RR DONNELLEY
Document and Entity Information
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Oct. 31, 2016
Document And Entity Information [Abstract]
 
 
Document Type
10-Q 
 
Amendment Flag
false 
 
Document Period End Date
Sep. 30, 2016 
 
Document Fiscal Year Focus
2016 
 
Document Fiscal Period Focus
Q3 
 
Trading Symbol
RRD 
 
Entity Registrant Name
RR Donnelley & Sons Co 
 
Entity Central Index Key
0000029669 
 
Current Fiscal Year End Date
--12-31 
 
Entity Filer Category
Large Accelerated Filer 
 
Entity Common Stock, Shares Outstanding
 
69.8 
CONDENSED CONSOLIDATED BALANCE SHEETS (USD $)
In Millions, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
ASSETS
 
 
Cash and cash equivalents
$ 411.8 
$ 389.6 
Receivables, less allowances for doubtful accounts of $53.6 in 2016 (2015 - $41.5)
2,109.3 
2,000.4 
Inventories (Note 3)
651.1 
592.0 
Prepaid expenses and other current assets
140.3 
119.7 
Total current assets
3,312.5 
3,101.7 
Property, plant and equipment-net (Note 4)
1,342.3 
1,448.1 
Goodwill (Note 5)
1,787.3 
1,743.6 
Other intangible assets-net (Note 5)
403.3 
438.0 
Deferred income taxes
211.1 
178.2 
Other noncurrent assets
416.0 
369.7 
Total assets
7,472.5 
7,279.3 
LIABILITIES
 
 
Accounts payable
1,172.7 
1,322.3 
Accrued liabilities
793.3 
780.4 
Short-term and current portion of long-term debt (Note 13)
255.6 
234.6 
Total current liabilities
2,221.6 
2,337.3 
Long-term debt (Note 13)
3,635.3 
3,188.3 
Pension liabilities
554.7 
514.4 
Other postretirement benefits plan liabilities
163.3 
168.8 
Other noncurrent liabilities
359.2 
373.9 
Total liabilities
6,934.1 
6,582.7 
Commitments and Contingencies (Note 12)
   
   
RR Donnelley stockholders' equity
 
 
Preferred stock, $1.00 par value Authorized: 2.0 shares; Issued: None
   
   
Common stock, $0.01 par value in 2016 (2015 - $1.25) Authorized: 165.0 shares; Issued: 89.0 shares in 2016 and 2015
0.9 
111.2 
Additional paid-in-capital
3,473.8 
3,386.8 
Accumulated deficit
(765.6)
(620.6)
Accumulated other comprehensive loss
(815.7)
(793.2)
Treasury stock, at cost, 19.2 shares in 2016 (2015 - 19.4 shares)
(1,369.0)
(1,401.5)
Total RR Donnelley stockholders' equity
524.4 
682.7 
Noncontrolling interests
14.0 
13.9 
Total equity
538.4 
696.6 
Total liabilities and equity
$ 7,472.5 
$ 7,279.3 
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)
In Millions, except Share data, unless otherwise specified
Sep. 30, 2016
Dec. 31, 2015
Statement Of Financial Position [Abstract]
 
 
Receivables, allowance for doubtful accounts
$ 53.6 
$ 41.5 
Preferred stock, par value
$ 1.00 
$ 1.00 
Preferred stock, authorized
2,000,000 
2,000,000 
Preferred stock, Issued
Common stock, par value
$ 0.01 
$ 1.25 
Common stock, Authorized
165,000,000 
165,000,000 
Common stock, Issued
89,000,000 
89,000,000 
Treasury stock, shares
19,200,000 
19,400,000 
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)
In Millions, except Per Share data, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Income Statement [Abstract]
 
 
 
 
Products net sales
$ 2,281.6 
$ 2,359.0 
$ 6,706.3 
$ 6,883.8 
Services net sales
490.8 
469.0 
1,447.2 
1,438.4 
Total net sales
2,772.4 
2,828.0 
8,153.5 
8,322.2 
Products cost of sales (exclusive of depreciation and amortization)
1,780.5 
1,844.8 
5,237.2 
5,386.5 
Services cost of sales (exclusive of depreciation and amortization)
384.2 
363.3 
1,134.4 
1,120.3 
Total cost of sales
2,164.7 
2,208.1 
6,371.6 
6,506.8 
Products gross profit
501.1 
514.2 
1,469.1 
1,497.3 
Services gross profit
106.6 
105.7 
312.8 
318.1 
Total gross profit
607.7 
619.9 
1,781.9 
1,815.4 
Selling, general and administrative expenses (exclusive of depreciation and amortization)
333.4 
328.4 
1,099.9 
972.4 
Restructuring, impairment and other charges-net (Note 6)
15.0 
52.9 
38.4 
104.9 
Depreciation and amortization
101.5 
115.3 
312.5 
341.5 
Other operating expense (income)
0.3 
 
(12.0)
 
Income from operations
157.5 
123.3 
343.1 
396.6 
Interest expense-net
67.1 
69.0 
204.1 
207.2 
Investment and other (income) expense-net
(0.6)
3.0 
0.4 
43.2 
Loss on debt extinguishments
85.3 
 
85.3 
 
Earnings before income taxes
5.7 
51.3 
53.3 
146.2 
Income tax expense
12.5 
39.7 
34.3 
79.1 
Net (loss) earnings
(6.8)
11.6 
19.0 
67.1 
Less: Income (loss) attributable to noncontrolling interests
0.3 
(2.7)
0.8 
(13.0)
Net (loss) earnings attributable to RR Donnelley common stockholders
$ (7.1)
$ 14.3 
$ 18.2 
$ 80.1 
Net (loss) earnings per share attributable to RR Donnelley common stockholders (Note 9):
 
 
 
 
Basic net (loss) earnings per share
$ (0.10)1
$ 0.21 1
$ 0.26 1
$ 1.18 1
Diluted net (loss) earnings per share
$ (0.10)1
$ 0.20 1
$ 0.26 1
$ 1.17 1
Dividends declared per common share
$ 0.78 1
$ 0.78 1
$ 2.34 1
$ 2.34 1
Weighted average number of common shares outstanding:
 
 
 
 
Basic
70.0 1
69.7 1
70.0 1
68.1 1
Diluted
70.0 1
70.1 1
70.5 1
68.5 1
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Parenthetical)
9 Months Ended 0 Months Ended
Sep. 30, 2016
Oct. 2, 2016
Subsequent Event
Reverse stock split
1-for-3 reverse stock split 
 
Reverse stock split, conversion ratio
 
0.3333 
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (USD $)
In Millions, unless otherwise specified
3 Months Ended 9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
Sep. 30, 2016
Sep. 30, 2015
Statement Of Income And Comprehensive Income [Abstract]
 
 
 
 
Net (loss) earnings
$ (6.8)
$ 11.6 
$ 19.0 
$ 67.1 
Other comprehensive (loss) income, net of tax (Note 10):
 
 
 
 
Translation adjustments
(4.4)
(37.5)
(9.0)
(42.5)
Adjustment for net periodic pension and postretirement benefits plan cost
(19.4)
2.2 
(13.3)
10.4 
Change in fair value of derivatives
 
0.1 
 
0.1 
Other comprehensive loss
(23.8)
(35.2)
(22.3)
(32.0)
Comprehensive (loss) income
(30.6)
(23.6)
(3.3)
35.1 
Less: comprehensive income (loss) attributable to noncontrolling interests
0.3 
(3.7)
1.0 
(14.0)
Comprehensive (loss) income attributable to RR Donnelley common stockholders
$ (30.9)
$ (19.9)
$ (4.3)
$ 49.1 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Sep. 30, 2015
OPERATING ACTIVITIES
 
 
Net earnings
$ 19.0 
$ 67.1 
Adjustments to reconcile net earnings to net cash provided by operating activities:
 
 
Impairment charges
0.8 
29.4 
Depreciation and amortization
312.5 
341.5 
Provision for doubtful accounts receivable
20.4 
12.5 
Share-based compensation
13.4 
13.6 
Deferred income taxes
(33.5)
(43.0)
Changes in uncertain tax positions
(0.4)
9.4 
(Gain) loss on investments and other assets - net
(13.0)
13.1 
Loss related to Venezuela currency remeasurement-net
 
30.3 
Net pension and other postretirement benefits plan income
(55.1)
(33.2)
Net loss on pension and other postretirement benefits plan settlements and curtailments (Note 7)
78.8 
 
Loss on debt extinguishments
85.3 
 
Other
9.6 
20.8 
Changes in operating assets and liabilities - net of acquisitions:
 
 
Accounts receivable - net
(126.0)
(54.9)
Inventories
(57.6)
(29.1)
Prepaid expenses and other current assets
(9.2)
5.5 
Accounts payable
(159.6)
(72.3)
Income taxes payable and receivable
(35.6)
18.8 
Accrued liabilities and other
(23.4)
(105.5)
Pension and other postretirement benefits plan contributions
(18.6)
(19.8)
Net cash provided by operating activities
7.8 
204.2 
INVESTING ACTIVITIES
 
 
Capital expenditures
(147.9)
(152.8)
Acquisitions of businesses, net of cash acquired
(47.5)
(118.3)
Dispositions of businesses
13.7 
0.6 
Proceeds from sales of investments and other assets
3.7 
17.4 
Transfers from restricted cash
13.7 
 
Other investing activities
(3.6)
(7.9)
Net cash used in investing activities
(167.9)
(261.0)
FINANCING ACTIVITIES
 
 
Net change in short-term debt
5.7 
12.9 
Payments of current maturities and long-term debt
(786.6)
(271.8)
Proceeds from issuance of long-term debt
1,164.0 
 
Net proceeds from credit facility borrowings
 
225.0 
Proceeds from termination of interest rate swaps
2.5 
 
Debt issuance costs
(37.5)
 
Dividends paid
(163.2)
(158.4)
Other financing activities
2.5 
3.5 
Net cash provided by (used in) financing activities
187.4 
(188.8)
Effect of exchange rate on cash and cash equivalents
(5.1)
(25.0)
Net decrease in cash and cash equivalents
22.2 
(270.6)
Cash and cash equivalents at beginning of year
389.6 
527.9 
Cash and cash equivalents at end of period
411.8 
257.3 
Supplemental non-cash disclosure:
 
 
Assumption of warehousing equipment related to customer contract
8.8 
 
Debt-for-debt exchange, including debt issuance costs of $5.5 million
300.0 
 
Courier Corporation
 
 
Supplemental non-cash disclosure:
 
 
Issuances of shares of RR Donnelley stock for acquisitions of businesses
 
$ 154.2 
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Parenthetical) (USD $)
In Millions, unless otherwise specified
9 Months Ended
Sep. 30, 2016
Debt-for-debt exchange, debt issuance costs
$ 5.5 
Courier Corporation
 
Issuance of stock for acquisitions of businesses
2.7 
Basis of Presentation
Basis of Presentation

1. Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (the “Company” or “RR Donnelley”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and the related notes thereto included in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016. Operating results for the nine months ended September 30, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.

Spinoff Transactions

On October 1, 2016, the Company completed the previously announced separation of its financial communications and data services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and the publishing and retail-centric print services and office products business (“LSC Communications, Inc.” or “LSC”) into two separate publicly-traded companies (the "Separation"). The Company completed the tax free distribution of approximately 26.2 million shares, or 80.75%, of the outstanding common stock of Donnelley Financial and 26.2 million shares, or 80.75%, of the outstanding common stock of LSC, to the Company’s stockholders (the “Distribution”). The Distribution was made to the Company’s stockholders of record as of the close of business on September 23, 2016, who received one share of Donnelley Financial common stock and one share of LSC common stock for every eight shares of RR Donnelley common stock held as of the record date. As a result of the Distribution, Donnelley Financial and LSC are now independent public companies trading under the symbols “DFIN” and “LKSD”, respectively, on the New York Stock Exchange. Immediately following the Distribution, the Company held 6.2 million shares of Donnelley Financial Solutions common stock and 6.2 million shares of LSC common stock. The Company will account for these investments as available-for-sale equity securities. The value of the Company’s investment in Donnelley Financial and LSC was approximately $350.1 million, calculated using the mid-point stock price for each company’s common stock on October 3, 2016.

The accompanying unaudited condensed consolidated interim financial statements include the historical results of Donnelley Financial and LSC, as the Separation did not take place until October 1, 2016. In future filings, the historical results of Donnelley Financial and LSC will be presented as discontinued operations. As a result of the Separation, the accompanying unaudited interim condensed consolidated interim financial statements are not indicative of the Company's future financial position, results of operations or cash flows.

In conjunction with the Separation, the Company entered into certain agreements with Donnelley Financial and LSC, to implement the legal and structural separation from Donnelley Financial and LSC, govern the relationship between the Company, Donnelley Financial and LSC up to and after the completion of the Separation, and allocate between the Company, Donnelley Financial and LSC various assets, liabilities and obligations, including, among other things, employee benefits, intellectual property and tax-related assets and liabilities. These agreements included the Separation and Distribution Agreement, Transition Services Agreement, Tax Disaffiliation Agreement, Patent Assignment and License Agreement, Trademark Assignment and License Agreement, Data Assignment and License Agreement, Software, Copyright and Trade Secret Assignment and License Agreement, Stockholder and Registration Rights Agreement and commercial and other arrangements and agreements.

Reverse Stock Split

Immediately following the Distribution on October 1, 2016, the Company effected a one for three reverse stock split for RR Donnelley common stock (the “Reverse Stock Split”). The Reverse Stock Split was approved by the Company’s Board of Directors on September 14, 2016 and previously approved by the Company’s stockholders at the annual meeting on May 19, 2016.

As a result of the Reverse Stock Split, the number of issued and outstanding and treasury shares of the Company’s common stock will be reduced proportionally based on the Reverse Stock Split ratio of one share for every three shares of common stock held before the Reverse Stock Split. No fractional shares of RR Donnelley common stock were distributed to stockholders in connection with the Reverse Stock Split, but instead, all fractional shares were aggregated by the Company’s transfer agent and sold at the prevailing price in the open-market on October 6, 2016. The total number of aggregated shares of the Company’s common stock of 3,088 shares was sold for total net cash proceeds of less than $0.1 million which was then paid to stockholders in an amount equal to their respective pro rata share of the total net cash proceeds. All references in these unaudited condensed consolidated interim financial statements to the number of shares of common stock and per share amounts have been retroactively adjusted to give effect to the Reverse Stock Split.  

Acquisitions and Dispositions
Acquisitions and Dispositions

2. Acquisitions and Dispositions

2016 Acquisitions

On August 4, 2016, the Company acquired Precision Dialogue Holdings, LLC (“Precision Dialogue”), a provider of email marketing, direct mail marketing and other services with operations in the United States for a purchase price, net of cash acquired, of approximately $58.6 million. The acquisition expanded the Company’s ability to help its customers measure communications effectiveness and audience engagement. Precision Dialogue contributed $8.2 million in sales and a loss before income taxes of $1.1 million during the three and nine months ended September 30, 2016 and is included within the operating results of the Variable Print segment.

The Precision Dialogue acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date.  The excess of the cost over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill associated with this acquisition is primarily attributable to the synergies expected to arise as a result of the acquisition. The total tax deductible goodwill related to the Precision Dialogue acquisition was $8.8 million.

Based on the valuation, the preliminary purchase price allocation for the Precision Dialogue acquisition was as follows:

 

 

 

 

 

Accounts receivable

 

$

11.8

 

Inventories

 

 

0.4

 

Prepaid expenses and other current assets

 

 

1.0

 

Property, plant and equipment

 

 

6.9

 

Other intangible assets

 

 

14.7

 

Other noncurrent assets

 

 

1.2

 

Goodwill

 

 

41.0

 

Accounts payable and accrued liabilities

 

 

(11.1

)

Deferred taxes--net

 

 

(7.3

)

Total purchase price-net of cash acquired

 

 

58.6

 

Less: debt assumed

 

 

11.1

 

Net cash paid

 

$

47.5

 

The purchase price allocation is preliminary as the Company is still in the process of obtaining data to finalize the estimated fair values of certain intangible assets.

The fair values of other intangible assets, technology and goodwill associated with the Precision Dialogue acquisition were determined to be Level 3 under the fair value hierarchy.  The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value

 

 

Valuation Technique

 

Unobservable Input

 

Range

 

Customer relationships

$

11.6

 

 

Excess earnings

 

Discount rate

Attrition rate

 

16.0%

7.0% - 8.0%

 

Trade names

 

1.4

 

 

Relief-from-royalty method

 

Discount rate

Royalty rate (pre-tax)

 

16.0%

0.75% - 1.25%

 

Technology

 

0.6

 

 

Relief-from-royalty method

 

Discount rate

Royalty rate (pre-tax)

Obsolescence factor

 

16.0%

15.0%

0.0% - 40.0%

 

Non-compete agreements

 

1.7

 

 

With and without method

 

Discount rate

 

 

16.0%

 

The fair values of property, plant and equipment associated with the 2016 acquisitions were determined to be Level 3 under the fair value hierarchy and were estimated using either the market approach, if a secondhand market existed, or the cost approach.

For the three and nine months ended September 30, 2016, the Company recorded $0.7 million and $2.7 million of acquisition-related expenses, respectively, associated with completed or contemplated acquisitions within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

2016 Dispositions

On January 11, 2016, the Company sold two entities within the business process outsourcing reporting unit for net proceeds of $13.4 million, all of which was received as of September 30, 2016. Additionally, during the three months ended September 30, 2016 the Company sold three immaterial entities for proceeds of $0.3 million. The dispositions of these entities resulted in a loss of $0.3 million and a net gain of $12.0 million during the three and nine month periods ended September 30, 2016, respectively, which were recorded in other operating income in the Condensed Consolidated Statements of Operations. The operations of these entities were included in the International segment.

 

2015 Acquisitions

On June 8, 2015, the Company acquired Courier Corporation (“Courier”), a leader in digital printing and publishing primarily in the United States, specializing in educational, religious and trade books. The acquisition expanded the Company’s digital printing and content management capabilities. The purchase price for Courier was $137.3 million in cash and 2.7 million shares of RR Donnelley common stock, or a total transaction value of $291.5 million based on the Company’s closing share price on June 5, 2015, plus the assumption of Courier’s debt of $78.2 million. Courier had $20.9 million of cash as of the date of acquisition. Immediately following the acquisition, the Company repaid substantially all of the debt assumed. Courier’s book manufacturing operations are included in the Publishing and Retail Services segment, publishing operations are included in the Strategic Services segment and Brazilian operations are included in the International segment.

 

For the three and nine months ended September 30, 2015, the Company recorded $0.3 million and $14.1 million of acquisition-related expenses, respectively, associated with acquisitions completed or contemplated, within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The Courier acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date.  The excess of the cost over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill associated with this acquisition is primarily attributable to the synergies expected to arise as a result of the acquisition.    

In addition to the acquisition of Courier, the Company completed three insignificant acquisitions in 2015, one of which included the settlement of accounts receivable in exchange for the acquisition of the business.

The tax deductible goodwill related to 2015 acquisitions was $15.0 million.

Based on the valuations, the final purchase price allocation for the 2015 acquisitions was as follows:

 

Accounts receivable

 

$

36.2

 

Inventories

 

 

59.0

 

Prepaid expenses and other current assets

 

 

38.8

 

Property, plant and equipment

 

 

163.8

 

Other intangible assets

 

 

108.8

 

Other noncurrent assets

 

 

7.9

 

Goodwill

 

 

66.3

 

Accounts payable and accrued liabilities

 

 

(24.6

)

Other noncurrent liabilities

 

 

(10.5

)

Deferred taxes--net

 

 

(83.7

)

Total purchase price-net of cash acquired

 

 

362.0

 

Less: debt assumed

 

 

80.2

 

Less: settlement of accounts receivable for acquisition of a

   business

 

 

8.6

 

Less: value of common stock issued

 

 

155.2

 

Net cash paid

 

$

118.0

 

 

The fair values of other intangible assets, technology and goodwill associated with the acquisition of Courier were determined to be Level 3 under the fair value hierarchy.  The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

 

 

Fair Value

 

 

Valuation Technique

 

Unobservable Input

 

Range

 

Customer relationships

$

98.4

 

 

Excess earnings

 

Discount rate

Attrition rate

 

14.0% - 17.0%

0.0% - 7.5%

 

Trade names

 

10.1

 

 

Relief-from-royalty method

 

Discount rate

Royalty rate (pre-tax)

 

12.0%

0.3% - 1.0%

 

Technology

 

1.6

 

 

Relief-from-royalty method

 

Discount rate

Royalty rate (pre-tax)

 

11.0%

15.0%

 

Non-compete agreement

0.3

 

 

Excess earnings

 

Discount rate

 

 

17.0%

 

 

The fair values of property, plant and equipment associated with the Courier acquisition were determined to be Level 3 under the fair value hierarchy and were estimated using either the market approach, if a secondhand market existed, or the cost approach.

2015 Disposition

On April 29, 2015, the Company sold its 50.1% interest in its Venezuelan operating entity. The proceeds were de minimis, and the sale resulted in a net loss of $14.7 million, which was recognized in net investment and other expense in the Consolidated Statement of Operations for the year ended December 31, 2015. The Company’s Venezuelan operations had net sales of $16.3 million and a loss before income taxes of $38.4 million, including the net loss as a result of the sale, for the nine months ended September 30, 2015.

Pro forma results

The following unaudited pro forma financial information for the three and nine months ended September 30, 2015 presents the combined results of operations of the Company and the 2015 acquisitions described above, as if the acquisitions had occurred as of January 1 of the year prior to acquisition.

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.  Pro forma adjustments are tax-effected at the applicable statutory tax rates.

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2015

 

Net sales

 

$

2,828.0

 

 

$

8,445.5

 

Net earnings attributable to RR Donnelley

   common stockholders

 

 

22.5

 

 

 

118.0

 

Net earnings per share attributable to RR Donnelley

   common stockholders:

 

 

 

 

 

 

 

 

Basic

 

$

0.32

 

 

$

1.69

 

Diluted

 

$

0.32

 

 

$

1.68

 

 

The following table outlines unaudited pro forma financial information for the three and nine months ended September 30, 2015:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2015

 

Amortization of purchased intangibles

 

$

20.4

 

 

$

63.0

 

Restructuring, impairment and other charges

 

 

48.4

 

 

 

76.7

 

 

Additionally, the pro forma adjustments affecting net earnings attributable to RR Donnelley common stockholders for the three and nine months ended September 30, 2015 were as follows:

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2015

 

 

2015

 

Depreciation and amortization of purchased assets, pre-tax

 

$

2.0

 

 

$

2.4

 

Acquisition-related expenses, pre-tax

 

 

0.2

 

 

 

18.8

 

Restructuring, impairment  and other charges, pre-tax

 

 

4.5

 

 

 

28.6

 

Inventory fair value adjustment, pre-tax

 

 

6.7

 

 

 

9.9

 

Other pro forma adjustments, pre-tax

 

 

 

 

 

1.2

 

Income taxes

 

 

(4.8

)

 

 

(15.0

)

 

Inventories
Inventories

3. Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at September 30, 2016 and December 31, 2015 were as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Raw materials and manufacturing supplies

 

$

250.4

 

 

$

247.2

 

Work in process

 

 

202.6

 

 

 

156.1

 

Finished goods

 

 

281.1

 

 

 

275.2

 

LIFO reserve

 

 

(83.0

)

 

 

(86.5

)

Total

 

$

651.1

 

 

$

592.0

 

 

  

Property, Plant and Equipment
Property, Plant and Equipment

4. Property, Plant and Equipment

The components of the Company’s property, plant and equipment at September 30, 2016 and December 31, 2015 were as follows:

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

Land

 

$

111.4

 

 

$

113.6

 

Buildings

 

 

1,215.2

 

 

 

1,224.7

 

Machinery and equipment

 

 

6,148.1

 

 

 

6,160.3

 

 

 

 

7,474.7

 

 

 

7,498.6

 

Less: Accumulated depreciation

 

 

(6,132.4

)

 

 

(6,050.5

)

Total

 

$

1,342.3

 

 

$

1,448.1

 

 

  

During the three and nine months ended September 30, 2016, depreciation expense was $74.9 million and $230.6 million, respectively. During the three and nine months ended September 30, 2015, depreciation expense was $84.3 million and $249.7 million, respectively.

 

Goodwill and Other Intangible Assets
Goodwill and Other Intangible Assets

5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment for the nine months ended September 30, 2016 were as follows:  

 

 

 

Publishing and Retail

 

 

Variable

 

 

Strategic

 

 

 

 

 

 

 

 

 

 

 

Services

 

 

Print

 

 

Services

 

 

International

 

 

Total

 

Net book value as of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

$

739.2

 

 

$

1,914.0

 

 

$

991.5

 

 

$

1,123.6

 

 

$

4,768.3

 

Accumulated impairment losses

 

 

(688.0

)

 

 

(1,105.2

)

 

 

(219.7

)

 

 

(1,011.8

)

 

 

(3,024.7

)

Total

 

 

51.2

 

 

 

808.8

 

 

 

771.8

 

 

 

111.8

 

 

 

1,743.6

 

Acquisitions

 

 

 

 

 

41.0

 

 

 

 

 

 

 

 

 

41.0

 

Foreign exchange and other adjustments

 

 

 

 

 

0.6

 

 

 

0.3

 

 

 

1.8

 

 

 

2.7

 

Net book value as of September 30, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

739.2

 

 

 

1,955.6

 

 

 

990.8

 

 

 

1,083.9

 

 

 

4,769.5

 

Accumulated impairment losses

 

 

(688.0

)

 

 

(1,105.2

)

 

 

(218.7

)

 

 

(970.3

)

 

 

(2,982.2

)

Total

 

$

51.2

 

 

$

850.4

 

 

$

772.1

 

 

$

113.6

 

 

$

1,787.3

 

 

The components of other intangible assets at September 30, 2016 and December 31, 2015 were as follows:

 

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net Book

 

 

Carrying

 

 

Accumulated

 

 

Net Book

 

 

 

Amount

 

 

Amortization

 

 

Value

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

 

$

935.2

 

 

$

(593.0

)

 

$

342.2

 

 

$

932.1

 

 

$

(555.3

)

 

$

376.8

 

Patents

 

 

2.0

 

 

 

(2.0

)

 

 

 

 

 

98.3

 

 

 

(98.3

)

 

 

 

Trademarks, licenses and agreements

 

 

29.4

 

 

 

(27.3

)

 

 

2.1

 

 

 

30.6

 

 

 

(29.9

)

 

 

0.7

 

Trade names

 

 

47.8

 

 

 

(20.9

)

 

 

26.9

 

 

 

47.5

 

 

 

(19.1

)

 

 

28.4

 

Total amortizable other intangible assets

 

 

1,014.4

 

 

 

(643.2

)

 

 

371.2

 

 

 

1,108.5

 

 

 

(702.6

)

 

 

405.9

 

Indefinite-lived trade names

 

 

32.1

 

 

 

 

 

 

32.1

 

 

 

32.1

 

 

 

 

 

 

32.1

 

Total other intangible assets

 

$

1,046.5

 

 

$

(643.2

)

 

$

403.3

 

 

$

1,140.6

 

 

$

(702.6

)

 

$

438.0

 

 

 

During the nine months ended September 30, 2016 the Company recorded additions to other intangible assets of which the components and the related weighted average amortization periods are as follows:

 

 

September 30, 2016

 

 

 

Amount

 

 

Weighted Average Amortization Period

 

Customer relationships

 

$

11.6

 

 

 

10.5

 

Trade names

 

 

1.4

 

 

   4.7

 

Non-compete agreements

 

 

1.7

 

 

 

3.3

 

Total additions

 

$

14.7

 

 

 

 

 

 

Amortization expense for other intangible assets was $15.6 million and $20.4 million for the three months ended September 30, 2016 and 2015, respectively, and $49.6 million and $58.6 million for the nine months ended September 30, 2016 and 2015, respectively.

The following table outlines the estimated annual amortization expense related to other intangible assets as of September 30, 2016: 

For the year ending December 31,

 

Amount

 

2016

 

$

65.4

 

2017

 

 

60.7

 

2018

 

 

54.7

 

2019

 

 

50.4

 

2020

 

 

46.5

 

2021 and thereafter

 

 

143.1

 

Total

 

$

420.8

 

 

Restructuring, Impairment and Other Charges
Restructuring, Impairment and Other Charges

6. Restructuring, Impairment and Other Charges

Restructuring, Impairment and Other Charges Recognized in Results of Operations

For the three months ended September 30, 2016 and 2015, the Company recorded the following net restructuring, impairment and other charges:

 

Three Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2016

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Publishing and Retail Services

 

$

 

 

$

1.2

 

 

$

1.2

 

 

$

 

 

$

0.8

 

 

$

2.0

 

Variable Print

 

 

1.2

 

 

 

0.3

 

 

 

1.5

 

 

 

 

 

 

0.6

 

 

 

2.1

 

Strategic Services

 

 

2.6

 

 

 

0.4

 

 

 

3.0

 

 

 

 

 

 

0.1

 

 

 

3.1

 

International

 

 

0.9

 

 

 

0.3

 

 

 

1.2

 

 

 

 

 

 

 

 

 

1.2

 

Corporate

 

 

6.5

 

 

 

0.1

 

 

 

6.6

 

 

 

 

 

 

 

 

 

6.6

 

Total

 

$

11.2

 

 

$

2.3

 

 

$

13.5

 

 

$

 

 

$

1.5

 

 

$

15.0

 

 

Three Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2015

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Publishing and Retail Services

 

$

2.1

 

 

$

1.0

 

 

$

3.1

 

 

$

2.0

 

 

$

0.7

 

 

$

5.8

 

Variable Print

 

 

0.5

 

 

 

2.1

 

 

 

2.6

 

 

 

(0.1

)

 

 

0.4

 

 

 

2.9

 

Strategic Services

 

 

1.9

 

 

 

0.5

 

 

 

2.4

 

 

 

0.9

 

 

 

0.2

 

 

 

3.5

 

International

 

 

13.1

 

 

 

0.8

 

 

 

13.9

 

 

 

25.4

 

 

 

 

 

 

39.3

 

Corporate

 

 

1.2

 

 

 

0.2

 

 

 

1.4

 

 

 

 

 

 

 

 

 

1.4

 

Total

 

$

18.8

 

 

$

4.6

 

 

$

23.4

 

 

$

28.2

 

 

$

1.3

 

 

$

52.9

 

 

For the nine months ended September 30, 2016 and 2015, the Company recorded the following net restructuring, impairment and other charges:

 

Nine Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2016

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Publishing and Retail Services

 

$

2.1

 

 

$

2.8

 

 

$

4.9

 

 

$

1.1

 

 

$

2.4

 

 

$

8.4

 

Variable Print

 

 

1.5

 

 

 

1.8

 

 

 

3.3

 

 

 

0.1

 

 

 

1.5

 

 

 

4.9

 

Strategic Services

 

 

4.1

 

 

 

1.1

 

 

 

5.2

 

 

 

0.6

 

 

 

0.4

 

 

 

6.2

 

International

 

 

7.0

 

 

 

2.9

 

 

 

9.9

 

 

 

(2.5

)

 

 

 

 

 

7.4

 

Corporate

 

 

10.2

 

 

 

0.1

 

 

 

10.3

 

 

 

1.2

 

 

 

 

 

 

11.5

 

Total

 

$

24.9

 

 

$

8.7

 

 

$

33.6

 

 

$

0.5

 

 

$

4.3

 

 

$

38.4

 

 

Nine Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

September 30, 2015

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Publishing and Retail Services

 

$

5.3

 

 

$

2.5

 

 

$

7.8

 

 

$

1.5

 

 

$

18.5

 

 

$

27.8

 

Variable Print

 

 

3.6

 

 

 

5.4

 

 

 

9.0

 

 

 

1.6

 

 

 

1.3

 

 

 

11.9

 

Strategic Services

 

 

5.7

 

 

 

1.6

 

 

 

7.3

 

 

 

0.9

 

 

 

3.3

 

 

 

11.5

 

International

 

 

22.3

 

 

 

2.5

 

 

 

24.8

 

 

 

25.0

 

 

 

 

 

 

49.8

 

Corporate

 

 

2.9

 

 

 

1.0

 

 

 

3.9

 

 

 

 

 

 

 

 

 

3.9

 

Total

 

$

39.8

 

 

$

13.0

 

 

$

52.8

 

 

$

29.0

 

 

$

23.1

 

 

$

104.9

 

 

Restructuring and Impairment Charges

For the three and nine months ended September 30, 2016, the Company recorded net restructuring charges of $11.2 million and $24.9 million, respectively, for employee termination costs for an aggregate of 870 employees, of whom 843 were terminated as of September 30, 2016. These charges primarily related to the reorganization of certain administrative functions and operations, two facility closures in the International segment and one facility closure in the Publishing and Retail Services segment. Additionally, the Company incurred lease termination and other restructuring charges of $2.3 million and $8.7 million, respectively, for the three and nine months ended September 30, 2016. For the nine months ended September 30, 2016 the Company also recorded $0.5 million of net impairment charges primarily related to buildings and machinery and equipment associated with facility closures, as well as gains on the sale of previously impaired assets.

For the three and nine months ended September 30, 2015, the Company recorded net restructuring charges of $18.8 million and $39.8 million, respectively, for employee termination costs for 1,829 employees, all of whom were terminated as of September 30, 2016. These charges primarily related to two facility closures, both in the International segment, one facility closure in the Variable Print segment and the reorganization of certain operations. Additionally, the Company incurred lease termination and other restructuring charges of $4.6 million and $13.0 million, respectively, for the three and nine months ended September 30, 2015. For the three and nine months ended September 30, 2015, the Company also recorded $7.9 million and $8.7 million, respectively, of net impairment charges primarily related to buildings and machinery and equipment associated with facility closures. The fair values of the buildings and machinery and equipment were determined to be Level 3 under the fair value hierarchy and were estimated based on discussions with real estate brokers, review of comparable properties, if available, discussions with machinery and equipment brokers, dealer quotes and internal expertise related to the current marketplace conditions.  

 

As the result of the Company’s interim goodwill impairment review, the Company recorded non-cash charges of $13.7 million and $4.3 million for the three and nine months ended September 30, 2015 to recognize the impairment of goodwill in the Europe and Latin America reporting units, respectively, both of which are within the International segment. The goodwill impairment charge in the Europe reporting unit was due to the announced reorganization of certain operations which resulted in a reduction in the estimated fair value of the reporting unit based on lower expectations of future revenue, profitability and cash flows as compared to the expectations as of the October 31, 2014 annual goodwill impairment test. As of September 30, 2015, the Europe and Latin America reporting units had no remaining goodwill. The goodwill impairment charges were determined using Level 3 inputs, including discounted cash flow analyses, comparable marketplace fair value data and management’s assumptions in valuing the significant tangible and intangible assets. Additionally, for the three and nine months ended September 30, 2015, the Company recorded $2.3 million for the impairment of intangible assets, substantially all of which related to the impairment of acquired customer relationship intangible assets and trade names in the Latin America reporting unit within the International segment.

Other Charges

 

For the three and nine months ended September 30, 2016, the Company recorded other charges of $1.5 million and $4.3 million, respectively, for multi-employer withdrawal pension plan obligations unrelated to facility closures. The total liabilities for the withdrawal obligations associated with the Company’s decision to withdraw from multi-employer pension plans included in accrued liabilities and other noncurrent liabilities are $11.0 million and $78.4 million, respectively, as of September 30, 2016

 

For the three and nine months ended September 30, 2015, the Company recorded other charges of $1.3 million and $23.1 million, respectively, including integration charges of $19.1 million for payments made to certain Courier employees upon the termination of Courier’s executive severance plan, immediately prior to the acquisition.

The Company’s multi-employer pension plan withdrawal liabilities could be affected by the financial stability of other employers participating in the plans and any decisions by those employers to withdraw from the plans in the future. While it is not possible to quantify the potential impact of future events or circumstances, reductions in other employers’ participation in multi-employer pension plans, including certain plans from which the Company has previously withdrawn, could have a material impact on the Company’s previously estimated withdrawal liabilities, consolidated results of operations, financial position or cash flows.

As a result of the acquisition of Courier, the Company participates in two multi-employer pension plans, in one of which the Company's contributions account for approximately 85% of the total plan contributions.  Both plans are estimated to be underfunded and have a Pension Protection Act zone status of critical (“red”). Red status identifies plans that are less than 65% funded. 

Restructuring Reserve

The restructuring reserve as of December 31, 2015 and September 30, 2016, and changes during the nine months ended September 30, 2016, were as follows:

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

Restructuring

 

 

Exchange and

 

 

Cash

 

 

September 30,

 

 

 

2015

 

 

Charges

 

 

Other

 

 

Paid

 

 

2016

 

Employee terminations

 

$

20.2

 

 

$

24.9

 

 

$

0.3

 

 

$

(27.6

)

 

$

17.8

 

Multi-employer pension withdrawal obligations

 

 

32.9

 

 

 

1.6

 

 

 

 

 

 

(3.6

)

 

 

30.9

 

Lease terminations and other

 

 

10.6

 

 

 

7.1

 

 

 

(0.1

)

 

 

(9.9

)

 

 

7.7

 

Total

 

$

63.7

 

 

$