1) Restructuring and impairment (pre-tax): Operating results for the
three months ended September 30, 2006 and 2005 were affected by the
following restructuring and impairment charges:
- 2006 included $3.5 million for employee termination costs
substantially all of which were associated with restructuring
actions resulting from the reorganization of certain operations
and the exiting of certain business activities and $3.1 million of
other restructuring costs, substantially all lease termination
costs.
- 2005 included $0.5 million for employee termination costs
primarily related to the elimination of duplicative administrative
functions resulting from the Moore Wallace acquisition and other
actions to restructure operations; $2.7 million of other
restructuring costs, primarily related to lease termination costs
associated with exited facilities, and $2.3 million of impairment
of long-lived assets related to the abandonment of assets in the
Integrated Print Communications and Publishing and Retail Services
segments.
(2) Integration charges (pre-tax): Operating income included post-
acquisition integration charges of $1.3 million in the three months
ended September 30, 2005 related to the Moore Wallace acquisition.
(3) Income tax adjustments: Income tax expense for the three months
ended September 30, 2006 included a benefit from the realization of a
deferred tax asset.
(4) Net loss from discontinued operations: Net loss from discontinued
operations for the three months ended September 30, 2006 primarily
reflects costs resulting from a subtenant bankruptcy related to a
facility previously occupied by the Company's package logistics
business. For the three months ended September 30, 2005,
substantially all of the net loss from discontinued operations related
to the Peak Technologies business, including an impairment charge of
$22.1 million after-tax.
R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures
IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA
(UNAUDITED)
Three months ended September 30, 2005
Net
Income earnings
from per
continuing Operating Net diluted
operations margin earnings share
GAAP basis measures $236.1 10.8% $102.1 $0.47
Non-GAAP adjustments:
Restructuring and impairment
charges, net (1) 5.5 0.3% 5.5 0.03
Integration charges (2) 1.3 - 1.3 -
Income tax adjustments (3) - - - -
Net loss from discontinued
operations (4) - - 25.2 0.12
Total non-GAAP adjustments 6.8 0.3% 32.0 0.15
Non-GAAP measures $242.9 11.1% $134.1 $0.62
(1) Restructuring and impairment (pre-tax): Operating results for the
three months ended September 30, 2006 and 2005 were affected by the
following restructuring and impairment charges:
- 2006 included $3.5 million for employee termination costs
substantially all of which were associated with restructuring
actions resulting from the reorganization of certain operations
and the exiting of certain business activities and $3.1 million of
other restructuring costs, substantially all lease termination
costs.
- 2005 included $0.5 million for employee termination costs
primarily related to the elimination of duplicative administrative
functions resulting from the Moore Wallace acquisition and other
actions to restructure operations; $2.7 million of other
restructuring costs, primarily related to lease termination costs
associated with exited facilities, and $2.3 million of impairment
of long-lived assets related to the abandonment of assets in the
Integrated Print Communications and Publishing and Retail Services
segments.
(2) Integration charges (pre-tax): Operating income included post-
acquisition integration charges of $1.3 million in the three months
ended September 30, 2005 related to the Moore Wallace acquisition.
(3) Income tax adjustments: Income tax expense for the three months
ended September 30, 2006 included a benefit from the realization of a
deferred tax asset.
(4) Net loss from discontinued operations: Net loss from discontinued
operations for the three months ended September 30, 2006 primarily
reflects costs resulting from a subtenant bankruptcy related to a
facility previously occupied by the Company's package logistics
business. For the three months ended September 30, 2005,
substantially all of the net loss from discontinued operations related
to the Peak Technologies business, including an impairment charge of
$22.1 million after-tax.
R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures
IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA
(UNAUDITED)
Nine months ended September 30, 2006
Net
Income earnings
from per
continuing Operating Net diluted
operations margin earnings share
GAAP basis measures $694.5 10.1% $401.8 $1.84
Non-GAAP adjustments:
Restructuring and impairment
charges, net (1) 37.8 0.6% 24.2 0.11
Integration charges (2) - - - -
Income tax adjustments (3) - - (23.5) (0.11)
Net loss from discontinued
operations (4) - - 1.9 0.01
Total non-GAAP adjustments 37.8 0.6% 2.6 0.01
Non-GAAP measures $732.3 10.7% $404.4 $1.85
(1) Restructuring and impairment (pre-tax): Operating results for the
nine months ended September 30, 2006 and 2005 were affected by the
following restructuring and impairment charges:
- 2006 included $27.2 million for employee termination costs
substantially all of which were associated with restructuring
actions resulting from the reorganization of certain operations
and the exiting of certain business activities; $8.3 million of
other restructuring costs, primarily lease termination costs; and
$2.3 million for impairment of other long-lived assets.
- 2005 included $8.7 million for employee termination costs
related to the elimination of duplicative administrative functions
resulting from the Moore Wallace acquisition and other actions to
restructure operations; $27.6 million of other restructuring
costs related to lease termination costs and relocation costs
associated with the Moore Wallace acquisition, the relocation of a
Logistics facility, and the exiting of a U.K. financial print
facility, and $5.8 million of impairment charges related to the
abandonment of assets.
(2) Integration charges (pre-tax): Operating income included post-
acquisition integration charges of $6.4 million in the nine months
ended September 30, 2005 primarily related to the Moore Wallace
acquisition and Corporate information systems integration.
(3) Income tax adjustments: Income tax expense for the nine months
ended September 30, 2006 included a benefit from the realization of a
deferred tax asset.
(4) Net loss from discontinued operations: Net loss from discontinued
operations for the nine months ended September 30, 2006 primarily
reflects costs resulting from a subtenant bankruptcy related to a
facility previously occupied by the Company's package logistics
business. For the nine months ended September 30, 2005, substantially
all of the net loss from discontinued operations related to the Peak
Technologies business, including an impairment charge of $22.1 million
after-tax.
R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures
IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA
(UNAUDITED)
Nine months ended September 30, 2005
Net
Income earnings
from per
continuing Operating Net diluted
operations margin earnings share
GAAP basis measures $608.8 10.1% $299.7 $1.38
Non-GAAP adjustments:
Restructuring and impairment
charges, net (1) 42.1 0.7% 26.5 0.12
Integration charges (2) 6.4 0.1% 4.0 0.02
Income tax adjustments (3) - - - -
Net loss from discontinued
operations (4) - - 32.1 0.15
Total non-GAAP adjustments 48.5 0.8% 62.6 0.29
Non-GAAP measures $657.3 10.9% $362.3 $1.67
(1) Restructuring and impairment (pre-tax): Operating results for the
nine months ended September 30, 2006 and 2005 were affected by the
following restructuring and impairment charges:
- 2006 included $27.2 million for employee termination costs
substantially all of which were associated with restructuring
actions resulting from the reorganization of certain operations
and the exiting of certain business activities; $8.3 million of
other restructuring costs, primarily lease termination costs; and
$2.3 million for impairment of other long-lived assets.
- 2005 included $8.7 million for employee termination costs
related to the elimination of duplicative administrative functions
resulting from the Moore Wallace acquisition and other actions to
restructure operations; $27.6 million of other restructuring
costs related to lease termination costs and relocation costs
associated with the Moore Wallace acquisition, the relocation of a
Logistics facility, and the exiting of a U.K. financial print
facility, and $5.8 million of impairment charges related to the
abandonment of assets.
(2) Integration charges (pre-tax): Operating income included post-
acquisition integration charges of $6.4 million in the nine months
ended September 30, 2005 primarily related to the Moore Wallace
acquisition and Corporate information systems integration.
(3) Income tax adjustments: Income tax expense for the nine months
ended September 30, 2006 included a benefit from the realization of a
deferred tax asset.
(4) Net loss from discontinued operations: Net loss from discontinued
operations for the nine months ended September 30, 2006 primarily
reflects costs resulting from a subtenant bankruptcy related to a
facility previously occupied by the Company's package logistics
business. For the nine months ended September 30, 2005, substantially
all of the net loss from discontinued operations related to the Peak
Technologies business, including an impairment charge of $22.1 million
after-tax.
R. R. Donnelley & Sons Company
Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation
For the three months ended September 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Integrated
Publishing Print Forms
and Retail Communi- and Consol-
Services cations Labels Corporate idated
Three Months Ended
September 30, 2006
Net Sales $1,197.4 $689.0 $422.3 $- $2,308.7
Operating Expense 989.7 635.2 380.2 42.8 2,047.9
Operating Income (Loss) 207.7 53.8 42.1 (42.8) 260.8
Operating Margin % 17.3% 7.8% 10.0% nm 11.3%
Non-GAAP Adjustments
Restructuring charges 0.9 2.8 0.6 2.3 6.6
Impairment charges - - - - -
Integration charges - - - - -
Total Non-GAAP Adjustments 0.9 2.8 0.6 2.3 6.6
Operating income (loss)
excluding restructuring,
impairment and integration
charges $208.6 $56.6 $42.7 $(40.5) $267.4
Operating margin before
restructuring, impairment
and integration charges % 17.4% 8.2% 10.1% nm 11.6%
Depreciation and amortization 59.7 34.9 14.1 7.3 116.0
Capital expenditures 51.8 16.6 4.2 7.9 80.5
Three Months Ended September
30, 2005
Net Sales $1,116.7 $659.6 $407.4 $- $2,183.7
Operating Expense 934.9 592.4 367.9 52.4 1,947.6
Operating Income (Loss) 181.8 67.2 39.5 (52.4) 236.1
Operating Margin % 16.3% 10.2% 9.7% nm 10.8%
Non-GAAP Adjustments
Restructuring charges 0.6 0.2 1.2 1.2 3.2
Impairment charges 0.5 1.8 - - 2.3
Integration charges - - 0.3 1.0 1.3
Total Non-GAAP Adjustments 1.1 2.0 1.5 2.2 6.8
Operating income (loss)
excluding restructuring,
impairment and integration $182.9 $69.2 $41.0 $(50.2) $242.9
Operating margin before
restructuring, impairment
and integration charges % 16.4% 10.5% 10.1% nm 11.1%
Depreciation and amortization 54.5 35.1 15.7 7.7 113.0
Capital expenditures 72.7 17.5 4.9 4.9 100.0
R. R. Donnelley & Sons Company
Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation
For the Nine months ended September 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Integrated
Publishing Print Forms
and Retail Communi- and Consol-
Services cations Labels Corporate idated
Nine Months Ended
September 30, 2006
Net Sales $3,433.9 $2,143.7 $1,271.7 $- $6,849.3
Operating Expense 2,901.9 1,943.5 1,164.4 145.0 6,154.8
Operating Income (Loss) 532.0 200.2 107.3 (145.0) 694.5
Operating Margin % 15.5% 9.3% 8.4% nm 10.1%
Non-GAAP Adjustments
Restructuring charges 10.7 12.5 3.3 9.0 35.5
Impairment charges - 1.8 0.5 - 2.3
Integration charges - - - - -
Total Non-GAAP
Adjustments 10.7 14.3 3.8 9.0 37.8
Operating income (loss)
excluding
restructuring,
impairment and
integration charges $542.7 $214.5 $111.1 $(136.0) $732.3
Operating margin before
restructuring,
impairment and
integration charges % 15.8% 10.0% 8.7% nm 10.7%
Depreciation and
amortization 177.1 102.4 43.2 22.3 345.0
Capital expenditures 177.8 52.1 14.4 13.9 258.2
Nine Months Ended
September 30, 2005
Net Sales $3,077.3 $1,736.3 $1,228.7 $- $6,042.3
Operating Expense 2,603.3 1,540.0 1,124.9 165.3 5,433.5
Operating Income (Loss) 474.0 196.3 103.8 (165.3) 608.8
Operating Margin % 15.4% 11.3% 8.4% nm 10.1%
Non-GAAP Adjustments
Restructuring charges 8.2 7.0 4.7 16.4 36.3
Impairment charges 1.6 2.1 2.1 - 5.8
Integration charges 0.5 0.4 0.9 4.6 6.4
Total Non-GAAP
Adjustments 10.3 9.5 7.7 21.0 48.5
Operating income (loss)
excluding
restructuring,
impairment and
integration $484.3 $205.8 $111.5 $(144.3) $657.3
Operating margin before
restructuring,
impairment and
integration charges % 15.7% 11.9% 9.1% nm 10.9%
Depreciation and
amortization 158.0 83.3 47.4 22.7 311.4
Capital expenditures 251.1 38.8 14.6 19.7 324.2
R. R. Donnelley & Sons Company
Condensed Consolidated Statements of Cash Flows
For the nine months ended September 30, 2006 and 2005
IN MILLIONS
(UNAUDITED)
2006 2005
Operating Activities
Net earnings $401.8 $299.7
Net loss from discontinued
operations 1.9 32.1
Adjustment to reconcile net
earnings to cash provided by
operating activities 430.9 497.7
Changes in operating assets and
liabilities (267.8) (189.9)
Net cash provided by operating
activities of continuing operations 566.8 639.6
Net cash (used in) provided by
operating activities of discontinued
operations (0.7) 2.8
Net cash provided by operating
activities 566.1 642.4
Net cash used in investing activities
of continuing operations (500.3) (1,414.6)
Net cash used in investing activities
of discontinued operations - (0.6)
Net cash used in investing activities (500.3) (1,415.2)
Net cash (used in) provided by
financing activities of continuing
operations (187.9) 432.6
Net cash used in financing activities
of discontinued operations - -
Net cash (used in) provided by
financing activities (187.9) 432.6
Effect of exchange rate on cash and
cash equivalents 6.1 2.7
Net decrease in cash and cash
equivalents (116.0) (337.5)
Cash and cash equivalents at beginning
of period 366.7 641.8
Cash and cash equivalents at end of
period $250.7 $304.3
Supplemental non-cash disclosure:
Acquisition of assets through
direct financing $10.8 $-
R.R. Donnelley & Sons Company
Revenue Reconciliation Reported to Pro Forma
For the three months ended September 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Adjustment
for net
sales of
Reported acquired Pro forma
net sales businesses net sales
Three Months Ended September 30,
2006
Publishing and Retail Services $1,197.4 $- $1,197.4
Integrated Print Communications 689.0 - 689.0
Forms and Labels 422.3 - 422.3
Corporate - - -
Consolidated $2,308.7 $- $2,308.7
Three Months Ended September 30,
2005
Publishing and Retail Services $1,116.7 $37.7 $1,154.4
Integrated Print Communications 659.6 14.0 673.6
Forms and Labels 407.4 - 407.4
Corporate - - -
Consolidated $2,183.7 $51.7 $2,235.4
Net sales change
Publishing and Retail Services 7.2% 3.7%
Integrated Print Communications 4.5% 2.3%
Forms and Labels 3.7% 3.7%
Corporate
Consolidated 5.7% 3.3%
The reported results of the company include the results of acquired businesses from the acquisition date forward. The company has provided this schedule to reconcile reported net sales for the three months ended September 30, 2006 and 2005 to pro forma net sales as if the acquisitions took place at the beginning of the respective periods.
For the quarter ended September 30, 2006, no adjustment was required as no acquisitions occurred during the quarter ended September 30, 2006.
For the quarter ended September 30, 2005, the adjustment for net sales of acquired businesses reflects the net sales of Asia Printers Group (acquired July 7, 2005), the Charlestown, Indiana print facility acquired from Adplex- Rhodes (acquired August 18, 2005), Poligrafia (acquired September 5, 2005), Spencer Press (acquired November 9, 2005) and OfficeTiger (acquired April 27, 2006) for the three months ended September 30, 2005 as if the respective acquisitions had occurred on July 1, 2005.
R.R. Donnelley & Sons Company
Revenue Reconciliation Reported to Pro Forma
For the nine months ended September 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Adjustment
for net
sales of
Reported acquired Pro forma
net sales businesses net sales
Nine Months Ended September 30, 2006
Publishing and Retail Services $3,433.9 $- $3,433.9
Integrated Print Communications 2,143.7 35.2 2,178.9
Forms and Labels 1,271.7 - 1,271.7
Corporate - - -
Consolidated $6,849.3 $35.2 $6,884.5
Nine Months Ended September 30, 2005
Publishing and Retail Services $3,077.3 $158.4 $3,235.7
Integrated Print Communications 1,736.3 313.5 2,049.8
Forms and Labels 1,228.7 - 1,228.7
Corporate - - -
Consolidated $6,042.3 $471.9 $6,514.2
Net sales change
Publishing and Retail Services 11.6% 6.1%
Integrated Print Communications 23.5% 6.3%
Forms and Labels 3.5% 3.5%
Corporate
Consolidated 13.4% 5.7%
The reported results of the company include the results of acquired businesses from the acquisition date forward. The company has provided this schedule to reconcile reported net sales for the nine months ended September 30, 2006 and 2005 to pro forma net sales as if the acquisitions took place at the beginning of the respective periods.
For the nine months ended September 30, 2006, the adjustment for net sales of acquired businesses reflects the net sales of OfficeTiger (acquired April 27, 2006) as if the acquisition had occurred on January 1, 2006.
For the nine months ended September 30, 2005, the adjustment for net sales of acquired businesses reflects the net sales of The Astron Group (acquired June 20, 2005), Asia Printers Group (acquired July 7, 2005), the Charlestown, Indiana print facility acquired from Adplex-Rhodes (acquired August 18, 2005), Poligrafia (acquired September 5, 2005), Spencer Press (acquired November 9, 2005) and OfficeTiger (acquired April 27, 2006) for the nine months ended September 30, 2005 as if the respective acquisitions had occurred on January 1, 2005.
DATASOURCE: R.R. Donnelley & Sons Company
CONTACT: Media Contact, Doug Fitzgerald, Senior Vice President,
Marketing & Communications, +1-630-322-6830, , or
Investor Contact, Dan Leib, Vice President, Investor Relations,
+1-312-326-7710, , both of R.R. Donnelley & Sons Company
Web site: http://www.rrdonnelley.com/