R.R. Donnelley & Sons Company (NYSE: RRD) (“RRD”)
today reported financial results for the second quarter 2017.
Unless otherwise noted, today’s results represent RRD following the
October 1, 2016 spinoffs of LSC Communications, Inc. (“LSC”) and
Donnelley Financial Solutions, Inc. (“Donnelley Financial”) which
are presented as discontinued operations for periods prior to
October 1, 2016. Further, all references to the number of shares
and per share amounts have been retroactively adjusted to give
effect to the one-for-three reverse stock split which took place
October 1, 2016 immediately following the spinoffs.
Key financial highlights include:
Q2 2017 Q2 2016 %
Change Net sales $1.65 billion $1.63 billion
0.8% Income from operations $38.6 million $24.7
million 56.3% Net earnings (loss) attributable to common
stockholders - continuing operations $76.5 million $(23.2) million
nm Diluted earnings (loss) per share $1.09 $(0.33) nm Income from
operations - Non-GAAP(1) $43.6 million $54.7 million (20.3%) Net
earnings (loss) attributable to common stockholders - continuing
operations - Non-GAAP(1) $(4.1) million $0.8 million nm Diluted
earnings (loss) per share - Non-GAAP(1) $(0.06) $0.01 nm (1)
Non-GAAP income from operations, net earnings (loss) attributable
to common stockholders - continuing operations and diluted earnings
(loss) per share exclude restructuring, impairment, spin-off
related expenses, acquisition related expenses, net gain on
investments, pension settlement charges, loss on debt
extinguishments and other charges, as applicable. See pages 9 and
10 for a complete listing of items excluded and a reconciliation of
GAAP income from operations, net earnings (loss) attributable to
common stockholders - continuing operations and diluted earnings
(loss) per share to non-GAAP income from operations, net earnings
(loss) attributable to common stockholders - continuing operations
and diluted earnings (loss) per share.
“Our overall second quarter performance was within the range of
our expectations. However, while net sales remained stable, income
from operations was negatively impacted by unfavorable mix in
several of our businesses and changes in foreign exchange rates,”
said Dan Knotts, RRD’s President and Chief Executive Officer. “In
addition, we incurred investments and start-up costs in Asia as we
quickly ramp up a new packaging production facility to support a
significant business opportunity that we expect will begin to
generate incremental sales volume later in the third quarter. We
continue to make good progress in advancing our long term strategic
priorities while aggressively managing our cost structure, and as
we look to the back half of the year, we remain confident in our
ability to deliver against our previous guidance for 2017.”
Second Quarter 2017 Highlights
Net sales in the quarter were $1.65 billion, up $13.4 million or
0.8% from the second quarter of 2016. On an organic basis,
consolidated net sales declined 0.8% driven by volume growth in the
International and Strategic Services segments and favorable changes
in fuel surcharges which were more than offset by lower postage
pass through sales in the Strategic Services segment, net volume
declines in the Variable Print segment and modest price erosion
across all segments.
Gross profit in the second quarter of 2017 was $303.1 million or
18.4% of net sales versus $316.4 million or 19.4% of net sales in
the prior year quarter. The decline was primarily due to
unfavorable mix in several businesses, modest price pressure in all
segments and unfavorable changes in foreign exchange rates.
Selling, general and administrative expenses (“SG&A”) of
$213.2 million, or 13.0% of net sales, in the second quarter of
2017 decreased from $233.6 million, or 14.3% of net sales, in the
prior year. This decline was primarily due to pension settlement
charges of $20.4 million in the second quarter of 2016 while higher
bad debt expense and allocated costs from the pre-spin operations
in the prior year period were offset by unfavorable changes in
foreign exchange rates and higher variable incentive compensation
expense in the current year period.
Income from operations of $38.6 million in the second quarter
increased $13.9 million from $24.7 million in the 2016 quarter. The
prior year period included the pension settlement charges and
higher restructuring and impairment charges. Non-GAAP income from
operations of $43.6 million, or 2.6% of net sales, decreased $11.1
million from $54.7 million, or 3.4% of net sales, reported in the
prior year period primarily due to lower gross profit partially
offset by lower depreciation and amortization expense.
Net earnings attributable to common stockholders from continuing
operations was $76.5 million in the second quarter compared to a
net loss of $23.2 million in the second quarter of 2016. During the
second quarter of 2017, the debt-for-equity exchange of most of the
Company’s retained shares of Donnelley Financial for certain
outstanding senior notes resulted in an after tax net realized gain
of $94.4 million. In addition, the Company tendered certain
outstanding debentures and senior notes. These transactions
resulted in a net after-tax loss on debt extinguishments of $8.5
million. The prior year period included the after tax impact of the
pension settlement charges and higher restructuring and impairment
charges. Non-GAAP net loss attributable to common stockholders from
continuing operations was $4.1 million, a decrease of $4.9 million
compared to net earnings of $0.8 million in the second quarter of
2016, primarily driven by lower income from operations partially
offset by lower interest expense.
Second quarter 2017 diluted earnings per share attributable to
common stockholders from continuing operations was $1.09 compared
to a diluted loss per share of $0.33 from the second quarter of
2016. Non-GAAP diluted loss per share attributable to common
stockholders from continuing operations was $0.06 in 2017 compared
to diluted earnings per share of $0.01 in 2016.
Key financial highlights by segment
include:
Three Months Ended June 30, Variable Print
Strategic Services International Corporate ($
in millions) 2017 2016 2017 2016 2017 2016 2017 2016
Net sales $ 735.0 741.4
406.0 400.1 505.0 491.1 — — Income (loss) from operations 31.1 40.1
4.0 8.9 16.3 28.8 (12.8 ) (53.1 ) Operating margin % 4.2 % 5.4 %
1.0 % 2.2 % 3.2 % 5.9 % Non-GAAP income (loss) from
operations (1) 32.1 41.6 4.1 9.2 18.2 32.0 (10.8 ) (28.1 ) Non-GAAP
operating margin % (1) 4.4 % 5.6 % 1.0 % 2.3 % 3.6 % 6.5 %
(1) Refer to page 12 for GAAP to Non-GAAP reconciliations by
segment
VARIABLE PRINT:
Net sales decreased 0.9% from the second quarter of 2016
primarily due to volume decreases in Direct Mail and Commercial and
Digital Print and modest price erosion throughout the segment,
partially offset by net sales from the digital print and inserting
operations of Precision Dialogue.
Income from operations was down $9.0 million versus the prior
year second quarter. Non-GAAP income from operations was down $9.5
million versus the second quarter of 2016 primarily due to
unfavorable mix in Commercial and Digital Print, higher actual
costs in the current period versus allocated costs from the
pre-spin operations in the prior year period, modest price declines
and lower net volume.
STRATEGIC SERVICES:
Net sales in the quarter increased 1.5% from the second quarter
of 2016. Net sales in 2017 included $23.2 million in net
spin-related sales increases, volume increases in Logistics and
Sourcing, net sales from Precision Dialogue’s data analytics
services offering and slightly higher fuel surcharges. Partially
offsetting these increases were lower postage pass through sales of
$32.2 million, volume declines within Digital and Creative
Solutions and modest price declines in Logistics.
Income from operations was down $4.9 million compared to the
prior year quarter. Non-GAAP income from operations was down $5.1
million versus the second quarter of 2016 due to unfavorable mix
and modest price declines.
INTERNATIONAL:
Net sales grew 2.8% from the second quarter of 2016 primarily
due to significant volume increases in Asia, partially offset by
volume declines in Global Turnkey Solutions and Business Process
Outsourcing, a $14.1 million unfavorable impact from changes in
foreign exchange rates and modest price erosion in Asia.
Income from operations declined $12.5 million compared to the
prior year quarter. Non-GAAP income from operations decreased $13.8
million as compared to the second quarter of 2016 primarily due to
unfavorable changes in foreign exchange rates and mix, cost
inflation, higher actual costs in the current period versus
allocated costs from the pre-spin operations in the prior year
period, modest price declines and start-up expenses associated with
the new packaging business in Asia which is expected to generate
sales beginning in the third quarter.
CORPORATE:
Unallocated corporate expenses were down $40.3 million versus
the prior year quarter. The prior year period included pension
settlement charges of $20.4 million and higher restructuring
charges. Non-GAAP unallocated corporate expenses were down $17.3
million from the second quarter of 2016 which included higher
allocated costs from the pre-spin operations. In addition, lower
bad debt expense and cost reduction initiatives were partially
offset by lower pension and other postretirement benefits
income.
Other Highlights
Cash used in operations in the first half of 2017 was $51.8
million compared to $100.3 million in the prior year first half.
The 2017 amount includes $9 million of spinoff-related cash
payments. Capital expenditures in the first half of 2017 were $54.2
million versus $101.4 million in the prior year first half which
included $31.2 million related to discontinued operations. Prior
year cash flow amounts include the activities of LSC and Donnelley
Financial and have not been restated.
As of June 30, 2017, cash on hand was $224.0 million and total
debt outstanding was $2.25 billion, including $350.0 million drawn
against the credit facility. Availability under the credit facility
was $329.0 million at June 30, 2017.
During the second quarter of 2017, the Company completed a
tax-free debt-for-equity exchange of most of the Company’s retained
shares of Donnelley Financial for certain outstanding senior notes
with a principal outstanding balance of $111.6 million. The Company
is in the process of disposing of the remaining 99,594 shares of
Donnelley Financial common stock in a tax-free transaction. In
addition, the Company repurchased $202.8 million of certain senior
notes and debentures using borrowings under its credit
agreement.
2017 Full Year Guidance
The Company reaffirmed its 2017 full year guidance previously
issued on May 2, 2017 with the following highlights.
Current Guidance August 1, 2017
Net sales $6.80 billion to $7.00 billion Non-GAAP adjusted
EBITDA(1) $475 million to $505 million Non-GAAP income from
operations(1) $275 million to $300 million Non-GAAP diluted EPS(1)
$1.00 to $1.30 Cash flow from operations $230 million to $280
million (1) Certain components of the guidance given in the
table above are provided on a non-GAAP basis only, without
providing a reconciliation to guidance provided on a GAAP basis.
Information is presented in this manner, consistent with SEC rules,
because the preparation of such a reconciliation could not be
accomplished without "unreasonable efforts." The Company does not
have access to certain information that would be necessary to
provide such a reconciliation, including non-recurring items and
other items that are not indicative of the Company's ongoing
operations. Such items include, but are not limited to,
restructuring charges, impairment charges, spinoff-related
transaction expenses, pension settlement charges,
acquisition-related expenses, gains or losses on investments and
business disposals, losses on debt extinguishment and other similar
gains or losses not reflective of the Company's ongoing operations.
The Company does not believe that excluding such items is likely to
be significant to an assessment of the Company's ongoing
operations, given that such excluded items are not believed to be
indicators of business performance.
Conference Call
RRD will host a conference call and simultaneous webcast to
discuss its second quarter results Wednesday, August 2, 2017 at
11:00 a.m. Eastern Time (10:00 a.m. Central Time). The live webcast
will be accessible on RRD's web site: www.rrdonnelley.com.
Individuals wishing to participate must register in advance at this
link. After registering, participants will receive dial-in numbers,
a passcode, and a personal identification number (PIN) that is used
to uniquely identify their presence and automatically join them
into the audio conference. A webcast replay will be archived on the
Company's web site until August 1, 2018. In addition, a telephonic
replay of the call will be available until September 1, 2017 at
630.652.3042, passcode 7891885#.
About RRD
RRD is a leading global provider of multichannel solutions for
marketing and business communications. With more than 50,000
customers and 43,000 employees across 34 countries, RRD offers a
comprehensive portfolio of capabilities, experience and scale that
enables organizations around the world to effectively create,
manage and execute their multichannel communications
strategies.
For more information, visit the Company's web site at
www.rrdonnelley.com.
Use of non-GAAP Information
This news release contains non-GAAP financial measures,
including non-GAAP SG&A, non-GAAP income from operations,
non-GAAP Adjusted EBITDA, non-GAAP effective tax rate, non-GAAP net
earnings, non-GAAP diluted EPS and non-GAAP organic net sales. The
Company believes that these non-GAAP measures, when presented in
conjunction with comparable GAAP measures, provide useful
information about its operating results and enhance the overall
ability to assess the Company’s financial performance. These
measures should be considered in addition to, and not as a
substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. RR Donnelley uses these non-GAAP
measures, together with other measures of performance under GAAP,
to compare the relative performance of operations in planning,
budgeting and reviewing the performance of its business. Additional
information relating to the adjustments for the non-GAAP SG&A,
non-GAAP income from operations, non-GAAP Adjusted EBITDA, non-GAAP
effective tax rate, non-GAAP net earnings, non-GAAP diluted EPS and
non-GAAP organic net sales for RR Donnelley is set forth in the
attached schedules.
Use of Forward-Looking Statements
This news release includes certain “forward-looking statements”
within the meaning of, and subject to the safe harbor created by,
Section 21E of the Securities Exchange Act of 1934, as amended,
with respect to the business, strategy and plans of the Company and
its expectations relating to future financial condition and
performance. These statements include all those under the column
labeled “2017 Full Year Guidance” in the table included under the
“Current Guidance” section. Statements that are not historical
facts, including statements about RR Donnelley management’s beliefs
and expectations, are forward-looking statements. Words such as
“believes,” “anticipates,” “estimates,” “expects,” “intends,”
“aims,” “potential,” “will,” “would,” “could,” “considered,”
“likely,” “estimate” and variations of these words and similar
future or conditional expressions are intended to identify
forward-looking statements but are not the exclusive means of
identifying such statements. While RR Donnelley believes these
expectations, assumptions, estimates and projections are
reasonable, such forward-looking statements are only predictions
and involve known and unknown risks and uncertainties, many of
which are beyond RR Donnelley’s control. By their nature,
forward-looking statements involve risk and uncertainty because
they relate to events and depend upon future circumstances that may
or may not occur. Actual results may differ materially from RR
Donnelley’s current expectations depending upon a number of factors
affecting the business and risks associated with the performance of
the business. These factors include such risks and uncertainties
detailed in RR Donnelley’s periodic public filings with the SEC,
including but not limited to those discussed under the “Risk
Factors” section in RR Donnelley’s Form 10-K for the fiscal year
ended December 31, 2016, and other filings with the SEC and in
other investor communications of RR Donnelley from time to time. RR
Donnelley 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.
R. R. Donnelley & Sons Company Condensed
Consolidated Statements of Operations (UNAUDITED) (in millions,
except per share data)
For the Three Months Ended June 30, For the Six
Months Ended June 30, 2017 2016
2017 2016 Total net sales $
1,646.0 $ 1,632.6 $ 3,322.3
$ 3,278.2 Total cost of sales
(1) 1,342.9 1,316.2
2,691.4 2,629.3 Total gross
profit (1) 303.1 316.4 630.9
648.9 Selling, general and administrative expenses
(SG&A) (1) 213.2 233.6 435.9 462.9 Restructuring, impairment
and other charges - net 3.8 8.2 12.9 13.5 Depreciation and
amortization 47.5 49.9 96.1 102.5 Other operating income —
— — (12.3 )
Income from operations
38.6 24.7 86.0
82.3 Interest expense - net 45.5 51.4 93.8 101.8 Investment
and other (income) expense - net (93.1 ) 0.7 (44.4 ) 0.6 Loss on
debt extinguishments 13.6 — 13.6 —
Net earnings (loss) before income taxes 72.6
(27.4 ) 23.0 (20.1 ) Income tax
benefit (4.1 ) (4.4 ) (3.9 ) (1.0 )
Net earnings (loss) from continuing operations
76.7 (23.0 ) 26.9
(19.1 ) Net earnings from discontinued operations,
net of income taxes (2) — 8.7 — 44.9
Net earnings (loss) 76.7 (14.3 )
26.9 25.8 Less: Income attributable to noncontrolling
interests 0.2 0.2 0.5 0.5
Net
earnings (loss) attributable to RRD common stockholders
$ 76.5 $ (14.5 ) $
26.4 $ 25.3 Basic net earnings
(loss) per share attributable to RRD common stockholders:
Continuing operations $ 1.09 $ (0.33 ) $ 0.38 $ (0.28 )
Discontinued operations — 0.12 — 0.64 Net earnings (loss)
attributable to RRD stockholders 1.09 (0.21 ) 0.38 0.36
Diluted net earnings (loss) per share attributable to RRD common
stockholders: Continuing operations $ 1.09 $ (0.33 ) $ 0.38 $
(0.28 ) Discontinued operations — 0.12 — 0.64 Net earnings (loss)
attributable to RRD common stockholders 1.09 (0.21 ) 0.38 0.36
Weighted average common shares outstanding: Basic
70.1 70.0 70.1 69.9 Diluted 70.2 70.0 70.3 69.9
Additional
information:
Gross margin (1) 18.4 % 19.4 % 19.0 % 19.8 % SG&A as a % of
total net sales (1) 13.0 % 14.3 % 13.1 % 14.1 % Operating margin
2.3 % 1.5 % 2.6 % 2.5 % Effective tax rate (5.6 %) 16.1 % (17.0 %)
5.0 % (1) Exclusive of depreciation and amortization (2)
Operating results from Donnelley Financial and LSC are classified
as discontinued operations for all periods presented.
R.
R. Donnelley & Sons Company Condensed Consolidated Balance
Sheets As of June 30, 2017 and December 31, 2016 (UNAUDITED) (in
millions, except per share data)
6/30/2017 12/31/2016
Assets
Cash and cash equivalents $ 224.0 $ 317.5 Receivables, less
allowances for doubtful accounts 1,301.5 1,354.4 Inventories 392.4
379.6 Prepaid expenses and other current assets 142.3 136.7
Investments in LSC & Donnelley Financial 2.3
328.7
Total Current Assets 2,062.5
2,516.9 Property, plant and equipment - net 633.2 650.3
Goodwill 607.1 602.0 Other intangible assets - net 157.5 171.9
Deferred income taxes 119.7 108.9 Other noncurrent assets
251.8 234.7
Total Assets $ 3,831.8
$ 4,284.7
Liabilities
Accounts payable 911.6 1,001.2 Accrued liabilities 409.7
541.7 Short-term and current portion of long-term debt 19.1
8.2
Total Current Liabilities 1,340.4
1,551.1 Long-term debt 2,233.4 2,379.2 Pension
liabilities 105.9 119.4 Other postretirement benefits plan
liabilities 130.3 134.1 Other noncurrent liabilities 183.3
193.1
Total Liabilities $ 3,993.3
$ 4,376.9
Equity
Common stock, $0.01 par value 0.9 0.9 Authorized: 165.0
shares; Issued: 89.0 shares in 2017 and 2016 Additional
paid-in capital 3,449.0 3,468.5 Accumulated deficit (2,140.1 )
(2,155.4 ) Accumulated other comprehensive loss (143.0 ) (55.7 )
Treasury stock, at cost, 19.0 shares in 2017 (2016 - 19.1 shares)
(1,341.9 ) (1,364.0 ) Total RRD stockholders' equity (175.1 )
(105.7 ) Noncontrolling interests 13.6 13.5
Total
Equity $ (161.5 ) $ (92.2
) Total Liabilities and Equity $
3,831.8 $ 4,284.7 R. R. Donnelley
& Sons Company Condensed Consolidated Statements of Cash
Flows For the Six Months Ended June 30, 2017 and 2016 (UNAUDITED)
(in millions)
2017 2016 Net earnings $ 26.9 $
25.8
Adjustment to reconcile net earnings to net cash used in operating
activities 69.6 261.6 Changes in operating assets and liabilities
(139.3 ) (374.5 ) Pension and other postretirement benefits plan
contributions (9.0 ) (13.2 )
Net
cash used in operating activities $
(51.8 ) $ (100.3 )
Capital expenditures (54.2 ) (101.4 ) All other cash provided by
investing activities 127.4 29.3
Net
cash provided by (used in) investing activities
$ 73.2 $ (72.1 )
Net cash (used in) provided
by financing activities $ (122.3
) $ 76.2 Effect of exchange rate on
cash and cash equivalents 7.4 (2.8 )
Net decrease in cash and cash
equivalents $ (93.5 )
$ (99.0 ) Cash and cash equivalents at
beginning of period 317.5 389.6
Cash and cash equivalents at end of period
$ 224.0 $ 290.6
R.R. Donnelley & Sons Company Reconciliation of GAAP to
Non-GAAP Measures For the Three Months Ended June 30, 2017 and 2016
(UNAUDITED) (in millions, except per share data)
For the Three Months Ended June 30, 2017 For
the Three Months Ended June 30, 2016 SG&A Income from
operations Investment and other expense (income) - net Income tax
(benefit) expense Continuing Operations - Net (loss) earnings
attributable to common stockholders Net (loss) earnings
attributable to common stockholders per diluted share SG&A
Income from operations Investment and other expense (income) - net
Income tax (benefit) expense Continuing Operations - Net (loss)
earnings attributable to common stockholders Net (loss) earnings
attributable to common stockholders per diluted share GAAP basis
measures $ 213.2 $ 38.6 $ (93.1 ) $ (4.1 ) $ 76.5 $ 1.09 $ 233.6 $
24.7 $ 0.7 $ (4.4 ) $ (23.2 ) $ (0.33 ) Non-GAAP
adjustments: Restructuring charges - net (2) — 3.5 — (0.9 ) 4.4
0.06 — 6.9 — (2.6 ) 9.5 0.14 Impairment charges - net (2) — (0.3 )
— (0.1 ) (0.2 ) — — 0.7 — (0.3 ) 1.0 0.01 Other charges (2) — 0.6 —
(0.1 ) 0.7 0.01 — 0.6 — — 0.6 0.01 Spinoff-related transaction
expenses (3) (1.2 ) 1.2 — 0.4 0.8 0.01 — — — — — —
Acquisition-related expenses (4) — — — — — — (1.4 ) 1.4 — 0.4 1.0
0.01 Net gain on investments (5) — — 92.4 2.4 (94.8 ) (1.35
)
— — 0.1 — (0.1 ) — Pension settlement charges (6) — — — — — — (20.4
) 20.4 — 8.4 12.0 0.17 Loss on debt extinguishments (7) —
— — 5.1 8.5 0.12 —
— — — — — Total Non-GAAP adjustments
(1.2 ) 5.0 92.4 6.8 (80.6 )
(1.15 ) (21.8 ) 30.0 0.1 5.9
24.0 0.34 Non-GAAP measures $ 212.0 $ 43.6 $ (0.7 ) $
2.7 $ (4.1 ) $ (0.06 ) $ 211.8 $ 54.7 $ 0.8 $ 1.5 $ 0.8 $ 0.01
2017 2016 GAAP diluted weighted average common shares
outstanding 70.2 70.0 Dilutive impact of change in earnings (8)
(0.1 ) 0.4 Non-GAAP diluted weighted average common
shares outstanding 70.1 70.4
Additional
non-GAAP information:
2017 2016 SG&A as a % of total net sales (1) 12.9 % 13.0 %
Operating margin 2.6 % 3.4 % Effective tax rate (225.0 %) 60.0 % 1)
Exclusive of depreciation and amortization. 2)
Restructuring, impairment and other
charges - net: charges incurred in the second quarter of 2017
included pre-tax charges of $2.4 million for employee termination
costs; $1.1 million of lease termination and other restructuring
costs; $0.6 million for multi-employer pension plan withdrawal
obligations unrelated to facility closures; and $0.3 million net
gain related to the sale of previously impaired equipment. See Note
7, Restructuring, Impairment and Other Charges, to the Condensed
Consolidated Financial Statements for additional details. Charges
incurred in the second quarter of 2016 included pre-tax charges of
$6.1 million for employee termination costs; $0.7 million of
impairment charges related to buildings and machinery and equipment
associated with facility closures; $0.8 million of lease
termination and other restructuring costs; and $0.6 million of
other charges for multi-employer pension plan withdrawal
obligations unrelated to facility closures.
3)
Spinoff-related transaction expenses:
included charges related to consulting and other expenses for the
three months ended June 30, 2017 associated with the 2016 spinoff
transactions.
4)
Acquisition-related expenses: included
charges related to legal, accounting and other expenses for the
three months ended June 30, 2016 associated with contemplated or
completed acquisitions.
5)
Net gain on investments: included pre-tax
non-cash net realized gain of $92.4 million ($94.4 million
after-tax) for the three months ended June 30, 2017, resulting from
the debt-for-equity exchange of a portion of the Company’s retained
shares of Donnelley Financial for certain outstanding senior notes
and an after-tax gain of $0.4 million related to the Company’s
affordable housing investments. The three months ended June 30,
2016 included a pre-tax gain of $0.1 million ($0.1 million
after-tax) resulting from the sale of certain of the Company’s
affordable housing investments.
6)
Pension settlement charges: included
non-cash pension settlement charges during the three months ended
June 30, 2016.
7)
Loss on debt extinguishments: related to
the premiums paid in connection with the tenders, unamortized debt
issuance costs and other expenses due to the repurchase of
debentures and senior notes and the debt-for-equity exchange of
senior notes during the three months ended June 30, 2017.
8)
Dilutive impact of change in earnings: in
periods when the Company is in a net loss from continuing
operations, share-based awards are excluded from the calculation of
earnings per share as their inclusion would have an anti-dilutive
effect. In the second quarter of 2017, the Company had net earnings
from continuing operations on a GAAP basis and thus included the
impact of the dilutive share-based awards in the calculation of
earnings per share but had a net loss from continuing operations on
a Non-GAAP basis and therefore did not include the dilutive impact
of share-based awards in the calculation of earnings per share. In
the second quarter of 2016, the Company had a net loss on a GAAP
basis and thus did not include the dilutive impact of share-based
awards in the calculation of earnings per share but had net
earnings on a Non-GAAP basis and therefore included the impact of
the dilutive share-based awards in the calculation of earnings per
share.
R.R. Donnelley & Sons Company Reconciliation of
GAAP to Non-GAAP Measures For the Six Months Ended June 30, 2017
and 2016 (UNAUDITED) (in millions, except per share data)
For the Six Months Ended June
30, 2017 For the Six Months Ended June 30, 2016 SG&A (Loss)
income from operations Investment and other expense (income) - net
Income tax (benefit) expense Continuing Operations - Net (loss)
earnings attributable to common stockholders Net (loss) earnings
attributable to common stockholders per diluted share SG&A
Income from operations Investment and other expense (income) - net
Income tax (benefit) expense Continuing Operations - Net (loss)
earnings attributable to common stockholders Net (loss) earnings
attributable to common stockholders per diluted share GAAP basis
measures $ 435.9 $ 86.0 $ (44.4 ) $ (3.9 ) $ 26.4 $ 0.38 $ 462.9 $
82.3 $ 0.6 $ (1.0 ) $ (19.6 ) $ (0.28 ) Non-GAAP
adjustments: Restructuring charges - net (2) — 11.5 — 0.5 11.0 0.15
— 13.3 — (3.3 ) 16.6 0.24 Impairment charges - net (2) — 0.2 — —
0.2 — — (0.9 ) — (1.4 ) 0.5 0.01 Other charges (2) — 1.2 — — 1.2
0.02 — 1.1 — (0.1 ) 1.2 0.02 Spinoff-related transaction expenses
(3) (3.3 ) 3.3 — 1.2 2.1 0.03 — — — — — — Acquisition-related
expenses (4) — — — — — — (2.0 ) 2.0 — 0.6 1.4 0.02 Pension
settlement charges (5) — — — — — — (20.4 ) 20.4 — 8.4 12.0 0.17
Loss on debt extinguishments (6) — — — 5.1 8.5 0.12 — — — — — — Net
gain on investments (7) — — 42.1 1.4 (43.5 ) (0.62 ) — — 0.1 — (0.1
) — Gain on disposal of businesses (8) — — —
— — — — (12.3 ) —
— (12.3 ) (0.18 ) Total Non-GAAP adjustments
(3.3 ) 16.2 42.1 8.2 (20.5 )
(0.30 ) (22.4 ) 23.6 0.1 4.2
19.3 0.28 Non-GAAP measures $ 432.6 $ 102.2 $ (2.3 ) $ 4.3 $
5.9 $ 0.08 $ 440.5 $ 105.9 $ 0.7 $ 3.2 $ (0.3 ) $ —
Additional non-GAAP information: 2017 2016 SG&A as a % of total
net sales (1) 13.0 % 13.4 % Operating margin 3.1 % 3.2 % Effective
tax rate 40.2 % 94.1 % 1) Exclusive of depreciation and
amortization. 2)
Restructuring, impairment and other
charges - net: charges incurred in the second quarter of 2017
included pre-tax charges of $8.8 million for employee termination
costs; $2.7 million of lease termination and other restructuring
costs; $1.2 million for multi-employer pension plan withdrawal
obligations unrelated to facility closures; and $0.2 million of net
impairment charges of long-lived assets. Charges incurred in the
second quarter of 2016 included pre-tax charges of $11.0 million
for employee termination costs; $0.9 for a net gain on the sale of
previously impaired other long-lived assets, partially offset by
impairment charges related to buildings and machinery and equipment
associated with facility closures; $2.3 million of lease
termination and other restructuring costs; and $1.1 million of
other charges for multi-employer pension plan withdrawal
obligations unrelated to facility closures.
3)
Spinoff-related transaction expenses:
included charges related to consulting and other expenses for the
six months ended June 30, 2017 associated with the 2016 spinoff
transactions.
4)
Acquisition-related expenses: included
charges related to legal, accounting and other expenses for the six
months ended June 30, 2016 associated with contemplated or
completed acquisitions.
5)
Pension settlement charges: included
non-cash pension settlement charges during the six months ended
June 30, 2016.
6)
Loss on debt extinguishments: related to
the premiums paid in connection with the tenders, unamortized debt
issuance costs and other expenses due to the repurchase of
debentures and senior notes and the debt-for-equity exchange of
senior notes during the six months ended June 30, 2017.
7)
Net gain on investments: pre-tax non-cash
net realized gain of $92.4 million ($94.4 million after-tax)
resulting from the debt-for-equity exchange of a portion of the
Company’s retained shares of Donnelley Financial for certain
outstanding senior notes and a pre-tax gain of $1.3 million ($0.7
million after-tax) resulting from the sale of certain of the
Company’s affordable housing investments, partially offset by a
pre-tax loss of $51.6 million ($51.6 million after-tax) resulting
from the sale of the Company’s retained interest in LSC during the
six months ended June 30, 2017. The six months ended June 30, 2016
included pre-tax gain of $0.1 million ($0.1 million after-tax)
resulting from the sale of certain of the Company’s affordable
housing investments.
8)
Gain on disposal of businesses: included a
pre-tax gain on the sales of two entities in the International
segment six months ended June 30, 2016.
R. R. Donnelley & Sons Company Segment GAAP to
Non-GAAP Operating Income and Non-GAAP Adjusted EBITDA and Margin
Reconciliation For the Three Months Ended June 30, 2017 and 2016
(UNAUDITED) (in millions)
Variable Print Strategic Services International Corporate
Consolidated
For the Three
Months Ended June 30, 2017
Net sales $ 735.0 $ 406.0 $ 505.0 $ — $ 1,646.0 Income (loss) from
operations 31.1 4.0 16.3 (12.8 ) 38.6 Operating margin % 4.2 % 1.0
% 3.2 % nm 2.3 %
Non-GAAP
Adjustments
Restructuring charges - net 0.8 — 1.9 0.8 3.5 Impairment charges -
net (0.3 ) — — — (0.3 ) Other charges 0.5 0.1 — — 0.6
Spinoff-related transaction expenses — — —
1.2 1.2 Total Non-GAAP adjustments 1.0 0.1 1.9 2.0
5.0 Non-GAAP income (loss) from operations $ 32.1 $ 4.1 $
18.2 $ (10.8 ) $ 43.6 Non-GAAP operating margin % 4.4 % 1.0 % 3.6 %
nm 2.6 % Depreciation and amortization 28.5
4.6 13.5 0.9 47.5 Non-GAAP Adjusted EBITDA $
60.6 $ 8.7 $ 31.7 $ (9.9 ) $ 91.1 Non-GAAP Adjusted EBITDA margin %
8.2 % 2.1 % 6.3 % nm 5.5 %
For the Three
Months Ended June 30, 2016
Net sales $ 741.4 $ 400.1 $ 491.1 $ — $ 1,632.6 Income (loss) from
operations 40.1 8.9 28.8 (53.1 ) 24.7 Operating margin % 5.4 % 2.2
% 5.9 % nm 1.5 %
Non-GAAP
Adjustments
Restructuring charges - net 0.6 0.2 2.9 3.2 6.9 Impairment charges
- net 0.4 — 0.3 — 0.7 Other charges 0.5 0.1 — — 0.6
Acquisition-related expenses — — — 1.4 1.4 Pension settlement
— — — 20.4 20.4 Total Non-GAAP
adjustments 1.5 0.3 3.2 25.0 30.0 Non-GAAP income (loss)
from operations $ 41.6 $ 9.2 $ 32.0 $ (28.1 ) $ 54.7 Non-GAAP
operating margin % 5.6 % 2.3 % 6.5 % nm 3.4 % Depreciation
and amortization 30.1 5.1 14.9 (0.2 )
49.9 Non-GAAP Adjusted EBITDA $ 71.7 $ 14.3 $ 46.9 $ (28.3 )
$ 104.6 Non-GAAP Adjusted EBITDA margin % 9.7 % 3.6 % 9.5 % nm 6.4
%
R. R. Donnelley & Sons Company Segment GAAP to
Non-GAAP Operating Income and Non-GAAP Adjusted EBITDA and Margin
Reconciliation For the Six Months Ended June 30, 2017 and 2016
(UNAUDITED) (in millions)
Variable Print Strategic Services International Corporate
Consolidated
For the Six
Months Ended June 30, 2017
Net sales $ 1,512.1 $ 830.6 $ 979.6 $ — $ 3,322.3 Income (loss)
from operations 74.9 7.8 33.2 (29.9 ) 86.0 Operating margin % 5.0 %
0.9 % 3.4 % nm 2.6 %
Non-GAAP
Adjustments
Restructuring charges - net 1.3 1.4 6.4 2.4 11.5 Impairment charges
- net (0.3 ) 0.5 — — 0.2 Other charges 1.0 0.2 — — 1.2
Spinoff-related transaction expenses — — —
3.3 3.3 Total Non-GAAP adjustments 2.0 2.1 6.4 5.7
16.2 Non-GAAP income (loss) from operations $ 76.9 $ 9.9 $
39.6 $ (24.2 ) $ 102.2 Non-GAAP operating margin % 5.1 % 1.2 % 4.0
% nm 3.1 % Depreciation and amortization 57.7
8.8 27.4 2.2 96.1 Non-GAAP Adjusted EBITDA $
134.6 $ 18.7 $ 67.0 $ (22.0 ) $ 198.3 Non-GAAP Adjusted EBITDA
margin % 8.9 % 2.3 % 6.8 % nm 6.0 %
For the Six
Months Ended June 30, 2016
Net sales $ 1,521.5 $ 784.6 $ 972.1 $ — $ 3,278.2 Income (loss)
from operations 93.9 12.0 65.8 (89.4 ) 82.3 Operating margin % 6.2
% 1.5 % 6.8 % nm 2.5 %
Non-GAAP
Adjustments
Restructuring charges - net 1.6 0.5 7.6 3.6 13.3 Impairment charges
- net 0.3 — (2.5 ) 1.3 (0.9 ) Other charges 0.9 0.2 — — 1.1
Acquisition related expenses — — — 2.0 2.0 Pension settlement
charges — — — 20.4 20.4 Gain on disposal of businesses —
— (12.3 ) — (12.3 ) Total Non-GAAP
adjustments 2.8 0.7 (7.2 ) 27.3 23.6 Non-GAAP income (loss)
from operations $ 96.7 $ 12.7 $ 58.6 $ (62.1 ) $ 105.9 Non-GAAP
operating margin % 6.4 % 1.6 % 6.0 % nm 3.2 % Depreciation
and amortization 60.0 9.7 31.9 0.9
102.5 Non-GAAP Adjusted EBITDA $ 156.7 $ 22.4 $ 90.5 $ (61.2
) $ 208.4 Non-GAAP Adjusted EBITDA margin % 10.3 % 2.9 % 9.3 % nm
6.4 %
R.R. Donnelley & Sons Company
Reconciliation of Reported to Organic Net Sales For the Three
Months Ended June 30, 2017 (UNAUDITED) (in millions)
International Variable Print Strategic Services
Consolidated Reported net sales change 2.8 % (0.9 %)
1.5 % 0.8 % Less: Impact of acquisitions(1) --- % 1.0
% 1.9 % 1.0 % Year-over-year impact of changes in foreign currency
(FX) rates (2.9 %) --- % --- % (0.9 %) Year-over-year impact of
dispositions(2) (0.3 %) --- % --- % (0.1 %) Year-over-year impact
of new sales under the Commercial Agreements(3) 0.6 %
--- % 5.7 % 1.6 % Net organic sales change(4)
5.4 % (1.9 %) (6.1 %) (0.8 %) (1) The
reported results of the Company include the results of acquired
businesses from the acquisition date forward. To calculate the
impact of the acquisition of Precision Dialogue in August of 2016,
the Company has calculated pro forma net sales as if the
acquisition took place on January 1, 2016 for the purposes of this
schedule. This resulted in the addition of $15.7 million of pro
forma net sales in 2016. (2) Adjusted for net sales of disposed
businesses: entities within the International segment in the first
and third quarters of 2016. (3) Adjusted for new sales as a result
of the Commercial Agreements entered into in conjunction with the
spinoff transactions. (4) Adjusted for net sales of acquired and
disposed businesses, new sales under the Commercial agreements and
the impact of changes in FX rates.
R.R. Donnelley &
Sons Company Reconciliation of Reported to Organic Net Sales
For the Six Months Ended June 30, 2017 (UNAUDITED) (in millions)
International Variable Print Strategic
Services Consolidated Reported net sales change 0.8 %
(0.6 %) 5.9 % 1.3 % Less: Impact of acquisitions(1)
--- % 1.1 % 1.9 % 0.9 % Year-over-year impact of changes in foreign
currency (FX) rates (2.4 %) --- % --- % (0.7 %) Year-over-year
impact of dispositions(2) (0.4 %) --- % --- % (0.1 %)
Year-over-year impact of new sales under the Commercial
Agreements(3) 0.6 % --- % 7.4 % 2.0 %
Net organic sales change(4) 3.0 % (1.7 %) (3.4
%) (0.8 %) (1) The reported results of the Company
include the results of acquired businesses from the acquisition
date forward. To calculate the impact of the acquisition of
Precision Dialogue in August of 2016, the Company has calculated
pro forma net sales as if the acquisition took place on January 1,
2016 for the purposes of this schedule. This resulted in the
addition of $30.5 million of pro forma net sales in 2016. (2)
Adjusted for net sales of disposed businesses: entities within the
International segment in the first and third quarters of 2016. (3)
Adjusted for new sales as a result of the Commercial Agreements
entered into in conjunction with the spinoff transactions. (4)
Adjusted for net sales of acquired and disposed businesses, new
sales under the Commercial agreements and the impact of changes in
FX rates.
R.R. Donnelley & Sons Company
Reconciliation of GAAP Net Earnings (Loss) to Non-GAAP Adjusted
EBITDA For the Three Ended June 30, 2017 and 2016 (UNAUDITED) (in
millions)
For the Three Months Ended June 30,
2017 2016 GAAP net earnings (loss)
attributable to RRD common stockholders $ 76.5
$ (14.5 )
Adjustments
Less: earnings from discontinued operations, net of tax — (8.7 )
Income attributable to noncontrolling interests 0.2 0.2 Income tax
expense (4.1 ) (4.4 ) Interest expense - net 45.5 51.4 Investment
and other (income) expense- net (93.1 ) 0.7 Depreciation and
amortization 47.5 49.9 Restructuring, impairment and other charges
- net 3.8 8.2 Net loss on debt extinguishments 13.6 —
Spinoff-related transaction costs 1.2 — Acquisition-related
expenses — 1.4 Pension settlement charges — 20.4
Total Non-GAAP adjustments 14.6 119.1
Non-GAAP adjusted
EBITDA from continuing operations $ 91.1 $
104.6 Net sales $ 1,646.0 $ 1,632.6 Non-GAAP adjusted
EBITDA margin % 5.5 % 6.4 %
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170801006566/en/
RR DonnelleyInvestor Contact:Brian Feeney, Senior Vice
President, Investor RelationsTelephone: 630-322-6908E-mail:
brian.feeney@rrd.com
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