RR Donnelley's Q4 loss widens to US$849M from US$326.7M in year-ago period; net sales down 2.2% year-over-year to US$2.66B, with print and related services net sales down 3.7% to US$1.9B due to volume declines, price erosion, lower paper sales

CHICAGO , February 26, 2013 (press release) – Highlights:

  • Company achieved or exceeded the high end of its previous guidance on revenue, non-GAAP operating margin and cash flow as follows:
 
  Full-year 2012 Guidance Full-year 2012 Actual
Revenue $10.1 to $10.2 billion $10.2 billion
Non-GAAP Operating margin 7.2% to 7.3% 7.3%
Free Cash Flow(1) Approximately $450 million $486.0 million
 
(1) Defined as Operating Cash Flow less Capital Expenditures
  • Company reduced total debt by $221.9 million in 2012, ending the year with gross leverage of 2.8x

Fourth-quarter summary:
  • Fourth-quarter 2012 revenue of $2.7 billion declined 2.2% from the fourth quarter of 2011
  • Fourth-quarter 2012 GAAP loss per diluted share of $4.70, compared to GAAP loss per diluted share of $1.78 in 2011; GAAP results include non-cash impairment charges of $1.0 billion, or $5.04 per diluted share, in the fourth quarter of 2012 and $488.5 million, or $2.25 per diluted share, in the fourth quarter of 2011
  • Fourth-quarter 2012 non-GAAP earnings per diluted share of $0.43, compared to non-GAAP earnings per diluted share of $0.46 in the fourth quarter of 2011

Full-year summary:

  • Full-year 2012 revenue of $10.2 billion declined 3.7% from 2011
  • Full-year 2012 GAAP loss per diluted share of $3.61, compared to GAAP loss per diluted share of $0.63 in 2011; GAAP results include non-cash impairment charges of $1.0 billion, or $5.11 per diluted share, in 2012 and $531.5 million, or $2.26 per diluted share, in 2011
  • Full-year 2012 non-GAAP earnings per diluted share of $1.86, compared to non-GAAP earnings per diluted share of $1.82 in 2011


R.R. Donnelley & Sons Company (Nasdaq:RRD) today reported a 2012 fourth-quarter net loss attributable to common shareholders of $849.0 million, or $4.70 per diluted share, on net sales of $2.7 billion compared to a net loss of $326.7 million, or $1.78 per diluted share, on net sales of $2.7 billion in the fourth quarter of 2011. The fourth-quarter net loss attributable to common shareholders included pre-tax net charges, primarily related to non-cash impairment, totaling $1.0 billion in 2012 and $483.9 million in 2011. The non-cash impairment charges followed our annual impairment test of indefinite-lived assets. Additional details regarding the nature of these and other items are included in the attached schedules.

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 attributable to common shareholders totaled $78.1 million, or $0.43 per diluted share, in the fourth quarter of 2012 compared to $85.2 million, or $0.46 per diluted share, in the fourth quarter of 2011. Fourth-quarter non-GAAP net earnings attributable to common shareholders exclude impairment and restructuring charges, gains on pension curtailment, losses on debt extinguishment, acquisition-related expenses and certain income tax adjustments in both years, as well as contingent compensation on a prior acquisition in the fourth quarter of 2011. For non-GAAP comparison purposes, the effective tax rate increased to 33.0% in the fourth quarter of 2012 from 18.8% in the fourth quarter of 2011, primarily due to certain state tax matters in the fourth quarter of 2011. A reconciliation of GAAP net earnings attributable to common shareholders to non-GAAP net earnings attributable to common shareholders is presented in the attached schedules.

"Following the challenging conditions we have faced for the last several quarters, we are pleased with the improvement in revenue and margin trends we achieved in the fourth quarter. Full-year results for revenue, non-GAAP operating margin and free cash flow were at or above the high end of our guidance," said Thomas J. Quinlan III, RR Donnelley's President and Chief Executive Officer. "Further, we reduced our total debt by more than $220 million during 2012, ending the year with gross leverage of 2.8x."

Quinlan continued, "We are also encouraged by the results we've seen in 2013 thus far, and expect another year of strong free cash flow, in the range of $400 million to $500 million. We expect to continue to reduce our leverage, and are revising our targeted gross leverage on a long-term sustainable basis to be in the range of 2.25x to 2.75x, down from the previous range of 2.5x to 3.0x."

Business Review

The Company reports its results in two reportable segments: 1) U.S. Print and Related Services and 2) International. The Company reports as Corporate its unallocated expenses associated with general and administrative activities.

Summary

Net sales in the quarter were $2.7 billion, down $61.2 million, or 2.2%, from the fourth quarter of 2011 due to volume declines, price erosion and a 50 basis point unfavorable impact of lower pass-through paper sales. Gross margin of 22.0% in the fourth quarter of 2012 declined from 22.9% in the fourth quarter of 2011 as a smaller gain on pension curtailment in 2012 ($28.9 million less than in 2011), pricing pressure and unfavorable pricing on by-products more than offset a favorable product mix and productivity improvements. SG&A expense as a percent of net sales in the fourth quarter of 2012 improved to 10.9% from 11.1% in the fourth quarter of 2011, primarily due to contingent compensation on a prior acquisition incurred in the fourth quarter of 2011. The operating loss in the fourth quarter of 2012 of $841.8 million, which was impacted by impairment and restructuring charges, the pension curtailment gain and acquisition-related expenses totaling $1.0 billion, compared to an operating loss in the fourth quarter of 2011 of $317.1 million, which included impairment and restructuring charges, a pension curtailment gain, the contingent compensation and acquisition-related expenses totaling $483.9 million.

Non-GAAP adjusted EBITDA was $292.2 million in the fourth quarter of 2012 compared to $296.7 million in the fourth quarter of 2011. Adjusted EBITDA margin in the fourth quarter of 2012 was 11.0%, 10 basis points higher than in the fourth quarter of 2011 as lower pension expense and productivity improvements more than offset continued pricing pressure and unfavorable pricing on by-products. Non-GAAP operating income increased $8.7 million to $175.5 million in the fourth quarter of 2012, and non-GAAP operating margin improved 50 basis points, from 6.1% in the fourth quarter of 2011 to 6.6% in the fourth quarter of 2012 due to the improved adjusted EBITDA margin and lower depreciation and amortization.

Segments

Net sales for the U.S. Print and Related Services segment in the fourth quarter of 2012 decreased 3.7% from the fourth quarter of 2011 to $1.9 billion due to volume declines across certain product offerings, lower pass-through paper sales of $23.4 million, or 110 basis points, and continued pricing pressure across the segment. The segment's operating loss of $760.4 million in the fourth quarter of 2012, which was negatively impacted by charges for impairment and restructuring of $943.5 million, compared to an operating loss in the fourth quarter of 2011 of $211.1 million, which included charges for impairment and restructuring and the contingent compensation of a prior acquisition totaling $389.0 million. The segment's non-GAAP operating margin of 9.5% in the fourth quarter of 2012 improved by 60 basis points from the fourth quarter of 2011, as productivity improvements and lower depreciation and amortization were partially offset by pricing pressure and volume declines.

Net sales for the International segment of $729.3 million increased $13.6 million, or 1.9%, from the fourth quarter of 2011, inclusive of a 150 basis point favorable impact from increased pass-through paper sales and changes in foreign exchange rates. The balance of the change in net sales was driven by volume increases in Asia and Latin America. The segment's operating loss of $21.0 million in the fourth quarter of 2012, which was impacted by charges for impairment and restructuring of $75.9 million as well as a $3.7 million gain on pension curtailment, compared to an operating loss of $89.0 million in the fourth quarter of 2011, which included charges for impairment and restructuring of $133.4 million. The segment's non-GAAP operating margin improved to 7.0% in the fourth quarter of 2012 from 6.2% in the fourth quarter of 2011 as higher volume and a favorable product mix were partially offset by pricing pressure and wage and other inflationary increases in certain countries.

Unallocated Corporate operating expenses increased to $60.4 million in the fourth quarter of 2012 as compared to $17.0 million in the fourth quarter of 2011. Excluding net charges for restructuring and impairment and acquisition-related expenses totaling $1.6 million in the fourth quarter of 2012 and the gain on pension curtailment of $38.7 million and acquisition-related expenses of $0.2 million in the fourth quarter of 2011, unallocated Corporate operating expenses increased $3.3 million to $58.8 million in the fourth quarter of 2012. Higher benefits-related expense and increased spending on information technology initiatives were only partially offset by lower pension expense.

Conference Call

RR Donnelley will host a conference call and simultaneous webcast to discuss its fourth-quarter and full-year results today, Tuesday, February 26, at 10:00 a.m. Eastern Time (9:00 a.m. Central Time). The live webcast will be accessible on RR Donnelley's web site: www.rrdonnelley.com. Individuals wishing to participate can join the conference call by dialing 847.413.9014, confirmation number 34214491. 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 630.652.3042, passcode 9850121#.

About RR Donnelley

RR Donnelley (Nasdaq:RRD) is a global provider of integrated communications. The Company works collaboratively with more than 60,000 customers worldwide to develop custom communications solutions that reduce costs, drive top-line growth, enhance ROI and ensure compliance. Drawing on a range of proprietary and commercially available digital and conventional technologies deployed across four continents, the Company employs a suite of leading Internet-based capabilities and other resources to provide premedia, printing, logistics and business process outsourcing services to clients in virtually every private and public sector.

For more information, and for RR Donnelley's Corporate Social Responsibility Report, visit the company's web site at http://www.rrdonnelley.com.

 

R. R. Donnelley & Sons Company 
Condensed Consolidated Balance Sheets
As of December 31, 2012 and December 31, 2011
(UNAUDITED)
(in millions, except per share data)
   
   December 31, 2012   December 31, 2011 
Assets    
     
Cash and cash equivalents   $ 430.7  $ 449.7
Receivables, less allowance for doubtful accounts  1,878.8 1,844.2
Inventories  510.2 510.9
Prepaid expenses and other current assets  157.7 163.8
Total Current Assets   2,977.4  2,968.6
Property, plant and equipment - net  1,616.6 1,854.6
Goodwill  1,436.4 2,222.1
Other intangible assets - net  382.9 590.3
Deferred income taxes  445.1 273.8
Other noncurrent assets  404.3 372.3
Total Assets   $ 7,262.7  $ 8,281.7
     
Liabilities    
     
Accounts payable   $ 1,210.3  $ 1,063.3
Accrued liabilities  825.2 817.0
Short-term and current portion of long-term debt  18.4 243.7
Total Current Liabilities   2,053.9  2,124.0
Long-term debt  3,420.2 3,416.8
Pension liabilities  1,150.5 1,076.3
Postretirement benefits  241.7 227.3
Other noncurrent liabilities  327.7 375.1
Total Liabilities   7,194.0  7,219.5
Equity     
     
Common stock, $1.25 par value   303.7  303.7
Authorized shares: 500.0     
Issued shares: 243.0 in 2012 and 2011     
Additional paid-in capital  2,839.4 2,888.7
Retained earnings (accumulated deficit)  (496.1) 342.4
Accumulated other comprehensive loss  (1,029.2) (863.3)
Treasury stock, at cost, 62.6 shares in 2012 (2011 - 64.5 shares)  (1,565.0) (1,628.8)
Total RR Donnelley shareholders' equity  52.8 1,042.7
Noncontrolling interests  15.9 19.5
Total Equity   68.7  1,062.2
Total Liabilities and Equity   $ 7,262.7  $ 8,281.7

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