UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K10-K/A
(Amendment No. 1)
☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, |
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Commission file number 1-4694
R. R. DONNELLEY & SONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware |
| 36-1004130 |
(State or other jurisdiction of |
| (I.R.S. Employer |
35 West Wacker Drive, Chicago, Illinois |
| 60601 |
(Address of principal executive offices) |
| (ZIP Code) |
(312) 326-8000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
Common Stock, par value $0.01 per share |
| RRD |
| New York Stock Exchange |
Preferred Stock Purchase Rights |
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| New York Stock Exchange |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ |
| Accelerated filer ☑ |
| Non-accelerated filer ☐ |
| Smaller reporting company ☐ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the shares of registrant’s common stock held by non-affiliates based on the sale price of the common stock on June 30, 20192021 was $137,855,455.$440,834,717.
As of February 21, 2020, 70,911,5522022, 75,212,238 shares of common stock were outstanding.
Documents Incorporated By Reference
PortionsItem 10 of the registrant’s proxy statement related to its annual meeting of stockholders scheduled to be held on May 14, 2020 are incorporated by reference into Part III of this Form 10-K.10-K/A incorporates by reference to the registrant’s Form 10-K for the fiscal year ended December 31, 2021, filed on February 24, 2022. Item 12 of Part III of this Form 10-K/A incorporates by reference to the registrant’s Form 8-K filed on December 17, 2021.
Auditor Firm Id: | PCAOB ID No. 34 | Auditor Name: | DELOITTE & TOUCHE LLP | Auditor Location: | Chicago, IL |
EXPLANATORY NOTE
RR Donnelley & Sons Company (the “Company,” “RRD,” “our,” “us” or “we”) is filing this Amendment No. 1 on Form 10-K/A (this “Amendment No. 1”) to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “Form 10-K”), which was filed with the U.S. Securities and Exchange Commission (the “SEC”) on February 24, 2022, to provide the information required by Part III of Form 10-K. This information was previously omitted from the Form 10-K in reliance on General Instruction G(3) to Form 10-K, which permits the information in Part III to be incorporated in the Form 10-K by reference from our definitive proxy statement if such statement is filed no later than 120 days after end of our fiscal year. We are filing this Amendment No. 1 to include Part III information in our Form 10-K because we will not file a definitive proxy statement containing this information within 120 days after the end of the fiscal year covered by the Form 10-K. This Amendment No. 1 amends and restates in their entirety Items 10, 11, 12, 13 and 14 of Part III of the Form 10-K.
In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and Rule 12b-15 of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended, updated certifications of the Company’s principal executive officer and principal financial officer are included as Exhibits 31.3 and 31.4 hereto. Because no financial statements have been included in this Amendment No. 1 and this Amendment No. 1 does not contain or amend any disclosure with respect to Items 307 and 308 of Regulation S-K, paragraphs 3, 4, and 5 of the certifications have been omitted. We are not including the certifications under Section 906 of the Sarbanes-Oxley Act of 2002 as no financial statements are being filed with this Amendment No. 1.
No other changes have been made to the Form 10-K other than those described above. This Amendment No. 1 does not reflect subsequent events occurring after the original filing date of the Form 10-K or modify or update in any way the financial statements, consents or any other items disclosures made in the Form 10-K in any way other than as required to reflect the amendments discussed above. Accordingly, this Amendment No. 1 should be read in conjunction with the Form 10-K and the Company’s other filings with the SEC subsequent to the filing of the Form 10-K.
TABLE OF CONTENTS
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| Page |
PART III | ||
Item 10. | Directors, Executive Officers and Corporate Governance | 1 |
Item 11. | Executive Compensation | 9 |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 37 |
Item 13. | Certain Relationships and Related Transactions, and Director Independence | 40 |
Item 14. | Principal Accountant Fees and Services | 41 |
PART IV | ||
Item 15. | Exhibits and Financial Statement Schedules | 42 |
Item 16. | Form 10-K | 42 |
Exhibit Index |
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Set forth below is certain information regarding each of the Company’s current directors as of December 31, 2021, including the qualifications, experience and selected other biographical information for each director. Directors are elected annually to serve until their successors are duly elected and qualified or until their earlier death, disqualification, resignation or removal from office. There are no arrangements or understandings between a director and any other person pursuant to which such director was or is to be selected as a director or nominee.
Daniel L. Knotts
AGE: 57 DIRECTOR SINCE: 2016 CURRENT DIRECTORSHIPS: None FORMER DIRECTORSHIPS: None |
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Daniel L. Knotts has been the Chief Executive Officer of RRD since October 2016. Prior to that, Mr. Knotts was the Company’s Chief Operating Officer since 2013. He served as Group President from 2008 until 2012 and, from 2007 until 2008, he served as Chief Operating Officer of the Global Print Solutions business. From 1986 until 2007, Mr. Knotts held positions of increasing responsibility at RRD within finance, operations, sales management and business unit leadership at various locations in the United States including serving as Senior Vice President of Operations for the Magazine business, President of the Specialized Publishing Services business and President of the Magazine, Catalog and Retail businesses. QUALIFICATIONS: Mr. Knotts brings over 30 years of experience in the printing industry. He has served in various operational and leadership capacities throughout the Company and his deep knowledge of the industry and RRD give him unique strategic insights. |
John C. Pope
AGE: 72 DIRECTOR SINCE: 2004 CURRENT DIRECTORSHIPS: The Kraft Heinz Company, Talgo SA, WasteManagement, Inc. FORMER DIRECTORSHIPS: Con-way, Inc., DollarThrifty Automotive Group,Inc., Navistar International Corporation, MotivePowerIndustries | John C. Pope has served as the Chairman of PFI Group, LLC, a private investment company, since 1994. From 1988 until 1994, Mr. Pope served in various capacities at United Airlines and its parent company UAL Corporation, including serving as President, Chief Operating Officer and a director. Mr. Pope is the Chair of our Board and serves as a member of our Audit Committee and Corporate Responsibility & Governance Committee. QUALIFICATIONS: Mr. Pope’s experience as chairman and senior executive of various public companies provides financial, strategic and operational leadership experience. He is an audit committee financial expert based on his experience as chief financial officer of a public company as well as his experience as a member and chairman of other public company audit committees. He has considerable corporate governance experience through years of service on other public company boards in a variety of industries. |
Irene M. Esteves
AGE: 63 DIRECTOR SINCE: 2017 CURRENT DIRECTORSHIPS: KKR Real Estate FinanceTrust Inc., Roper Technologies Inc., FORMER DIRECTORSHIPS: Aramark Level 3 Communications, TW Telecom Inc. | Irene M. Esteves most recently served as Chief Financial Officer of Time Warner Cable Inc. from July 2011 to May 2013. She previously served as Executive Vice President and Chief Financial Officer of XL Group plc, an insurance and reinsurance company, and prior to that position, Ms. Esteves was Senior Vice President and Chief Financial Officer of Regions Financial Corporation. Ms. Esteves serves as a Chair of our Human Resources Committee and as a member of our Audit Committee. QUALIFICATIONS: Ms. Esteves’ experience as chief financial officer of multiple companies brings deep financial expertise to the Board. She is an audit committee financial expert based on her experience as chief financial officer and brings deep knowledge of financial reporting, internal controls and procedures and risk management to our Board. Ms. Esteves also has considerable corporate governance experience gained through her years of experience on other public company boards. |
Susan M. Gianinno
AGE: 73 DIRECTOR SINCE: 2013 CURRENT DIRECTORSHIPS: None FORMER DIRECTORSHIPS: A.T. Cross, Inc. | Ms. Gianinno is Senior Advisor to Publicis Groupe, a position she has held since 2018 after serving as Chairman of Publicis Worldwide in North America from 2014 to 2017. Prior to this, Ms. Gianinno was Chairman and Chief Executive Officer of Publicis USA from 2002-2014. Susan served as a member of the Global Executive Committee and the Strategic Leadership Group at Publicis Groupe from 2001-2014. Ms. Gianinno was also Chairman of Publicis Academy from 2017 to 2018. During her career in the advertising and marketing industry she also served as Chairman and President of Darcy Masius Benton and Bowles, Chief Executive Officer of JWT New York and Global Client Managing Director at Young & Rubicam. She served on the Board of Directors at all these companies. Ms. Gianinno is a 2014 Fellow and 2015 Senior Fellow in Harvard’s Advanced Leadership Initiative, where she is also Co-Chair of the Coalition of Harvard Advanced Leadership Fellows. Ms. Gianinno also serves on the boards of a number of not-for-profit organizations, including Save the Children, and is on the Global Leadership Council and Steering Committee for the World Economic Forum’s Council on the Future of Education, Skills and Gender Equity. Ms. Gianinno serves as the Chair of our Corporate Responsibility & Governance Committee and a member of our Human Resources Committee. QUALIFICATIONS: Ms. Gianinno’s experience as chief executive officer and president of various companies in the advertising industry gives the Board a different perspective regarding the ways in which new media, the internet and e-commerce have affected the advertising industry and the broader strategies of the Company’s clients. |
Timothy R. McLevish
AGE: 66 DIRECTOR SINCE: 2016 CURRENT DIRECTORSHIPS: None. FORMER DIRECTORSHIPS: ConAgra Foods, Inc., Kennametal, Inc., Lamb Weston Holdings, Inc., URS Corporation, US Foods, Inc. |
Timothy R. McLevish served as Special Advisor to the CEO of Carrier Global Corp, a manufacturer of HVAC systems and commercial refrigeration equipment from 2020 to 2021. Mr. McLevish also served as Chief Financial Officer of Carrier Global Corp. from 2019 to 2020. From 2015 until 2016, Mr. McLevish served as Senior Advisor to the Chief Executive Officer of Walgreens Boots Alliance, Inc., a retail drug store chain. Prior to this, he served as their Executive Vice President and Chief Financial Officer from 2014 until 2015. From 2007 to 2014, Mr. McLevish held various positions with Kraft Foods Group, Inc. and its predecessor company Kraft Foods, Inc., manufacturers and marketers of packaged food products, including serving as Executive Vice President and Chief Financial Officer of Kraft Foods Group from 2012 to 2013, Executive Vice President and advisor to the Chief Executive Officer of Kraft Foods, Inc. from 2011 until 2013 and as Chief Financial Officer of Kraft Foods, Inc. from 2007 to 2011. From 2002 until 2007, Mr. McLevish was the Senior Vice President and Chief Financial Officer of Ingersoll-Rand Company Limited, a diversified industrial company. Mr. McLevish was the Vice President and Chief Financial Officer of Mead Corporation, a manufacturer of wood products, from 1999 to 2002. Mr. McLevish serves as the Chair of our Audit Committee and a member of our Human Resources Committee. QUALIFICATIONS: Mr. McLevish’s experience as chief financial officer of multiple multinational companies brings deep financial and global business experience to the Board. He is an audit committee financial expert based on his experience as chief financial officer of public companies and brings deep knowledge of financial reporting, internal controls and procedures and risk management to our Board. Mr. McLevish also has considerable corporate governance experience gained through his years of experience on other public company boards, including serving as the Executive Chairman of the Board of Lamb Weston Holdings, Inc. |
Jamie Moldafsky
AGE: 60 DIRECTOR SINCE: 2016 CURRENT DIRECTORSHIPS: None FORMER DIRECTORSHIPS: None | Jamie Moldafsky has been Chief Marketing and Communications Officer at Nielson Holdings plc, a global measurement and data analytics company since 2020. Ms. Moldafsky served as the Chief Marketing Officer of Wells Fargo & Company, a global banking and financial services company, from 2011 to 2020 and Executive Vice President, Sales, Marketing, Strategy & Home Equity from 2005 to 2011. Prior to this, she held various marketing, general management and leadership positions at several companies including Whirlpool Corporation, Charles Schwab Corporation, Applause Enterprises, Inc. and American Express Company. Ms. Moldafsky serves as a member of our Corporate Responsibility & Governance Committee and our Human Resources Committee. QUALIFICATIONS: Ms. Moldafsky’s extensive sales and marketing experience provides the Board with a combination of operational and strategic insights. Her experience in marketing and digital communications provides leadership and innovative thinking which will further the Company’s evolution as a global provider of integrated communications. |
James Ray, Jr.
AGE: 58 DIRECTOR SINCE: 2021 CURRENT DIRECTORSHIPS: Commercial Vehicle Group, Inc., Leslie’s, Inc., Spirit AeroSystems Holdings, Inc. FORMER DIRECTORSHIPS: None | James Ray, Jr. served from 2013 to 2020 in various leadership capacities at Stanley Black & Decker, Inc., a manufacturer of industrial tools and household hardware, most recently as President of STANLEY Engineered Fastening. Mr. Ray previously served from 2009 to 2013 as Senior Vice President and General Manager of TE Connectivity Inc. (f/k/a Tyco Electronics), a designer and manufacturer of connectivity and sensor products for harsh environments, where he was responsible for its North and South American Automotive connectivity business. From 1993 to 2009 Mr. Ray served in numerous engineering and operational leadership roles at General Motors Company, where he began his career, and at Delphi Corporation following its spin-off from GM. Mr. Ray serves as a member of our Corporate Responsibility & Governance Committee and our Audit Committee. QUALIFICATIONS: Mr. Ray’s deep engineering and operational leadership experience in several complex, global manufacturing enterprises experience provides Board insight into business strategy, operational excellence and business transformation. |
Executive Officers
Certain information with respect to executive officers of the Company is set forth under the heading “Executive Officers of the Registrant” in Part I, Item 1 of the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, and is hereby incorporated in this Part III, Item 10 by reference. There are no arrangements or understandings between an executive officer and any other person pursuant to which such executive officer was or is to be selected as an officer.
Family Relationships
There are no family relationships among any of our directors and executive officers.
Delinquent Section 16(a) Reports
Based solely upon our review of the Forms 3, 4 and 5 filed pursuant to Section 16(a) of the Exchange Act, as amended, during (or with respect to) our most recent fiscal year and written representations from our officers and directors that no other reports were required, we believe that all of our directors, officers and beneficial owners of more than 10% of the Company’s common stock have filed all such reports on a timely basis during 2021, except that one Form 3 for each of Mr. DuPont and Mr. Houck and a Form 4 for each of Mr. Pecaric, Ms. Steiner and Mr. Sharp were not timely filed due to administrative difficulties.
Code of Ethics
The Company maintains its Principles of Ethical Business Conduct and the policies referred to therein which are applicable to all directors and employees of the Company. In addition, the Company has adopted a Code of Ethics that applies to the chief executive officer and senior financial officers. The Principles of Ethical Business Conduct and the Code of Ethics cover all areas of professional conduct, including, but not limited to, conflicts of interest, disclosure obligations, insider trading and confidential information, as well as compliance with all laws, rules and regulations applicable to our business. The Company strongly encourages all employees, officers and directors to promptly report any violations of any of the Company’s policies. In the event that an amendment to, or a waiver from, a provision of the Code of Ethics is necessary, the Company intends to post such information on its website. The full text of each of the Principles of Ethical Business Conduct and our Code of
Ethics is available through the Corporate Governance link on the Investors page of the Company’s web site at the following address: www.rrd.com and a print copy is available upon request.
Board of Directors
In 2021, the Board met 30 times. Each director of the Company during 2021 attended at least 75% of the total number of meetings of the Board and those committees of which the director was a member during the period he or she served as a director.
The Board’s Committees and their Functions
The Board has three standing committees. The members of those committees and the committees’ responsibilities are described below. Each committee operates under a written charter that is reviewed annually and is posted on the Company’s website at the following address: www.rrd.com. A print copy of each charter is available upon request.
The table below reflects the membership of the committees and their primary responsibilities.
AUDIT COMMITTEE |
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Timothy R. McLevish (Chair) Irene M. Esteves John C. Pope James Ray, Jr. |
| • Assists the Board in its oversight of: |
| (2) the Company’s compliance with legal and regulatory requirements, | |||||||
(3) the qualifications and independence of the Company’s independent registered public accounting firm, (4) the performance of the Company’s internal audit department and the independent registered public accounting firm, and (5) management’s risk management policies with respect to risk assessment and management’s action plans to mitigate such risks • The committee selects, determines fees for, evaluates and, when appropriate, replaces the Company’s independent registered public accounting firm |
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| Pursuant to its charter, the Audit Committee is authorized to obtain advice and assistance from internal or external legal, accounting or other advisors and to retain third-party consultants, and has the authority to engage independent auditors for special audits, reviews and other procedures. |
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CORPORATE RESPONSIBILITY AND GOVERNANCE COMMITTEE |
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| Number of Meetings in 2021: 5 | ||||||
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Susan M. Gianinno (Chair) Jamie Moldafsky Jack C. Pope James Ray, Jr. | • Makes recommendations to the Board regarding nominees for • Develops and implements governance • Conducts the regular review of the • Oversees the Company’s responsibilities • Oversees the Company’s responsibilities | As required by its charter, each Pursuant to its charter, the Corporate Responsibility & Governance Committee is authorized to obtain advice and assistance from outside advisors and to retain third-party consultants. In addition, it has the sole authority to approve the terms and conditions under which it engages director search firms. | |||||||||
HUMAN RESOURCES COMMITTEE |
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Irene M. Esteves (Chair) Susan M. Gianinno Timothy R. McLevish Jamie Moldafsky | • Establishes the Company’s overall • Establishes the compensation of the • Adopts amendments to, and approves terminations of, • Reviews and | As required by its charter, each member of the Human Resources Committee (the “HR Committee”) is independent of the Company, as such term is defined for purposes of the NYSE listing rules and the federal securities laws. In addition, in accordance with NYSE listing rules, the Board considered all factors specifically relevant to determining whether a director has a relationship to the Company which is material to that director’s ability to be independent from management in connection with the duties of a HR Committee member to affirmatively determine each member of the HR Committee is independent. Pursuant to its charter, the HR Committee is authorized to obtain advice and assistance from internal or external legal or other advisors and has the sole authority to engage counsel, experts or consultants in matters related to the compensation of the chief executive officer and other executive officers of |
Board’s Role in Risk Oversight
The Board is actively involved in oversight of risks inherent in the operation of the Company’s businesses and the implementation of its strategic plan. The Board performs this oversight role by using several different levels of review. In connection with its reviews of the operations of the Company’s business units and corporate functions, the Board addresses the primary risks associated with those units and functions, including IT and cybersecurity risks. In addition, the Board reviews the key risks associated with the Company’s strategic plan annually and regularly throughout the year as part of its consideration of the strategic direction of the Company as well as reviewing the output of the Company’s risk management process each year.
The Board has delegated to the Audit Committee oversight of the Company’s risk management process. Among its duties, the Audit Committee reviews with management (a) Company policies with respect to risk assessment and management of risks that may be material to the Company, (b) the Company’s system of disclosure controls and system of internal controls
over financial reporting, and (c) the Company’s compliance with legal and regulatory requirements, provided that the Board overseas IT and cyber security risks.
Each of the other Board committees also oversees the management of Company risks that fall within such committee’s areas of responsibility. In performing this function, each committee has full access to management, as well as the ability to engage advisors, and each committee reports back to the full Board. The Audit Committee oversees risks related to the Company’s financial statements, the financial reporting process, other financial matters, certain compliance issues and accounting and legal matters. The Audit Committee, along with the Corporate Responsibility & Governance Committee, is also responsible for reviewing certain major legislative and regulatory developments that could materially impact the Company’s contingent liabilities and risks. The Corporate Responsibility & Governance Committee also oversees risks related to the Company’s governance structure and processes, related person transactions, certain compliance issues and Board and committee structure to ensure appropriate oversight of risk. The HR Committee considers risks related to the attraction and retention of key management and employees and risks relating to the design of compensation programs and arrangements, the Company’s diversity strategy, and developmental and succession planning for possible successors to the position of chief executive officer and planning for other key senior management positions.
Executive Sessions
The Company’s non-management directors meet regularly in executive sessions without management. Executive sessions are led by the Chair of the Board. An executive session is held in conjunction with each regularly scheduled Board meeting. Each committee of the Board also meets in executive session without management in conjunction with each regularly scheduled committee meeting and such sessions are led by the committee Chair.
Independence of Directors
The Company’s Principles of Corporate Governance provide that the Board must be composed of a majority of independent directors. No director qualifies as independent unless the Board affirmatively determines that the director has no relationship which, in the opinion of the Board, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. The Board has determined that each of Ms. Esteves, Ms. Gianinno, Mr. McLevish, Ms. Moldafsky, Mr. Phipps, Mr. Pope and Mr. Ray are independent in accordance with NYSE requirements and SEC standards. The Board took into account all relevant facts and circumstances in making this determination.
ITEM 11. EXECUTIVE COMPENSATION.
Compensation Discussion & Analysis
This Compensation Discussion & Analysis (this “CD&A”) will describe the material components of the executive compensation program applicable to our named executive officers (our “NEOs”). While the discussion in the CD&A is focused on our NEOs, many of our executive compensation programs apply broadly across our executive ranks.
Our NEOs for the fiscal year ended December 31, 2021 were:
• | Daniel L. Knotts, our President and Chief Executive Officer and a member of the Board of Directors; |
• | Terry D. Peterson, our Executive Vice President, Chief Financial Officer; |
• | John P. Pecaric, our President, RRD Business Services and Marketing Solutions; |
• | Douglas D. Ryan, our former President, Marketing Solutions |
• | Michael. J. Sharp, our Senior Vice President and Chief Accounting Officer |
• | Deborah L. Steiner, our Executive Vice President, Chief Administrative Officer, General Counsel and Secretary. |
2021 Compensation Highlights
The table below sets forth the key decisions that impacted the compensation of our NEOs in 2021. These decisions were made by our HR Committee and were guided by our compensation philosophy, our actual performance, market pay practices and advice from the HR Committee’s independent compensation consultant.
Base Salary
In consideration of individual annual performance, skills, experience, and job responsibilities, each of our current NEOs received base salary increases in 2021.
Annual Incentive Plan (“AIP”)
Payouts under our AIP were based on achievement of our corporate financial target, which was $220.0 million for non-GAAP Adjusted Income from Operations.(1 For financial reporting purposes, we achieved Adjusted Income from Operations of $256.3 million. Based on RRD’s performance against the corporate financial target, the AIP plan was funded at 128.0% of target. With the funding percentage as a baseline payout of each NEO’s target AIP payment (e.g., 128.0% of target AIP opportunity), the following AIP decisions were made. Mr. Knotts exceeded his individual performance goals, resulting in an AIP payout of 134%. For the other NEOs the baseline payout was slightly increased based upon their individual performance, resulting in AIP payouts ranging from 100% to 134% of their individual AIP target opportunity.
Long-Term Incentive Plan
Equity grants made under our long-term incentive plan in 2021 continued to more closely align NEO compensation with the interests of our stockholders. 50% of the target value were granted as performance stock units (“PSUs”) and the remaining 50% were granted as restricted stock units (“RSUs”). The RSUs issued in March 2021 vest ratably over a three-year period while the PSUs have a three-year performance period which measures the Company’s performance against pre-determined non-GAAP Adjusted Cumulative Free Cash Flow. Due to grant limitations in our Performance Incentive Plan of 2017, only the executive officers received PSU and RSUs that settle in RRD stock. A portion of the executive officer awards were made with phantom PSUs and phantom RSUs that may be settled in RRD stock or a cash payment equal to the stock price of units vesting. Except where a portion of this CD&A speaks specifically to stock-vesting RSUs and PSUs, all references to RSUs and PSU awards in this CD&A include and describe such phantom awards.
(1) | Our corporate financial performance target is based on a non-GAAP financial measure. Please see Appendix A for a reconciliation of GAAP to non-GAAP amounts. |
Stockholder Feedback on Pay Programs
In 2021, we continued our practice of engaging with stockholders about various corporate governance topics including executive compensation. Telephonic meetings were held or offered with significant institutional investors to, among other things, gather additional feedback on our compensation programs. In general, the feedback received from stockholders during these meetings with regard to executive compensation was positive and RRD received 95.6% vote in support of its executive compensation programs in the 2020 Say-on-Pay advisory vote.
Based on our stockholder engagement feedback, as well as our Say-on-Pay advisory vote results, we believe our overall executive compensation program was well received by our stockholders as it is tailored to our business strategies, aligned with our pay for performance philosophy and designed to create long-term value for stockholders.
Compensation Program Design
Compensation Philosophy
Our executive compensation program is designed to align the interests of our stockholders and executive officers while providing a total compensation package that enables us to attract talent, reward existing talent for past performance, retain talent, and motivate future performance. The HR Committee seeks to ensure that the compensation of our executive officers is tied to the achievement of both short-term and long-term performance objectives intended to drive stockholder value.
As a result, our compensation philosophy is guided by four principles:
• | Market Competitive—Provide target compensation levels that are competitive within the industries and markets in which we compete for executive talent |
• | Performance Driven—Structure incentive plans so that executives share in successes and challenges by varying compensation from target levels based on achievement of performance objectives aligned with our annual and multi-year strategy |
• | Balanced—Link pay to performance by making a substantial percentage of total executive compensation variable, or “at risk” through an appropriate balance of annual and long-term incentive awards |
• | Stockholder Focused—Align a significant portion of executive pay with long-term stockholder interests through equity awards and stock ownership requirements |
Best Practices
Our compensation philosophy and the resulting compensation programs incorporate the following best practices:
Clawback Policy
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| • Awards granted under our time-based restricted stock units, cash incentive plans, stock option grants and performance shares or other performance-based awards are subject to forfeiture in the case of (i) fraud, or willing, knowing or intentional misconduct, (ii) the willful, knowing or intentional violation of RRD’s rules or applicable legal or regulatory requirements in the course of an executive officer’s employment, or (iii) conduct which results in the achievement of financial results that were subsequently restated due to RRD’s material noncompliance with any financial reporting requirement as a result of misconduct by any executive officer. | |||||||
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| • No NEO is entitled to receive gross-ups for excise taxes or gross-ups on any supplemental benefits or perquisites. | ||||||
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| • We do not pay or accrue for dividends on performance share units or restricted stock units. | |||||
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| • We have meaningful stock ownership guidelines for the executive officers to further strengthen the alignment of management and stockholder interests. | ||||||
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No Repricing |
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| • Our equity plans do not permit option re-pricing or option grants below fair market value. | |||||
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| • Employees, directors and certain members of their immediate family members are prohibited from pledging, short sales, trading in publicly traded options, puts or calls, hedging or similar transactions with respect to our stock. | |||
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Annual Compensation Review
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Peer Group
On an annual basis, the HR Committee directs its compensation consultant, Meridian Compensation Partners (“Meridian”), to review the Company’s compensation peer group. Our 2021 peer group consists of the following 18 companies:
Alliance Data Systems Corporation | Automatic Data Processing, Inc. | Avery Dennison Corporation | ||
Domtar Corporation | Expeditors International of Washington, Inc. | Fidelity National Information Services, Inc. | ||
Graphic Packaging Holding Company | Hub Group Inc. | News Corporation | ||
Packaging Corporation of America | Pitney Bowes Inc. | Quad/Graphics, Inc. | ||
Sealed Air Corporation | Sonoco Products Co. | The Interpublic Group of Companies, Inc. | ||
Thomson Reuters Corporation | Veritiv Corporation | Xerox Corporation |
Based on the assessment of both our peer group and market data, the HR Committee determines whether the overall executive compensation program is consistent with our business strategy and objectives and promotes RRD’s compensation philosophy. In general, compensation levels for our NEOs are targeted at the 50th percentile of target market and peer group data, but the HR Committee also takes into account the performance, experience, skills, level of responsibility and future potential of each NEO rather than adhering to a specific benchmarked percentage for any of our NEOs.
2021 Compensation Detail
The table below sets forth the elements of our 2021 compensation program for our NEOs.
Component | Description/Rationale | Key Characteristics | ||
Base Salary
|
|
• Stable compensation element |
| • Level of responsibility • Role, responsibilities, experience and individual performance • Skills and future potential • Median of market and peer group data |
Annual Incentive Plan
|
|
• Variable and at-risk cash bonus plan • Target amount of bonus is determined as a percentage of the individual’s base salary • Rewards achievement against specific, pre-set annual corporate financial targets • Subject to a payout which ranges from 0% to 200% of target, with no payout for performance below 70% of the corporate financial target for Adjusted Income from Operations | • Corporate financial targets are set by the HR Committee at the start of the year |
Long-Term Incentive Plan
|
|
• Variable and at-risk compensation which link awards to RRD’s performance to increase alignment with stockholders through the use of PSUs and RSUs • Key component to attract and retain executive officers • Annual value intended to be a substantial component of overall compensation package for each NEO | • Award values are determined based on oLevel of responsibility oIndividual skills, experience and performance oMedian of peer group and market survey data • PSUs are tied to achievement of selected financial measures over a three-year performance period and payout can range from 0% to 150% • RSUs are time-vested over a three-year vesting period |
The compensation program for our NEOs is primarily focused on incentive compensation, putting a significant portion of total compensation at risk. Consistent with our philosophy of aligning the compensation of our executive officers with creating long-term value for our stockholders, heaviest weighting is on long-term incentive compensation.
Base Salary
The base salaries of our NEOs were reviewed in February 2021, and certain increases in salary proposed by our CEO were approved by the HR Committee. In approving these adjustments, the HR Committee, with guidance from our compensation consultant, considered each NEO’s then-current base salary against the base salaries of executives in similar positions in our peer group, market data, and each NEO’s individual performance, experience, skills, levels of responsibility and future potential.
Name |
| Dec. 31, 2020 |
| Dec. 31, 2021 |
| % Change | ||||
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
|
| $978,500 |
|
|
| $1,135,000 |
|
| 16% |
Terry D. Peterson |
|
| $575,000 |
|
|
| $600,000 |
|
| 4% |
John P. Pecaric |
|
| $525,000 |
|
|
| $550,000 |
|
| 5% |
Douglas D. Ryan |
|
| $550,000 |
|
|
| $550,000 |
|
| 0% |
Michael J. Sharp |
|
| $325,000 |
|
|
| $345,000 |
|
| 6% |
Deborah L. Steiner |
|
| $475,000 |
|
|
| $515,000 |
|
| 8% |
Annual Incentive Plan
Consistent with our compensation philosophy, the HR Committee set the corporate financial targets under the AIP for 2021 with the goal of motivating our executive team to meet operational and financial targets to enhance long-term stockholder value. The targets, along with individual performance goals, were set by the HR Committee at the beginning of the year following the presentation of the annual operating budget. The corporate financial targets determine the funding level of the AIP. Corporate financial targets were lower in 2021 than in 2020 to account for lower anticipated Income from Operations on account of the unfavorable impact from foreign exchange rates on portions of our cost structure. However, after adjusting for the impact on changes in foreign exchange rates, the corporate financial targets were higher than in the prior year.
The corporate financial target under the AIP for 2021 was Adjusted Income from Operations. The minimum and maximum payout levels range from 0% to 200% of target, with no payout for performance below 70% of the corporate financial target. NEOs do not receive a payout for achievement of individual performance goals unless the threshold corporate financial target is achieved. Thereafter, individual performance goals can modify an NEO’s AIP payout upward or downward based on achievement of such goals.
Adjusted Income from Operations is a non-GAAP measure defined as Income from Operations adjusted for specified items including, for example, restructuring and impairment charges, business acquisitions and divestitures and the adoption of new accounting principles. The HR Committee believes the use of these non-GAAP adjustments for calculating the corporate financial target appropriately aligns AIP payouts with performance expectations under RRD’s annual operating budget. The initial performance levels were set by the HR Committee at the beginning of the year after thorough discussion with management regarding the Company’s past targets as well as its historic and forecasted performance, and were challenging goals.
The table below sets forth a description of these targets, as well as 2021 achievement levels.
Target | Metric and Weighting | Achievement | ||
Corporate Financial Targets | • Adjusted Income from Operations of $220.0 million at target | • Adjusted Income from Operations was $256.3 million(1) • Resulted in an achievement level of 128.0% of target | ||
Individual Performance Goals | • Individual performance goals for our NEOs included achievement of working capital targets, productivity and safety targets, and completion of key strategic initiative | • Most of the NEOs met or exceeded their individual performance goals under the AIP, resulting in adjustments to the baseline funding percentage of 128.0% of target based on achievement of corporate financial targets. Mr. Knotts exceeded his individual performance goals, resulting in an AIP payout of 134%. For the other NEOs the baseline payout was slightly increased based upon their individual performance, resulting in AIP payouts ranging from 100% to 134% of their individual AIP target opportunity. |
(1)Our corporate financial performance target is based on a non-GAAP financial measure. Please see Appendix A for a reconciliation of GAAP to non-GAAP amounts.
In 2021, with guidance from our compensation consultant, the HR Committee considered each NEO’s then-current AIP Target against the AIP Targets of executives in similar positions in our peer group, market data, and each NEO’s individual performance, experience, skills, levels of responsibility and future potential. Based on this review, the HR Committee increased Mr. Pecaric’s AIP Target from 80% to 85%. AIP target percentages and actual 2021 payouts based on the performance described above are shown in the table below:
Name |
| AIP Target (%) |
| AIP Payout at Target ($) | Actual Payout as % of Target (%)(1)(2) |
|
| Actual Payout ($)(2) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
|
| 135% |
|
|
| $1,532,250 |
|
| 134% |
|
|
| $2,059,344 |
|
Terry D. Peterson |
|
| 90% |
|
|
| $540,000 |
|
| 134% |
|
|
| $725,760 |
|
John P. Pecaric |
|
| 85% |
|
|
| $467,500 |
|
| 133% |
|
|
| $620,840 |
|
Douglas D. Ryan |
|
| 80% |
|
|
| $234,538 |
|
| 100% |
|
|
| $234,538 |
|
Michael J. Sharp |
|
| 50% |
|
|
| $172,500 |
|
| 131% |
|
|
| $226,320 |
|
Deborah L. Steiner |
|
| 80% |
|
|
| $412,000 |
|
| 134% |
|
|
| $553,728 |
|
(1) | Award payouts are calculated using the annual base salary as of December 31, 2021 multiplied by the individual target percentage. This result is then multiplied by the approved Corporate Funding of 128% and then multiplied by the achievement percentage of performance goals. Each executive has performance goals split between the RRD Company IFO goal (“Goal 1”) and an aggregate of individual performance goals (“Goal 2”). The goal weightings and achievement results for each executive are as follows: |
(2) | Mr. Knotts: 60% weighting Goal 1 and 40% weighting for Goal 2, with a combined total achievement of 105%. Mr. Peterson: 60% weighting for Goal 1 and 40% weighting for Goal 2, with a combined total achievement of 105%. Mr. Pecaric: 50% weighting for Goal 1 and 50% weighting for Goal 2, with a combined total achievement result of 103.75%. Mr. Ryan: 50% weighting for Goal 1 and 50% weighting for Goal 2, with a combined total achievement result of 100%. Mr. Sharp: 60% weighting for Goal 1 and 40% weighting for Goal 2, with a combined total achievement result of 102.5%. Ms. Steiner: 60% weighting for Goal 1 and 40% weighting for Goal 2, with a combined total achievement result of 105%. |
Long-Term Incentive Plan
In 2021, 50% of the target value of our long-term incentive grants were PSUs and 50% were RSUs. Our PSUs were designed to more closely align the interests of our NEOs with our stockholders, while our RSUs were designed to promote retention of our key executives. The HR Committee determines long-term incentive awards to our NEOs based on a review of grants to executives in similar positions in RRD’s peer group, market data, and each NEO’s individual performance, experience, skills, level of responsibility and future potential. RSUs and PSUs are settled in shares.
To limit usage of shares available for grant under our Amended and Restated Performance Incentive Plan of 2017, the HR Committee again rationed equity awards in 2021. A portion of the awards of RSUs and PSUs in 2021 to NEOs were phantom awards (phantom RSUs and phantom PSUs) that may be settled in cash or shares in the HR Committee’s discretion. Such phantom awards were granted in the same proportion and with the same vesting terms as the RSU and PSU grants. Except as provided herein, all references to RSUs and PSU awards in this section include and describe such phantom awards. In 2021, approximately, 50% of all equity awards to RRD’s executive leadership team were phantom RSUs and PSUs that are expected to be settled in cash.
The PSUs have a three-year performance period which measures the Company’s performance against pre-determined cumulative free cash flow targets. Cumulative free cash flow is a non-GAAP metric defined as cash flow from continuing operations (excluding LSC bankruptcy payments, plus all investing cash flows (e.g., proceeds from facility sales, business dispositions and monetizing investments) less capital expenditures and certain other adjustments. We continue to use cumulative free cash flow as a metric because we believe it appropriately aligns our executive’s focus on improving our balance sheet flexibility with investing in our business to drive profitable growth. PSUs can pay out at a range from 0% to 150% of target with no shares earned for performance below 75% of target. The RSUs issued vest ratably over a three-year period.
PSUs granted in 2019 completed their three-year performance period in 2021. The Company achieved Adjusted Cumulative Free Cash Flow of 136.2% of target during the performance period, resulting in vesting of 150% of the target award amount.
In 2021, the HR Committee approved the following grants to our NEOs under our long-term incentive program:
Name |
| Grant (# of PSUs) |
| Grant (# of RSUs) | ||||
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
|
| 911,465 |
|
|
| 911,465 |
|
Terry D. Peterson |
|
| 206,135 |
|
|
| 206,135 |
|
John P. Pecaric |
|
| 143,405 |
|
|
| 143,405 |
|
Douglas D. Ryan |
|
| 120,629 |
|
|
| 120,629 |
|
Michael J. Sharp |
|
| 47,623 |
|
|
| 47,623 |
|
Deborah L. Steiner |
|
| 138,229 |
|
|
| 138,229 |
|
Benefit Programs
The Company’s benefit programs were established based upon an assessment of competitive market factors and a determination of what was needed to retain high-caliber executives. For 2021, our primary benefits for executives included participation in broad-based plans at the same benefit levels as other employees. These plans included: savings plans, health and dental programs and various insurance programs, including disability and life insurance. In addition, certain executives, including certain of our NEOs, are provided with the following benefits:
• | Supplemental Insurance: Additional life and disability insurance is provided to enhance the value of our overall compensation program. The premium cost for these additional benefits is included as taxable income for the NEOs and there is no tax gross-up on this benefit. |
• | Financial Counseling: Reimbursement of expenses for financial counseling to provide executives with access to an independent financial advisor of their choice. The cost of these services, if utilized, was included as taxable income for the NEO and there was no tax gross-up on this benefit. |
• | Automobile Program: A monthly automobile allowance which provided eligible executives with an opportunity to use their car for both business and personal use in an efficient manner. This allowance was included as taxable income to the respective NEOs and there was no tax gross-up on this benefit. |
• | Executive Physical: A medical physical examination once per year, including consultations with specialists, dieticians and physiologists, as needed. The cost of these services, if utilized, was included as taxable income for the NEO and there was no tax gross-up on this benefit. |
Additionally, certain of our executives, including our NEOs, participated in the following retirement programs, which have been terminated or frozen as described below:
• | Pension Plan: Qualified Retirement Plans (pension plans), which are described under Pension Benefits in this Form 10-K/A, were available to employees until December 31, 2011. Because RRD froze its Qualified Retirement Plans as of December 31, 2011, generally no additional benefits will accrue under such plans or the related supplemental retirement plan. |
• | Supplemental Retirement Plan: A supplemental retirement plan available to a select group of management or highly paid executives within RRD, including our NEOs, which is described under Pension Benefits in this Form 10-K/A, was available until December 31, 2011. This supplemental retirement plan no longer provides benefit accruals |
because the underlying pension plan described above was frozen as of December 31, 2011. Prior to that, the supplemental retirement plan took into account compensation above limits imposed by the tax laws. |
Employment Arrangements
Each of our NEOs entered into an employment agreement with RRD in connection with the assumption of his or her position. In 2019, the Company entered into restated employment letters and change in control agreements with each of its executive officers, including each of the NEOs (other than Mr. Knotts). Each employment agreement sets forth, among other things, the NEO’s base salary, target annual bonus opportunity, entitlement to participate in the Company’s benefit plans, equity awards, certain perquisites and provisions with respect to certain payments and other benefits upon termination of employment under certain circumstances (such as an involuntary separation from service, as set forth in the respective employment agreement). Mr. Knotts is also entitled to enhanced benefits in the event he is terminated without “cause” or terminates employment for “good reason” in connection with a “change in control” (each as defined in the applicable employment agreement). Please see Potential Payments Upon a Termination or Change in Control in this Form 10-K/A for a description of the foregoing provisions.
Certain Other Policies
Operation of the Human Resources Committee
The HR Committee establishes and monitors RRD’s overall compensation strategy to ensure that our executive compensation program supports our business objectives and specifically establishes the compensation of the CEO, other senior officers and key management employees.
The HR Committee, with the assistance of Meridian, works to analyze competitive market data to determine appropriate base salary levels, annual incentive target levels, and long-term incentive target levels for our executives. In conducting market comparisons, the HR Committee seeks to establish compensation levels that approximate the median of the applicable surveys and peer group. The CEO is not a member of the HR Committee and does not vote on matters concerning executive pay.
With respect to our CEO’s pay, the HR Committee conducts an annual performance assessment of the CEO and determines appropriate adjustments to all elements of his pay based on his individual performance and the Company’s performance.
For the other executive officers, the CEO makes recommendations to the HR Committee for all elements of pay based on individual performance, market data from our peer group and published survey data. The HR Committee reviews, discusses, modifies, and approves, as appropriate, these recommendations.
The diagram below summarizes the HR Committee’s annual process for setting executive pay, which begins in July and concludes the following February.
July
|
|
Review and discuss timeline for setting executive pay |
October | Review market competitive data including applicable compensation surveys and peer comparisons | |
December | Evaluate overall executive pay program • Approve proposed annual incentive plan design • Review proposed long-term incentive designs |
February | Finalize executive pay • Review performance results for prior year and approve payouts of prior long-term incentive grants • Approve the Company’s annual operating plan • Approve executive base salaries and annual incentive targets and designs • Approve long-term incentive target and designs |
At each of its regularly scheduled meetings throughout the year, the HR Committee reviews the Company’s performance under outstanding annual and long-term incentive plans.
PART IRole of the Compensation Consultant
Compensation of executive officers was overseen by the HR Committee, which appointed and engaged Meridian as its executive compensation consultant to provide objective analysis, advice and recommendations on executive officer compensation and related matters in connection with the HR Committee’s decision-making process. Meridian, or Willis Towers Watson (“WTW”) until April 2021, attended all HR Committee meetings, and reported directly to the HR Committee, not to management, on matters relating to compensation for the executive officers.
WTW and Meridian provided additional services to RRD not under the direction of the HR Committee, whose services were pre-approved by the HR Committee. The HR Committee reviewed the work and services provided by WTW and Meridian and it determined that (a) such services were provided on an independent basis and (b) no conflicts of interest existed. Factors considered by the HR Committee in its assessment include:
2. | Fees paid by the Company as a percentage of each of WTW’s and Meridian’s total revenue; |
3. | WTW’s and Meridian’s policies and procedures that are designed to prevent a conflict of interest and maintain independence between the personnel who provide HR services and those who provide these other services; |
4. | Any business or personal relationships between individual consultants involved in the engagement and HR Committee members; |
5. | Whether any stock of RRD is owned by individual consultants involved in the engagement; and |
6. | Any business or personal relationships between the Company’s executive officers and either WTW or Meridian or the individual consultants involved in the engagement. |
Company OverviewRole of Management
R. R. Donnelley & Sons Company (“RRD,”Management, including the “Company,” “we,” “us,” and “our”), a Delaware corporation, helps organizations communicate more effectively by working to create, manage, produce, distribute and process content on behalf of its clients. We assist clients in developing and executing multichannel communication strategies that engage audiences, reduce costs, drive revenues and enhance compliance. Our innovative content management offering, production platform, logistics services, supply chain management, outsourcing capabilities and customized consultative expertise assists our clients in the delivery of integrated messages across multiple media to highly targeted audiences at optimal times to their customers in virtually every private and public sector. We have strategically located operations that provide local service and responsiveness while leveraging the economic, geographic and technological advantages of a global organization.
Competitive Strategy
Our key strategic focus areas, which leverage our long-standing client relationships and comprehensive portfolio of capabilities, are as follows:
Driving Profitable Growth: We intend to drive profitable growth in each of our core businesses and shift our portfolio mix toward higher growth segments.
Extending our Capabilities: We intend to extend the range of our capabilities, products and service offerings to fuel organic growth from our global client base.
Expanding Print and Digital Technology Platforms: We intend to continue expanding our print and digital technology platforms, with innovative content management, data analytics, and multichannel capabilities for targeted markets.
Optimizing Business Performance: We intend to optimize our business performance by providing exceptional service and product quality to our clients while aggressively reducing our costs in order to improve margins and fund our transformation efforts.
Disciplined Capital Allocation: We intend to maintain a disciplined approach to capital allocation with an added focus on reducing our leverage, while also investing in our future through strategic acquisitions and business partnerships.
Segment Descriptions
Our reportable segments and their product and service offerings are summarized below.
Business Services
Our Business Services segment provides customized solutions at scale to help clients inform, service and transact with their customers. The segment’s primary product and service offerings include commercial print, logistics, packaging, statement printing, labels, supply chain management, forms and business process outsourcing. This segment also includes all of our operations in Asia, Canada, Europe and Latin America. In 2019, our Business Services segment accounted for 79.6% of our consolidated net sales.
Commercial Print
We provide various commercial printing products and offer a full range of branded materials including manuals, publications, brochures, business cards, flyers, post cards, posters and promotional items. Commercial print accounted for 33.9% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
Logistics
We provide specialized transportation and distribution services using our third party logistics solutions. These services are comprised of freight services, including truckload, less-than-truckload, intermodal and international freight forwarding; international mail and parcel distribution; and courier services including same day and next day delivery. Logistics accounted for 16.3% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
We provide packaging solutions, ranging from rigid boxes to in-box print materials, for clients in consumer electronics, life sciences, cosmetics and consumer packaged goods industries. Packaging accounted for 13.4% of our Business Services segment’s net sales for the year ended December 31, 2019.
Statements
We create critical business communications, including customer billings, financial statements, healthcare communications and insurance documents. Our capabilities include design and composition, variable imaging, email, archival and digital mail interaction, as well as our innovative RRDigital solution set. Statements accounted for 10.9% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
Labels
We produce custom labels for clients across multiple industries including warehouse and distribution, retail, pharmaceutical, manufacturing and consumer packaging. We offer distribution and shipping labels, healthcare and durable goods labels, promotional labels and consumer product goods packaging labels. Labels accounted for 10.0% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
Supply Chain Management
We provide workflow design to assembly, configuration, kitting and fulfillment for clients in consumer electronics, telecommunications, life sciences, cosmetics, education and industrial industries. Supply chain management accounted for 6.0% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
Forms
We produce a variety of forms including invoices, order formsCEO and other business forms that support both the private and public sectors for clients in financial, government, retail, healthcare and business services industries. Forms accounted for 4.9% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
Business Process Outsourcing
We provide outsourcing services including creative services, research and analytics, financial management and other services for legal providers, insurance, telecommunications, utilities, retail and financial services companies. Business process outsourcing accounted for 4.6% of our Business Services segment’s net sales for the fiscal year ended December 31, 2019.
Marketing Solutions
Our Marketing Solutions segment leverages an integrated portfolio of data analytics, creative services and multichannel execution to deliver comprehensive, end-to-end solutions. The segment’s primary product and service offerings include direct marketing, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services. In 2019, our Marketing Solutions segment accounted for 20.4% of our consolidated net sales.
Direct Marketing
We provide audience segmentation, creative development, program testing, print production, postal optimization and performance analytics for large-scale personalized direct mail programs. Direct marketing accounted for 52.9% of our Marketing Solutions segment’s net sales for the fiscal year ended December 31, 2019.
Digital Print and Fulfillment
Using digital and offset production capabilities, we provide in-store marketing materials, including signage and point-of-purchase materials, as well as custom marketing kits that require multiple types of marketing collateral. Under the trade name MotifTM, we also create custom photobooks. Digital print and fulfillment accounted for 38.4% of our Marketing Solutions segment’s net sales for the fiscal year ended December 31, 2019.
Digital and Creative Solutions
We help clients manage their customer data in order to better understand their customers and guide more effective marketing communications efforts. In addition, we create, edit and manage content for delivery across multiple marketing communications channels including print and digital advertising, direct marketing and mail, packaging, sales collateral, in-store marketing and social media. Digital and creative solutions accounted for 8.7% of our Marketing Solutions segment’s net sales for the year ended December 31, 2019.
Our Corporate segment consists of unallocated selling, general and administrative activities and associated expenses including, in part, executive legal, finance, communications, certain facility costs and last-in-first-out inventory provisions. In addition, certain costs and earnings of employee benefit plans, such as pension and other postretirement benefits (“OPEB”) plan expense (income) and share-basedofficers, developed preliminary recommendations regarding compensation are included in Corporate and not allocated to the operating segments. Corporate also manages our cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.
Business Dispositions and Acquisition
On October 25, 2019, we completed the sale of substantially all of the Global Document Solutions (“GDS”) business within the Business Services segment. GDS primarily provided statements and print management services in Europe. Additionally, during the year ended December 31, 2019, we sold the R&D business and our subsidiary, RR Donnelley Editora e Grafica Ltda., filed for bankruptcy liquidation in bankruptcy court in Brazil. The operations of these two businesses were included in the Business Services segment. During 2019, we also acquired a business within the Business Services segment, which was not material.
On July 2, 2018, we sold the Print Logistics business within the Business Services segment.
For further information on the above dispositions and acquisition, see Note 2, Dispositions and Acquisition, to the Consolidated Financial Statements.
Competitive Environment
The print and related services industry, in general, continues to have excess capacity and remains highly competitive and fragmented. Our clients operate in an evolving and ever-changing market. While the market is large and fragmented, there are tremendous changes occurring in how organizations need to create, manage, deliver and measure their communications. Some of the key factors facing our clients include regulatory changes, sensitivity to economic conditions, raw material pricing volatility and United States Postal Service (“USPS”) actions. In addition, technological changes, including the electronic distribution of documents and data, online distribution and hosting of media content, and advances in digital printing, print-on-demand and internet technologies, continue to impact the market for many of our products and services.
We believe that, across our range of products and services, competition is based primarily on quality and the ability to service the special needs of clients at a competitive price. Therefore, we believe we need to continue to differentiate our product and service offerings and aggressively manage our cost structure to remain competitive. Our business is differentiated by the wide array of quality communications products and services, including print and content management, we provide for our clients. We work with our clients to create, manage, deliver and optimize their multichannel communications strategies by providing innovative solutions to meet increasing customer demands in light of the large and evolving marketplace. We also continue to develop and expand our creative and design, content management, digital and print production, supply chain management and distribution services to address our clients’ evolving needs while supporting the strategic objective of becoming a leading global provider of integrated communication products and services.
Seasonality
Advertising and consumer spending trends affect demand in several of the end-markets we serve. As such, we have some seasonality in our business, mostly in the second half of the year, despite the breadth of our product and service offerings.
Raw Materials
The primary raw materials we use in our print businesses are paper and ink. We negotiate with leading suppliers to maximize our purchasing efficiencies. Some of the paper we use is supplied directly by clients. Variations in the cost and supply of certain paper grades and ink formulations used in the manufacturing process may affect our consolidated financial results. Paper prices have fluctuated over the past few years and we expect continued volatility in the foreseeable future. Generally, clients directly absorb the impact of changing prices on client-supplied paper. With respect to paper we purchase, we have historically passed most changes in price through to our clients although in many cases there is a delay based on terms within individual client contracts. We believe contractual arrangements and industry practice will support our continued ability to pass on any future paper price increases, but there is no assurance that market conditions will continue to enable us to successfully do so. We believe that the paper supply is consolidating, and there may be shortfalls in the future in supplies necessary to meet the demands of the entire marketplace. Higher paper prices and tight paper supplies may have an impact on clients’ demand for printed products. We have undertaken various strategic initiatives to mitigate any foreseeable supply disruptionsmatters with respect to our paperall executive officers other than the CEO, and ink requirements.
We continueprovided these recommendations to monitor the impactHR Committee. The HR Committee then reviewed management’s preliminary recommendations and made final compensation decisions, with advice from WTW, or, after the first half of changes in2021, Meridian, as appropriate. The management team was responsible for the price of crude oil and other energy costs, which impact our ink suppliers, logistics operations and manufacturing costs. Crude oil, energy prices and market cost of transportation continue to be volatile. We believe our logistics operations will continue to be able to pass a substantial portion of any increases in fuel prices directly to our clients in order to offset the impact of related cost increases. Decreases in fuel prices are also passed on to clients which negatively impact sales. However, our logistics operation is restricted in its ability to pass on increased cost of transportation costs to some clients in the short term. Therefore, increases in the market cost of transportation will negatively impact income from operations. We generally cannot pass on to clients the impact of higher energy prices on our manufacturing costs. We cannot predict sudden changes in energy prices and the impact that possible future changes in energy prices might have upon either future operating costs or client demand or the related impact either will have on our consolidated annual results of operations, financial position or cash flows.
Distribution
Our products are distributed to end-users through U.S. and foreign postal services, through retail channels, electronically or by direct shipment to client facilities. In cooperation with trusted logistics vendors, we manage the distribution of most client products we print in the U.S. and Canada to maximize efficiency and reduce costs for clients.
As a leading mail service provider of both First-Class and Marketing mail, we are ranked by the USPS as oneadministration of the largest preparers of mailings incompensation programs once the U.S. We work closely with our clients and the USPS to offer innovative products and mail preparation services to minimize postage costs. While we do not directly absorb the impact of higher postal rates on our clients’ mailings, demand for products distributed through the U.S. or foreign postal services has been negatively impacted by increases in postal rates, as postal costs are a significant component of many clients’ cost structures.HR Committee’s decisions were finalized.
Risk Assessment
In accordance2021, the HR Committee, with the 2006 Postal Accountabilityassistance of WTW, reviewed and Enhancement Act (“PAEA”), the Postal Regulatory Commission (“PRC”) adjustedevaluated our executive and approved USPS filings for a CPI based average price increase of 1.5% to 1.9% depending on the major class of mail. The new prices took effect on January 26, 2020.
Additionally, as required on the 10-year anniversary of PAEA, the PRC initiated a comprehensive review of PAEA on December 20, 2016, to determine if the current system for regulating rates and classes for market-dominant products is still achieving the original objectives of the law. The PRC issued its findings on December 1, 2017employee compensation practices and concluded, based on this review, that the current system wasany risks associated with such practices are not meeting all of PAEA’s original objectives. To remedy this situation, the PRC proposed recommendations, which among other things, allows the Postal Service pricing flexibility of “CPI + 2%” on market-dominant mail products for a 5-year period of time. The PRC asked for industry stakeholder input, comments and alternative suggestionsreasonably likely to these recommendations which were due by March 1, 2018. The industry reaction to the PRC’s recommendations was overwhelmingly negative, which in turn caused the PRC to reconsider and issue an amended proposal on December 12, 2019, nearly 21 months later. Industry stakeholders are expected to reply to the newest proposal by March 2020.
In other developments, the Trump administration on April 12, 2018 issued an Executive Order establishing a Task Force (“TF”) to evaluate the USPS. On December 4, 2018, the TF issued a formal report calling for a total reevaluation of the Postal Service business model to make the organization more viable and sustainable going into the future. No further action related to the TF report occurred in 2019.
Clients
We have more than 50,000 clients worldwide, including 94% of the Fortune 100, 85% of the Fortune 500 and 74% of the Fortune 1000. Our products and services enable some of the world’s largest companies to create, manage and deliver comprehensive and cost-effective multi-channel communications around the world. For each of the years ended December 31, 2019, 2018 and 2017, no single client accounted for 10% or more of consolidated net sales.
Technology, Research and Development
We invest in technology and research and development as a key strategy for our business. We believe that investing in new technologies allows us to remain on the forefront of content management and data analytics, while also allowing us to support our clients’ growing utilization of digital and print technologies. In addition, these technologies help expand our capabilities to provide additional services to clients as customers’ needs evolve. Our cost for research and development activities is not material to our consolidated annual results of operations, financial position or cash flows. In addition, we do not believe that our business is dependent upon any single patent or group of patents. We actively monitor the registrations of our trademark and patent portfolio to ensure that our intellectual property is appropriately protected and maintained.
Our cybersecurity program is designed for needs and expectations of our clients who entrust us with highly sensitive information. Furthermore, our healthcare and insurance printing businesses are subject to industry-specific data regulations, including the Health Care Insurance Portability and Accountability Act of 1996, which could subject us and our clients to liability should sensitive customer or patient information be publicly disclosed. Our infrastructure and technology, expansive and highly-trained global workforce and comprehensive security and compliance program enable us to safely process, store and protect customer information in compliance with relevant regulations.
Our infrastructure and technology security capabilities are bolstered by our relationship with a leading data center services provider. Furthermore, our networks are monitored by intrusion detection services around the clock, and our systems and applications are routinely tested for vulnerabilities and are operated under a strict patch management program.
We employ a highly skilled IT workforce to implement our cybersecurity programs and to handle specific security responsibilities. As a result of annual mandatory security awareness training, our IT workforce is trained to address security and compliance-related issues as they arise. Additionally, our IT employees are carefully screened, undergo a thorough background check and are bound by a nondisclosure agreement that details such employee’s security and legal responsibilities with regard to information handling.
Environmental Compliance
It is our policy to conduct our global operations in accordance with all applicable laws, regulations and other requirements. It is not possible to quantify with certainty the impact of potential failures regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in the future. However, in our opinion, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material adverse effect on our consolidatedthe Company. The determination primarily took into account the balance of cash and equity payouts, the balance of annual resultsand long-term incentives, the type of operations, financial position or cash flows.
Employees
Asperformance metrics used, incentive plan payout leverage, possibility that the plan designs could be structured in ways that might encourage gamesmanship, avoidance of December 31, 2019, we had 36,400 employees.
Asuncapped rewards, multi-year vesting for equity awards, use of December 31, 2019, 431 of our U.S. employees were covered by collective bargaining agreements at 10 of our U.S. facilities, representing 2.8% of our U.S. workforce. We also have collective bargaining agreements with unionized employees in China, Canada, Mexico, Chile and Europe. We have not experienced a work stoppage during the past five years. We believe that our relationships with our employees and collective bargaining groups are good.
Available Information
We maintain an Internet website at www.rrd.com where our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports are available without charge, as soon as reasonably practicable following the time they are filed with, or furnished to, the Securities and Exchange Commission (“SEC”). Reports, proxy and information statements and other information that is filed electronically with the SEC are available on the SEC’s website atwww.sec.gov.
The Principles of Corporate Governance of our Board of Directors, the Charters of the Audit, Human Resources and Corporate Responsibility & Governance Committees of the Board of Directors and our Principles of Ethical Business Conduct are also available on the Investor Relations portion of www.rrd.com, and will be provided, free of charge, to any stockholder who requests a copy. References to our website address do not constitute incorporation by reference of the information contained on the website,stock ownership requirements for senior management and the information contained on the website is not partHR Committee’s oversight of this document.
Forward-Looking Statements
This Annual Report on Form 10-K and any documents incorporated by reference contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on our beliefs and assumptions. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of ours. These statements may include, or be preceded or followed by, the words “may,” “will,” “should,” “might,” “could,” “would,” “potential,” “possible,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “hope” or similar expressions. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.
Forward-looking statements are not guarantees of performance. The factors identified below are believed to be significant factors, but not necessarily all of the significant factors, that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material effects on us.executive compensation programs.
The following important factors, in addition to those discussed elsewhere in this Annual Report on Form 10-K, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:Tax Deductibility Policy
adverse changes in global economic conditions and the resulting effect on the businessesSection 162(m) of our clients;
changes in customer preferences or a failure to otherwise manage relationships with our significant clients;
loss of brand reputation and decreases in quality of client support and service offerings;
political and regulatory risks and uncertainty in the countries in which we operate or sell our products and services;
taxation related risks in multiple jurisdictions;
adverse credit market conditions and other issues that may affect our ability to obtain future financing on favorable terms;
limitations on our borrowing capacity in our credit facilities;
increases in interest rates;
our ability to make payments on, reduce or extinguish any of our material indebtedness;
changes in the availability or costs of key materials (such as ink, paper and fuel) or increases in shipping costs;
our ability to improve operating efficiency rapidly enough to meet market conditions;
impairment of assets as a result of a decline in our individual reporting units’ expected profitability;
our ability and/or our vendors’ ability to implement and maintain information technology and security measures sufficient to protect against breaches and data leakage or the failure to properly use and protect customer, Company and employee information and data;
a failure in or breach of data held in the computer systems we and our vendors maintain;
increased pricing pressure as a result of the competitive environment in which we operate;
successful negotiation, execution and integration of acquisitions;
our ability to execute on our portfolio optimization strategies, including potential sales of non-core assets;
increasing health care and benefits costs for employees and retirees;
changes in our pension and OPEB obligations;
adverse trends or events in our operations outside of the United States;
the effect of inflation, changes in currency exchange rates and changes in interest rates;
catastrophic events which may damage our facilities or otherwise disrupt the business;
the effect of changes in laws and regulations, including changes in accounting standards, trade, tax, environmental compliance, health and welfare benefits, price controls and other regulatory matters and the cost, which could be substantial, of complying with these laws and regulations;
changes in the regulations applicable to our clients, which may adversely impact demand for our products and services;
factors that affect client demand, including changes in postal rates, postal regulations and service levels, changes in the capital markets, changes in advertising markets, clients’ budgetary constraints and changes in clients’ short-range and long-range plans;
failures or errors in our products and services;
changes in technology, including electronic substitution and migration of paper based documents to digital data formats, and our ability to adapt to these changes;
inability to hire and retain employees;
potential contingent obligations related to leases;
the spinoffs resulting in significant tax liability; and
other risks and uncertainties detailed from time to time in our filings with the SEC.
Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.
Consequently, readers of this Annual Report on Form 10-K should consider these forward-looking statements only as our current plans, estimates and beliefs. We do not undertake and specifically disclaim 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 statements or to reflect the occurrence of anticipated or unanticipated events. We undertake no obligation to update or revise any forward-looking statements in this Annual Report on Form 10-K to reflect any new events or any change in conditions or circumstances.
Our consolidated results of operations, financial position and cash flows can be adversely affected by various risks. These risks include the principal factors listed below and the other matters set forth in this Annual Report on Form 10-K. You should carefully consider all of these risks.
Risks related to our business
Global market and economic conditions, as well as the effects of these conditions on our clients’ businesses, may adversely affect us.
In general, demand for our products and services is highly correlated with general economic conditions. Because a significant part of our business relies on our clients’ advertising spending, which is driven in part by economic conditions and customer spending, a prolonged downturn in the global economy and an uncertain economic outlook may further reduce the demand for printing and related services that we provide to these clients. Delays or reductions in clients’ spending could have an adverse effect on demand for our products and services which may adversely affect our results of operations, financial position and cash flows. Economic weakness and constrained advertising spending may result in decreased revenue, operating margin, earnings and growth rates and difficulty in managing inventory levels and collecting accounts receivable. In addition, client difficulties may result in increases in bad debt write-offs and allowances for doubtful accounts receivable. Economic downturns may also result in restructuring actions and associated expenses and impairment of long-lived assets, including goodwill and other intangibles. Uncertainty about future economic conditions makes it difficult for us to forecast operating results and to make decisions about future investments.
Changes in customer preferences have reduced, and may continue to reduce, demand for our products and services in certain markets. In addition, failure to manage changes in our relationships with our significant clients may have an adverse effect on our results of operations.
Many of the end markets in which our clients compete are experiencing changes due to technological progress and changes in customer preferences. In order to grow and remain competitive, we will need to continue to adapt to future changes in technology, enhance our existing offerings and introduce new offerings to address the changing demands of clients. If we are unable to continue to utilize new and existing technologies to adapt to new distribution methods and address changing customer preferences, our business may be adversely affected.
Technological developments and changing demands of clients may require additional investment in new equipment and technologies. We must monitor changes in our clients’ markets and develop new solutions to meet clients’ needs. The development of such solutions may be costly and there is no assurance that these solutions will be accepted by clients. If we are unable to adapt to technological changes on a timely basis or at an acceptable cost, clients’ demand for our products and services may be adversely affected.
In addition, electronic delivery of documents and data, including the online distribution and hosting of media content, offer alternatives to traditional delivery of printed documents. Customers continue to accept electronic substitution in statement printing and forms while online and digital advertising is impacting clients’ printed advertising spend. The extent to which customers will continue to accept electronic delivery is uncertain and it is difficult to predict future acceptance of these alternatives. Electronic delivery has adversely affected our products, such as forms and statement printing. To the extent that customers, clients and regulators continue to accept these alternatives, demand for our products and services may be further adversely affected.
During 2019, our five largest clients accounted for 9.5% of our net sales in the aggregate. There can be no assurance that our clients will continue to purchase our products in the same mix or quantities or on the same terms as in the past. The loss of or disruptions related to significant clients may result in a reduction in sales or change in the mix of products we sell to significant clients. This may adversely affect our results of operations, financial condition and cash flows.
Additionally, disputes with significant suppliers, including those related to pricing or performance, may adversely affect our ability to supply products to our clients and also our results of operations, financial condition and cash flows.
Our business is dependent upon brand reputation and the quality of our client support and services offerings. If we fail to offer effective client support and services, our brand reputation could be harmed and clients may not use our products and services, which may have an adverse effect on our results of operations.
A high level of client support and service is critical for the successful marketing and sale of our solutions and the maintenance and enhancement of our brand reputation. If we are unable to provide a level of client support and service to meet or exceed the expectations of our clients, we may experience a loss of clients and market share and a decline in our brand reputation which may result in reduced client demand for our products and services. Furthermore, our brand reputation may be impacted by a wide range of factors, some of which are out of our control, including actions of our competitors and third party providers and positive or negative publicity, any or all of which could adversely affect our operations.
Our operations are subject to political and regulatory risks in the countries in which we operate.
Our operations may be substantially affected by both domestic and international political or regulatory risk including general political conditions in the countries in which we operate; unexpected legal, regulatory or tax changes; governmental actions which have the effect of restriction on our business or opportunities or make it more expensive for us to operate in those jurisdictions; and changes in tax laws that would reduce net income due to withholding requirements or the imposition of tariffs or other restrictions.
In addition, potential political uncertainty in our developed markets, or the perception of such uncertainty, has had and may continue to have an adverse effect on global economic conditions and the stability of global financial markets. This may reduce global market liquidity and restrict the ability of key market participants to operate in certain financial markets. Any of these factors may adversely affect our results of operations, financial position and cash flows. Our success will depend, in part, on our ability to effectively anticipate and manage these and other risks associated with our domestic and international operations.
We are subject to taxation related risks in multiple jurisdictions.
We are a U.S.-based global company subject to tax in multiple U.S. and foreign tax jurisdictions. Significant judgment is required in determining our global provision for income taxes, deferred tax assets and liabilities and in evaluating our tax positions on a worldwide basis. While we believe our tax positions are consistent with the tax laws in the jurisdictions in which we conduct our business, it is possible that these positions may be overturned by jurisdictional tax authorities, which may have a significant impact on our global provision for income taxes.
Tax laws are dynamic and subject to change as new laws are passed and new interpretations of the law are issued or applied. The Tax Cuts and Jobs Act of 2017 (the “Tax Act”) was signed into law on December 22, 2017 and represents the most significant change to U.S. tax law since 1986. During 2017, we recorded provisional estimates of the impact of the Tax Act, and during the fourth quarter of 2018, we finalized our accounting analysis for the income tax effects of the Tax Act. However, in the future, we may be subject to additional taxes as required under the Tax Act, based upon new regulations and guidance which may adversely affect our results of operations, financial position and cash flows.
Many countries are actively considering changes to existing tax laws that, if enacted, could increase our tax obligations in countries where we do business. If U.S. or other foreign tax authorities change applicable tax laws, our overall taxes could increase, which may adversely affect our business, results of operations, financial position and cash flows.
Adverse financial market conditions, our operating performance and our creditworthiness may limit our ability to obtain future financing and the cost of any such capital may be higher than in past periods.
We have a substantial amount of outstanding debt which could adversely affect our business, results of operations, financial condition and cash flows. Uncertainty and volatility in global financial markets may cause financial institutions to fail, lenders to reduce lending or investors to reinvest in assets that are considered less risky. The failure of a financial institution that is a lender under our existing senior secured asset-based revolving credit facility (the “ABL Credit Facility”) would reduce its size unless another financial institution was willing to replace such commitments. Future capital markets transactions are dependent on our financial performance as well as market conditions, which may result in receiving financing on terms less favorable to us than our existing financings. In addition, our access to future financing and our ability to refinance existing debt will depend on a variety of factors such as our financial performance, the general availability of credit, our credit ratings and credit capacity at the time we pursue such financing.
Our current corporate credit ratings are below investment grade and, as a result, our financing costs may further increase and our ability to obtain financing may be limited. If adequate capital is not available to us on reasonable terms and our internal sources of liquidity prove to be insufficient, or if future financings require more restrictive covenants, such combination of events could adversely affect our ability to (i) acquire new businesses or enter new markets, (ii) service or refinance our existing debt, (iii) pay dividends on common stock, (iv) make necessary capital investments, and (v) make other expenditures necessary for the ongoing conduct of our business.
Our ABL Credit Agreement limits our borrowing capacity to the value of certain of our assets. In addition, our obligations under our ABL Credit Agreement and Term Loan Credit Agreement are secured by substantially all of the assets of the Company and our material domestic subsidiaries and lenders may exercise remedies against the collateral if an event of default occurs.
Our borrowing capacity under our ABL Credit Agreement is equal to the lesser of (i) $800.0 million and (ii) a borrowing base formula based on the amount of accounts receivable, inventory, machinery, equipment and, if we were to so elect in the future subject to the satisfaction of certain conditions, fee-owned real estate of the Company and our material domestic subsidiaries that are guarantors under the ABL Credit Agreement, subject to certain eligibility criteria and advance rates (collectively, the “Borrowing Base”). In the event of any material decrease in the amount of or appraised value of the assets in the Borrowing Base, our borrowing capacity would similarly decrease, which could adversely affect our business and liquidity.
If an event of a default occurs under our ABL Credit Agreement or Term Loan Credit Agreement (collectively, the “Credit Agreements”), the lenders’ commitment to extend further credit under our ABL Credit Agreement could be terminated, our outstanding obligations under either or both of the Credit Agreements could become immediately due and payable, outstanding letters of credit issued under our ABL Credit Agreement may be required to be cash collateralized, and remedies may be exercised against the collateral securing either or both of the Credit Agreements. If we are unable to borrow under our ABL Credit Agreement, we may not have the necessary cash resources to fund our operations or to meet scheduled repayments of other outstanding indebtedness and, if any event of default occurs under either Credit Agreement, there is no assurance that we would have the cash resources available to repay such accelerated obligations, refinance such indebtedness on commercially reasonable terms, or at all, or cash collateralize our letters of credit issued under the ABL Credit Agreement, which would have a material adverse effect on our business, financial condition, results of operations and liquidity.
Restrictive covenants in our ABL Credit Agreement and Term Loan Credit Agreement could limit our financial and operating flexibility.
Our ABL Credit Agreement and Term Loan Credit Agreement contain various affirmative and negative covenants applicable to us and our subsidiaries. Certain restrictions on operations become applicable if our borrowing availability under the ABL Credit Agreement falls below certain thresholds. These restrictions could impose significant operating and financial limitations and restrictions on us, including restrictions on our ability to enter into particular transactions and to engage in other actions that we may believe are advisable or necessary for our business.
An increase in interest rates could have a material adverse effect on our business.
Borrowings under our Credit Agreements bear interest at rates that are calculated based on the London Interbank Offered Rate (LIBOR) or a base rate plus, in each case, an applicable margin which, in the case of the ABL Credit Agreement, is dependent on the average quarterly borrowing availability under our ABL Credit Agreement. As a result, we are exposed to risks associated with fluctuations in interest rates, including if the U.S. Federal Reserve raises its benchmark interest rate. We may utilize derivative financial instruments, such as interest rate swaps, to manage our interest rate risk. There can be no assurance, however, that increases in interest rates will not adversely affect our business, financial position and results of operations by causing an increase in interest expense. Significantly higher interest rates may also, among other things, reduce the availability and increase the cost of obtaining new debt and refinancing existing indebtedness, as well as negatively impact the market price of our common stock.
In July 2017 the United Kingdom Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA intends to stop compelling banks to submit rates for the calculation of LIBOR after 2021. It is unknown whether any banks will continue to voluntarily submit rates for the calculation of LIBOR after 2021 or whether LIBOR will continue to be published by its administrator based on these submissions or on any other basis. It is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates, but the potential phase out of LIBOR could cause market volatility or disruption, which could adversely affect our current or future floating rate debt obligations, including obligations under our ABL Credit Agreement and Term Loan Agreement, our current or future derivative financial instruments that utilize LIBOR, and our overall cost of funding.
We may not be able to reduce or extinguish our material indebtedness, and as a result we may have increased financial leverage, which may adversely affect our business.
We have substantial indebtedness and our interest and principal payments are significant. In addition, our Term Loan Credit Agreement requires us to make quarterly principal payments and to make prepayments with excess cash flow and asset sale proceeds in certain circumstances. If we are unable to reduce this indebtedness, we will continue to have increased financial leverage, which may limit or restrict our ability to operate our business. In addition, our ability to make payments on, repay or refinance, such debt, will depend largely upon our future operating performance.
We may be adversely affected by a decline in the availability of raw materials or by fluctuations in the costs of paper, ink, energy and other raw materials.
We are dependent on the availability of paper, ink and other raw materials to support our operations. As such, purchases of paper, ink, energy and other raw materials represent a large portion of our costs. Increases in the costs of these inputs may increase our costs and we may not be able to pass these costs on to clients through higher prices. Increases in the cost of materials may adversely affect clients’ demand for our printing and related services. Other unforeseen developments in these markets may result in a decrease in the supply of paper, ink or other raw materials which may adversely affect our results of operations, financial position and cash flows.
We may be unable to improve our operating efficiency rapidly enough to meet market conditions.
Because the markets in which we operate are highly competitive, we must continue to improve our operating efficiency in order to maintain or improve our profitability. There is no assurance that we will be able to do so in the future. In addition, the need to reduce ongoing operating costs may result in significant up-front costs to reduce workforce, close or consolidate facilities, or upgrade equipment and technology.
A decline in our Company’s or our individual reporting units’ expected profitability may result in the impairment of assets, including goodwill, other long-lived assets and deferred tax assets.
During 2019 and in prior years we have recorded significant goodwill and other long-lived asset impairments and continue to hold goodwill, other long-lived assets and deferred tax assets on our balance sheet. A decline in expected profitability may call into question the recoverability of our remaining goodwill, other long-lived tangible and intangible assets or deferred tax assets and require the write down or write off of these assets or, in the case of deferred tax assets, recognition of a valuation allowance through a charge to income. Such events have had and may continue to have an adverse effect on our results of operations and financial position.
Our services depend on the reliability of computer systems we and our vendors maintain. If our systems fail or are unreliable, our operations may be adversely affected.
We depend on our information technology and data processing systems to operate our business, and a significant malfunction or disruption in the operation of our systems may disrupt our business and adversely affect our ability to operate and compete in the markets we serve. These systems include systems that we own and operate, as well as those systems of our vendors. Such systems are susceptible to malfunctions and interruptions due to equipment damage and power outages and a range of other hardware, software and network problems, as well as human error, employee misconduct, hacking and cybercrime. We also periodically upgrade and install new systems, which if installed or programmed incorrectly, may cause significant disruptions. If a disruption occurs, we may incur losses and costs for interruption of our operations, which may adversely affect our results of operations, financial condition and cash flows.
We may suffer a material data breach of sensitive information. If our efforts to protect the security of such information are unsuccessful, any such material failures may result in significant costs to investigate and remediate the data-breach, private litigation expense and costly government enforcement actions and penalties, and may have an adverse effect on our operations and reputation.
Maintaining the confidentiality, integrity and availability of our systems, software and solutions is an issue of critical importance for us and our clients and users who rely on us to protect the confidentiality of certain information they provide us. Many of our clients’ industries are highly regulated and have established standards and requirements for safeguarding the confidentiality, integrity and availability of information relating to their businesses and customers. Confidential and sensitive information stored in our systems are susceptible to cybercrime, or threats of intentional disruption, which are increasing in terms of sophistication and frequency. Disclosure of the information maintained on our systems due to human error, breach of our systems through hacking or cybercrime, a leak of confidential information due to employee misconduct or other such events may damage our reputation, subject us to regulatory enforcement action and cause significant reputational harm for our clients, all of which may materially affect our results of operations, financial condition and cash flows. In addition, as security threats continue to evolve and increase in terms of sophistication, we may invest additional resources in the security of our systems. The level of investment could also adversely affect our results of operations, financial condition and cash flows.
The highly competitive market for our products and industry consolidation may continue to create adverse price pressures.
The markets for the majority of our product categories are highly fragmented and we have a large number of competitors. We believe excess capacity in our markets has caused downward price pressure and this trend is likely to continue. In addition, consolidation in the markets in which we compete may increase competitive price pressures due to competitors lowering prices.
We believe that selectively pursuing acquisitions is an important strategy for us. If our competitors are able to successfully combine with one another or otherwise consolidate, the competitive landscape would be significantly altered. Such consolidation would create stronger competitors with greater financial resources and broader manufacturing and distribution capabilities than our own, and, if we are not successful with our own efforts to consolidate or adapt effectively to increased competition, the resulting increase in competitive pressures may adversely affect our results of operations, financial position and cash flows.
We have in the past acquired, and intend in the future to acquire, other businesses, and we may be unable to successfully integrate the operations of these businesses and may not achieve the cost savings and increased net sales anticipated as a result of these acquisitions.
Achieving the anticipated benefits of acquisitions will depend in part upon our ability to integrate these businesses in an efficient and effective manner. The integration of companies that have previously operated independently may result in significant challenges, and we may be unable to accomplish the integration smoothly or successfully. In particular, the coordination of geographically dispersed organizations with differences in corporate cultures and management philosophies may increase the difficulties of integration. The integration of acquired businesses may also require the dedication of significant management resources, which may temporarily distract management’s attention from our day-to-day operations. In addition, the process of integrating operations may cause an interruption of, or loss of momentum in, the activities of one or more of our businesses and the loss of our key personnel or the acquired businesses. Further, employee uncertainty and lack of focus during the integration process may disrupt our operations or the operations of the acquired businesses. Our strategy is, in part, predicated on our ability to realize cost savings and to increase net sales through the acquisition of businesses that add to the breadth and depth of our products and services. Achieving these cost savings and net sales increases is dependent upon a number of factors, many of which are beyond our control. In particular, we may not be able to realize the benefits of more comprehensive product and service offerings, anticipated integration of sales forces, asset rationalization and systems integration.
The trend of increasing costs to provide health care and other benefits to our employees and retirees may continue.
We provide health care and other benefits to employees and retirees. Costs for health care have increased more rapidly than general inflation in the U.S. economy. If this trend in health care costs continues, our cost to provide such benefits may increase, adversely affecting our profitability. Changes to health care regulations in the U.S. may also increase our cost of providing such benefits.
Changes in market conditions or lower returns on assets may increase required pension and OPEB plan contributions in future periods.
The funded status of our pension and OPEB plans is dependent upon many factors, including returns on invested assets and the level of certain market interest rates. Market conditions may lead to changes in the discount rates used to value the year-end benefit obligations of the plans, which may partially mitigate or worsen the effects of lower asset returns. If adverse market conditions were to continue for an extended period of time, our costs and required cash contributions associated with pension and OPEB plans may substantially increase in future periods, adversely impacting our financial condition.
We may be more vulnerable to adverse events and trends associated with operations outside the U.S.
We have significant operations outside the U.S. Conducting business outside the U.S. subjects us to a number of additional risks and challenges, including:
periodic changes in a specific country's or region's economic conditions, such as recession;
compliance with a wide variety of domestic and foreign laws and regulations (including those of municipalities or provinces where we have operations) and unexpected changes in those laws and regulatory requirements, including uncertainties regarding taxes, social insurance contributions and other payroll taxes and fees to governmental entities, tariffs, quotas, export controls, export licenses and other trade barriers;
unanticipated restrictions on our ability to sell to foreign clients where sales of products and the provision of services may require export licenses;
certification requirements;
fluctuations in foreign currency exchange rates, including those resulting from inflation and currency devaluation activities;
inadequate protection of intellectual property rights in some countries;
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potential political, legal and economic instability, foreign conflicts, terrorism and the impact of regional and global infectious illnesses in the countries in which we and our clients, suppliers and contract manufacturers are located;
difficulties and costs of staffing and managing international operations across different geographic areas and cultures, including assuring compliance with the U.S. Foreign Corrupt Practices Act and other U. S. and foreign anticorruption laws; and
fluctuations in freight rates and transportation disruptions.
These factors, individually or in combination, may impair our ability to effectively deliver our products and services, result in unexpected expenses, or cause an unexpected decline in the demand for our products in certain countries or regions. Specifically with respect to our operations in China, our financial performance may be adversely impacted as a result of the following risks, among others, regulation of foreign investment and business activities by the Chinese government, including scrutiny of foreign companies, may limit our ability to expand our business in China; uncertainties with respect to the legal system in China may limit the legal protections available to us in China; government restrictions on the remittance of currency out of China and the ability of any subsidiary we may establish in China to pay dividends and make other distributions to us; unfavorable result of ongoing trade negotiations between the U.S. and China; and potential unfavorable tax and tariff consequences as a result of our operations in China.
Further, our business could be adversely affected by the recent outbreak of the respiratory illness caused by COVID-19, which was first identified in Wuhan, China. This situation is evolving and any further significant spread of this virus may have a material and adverse effect on our business and may include temporary closures of our facilities or the facilities of our suppliers and clients, restrictions on our ability to distribute and sell our products, and other disruptions caused to us, our suppliers or clients as a result of this virus. This may adversely affect our results of operations, financial position and cash flows.
We are exposed to significant risks related to potential adverse changes in currency exchange rates.
We are exposed to the impact of foreign currency fluctuations based on our global operations. Although the results in our Consolidated Financial Statements are reported in U.S. dollars, we also earn revenues, pay expenses, own assets and incur liabilities in various foreign currencies. Fluctuations in currency exchange rates have had, and will continue to have, an impact on our results expressed in U.S. dollars. We may enter into derivative instruments, such as foreign currency forward contracts, to hedge certain exposures to exchange rate fluctuations. There can be no assurance, however, that our efforts at hedging will be successful and that currency exchange rate fluctuations will not adversely affect our results of operations, financial position and cash flows.
We also face risks arising from the imposition of exchange controls, which may limit our ability to convert foreign currencies into U.S. dollars or to remit dividends and other payments by our foreign subsidiaries or businesses located in or conducted within a country imposing controls.
Catastrophic events may damage or destroy our factories, distribution centers or other facilities, which may disrupt our business.
Natural disasters, conflicts, wars, terrorist attacks, fires or other catastrophic events may cause damage or disruption to our factories, distribution centers or other facilities, which may adversely affect our ability to manage logistics, cause delays in the delivery of products and services to our clients, and create inefficiencies in our supply chain. An event of this nature may also prevent us from maintaining ongoing operations and performing critical business functions. While we maintain backup systems and operate out of multiple facilities to reduce the potentially adverse effect of these types of events, a catastrophic event that results in the destruction of any of our major factories, distribution centers or other facilities would affect our ability to conduct normal business operations, which may adversely affect our results of operations, financial position and cash flows.
Changes in rules and regulations to which we are subject may increase our costs, which may adversely affect us.
We are subject to numerous rules and regulations, including, but not limited to, product safety, environmental and health and welfare benefit regulations. These rules and regulations may be changed by local, state or federal governments in countries in which we operate. Changes in these regulations may result in a significant increase in our costs to comply. Compliance with changes in rules and regulations may require increases to our workforce, increased cost for compensation and benefits, or investments in new or upgraded equipment. In addition, growing concerns about climate change, including the impact of global warming, may result in new regulations, including with respect to greenhouse gas emissions (including carbon dioxide) and/or “cap and trade” legislation. Compliance with new rules and regulations or changes in existing rules and regulations, as well as the need to address any violations thereof, may result in additional costs, which may adversely affect our results of operations, financial condition and cash flows.
Many of our clients are subject to rules and regulations requiring certain printed or electronic communications, governing the form of such communications and protecting the privacy of customers. For instance, our healthcare and insurance printing businesses are subject to such regulations. Changes in these regulations may impact clients’ business practices and may reduce demand for our products and services. Changes in such regulations may eliminate the need for certain types of communications altogether or may impact the quantity or format of such communications.
Changes in postal rates, regulations and delivery structure may adversely affect demand for our products and services.
Postal costs are a significant component of many of our clients’ cost structure and postal rate changes can influence the number of pieces and types of mailings that our clients mail. In accordance with the 2006 PAEA, the PRC adjusted and approved USPS filings for a CPI based average price increase of 1.5% to 1.9% depending on the major class of mail. The new prices took effect on January 26, 2020.
Additionally, as required on the 10-year anniversary of PAEA, the PRC initiated a comprehensive review of PAEA on December 20, 2016, to determine if the current system for regulating rates and classes for market-dominant products is still achieving the original objectives of the law. The PRC issued its findings on December 1, 2017 and concluded that the current system was not meeting all of PAEA’s original objectives. To remedy this situation, the PRC proposed recommendations, which among other things, allows the Postal Service pricing flexibility of “CPI + 2%” on market-dominant mail products for a 5-year period of time. The PRC asked for industry stakeholder input, comments and alternative suggestions to these recommendations which were due by March 1, 2018. The industry reaction to the PRC’s recommendations was overwhelmingly negative, which in turn caused the PRC to reconsider and issue an amended proposal on December 12, 2019, nearly 21 months later. Industry stakeholders are expected to reply to the newest proposal by March 2020.
In other developments, the Trump administration on April 12, 2018 issued an Executive Order establishing a Task Force (“TF”) to evaluate the USPS. On December 4, 2018, the TF issued a formal report calling for a total reevaluation of the Postal Service business model to make the organization more viable and sustainable going into the future. No further action related to the TF report occurred in 2019.
The impact of any restructuring of the USPS, which may require legislative action, cannot currently be estimated. If implemented, certain changes may impact our clients’ ability or willingness to communicate by mail. Declines in print volumes mailed would have an adverse effect on our results of operations, financial condition and cash flows.
Increased transportation costs and changes in the relationships with independent shipping companies may have an adverse effect on our business.
We rely upon third party carriers for timely delivery of our product shipments. As a result, we are subject to carrier disruptions and increased costs due to factors that are beyond our control, including employee strikes, inclement weather and increased fuel costs. Any failure to deliver products to our clients in a timely and accurate manner may damage our reputation and brand and may cause us to lose clients. If our relationship with any of these third party carriers is terminated or impaired, or if any of these third parties are unable to ship products for us, we would be required to use alternative, and possibly more expensive, carriers for the shipment of products. We may be unable to engage alternative carriers on a timely basis or on terms favorable to us, if at all, which may have an adverse effect on our results of operations, financial condition and cash flows.
Furthermore, shipping costs represent a significant operational expense for us. Changes in shipping terms, or the inability of these third party shippers to perform effectively (whether as a result of mechanical failure, casualty loss, labor stoppage, or any other reason), may have an adverse effect on our results of operations, financial condition and cash flows. Additionally, deterioration of the financial condition of these third-party carriers may have an adverse effect on our shipping costs. Any future increases in shipping rates may have an adverse effect on our results of operations, financial condition and cash flows, particularly if we are unable to pass on these higher costs to our clients.
Undetected errors or failures found in our products and services may result in loss of or delay in market acceptance of our products and services that may seriously harm our business.
Our products and services may contain undetected errors or scalability limitations at any point, but particularly when first introduced or as new versions are released. We frequently release new versions of our products and different aspects of our platform are in various stages of development. Despite testing by us and by current and potential clients, errors may not be found in new products and services until after commencement of commercial availability or use, resulting in a loss of or a delay in market acceptance, damage to our reputation, client dissatisfaction and reductions in net sales and margins, any of which may have an adverse effect on our results of operations, financial condition and cash flows.
We may be unable to hire and retain talented employees, including management.
Our success depends, in part, on our general ability to attract, develop, motivate and retain highly skilled employees. The loss of a significant number of our employees or the inability to attract, hire, develop, train and retain skilled personnel, particularly during strong economic periods, may have an adverse effect on us. Various locations may encounter competition with other manufacturers for skilled labor. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices than we offer. In addition, many members of our management team have significant industry experience that is valuable to our competitors. We enter into non-solicitation and, as appropriate, non-competition agreements with certain of our executive officers, prohibiting them contractually from soliciting our clients and employees and from leaving and joining a competitor within a specified period. Our inability to hire and retain talented employees or the loss of senior members of our senior management team may result in challenges or temporary difficulty in managing our business, which may adversely affect our results of operations, financial condition or cash flows.
We may be contingently liable for various LSC Communications, Inc. and Donnelley Financial Solutions, Inc. operating leases.
Subsequent to the spinoff of LSC Communications, Inc. (“LSC”) and Donnelley Financial Solutions, Inc. (“Donnelley Financial”), we may be contingently liable for obligations under various operating leases for office, warehouse and manufacturing locations of LSC and Donnelley Financial. In the event that LSC or Donnelley Financial fail to make lease payments or fail to pay other obligations under these lease agreements, we may be required to satisfy those obligations to the lessor. Under various agreements executed at the time of the spinoff, LSC and Donnelley Financial agreed to fully indemnify us in the event that we would be required to make a payment on their behalf; however, there can be no assurance that the indemnities from LSC and Donnelley Financial will be sufficient to satisfy the full amount of any such contingent obligations. Our exposure to these potential contingent liabilities will decrease over time as LSC and Donnelley Financial pay monthly lease obligations and as the leases expire. As of December 31, 2019, these potential contingent obligations were approximately $78.8 million and $5.5 million for LSC and Donnelley Financial, respectively. If we are required to make payments pursuant to these arrangements, it may adversely affect our results of operations, financial condition or cash flows.
The spinoff transactions of LSC and Donnelley Financial in October 2016 could result in significant tax liability.
We obtained an opinion from our outside legal counsel substantially to the effect that, among other things, the distributions in connection with the spinoff transactions qualify as tax-free distributions under the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The opinion will not be binding on generally limits to $1 million annually the IRS or the courts. Additionally, we have received a private letter ruling from the IRS concluding that certain limited aspects of the distributions will not prevent the distributions from satisfying certain requirements for tax-free treatment under the Code. The opinion and the private letter ruling rely on customary factual representations and assumptions, which if incorrect or inaccurate may jeopardize the ability to rely on such opinion and letter ruling.
If either or both of the distributions do not qualify for tax-free treatment for U.S. federal income tax purposes, then,deduction that that a publicly held corporation like RRD may claim for compensation payable to certain of its respective current and former executive officers. The HR Committee prioritize its primary goals of structuring compensation programs to attract, motivate and retain executives as well as ensuring that pay aligns with performance and is in general, we would bethe best interests of RRD and its stockholders. Accordingly, achieving these goals may have resulted (and may continue to result) in compensation that, in certain cases, is not deductible for federal income tax purposes.
Stock Ownership Guidelines
The HR Committee has established stock ownership guidelines for all NEOs and certain other executives. Consistent with our compensation philosophy, these guidelines are designed to require the Company’s executives to have a meaningful equity ownership in RRD, and thereby link their interests with those of our stockholders. These stock ownership guidelines provide that within three years of hire or promotion, all of our NEOs, other than our CEO, must own and retain Company capital stock having a fair market value of 3x their salary and that our CEO must own and retain Company stock having a fair market value of 5x his salary. In the event a NEO does not achieve or make progress toward the required stock ownership level, the HR Committee has the discretion to take appropriate action. As a result of the decline in the Company’s stock price over the past five years, Dan Knotts and Terry Peterson, but not the other NEOs, have achieved their required stock ownership level. No executive subject to tax as if we had soldstock ownership guidelines has attempted or requested to sell their capital stock.
Hedging
The Board of Directors believes that hedging transactions that allow holders to own the common stockCompany’s securities without the full risks and rewards of such spun-off entity in a taxable sale for its fair value. In that case, we expect that RRD stockholders would be subject to tax as if they had received a distribution equal toownership separate the fair valueholder’s interest from those of the spun-off entity’s common stock that was distributed to them, which generally would be treated first as a taxable dividend to the extent of our earnings and profits, then as a non-taxable return of capital to the extent of each holder’s tax basis in its Company common stock, and thereafter as capital gainother stockholders. Accordingly, with respect to RRD securities, the Board adopted a policy forbidding directors, officers, and employees of the Company or its subsidiaries from pledging, holding in a “margin account” at a broker-dealer, short sales, trading in publicly traded options, puts or calls, hedging or any remaining value. We expectsimilar transactions or arrangements.
Human Resources Committee Report
The HR Committee of the Board of Directors of R. R. Donnelley & Sons Company, on behalf of the Board, establishes and monitors the Company’s overall compensation strategy to ensure that executive compensation supports the business objectives. In fulfilling its oversight responsibilities, the HR Committee reviewed and discussed with management the Compensation Discussion & Analysis set forth in this Amendment No. 1 on Form 10-K/A.
In reliance on the review and discussions referred to above, the HR Committee recommended to the Board that the amount of any such taxes to RRD stockholders and us wouldCompensation Discussion & Analysis be substantial if this were to occur.
We have no unresolved written comments from the SEC staff regarding our periodic or current reports under the Securities Exchange Act of 1934.
Our corporate office is located in leased office space in Chicago, Illinois. As of December 31, 2019, we leased or owned 198 U.S. facilities, some of which had multiple buildings and warehouses, and these U.S. facilities encompassed approximately 15.3 million square feet. We leased or owned 63 international facilities, some of which had multiple buildings and warehouses, encompassing approximately 5.6 million square feet primarily in Asia, Canada, Europe and Latin America. Of our U.S. and international facilities, approximately 8.9 million square feet of space was owned, while the remaining 12.0 million square feet of space was leased.
From time to time, our clients and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments we received from these parties could be considered preference items and subject to return. In addition,
we are party to certain litigation arisingincorporated in the ordinary course of business. We believe that the final resolution of these preference items and litigation will not have a material effect on our consolidated results of operations, financial position or cash flows.
For a discussion of certain litigation involving us, see Note 8, Commitments and Contingencies, to the Consolidated Financial Statements.
Not applicable.
INFORMATION ABOUT OUR EXECUTIVE OFFICERS (As of February 1, 2020)
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Our common stock is listed and traded on the New York Stock Exchange (NYSE) under the symbol “RRD”. As of February 21, 2020, there were 3,617 stockholders of record of our common stock.
ISSUER PURCHASES OF EQUITY SECURITIES
There were no repurchases of equity securities during the three months ended December 31, 2019.
EQUITY COMPENSATION PLANS
For information regarding equity compensation plans, see Item 12 of Part III of this Annual Report on Form 10-K.
PEER PERFORMANCE TABLE
The graph below compares five-year returns of our common stock with those of the S&P SmallCap 600 and the S&P 1500 Industrials Index. The comparison assumes an initial investment of $100 on December 31, 2014 and that all dividends have been reinvested. Our performance through September 30, 2016 has been adjusted for the spinoffs of LSC and Donnelley Financial which occurred on October 1, 2016 and are reflected in the table below as a dividend. Additionally, our performance has been adjusted for the 1-for-3 reverse stock split for our stock which also occurred on October 1, 2016.
| Base Period |
| Fiscal Years Ended December 31, |
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Company Name/Index | 2014 |
| 2015 |
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| 2016 |
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| 2017 |
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| 2018 |
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| 2019 |
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RR Donnelley | 100 |
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| 93.12 |
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| 76.61 |
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| 45.99 |
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| 20.65 |
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| 21.40 |
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S&P SmallCap 600 | 100 |
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| 98.03 |
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| 124.06 |
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| 140.48 |
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| 128.56 |
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| 157.85 |
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S&P 1500 Industrials Index | 100 |
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| 97.29 |
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| 117.14 |
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| 141.81 |
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| 122.84 |
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| 159.45 |
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SELECTED FINANCIAL DATA
(in millions, except per share data)
| 2019 |
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| 2018 |
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| 2017 |
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| 2016 |
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| 2015 |
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Continuing Operations |
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Net sales | $ | 6,276.2 |
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| $ | 6,800.2 |
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| $ | 6,939.6 |
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| $ | 6,833.0 |
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| $ | 6,880.7 |
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Net loss from continuing operations(1) |
| (92.7 | ) |
|
| (9.6 | ) |
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| (33.2 | ) |
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| (484.9 | ) |
|
| (31.7 | ) |
Net loss attributable to RRD common stockholders per diluted share(1),(2) |
| (1.31 | ) |
|
| (0.16 | ) |
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| (0.49 | ) |
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| (6.95 | ) |
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| (0.28 | ) |
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Financial Position and Other Data |
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Total assets(3) |
| 3,330.1 |
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| 3,640.8 |
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| 3,904.5 |
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| 4,268.8 |
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| 7,264.6 |
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Long-term debt(3) |
| 1,747.2 |
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| 1,875.3 |
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| 2,098.9 |
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| 2,379.2 |
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| 3,188.3 |
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Cash dividends per common share(2) |
| 0.12 |
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| 0.34 |
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| 0.56 |
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| 2.48 |
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| 3.12 |
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| 2019 |
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| 2018 |
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| 2017 |
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| 2016 |
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| 2015 |
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Restructuring, impairment and other charges-net | $ | 135.3 |
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| $ | 38.8 |
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| $ | 53.0 |
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| $ | 584.3 |
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| $ | 62.7 |
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Other operating expenses(4) |
| 21.0 |
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| — |
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| — |
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| — |
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| — |
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Spinoff-related transaction expenses |
| — |
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| — |
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| 3.3 |
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| 8.0 |
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| — |
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Pension settlement and plan amendments charges |
| (0.1 | ) |
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| 1.9 |
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| 1.6 |
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| 21.1 |
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| — |
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OPEB curtailment gain |
| — |
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| — |
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| — |
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| (19.5 | ) |
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| — |
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Gain on disposal of businesses |
| (9.2 | ) |
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| (3.7 | ) |
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| — |
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| (11.9 | ) |
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| — |
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Loss on Venezuela currency remeasurement |
| — |
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| — |
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| — |
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| — |
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| 30.3 |
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Loss primarily related to the disposal of the Venezuelan operating entity |
| — |
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| — |
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| — |
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| — |
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| 15.7 |
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Gain from the sale of certain of our affordable housing investments |
| (0.2 | ) |
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| (0.4 | ) |
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| (1.3 | ) |
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| (0.1 | ) |
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| (3.9 | ) |
Net loss (gain) on sale of LSC and Donnelley Financial shares |
| 2.1 |
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| — |
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| (42.4 | ) |
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| — |
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| — |
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Loss from the impairment of equity investments |
| — |
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| — |
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| — |
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| 1.4 |
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| 1.3 |
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Loss from the impairment of our investment in the Brazilian operations of Courier |
| — |
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| — |
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| — |
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| — |
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| 2.8 |
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Loss on debt extinguishment |
| 0.8 |
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| 32.4 |
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| 20.1 |
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| — |
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| — |
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Other |
| 0.7 |
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| 0.1 |
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| — |
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| 2.7 |
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| 0.5 |
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Total charges before taxes | $ | 150.4 |
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| $ | 69.1 |
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| $ | 34.3 |
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| $ | 586.0 |
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| $ | 109.4 |
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Total after-tax impact of the above charges, excluding the impact of noncontrolling interests |
| 140.3 |
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| 61.4 |
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| 11.2 |
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| 534.9 |
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| 87.9 |
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Deferred income tax benefit |
| — |
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| (6.4 | ) |
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| (3.0 | ) |
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| (0.4 | ) |
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| — |
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Tax expense related to the enactment of the Tax Act |
| — |
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| 5.7 |
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| 110.3 |
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| — |
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| — |
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Total charges, net of taxes | $ | 140.3 |
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| $ | 60.7 |
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| $ | 118.5 |
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| $ | 534.5 |
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| $ | 87.9 |
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The following discussion of our financial condition and results of operations should be read together with the Consolidated Financial Statements and Notes to those statements included in Item 15 of Part IV of this Annual Report on Form 10-K.
Business
For a description of our business, segments and product and service offerings, see Item 1, Business, of Part I of this Annual Report on Form 10-K.
We separately report our net sales, related costs of sales and gross profit for our product and service offerings. Our product offerings primarily consist of commercial print, packaging, statements, direct marketing, labels, digital print and fulfillment, supply chain management and forms. Our service offerings primarily consist of logistics, business process outsourcing and digital and creative solutions.
Executive Overview
2019 OVERVIEW
Net sales for the year ended December 31, 2019 were $6,276.2 million, a decrease of $524.0 million, or 7.7%, compared to the year ended December 31, 2018. Net sales decreased $307.3 million due to business dispositions and $54.9 million due to changes in foreign exchange rates. Net sales also decreased due to lower volume in commercial print due to ongoing secular pressure and the continued planned reductions in low margin sales, as well as price pressures. Decreases in net sales were partially offset by higher volume in direct marketing primarily attributable to the 2020 Census contract.
Income from operations for the year ended December 31, 2019 was $98.6 million, a decrease of $110.0 million compared to the year ended December 31, 2018. Income from operations decreased due to a non-cash charge of $98.5 million to recognize the impairment of goodwill in the logistics reporting unit within the Business Services segment, as well as cost inflation, price pressures and lower sales volume, partially offset by lower selling, general and administrative expenses and lower depreciation and amortization expense.
We continue to assess opportunities to reduce our cost structure and enhance productivity throughout the business. During the year ended December 31, 2019, we realized cost savings from previous restructuring activities, including the reorganization of administrative and support functions across all segments, as well as facility consolidations.
Net cash provided by operating activities for the year ended December 31, 2019 was $139.3 million as compared to $203.5 million for the year ended December 31, 2018. The decrease in net cash flow from operating activities related primarily to higher tax and restructuring payments, partially offset by lower interest payments.
OUTLOOK
Vision and Strategy
We work with our clients to create, manage, deliver and optimize their multichannel communications strategies. We have and will continue to develop our creative and design, content management, digital and print production, supply chain management and distribution services to address our clients’ evolving needs.
Our global platform provides differentiated solutions for our clients through our broad range of complementary communications services and innovative leadership in both conventional print and digital technologies. This platform has enabled RRD to develop strong client relationships, and we are focused on expanding these relationships to a broader range of our offerings. The flexibility of our platforms enhances the value we deliver to our clients and we intend to expand our capabilities in order to make it easier for clients to manage their full range of communication needs.
We believe productivity improvements and cost reductions are critical to our competitiveness. We continue to implement strategic initiatives across each of our segments to reduce our overall cost structure and enhance productivity primarily through restructuring which includes consolidations, reorganizations and integrations of operations and streamlining of administrative and support activities.
We seek to deploy our capital using a balanced approach in order to ensure financial flexibility and provide returns to stockholders. Priorities for capital deployment, over time, include capital expenditures, principal and interest payments on debt obligations, distributions to stockholders and targeted acquisitions. We believe that a strong financial condition is important to clients focused on establishing or growing long-term relationships. We also expect to make targeted acquisitions that extend our capabilities, drive cost savings and reduce future capital spending needs.
We use several key indicators to gauge progress toward achieving these objectives. These indicators include organic sales growth, operating margins, cash flow from operations and capital expenditures. We target long-term net sales growth, while managing operating margins by achieving productivity improvements that offset the impact of price declines and cost inflation. Cash flows from operations are targeted to be stable over time, but in any given year can be significantly impacted by the timing of non-recurring or infrequent receipts and expenditures, the level of required pension and OPEB plan contributions, the timing of tax payments and the impact of working capital changes.
We face many challenges and risks as a result of competing in highly competitive global markets. Refer to Item 1A, Risk Factors, of Part I of this Annual Report on Form 10-K for further discussion.
2020 Outlook
In 2020, we expect net sales to be lower as compared to 2019 primarily due to current year dispositions. On an organic basis, we expect net sales to range from a slight decrease to a slight increase as compared to 2019 primarily driven by expected growth in our direct marketing, packaging and labels products. We also expect continued secular declines in our commercial print and forms products and continued price pressures in most parts of the business. The highly competitive market conditions and unused industry capacity will continue to put price pressure on both transactional work and contract renewals across both segments. Our outlook assumes that the U.S. economy and the economies of the foreign countries in which we operate will remain stable. We will continue to leverage our client relationships in order to provide a larger share of their communications needs. In addition, we expect to continue cost control and productivity initiatives, including selected facility consolidations.
We initiated several restructuring actions during the years ended December 31, 2019, 2018 and 2017, to further reduce our overall cost structure. These restructuring actions included the closures of manufacturing facilities as well as the reorganization and consolidation of certain operations. These and future cost reduction actions are expected to have a positive impact on operating earnings in 2020 and in future years. In addition, we expect to identify other cost reduction opportunities and possibly take further actions, which may result in significant additional restructuring charges. These restructuring actions will be funded by cash generated from operations and cash on hand or, if necessary, by utilizing our credit facilities.
We expect lower interest expense on lower average borrowings and a lower average interest rate in 2020 and we expect the effective tax rate to be significantly higher than the statutory rate primarily due to anticipated limitations on our domestic interest expense deduction as a result of the Tax Act.
Cash flows from operations in 2020 are expected to be higher versus 2019 as lower interest and tax payments and targeted working capital improvements are expected to more than offset higher restructuring payments. We expect capital expenditures to be significantly lower in 2020 as the 2019 expenditures associated with building the new printing facility in China and additional investments related to the 2020 Census contract will not repeat in 2020. Also, as part of our agreement to sell the printing facility in China, we expect to collect one additional non-refundable deposit of $24 million in 2020 and we expect to continue generating additional proceeds from monetizing other assets including proceeds from selling additional facilities.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2019 AS COMPARED TO THE YEAR ENDED DECEMBER 31, 2018
Consolidated
The following table shows the results of operations for the years ended December 31, 2019 and 2018:
| Year Ended December 31, |
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| |||||
| 2019 |
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| 2018 |
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| $ Change |
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| % Change |
| ||||
| (in millions, except percentages) |
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Products net sales | $ | 5,117.6 |
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| $ | 5,317.7 |
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| $ | (200.1 | ) |
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| (3.8 | %) |
Services net sales |
| 1,158.6 |
|
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| 1,482.5 |
|
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| (323.9 | ) |
|
| (21.8 | %) |
Total net sales |
| 6,276.2 |
|
|
| 6,800.2 |
|
|
| (524.0 | ) |
|
| (7.7 | %) |
Products cost of sales (exclusive of depreciation and amortization) |
| 4,150.6 |
|
|
| 4,315.8 |
|
|
| (165.2 | ) |
|
| (3.8 | %) |
Services cost of sales (exclusive of depreciation and amortization) |
| 934.7 |
|
|
| 1,229.0 |
|
|
| (294.3 | ) |
|
| (23.9 | %) |
Total cost of sales |
| 5,085.3 |
|
|
| 5,544.8 |
|
|
| (459.5 | ) |
|
| (8.3 | %) |
Products gross profit |
| 967.0 |
|
|
| 1,001.9 |
|
|
| (34.9 | ) |
|
| (3.5 | %) |
Services gross profit |
| 223.9 |
|
|
| 253.5 |
|
|
| (29.6 | ) |
|
| (11.7 | %) |
Total gross profit |
| 1,190.9 |
|
|
| 1,255.4 |
|
|
| (64.5 | ) |
|
| (5.1 | %) |
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
| 776.2 |
|
|
| 830.4 |
|
|
| (54.2 | ) |
|
| (6.5 | %) |
Restructuring, impairment and other charges-net |
| 135.3 |
|
|
| 38.8 |
|
|
| 96.5 |
|
| nm |
| |
Depreciation and amortization |
| 169.2 |
|
|
| 181.4 |
|
|
| (12.2 | ) |
|
| (6.7 | %) |
Other operating expense (income) |
| 11.6 |
|
|
| (3.8 | ) |
|
| 15.4 |
|
| nm |
| |
Income from operations | $ | 98.6 |
|
| $ | 208.6 |
|
| $ | (110.0 | ) |
|
| (52.7 | %) |
Net sales of products for thefiscal year ended December 31, 2019 decreased $200.1 million, or 3.8%, to $5,117.6 million versus2021, as amended.
The HR Committee of R. R. Donnelley & Sons Company
Irene M. Esteves, Chair
Susan M. Gianinno
Timothy R. McLevish
Jamie Moldafsky
Executive Compensation
The Summary Compensation Table provides compensation information about our principal executive officer, principal financial officer, and the same period in 2018. Net sales from products decreased $91.2 million due to business dispositions, includingthree most highly compensated executive officers other than the bankruptcy liquidationprincipal executive officer and principal financial officer as of RRD Brazil and $50.4 million due to changes in foreign exchange rates. Net sales of products also decreased due to lower volume in commercial print due to ongoing secular pressure and continued planned reductions in low margin sales, as well as price pressure, partially offset by higher volume in direct marketing primarily attributable to the 2020 Census contract.
Net sales from services for the year ended December 31, 2019 decreased $323.9 million, or 21.8%, to $1,158.6 million versus the same period in 2018. Net sales from services decreased $216.1 million due to business dispositions, primarily Print Logistics. Net sales from services also decreased due to lower volume in the remaining logistics business.
Products cost of sales decreased $165.2 million, or 3.8%, for the year ended December 31, 2019 versus the same period in 2018 primarily due to the reduction in net sales. As a percentage of net sales, products cost of sales decreased 0.1 percentage point for the year ended December 31, 2019 versus the same period in 2018.
Services cost of sales decreased $294.3 million, or 23.9%, for the year ended December 31, 2019 versus the same period in 2018, primarily due to the disposition of the Print Logistics business and cost control initiatives. As a percentage of net sales, services cost of sales decreased 2.2 percentage points for the year ended December 31, 2019 versus the same period in 2018.
Products gross profit decreased $34.9 million to $967.0 million for the year ended December 31, 2019 versus the same period in 2018, primarily due to lower volume, unfavorable product mix, cost inflation and price pressures, partially offset by cost control initiatives. Products gross margin increased slightly from 18.8% to 18.9%.
Services gross profit decreased $29.6 million to $223.9 million for the year ended December 31, 2019 versus the same period in 2018, primarily due to lower volume in our logistics business. Services gross margin increased from 17.1% to 19.3%.
Selling, general and administrative expenses decreased $54.2 million to $776.2 million for the year ended December 31, 2019 versus the same period in 2018 reflecting cost control initiatives and business dispositions. As a percentage of net sales, selling, general and administrative expenses increased from 12.2% to 12.4% for the year ended December 31, 2019 versus the same period in 2018.
For the year ended December 31, 2019, net restructuring, impairment and other charges of $135.3 million primarily included a non-cash charge of $98.5 million to recognize the impairment of goodwill in the logistics reporting unit within the Business Services segment, $22.3 million for employee termination costs and $16.6 million for other restructuring charges. There were no goodwill impairment charges in 2018. See Note 4, Restructuring, Impairment and Other Charges, to the Consolidated Financial Statements for further discussion.
Depreciation and amortization decreased $12.2 million to $169.2 million for the year ended December 31, 2019 versus the same period in 2018, primarily due to lower capital spending in recent years compared to historical levels.
Other operating expense for the year ended December 31, 2019 was $11.6 million compared to other operating income of $3.8 million for the same period in 2018. The expense in 2019 was primarily related to the ongoing SEC and DOJ investigations, an increase in reserves for an unfavorable state sales tax matter and expenses related to the ongoing bankruptcy liquidation of RRD Brazil, partially offset by the gains from business dispositions. The prior year amount primarily included a $3.6 million pre-tax gain on the sale of the Print Logistics business in July 2018.
Income from operations for the year ended December 31, 2019 declined $110.0 million from 2018 to $98.6 million as a result of the factors discussed above.2021.
| Year Ended December 31, |
|
|
|
|
|
|
|
|
| |||||
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
Interest expense-net | $ | 150.6 |
|
| $ | 168.3 |
|
| $ | (17.7 | ) |
|
| (10.5 | %) |
Investment and other income-net |
| (16.7 | ) |
|
| (20.4 | ) |
|
| 3.7 |
|
|
| (18.1 | %) |
Loss on debt extinguishment |
| 0.8 |
|
|
| 32.4 |
|
|
| (31.6 | ) |
|
| (97.5 | %) |
Net interest expense decreased by $17.7 million for the year ended December 31, 2019 versus the same period in 2018, primarily due to lower average borrowings and interest rates during the year ended December 31, 2019.
Investment and other income, net for the years ended December 31, 2019 and 2018 was $16.7 million and $20.4 million, respectively, and principally comprised of net pension and OPEB income.
Loss on debt extinguishment for the year ended December 31, 2019 was $0.8 million which related to the repurchase of senior notes and debentures. Loss on debt extinguishment for the year ended December 31, 2018 was $32.4 million which primarily related to premiums paid in connection with tenders, unamortized debt issuance costs and other expenses associated with the October 2018 tender offer. See Note 11, Debt, to the Consolidated Financial Statements for further discussion.
| Year Ended December 31, |
|
|
|
|
|
|
|
|
| |||||
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
| (in millions, except percentages) |
| |||||||||||||
(Loss) income before income taxes | $ | (36.1 | ) |
| $ | 28.3 |
|
| $ | (64.4 | ) |
| nm |
| |
Income tax expense |
| 56.6 |
|
|
| 37.9 |
|
|
| 18.7 |
|
|
| 49.3 | % |
Effective income tax rate |
| 156.8 | % |
|
| 133.9 | % |
|
|
|
|
|
|
|
|
The effective income tax rate for the year ended December 31, 2019 was an expense of 156.8% and is primarily driven by limitations on the interest expense deduction as a result of the Tax Act. Non-deductible interest expense will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and full valuation allowance was recorded in 2019. The income tax expense also reflects a non-deductible goodwill impairment charge.
The effective income tax rate for the year ended December 31, 2018 was an expense of 133.9% and is primarily driven by limitations on the interest expense deduction as a result of the Tax Act. Non-deductible interest expense will be carried forward; however, it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance of $23.9 million was recorded in 2018. The income tax expense also reflects final adjustments associated with the enactment of the Tax Act of $4.2 million to the one-time transition tax on foreign earnings, as well as $1.5 million to net deferred tax assets for the reduced corporate income tax rate. Additionally, the income tax expense reflects the inability to recognize a tax benefit on certain losses.
Income attributable to noncontrolling interests was $0.5 million and $1.4 million for the years ended December 31, 2019 and 2018, respectively.
Net loss for the year ended December 31, 2019 was $92.7 million compared to $9.6 million for the year ended December 31, 2018.Summary Compensation Table
Business Services
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (in millions, except percentages) |
| |||||
Net sales |
| $ | 4,995.7 |
|
| $ | 5,619.1 |
|
Income from operations |
|
| 132.7 |
|
|
| 242.3 |
|
Operating margin |
|
| 2.7 | % |
|
| 4.3 | % |
Restructuring, impairment and other charges-net |
|
| 123.6 |
|
|
| 25.8 |
|
Net sales for the Business Services segment for the year ended December 31, 2019 were $4,995.7 million, a decrease of $623.4 million, or 11.1%, compared to 2018. Net sales decreased $307.3 million due to business dispositions, primarily the Print Logistics business, and $54.9 million due to changes in foreign exchange rates. The remaining decrease in net sales was primarily due to lower volume in commercial print due to ongoing secular pressure, continued planned reductions in low margin sales, lower volume in the remaining logistics business and price pressures. The following table summarizes net sales by products and services in the Business Services segment:
|
| Year Ended December 31, |
|
|
|
|
|
|
|
|
| |||||
Products and Services |
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
|
| (in millions, except percentages) |
| |||||||||||||
Commercial print |
| $ | 1,694.5 |
|
| $ | 1,935.6 |
|
| $ | (241.1 | ) |
|
| (12.5 | %) |
Logistics |
|
| 814.6 |
|
|
| 1,109.3 |
|
|
| (294.7 | ) |
|
| (26.6 | %) |
Packaging |
|
| 668.5 |
|
|
| 672.0 |
|
|
| (3.5 | ) |
|
| (0.5 | %) |
Statements |
|
| 545.4 |
|
|
| 584.2 |
|
|
| (38.8 | ) |
|
| (6.6 | %) |
Labels |
|
| 497.4 |
|
|
| 481.4 |
|
|
| 16.0 |
|
|
| 3.3 | % |
Supply chain management |
|
| 298.7 |
|
|
| 321.0 |
|
|
| (22.3 | ) |
|
| (6.9 | %) |
Forms |
|
| 244.3 |
|
|
| 267.5 |
|
|
| (23.2 | ) |
|
| (8.7 | %) |
Business process outsourcing |
|
| 232.3 |
|
|
| 248.1 |
|
|
| (15.8 | ) |
|
| (6.4 | %) |
Total Business Services |
| $ | 4,995.7 |
|
| $ | 5,619.1 |
|
| $ | (623.4 | ) |
|
| (11.1 | %) |
Business Services segment income from operations decreased $109.6 million for the year ended December 31, 2019 compared to the same period in 2018, primarily due to a charge of $98.5 million recognized for the impairment of goodwill, as well as lower volume, price pressures and cost inflation, partially offset by changes in foreign exchange rates, lower depreciation and amortization expense and cost control initiatives.
Name and Principal Position |
| Year |
| Salary ($) |
| Bonus ($)(1) |
| Stock Awards ($)(2) |
|
| Non-Equity Incentive Plan Compensation ($)(3) |
| Change in Pension Value ($)(4) |
| All Other Compensation ($)(5) |
| Total ($) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
|
| 2021 |
|
|
| 1,135,000 |
|
|
|
|
|
|
| 8,239,641 |
|
|
| 2,059,344 |
|
|
|
|
|
|
| 36,292 |
|
| 11,470,277 |
President and |
|
| 2020 |
|
|
| 978,500 |
|
|
|
|
|
|
| 4,495,017 |
|
|
| 1,398,913 |
|
|
| 138,171 |
|
|
| 41,209 |
|
| 7,051,809 |
Chief Executive Officer |
|
| 2019 |
|
|
| 978,500 |
|
|
|
|
|
|
| 4,328,794 |
|
|
| 973,608 |
|
|
| 229,200 |
|
|
| 37,806 |
|
| 6,547,908 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry D. Peterson |
|
| 2021 |
|
|
| 600,000 |
|
|
|
|
|
|
| 1,863,460 |
|
|
| 725,760 |
|
|
|
|
|
|
| 37,982 |
|
| 3,227,202 |
Executive Vice President |
|
| 2020 |
|
|
| 575,000 |
|
|
|
|
|
|
| 1,007,372 |
|
|
| 548,033 |
|
|
|
|
|
|
| 42,047 |
|
| 2,172,452 |
and Chief Financial Officer |
|
| 2019 |
|
|
| 575,000 |
|
|
|
|
|
|
| 1,029,128 |
|
|
| 377,145 |
|
|
| — |
|
|
| 35,777 |
|
| 2,017,050 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Pecaric |
|
| 2021 |
|
|
| 550,000 |
|
|
|
|
|
|
| 1,296,380 |
|
|
| 620,840 |
|
|
|
|
|
|
| 39,737 |
|
| 2,506,958 |
President—RRD Business |
|
| 2020 |
|
|
| 525,000 |
|
|
|
|
|
|
| 697,412 |
|
|
| 444,780 |
|
|
| 29,243 |
|
|
| 39,637 |
|
| 1,736,072 |
Services and Marketing Solutions |
|
| 2019 |
|
|
| 518,750 |
|
|
|
|
|
|
| 684,302 |
|
|
| 318,941 |
|
|
| 73,546 |
|
|
| 39,637 |
|
| 1,635,176 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas D. Ryan (6) |
|
| 2021 |
|
|
| 231,250 |
|
|
|
|
|
|
| 1,090,485 |
|
|
| 234,538 |
|
|
|
|
|
|
| 1,509,564 |
|
| 3,065,837 |
Former President—RRD |
|
| 2020 |
|
|
| 550,000 |
|
|
|
|
|
|
| 615,616 |
|
|
| 465,960 |
|
|
| — |
|
|
| 36,390 |
|
| 1,667,966 |
Marketing Solutions | 2019 | 550,000 | 511,845 | 350,590 | — | 33,890 | 1,446,325 | |||||||||||||||||||||||
Michael J. Sharp | 2021 | 345,000 | 430,509 | 226,320 | 3,194 | 1,005,023 | ||||||||||||||||||||||||
Senior Vice President and | ||||||||||||||||||||||||||||||
Chief Accounting Officer | ||||||||||||||||||||||||||||||
Deborah L. Steiner | 2021 | 515,000 | 1,249,586 | 553,728 | 28,756 | 2,347,070 | ||||||||||||||||||||||||
Executive Vice President, | 2020 | 475,000 | 684,888 | 402,420 | — | 28,006 | 1,590,314 | |||||||||||||||||||||||
Chief Administrative Officer | 2019 | 462,500 | 40,000 | 589,395 | 311,554 | — | 28,284 | 1,431,733 | ||||||||||||||||||||||
and General Counsel |
|
| Year Ended December 31, |
| |||||
|
| 2019 |
|
| 2018 |
| ||
|
| (in millions, except percentages) |
| |||||
Net sales |
| $ | 1,280.5 |
|
| $ | 1,181.1 |
|
Income from operations |
|
| 67.0 |
|
|
| 54.6 |
|
Operating margin |
|
| 5.2 | % |
|
| 4.6 | % |
Restructuring, impairment and other charges-net |
|
| 1.0 |
|
|
| 3.9 |
|
| The 2019 amounts for Ms. Steiner reflect long-term incentive compensation paid as cash awards (the “Cash Awards”) granted under the |
(2) | The amounts shown in this column constitute the
|
(3) | The amounts shown in this column include payments made under
|
(4) | The amounts shown in |
(6) | Mr. Ryan’s employment was terminated on June 1, 2021. Amounts reflect actual paid compensation in 2021, including $1,485,000 of severance payments equal to 1.5x the sum of his base salary and target annual bonus as if all targets and objectives had been met, paid over the applicable severance period. Mr. Ryan also received pro-rated vesting of restricted stock units. Mr. Ryan’s performance stock units were pro-rated over their performance periods through his termination date but were not |
Named Executive Officer |
|
|
| Corporate Automobile Allowance ($) |
| Personal Tax/ Financial Advice ($) |
| Supplemental Life Insurance Premium ($) |
| Supplemental Disability Insurance Premium ($) |
| Imputed Income from Company Provided Life Insurance ($) |
| Other ($) |
| Total ($) | ||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
| 2021 |
| 16,800 |
|
| 2,606 |
|
|
| 2,050 |
|
|
| 14,449 |
|
|
| 387 |
|
| — |
| 36,292 |
Terry D. Peterson |
| 2021 |
| 16,800 |
|
| 4,485 |
|
|
| 10,215 |
|
|
| 6,095 |
|
|
| 387 |
|
| — |
| 37,982 |
John P. Pecaric |
| 2021 |
| 16,800 |
|
| 625 |
|
|
| 12,415 |
|
|
| 9,510 |
|
|
| 387 |
|
| — |
| 39,737 |
Douglas D. Ryan |
| 2021 |
| 7,700 |
|
| — |
|
|
| 6,995 |
|
|
| 9,708 |
|
|
| 161 |
|
| — |
| 24,564 |
Michael J. Sharp |
| 2021 |
| — |
|
| 2,600 |
|
|
| — |
|
|
| — |
|
|
| 594 |
|
| — |
| 3,194 |
Deborah L. Steiner |
| 2021 |
| 16,800 |
|
| 1,675 |
|
|
| 3,935 |
|
|
| 6,139 |
|
|
| 207 |
|
| — |
| 28,756 |
2021 Grants of Plan-Based Awards
The following table shows additional information regarding: (i) the threshold, target and maximum level of annual cash incentive awards for our NEOs for performance during 2021 under our AIP; and (ii) RSUs and PSUs (including phantom awards) granted in March 2021 that were awarded to help focus their attention on building stockholder value.
|
|
|
|
| Estimated Future Payouts Under Non-Equity Incentive Plan Awards(1) |
|
| Estimated Future Payouts Under Equity Incentive Plan Awards(2) |
|
| All Other Stock Awards: Number of Shares of |
|
|
| Grant Date Fair Value of Stock |
|
|
| ||||||||||||||||||
Name |
| Grant Date |
| Threshold ($) |
| Target ($) |
| Maximum ($) |
| Threshold (#) |
| Target (#) |
| Maximum (#) |
|
| Stocks or Units (#)(3) |
|
|
| and Option Awards(4) |
|
|
| ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
| — |
|
| 306,450 |
|
|
| 1,532,250 |
|
|
| 3,064,500 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 455,732 |
|
|
| 911,465 |
|
|
| 1,367,197 |
|
|
| — |
|
|
| 4,119,821 |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 911,465 |
|
|
| 4,119,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Terry D. Peterson |
| — |
|
| 108,000 |
|
|
| 540,000 |
|
|
| 1,080,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 103,067 |
|
|
| 206,135 |
|
|
| 309,202 |
|
|
| — |
|
|
| 931,730 |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 206,135 |
|
|
| 931,730 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John P. Pecaric |
| — |
|
| 93,500 |
|
|
| 467,500 |
|
|
| 935,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 71,702 |
|
|
| 143,405 |
|
|
| 215,107 |
|
|
| — |
|
|
| 648,190 |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 143,405 |
|
|
| 648,190 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Douglas D. Ryan |
| — |
|
| 46,908 |
|
|
| 234,538 |
|
|
| 469,076 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 60,314 |
|
|
| 120,629 |
|
|
| 180,943 |
|
|
| — |
|
|
| 545,242 |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 120,629 |
|
|
| 545,242 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Sharp |
| — |
|
| 34,500 |
|
|
| 172,500 |
|
|
| 345,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 23,811 |
|
|
| 47,623 |
|
|
| 71,434 |
|
|
| — |
|
|
| 215,255 |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 47,623 |
|
|
| 215,255 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deborah L. Steiner |
| — |
|
| 82,400 |
|
|
| 412,000 |
|
|
| 824,000 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 69,114 |
|
|
| 138,229 |
|
|
| 207,343 |
|
|
| — |
|
|
| 624,793 |
|
|
|
|
| 3/2/2021 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 138,229 |
|
|
| 624,793 |
|
|
|
(1) | In each case, the amount actually earned by each NEO under the Company Annual Incentive Plan is reported as Non-Equity Incentive Plan Compensation in the 2021 Summary Compensation Table. See the Compensation Discussion & Analysis section of this Form 10-K/A for further information on these payments. |
(2) | Consists of PSUs and
|
(3) | Consists of RSUs and phantom RSUs awarded under the 2017 |
(4) | Grant date fair value with respect to the
718. See Note
|
Outstanding Equity Awards at 2021 Fiscal Year-End
The following table shows certain information about unexercised options and unvested stock awards at December 31, 2021. All amounts below have been adjusted to give effect to the 1-for-3 reverse stock split that was effective October 1, 2016.
|
| Option Awards |
| Stock Awards | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
| Number of Securities Underlying Unexercised Options (#) Exercisable(1) |
| Number of Securities Underlying Unexercised Options (#) Unexercisable |
| Option Exercise Price ($) |
| Option Expiration Date |
| Number of Shares or Units of Stock That Have Not Vested (#)(2) |
| Market Value of Shares or Units of Stock That Have Not Vested ($)(3) |
| Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#)(2)(4) |
| Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($)(3) | ||||||||||||||||
Daniel L. Knotts |
|
| 14,500 |
|
|
| — |
|
|
| 21.48 |
|
|
| 3/1/2022 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 925,237 |
|
|
| 10,418,169 |
|
Terry D. Peterson |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 86,849 |
|
|
| 977,920 |
|
|
| 235,805 |
|
|
| 2,655,164 |
|
John P. Pecaric |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 75,599 |
|
|
| 851,245 |
|
|
| 309,005 |
|
|
| 3,479,396 |
|
Douglas D. Ryan |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 73,460 |
|
|
| 827,160 |
|
Michael J. Sharp |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 59,752 |
|
|
| 672,808 |
|
Deborah L. Steiner |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 105,445 |
|
|
| 1,187,311 |
|
Note: | Multiple awards have been aggregated where the expiration date and |
(1) | In connection with RRD’s spinoff of LSC Communications and Donnelly Financials Solutions in 2016, certain option awards held by Mr. Knotts were converted and adjusted into options to purchase the common stock of each spin-off company and are not included in this table. |
(2) | The following table provides information with respect to the vesting of each NEO’s outstanding unvested restricted stock units and performance stock units that are set forth in the above table. |
Vesting Date |
| Knotts |
| Peterson |
| Pecaric |
| Ryan | Sharp |
| Steiner |
| ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3/2/2023 |
|
|
| 523,292 |
|
|
|
|
| 201,450 |
|
|
|
|
| 220,119 |
|
|
|
|
| 73,460 |
|
|
|
|
| 12,129 |
|
|
|
| 44,487 |
|
3/2/2024 |
|
|
| 401,945 |
|
|
|
|
| 121,204 |
|
|
|
|
| 164,485 |
|
|
|
|
| — |
|
|
|
|
| 47,623 |
|
|
|
| 60,958 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3) | Assumes a closing price per share of $11.26 on December 31, 2021, the last trading day of the year. |
(4) | Reflects that performance on unearned shares for the 2019, 2020, and 2021 grants are tracking above threshold but below target for such awards. As such, the values included in this column reflects the target payment value of these unearned shares. |
2021 Option Exercises and Stock Vested
The following table shows information regarding the value of options exercised and RSUs and PSUs that vested during 2021.
|
| Option Awards |
| Stock Awards | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name |
| Number of Shares Acquired on Exercise (#) |
| Value Realized on Exercise ($) |
| Number of Shares Acquired on Vesting (#)(1)(2) |
| Value Realized on Vesting ($)(2) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts(3) |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 4,898,335 |
|
|
|
|
| 46,521,542 |
|
|
Terry D. Peterson(4) |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 992,620 |
|
|
|
|
| 9,412,000 |
|
|
John P. Pecaric(5) |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 497,039 |
|
|
|
|
| 4,347,619 |
|
|
Douglas D. Ryan |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 152,215 |
|
|
|
|
| 731,179 |
|
|
Michael J. Sharp(6) |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 251,974 |
|
|
|
|
| 2,394,584 |
|
|
Deborah L. Steiner(7) |
|
|
| — |
|
|
|
|
| — |
|
|
|
|
| 811,191 |
|
|
|
|
| 7,788,568 |
|
|
(1) | Represents the vesting of RSUs and other similar instruments under the Company’s equity plans. |
To mitigate the potential impact of Sections 280G and 4999 of the Code on RRD and its applicable executive officers, effective December 17, 2021, the Board approved the acceleration into December 2021 of the vesting and payment of certain equity awards, equity-based awards and cash-based awards, as applicable, that otherwise would have been payable to Mr. Knotts, Mr. Pecaric, Mr. Peterson, Mr. Sharp and Ms. Steiner on or prior to the closing of the Merger, as described further under Part III, Item 12, “Change in Control.”. These actions are intended to preserve compensation-related corporate income tax deductions for RRD that might otherwise be disallowed through the operation of Section 280G of the Code and to mitigate or eliminate the amount of excise tax that may be payable by the Executives pursuant to Section 4999 of the Code in connection with Section 280G of the Code in certain circumstances. In approving the accelerated vesting and payment of such awards, the Board considered, among other things, the projected value of the corporate income tax deductions that might otherwise be lost as a result of the effect of Section 280G of the Code and the benefits to RRD of reducing the potential tax burden on the affected NEOs.
Accelerated vesting and payments took one or more of the following forms, to the extent applicable to each affected NEO (i) accelerated vesting and settlement in shares of RRD Common Stock of certain RRD RSUs that would otherwise have vested in 2022, 2023 or 2024, as applicable (“Accelerated RSUs”); (ii) accelerated vesting and settlement in shares of RRD Common Stock of certain non-phantom RRD PSUs granted in 2019, 2020 and 2021, assuming vesting at 150%, 150% and 100% performance levels, respectively (“Accelerated PSUs”); (iii) accelerated vesting and payout of RRD Phantom RSUs in cash that would otherwise have vested in 2022, 2023 and 2024 (“Accelerated Phantom RSUs”); and (iv) accelerated vesting and payout in cash of phantom RRD PSUs granted in 2019 and 2020, in each case assuming vesting at 150% performance levels, respectively (“Accelerated Phantom PSUs”). The Accelerated RSUs, Accelerated PSUs, Accelerated Phantom RSUs and Accelerated Phantom PSUs (collectively, the “Accelerated Amounts”) will offset the corresponding payments or amounts each Executive would have otherwise been entitled to receive upon the consummation of the Merger, precluding duplication of payments. All Accelerated Amounts will be reduced by applicable tax withholdings.
In connection with the accelerated equity and equity-based award vesting and payment described above, each affected NEO has signed an Acceleration and Clawback Acknowledgement. Each Acceleration and Clawback Acknowledgement provides that the Executive’s accelerated payments are subject to certain repayment and true-up conditions. Specifically, if an affected NEO voluntarily terminates their employment with RRD or their employment is terminated for “cause” (as defined in the Knotts Employment Agreement or the affected NEO’s Change in Control Agreement, as applicable) prior to the closing of the Merger, or, if earlier, prior to the date on which the applicable payment would have been made but for the payment of the Accelerated Amounts, and such termination otherwise would result in forfeiture of any portion of the Accelerated RSUs, Accelerated Phantom RSUs, Accelerated PSUs or Accelerated Phantom PSUs that constitute Accelerated Amounts, as applicable, then the Executive is required to repay to RRD the applicable number of shares of RRD Common Stock underlying Accelerated RSUs and Accelerated PSUs in connection with the Accelerated Amounts and the applicable cash amount underlying the Accelerated Phantom RSUs and Accelerated Phantom PSUs, in each case that constitute Accelerated Amounts, as applicable, received by the Executive on a net after-tax basis.
(2) | Value realized on vesting of RSUs and PSUs is the fair market value on the date of vesting or, in the case of the accelerated vesting described above in footnote 1, the per share price set forth in the Merger Agreement. For RSUs and PSUs that vested on March 2, 2021, fair market value is based on the closing price of $4.52 per share. For RSUs that vested on March 4, 2021, fair market value is based on the closing price of $3.87 per share. Closing prices are as reported on the NYSE. The value realized on vesting of the Accelerated RSUs and Accelerated PSUs is $10.85 per share based on the per share price set forth in the Merger Agreement |
(3) | In addition to equity awards vesting in the ordinary course in March 2021, a total of 2,909,037 shares of RRD Common Stock vested in December 2021 as part of the acceleration of equity awards described in footnote 1 above, consisting of (i)(a) 483,878 Accelerated RSUs, which were scheduled to vest in March 2022; (b) 332,628 Accelerated RSUs, which were scheduled to vest in March 2023; and (c) 169,840 Accelerated RSUs, which were scheduled to vest in March 2024; (iii)(a) 680,628 Accelerated PSUs granted in 2019, which were scheduled to pay out in early 2022; (b) 732,543 Accelerated PSUs granted in 2020, which were scheduled to pay out in early 2023; and (c) 509,520 Accelerated PSUs granted in 2021, which were scheduled to pay out in early 2024; (iv)(a) $3,792,129 for Accelerated Phantom RSUs that were scheduled to vest in March 2022; (b) $3,792,129 for Accelerated Phantom RSUs that were scheduled to vest in March 2023; and (c) $1,453,705 for Accelerated Phantom RSUs that were scheduled to vest in March 2024; and (v) $2,006,328 for Accelerated Phantom PSUs granted in 2020, which were scheduled to pay out in early 2023. The value of Mr. Knotts’ Accelerated RSUs and Accelerated PSUs is $31,563,051, assuming a per share price of $10.85. |
(4) | In addition to equity awards vesting in the ordinary course in March 2021, a total of 665,368 shares of RRD Common Stock vested in December 2021 as part of the acceleration of equity awards described in footnote 1 above, consisting of (i) (a) 110,851 Accelerated RSUs, which were scheduled to vest in March 2022; (b) 74,892 Accelerated RSUs, which were scheduled to vest in March 2023; and (c) 38,411 Accelerated RSUs, which were scheduled to vest in March 2024; (ii)(a) 161,813 Accelerated PSUs granted in 2019, which were scheduled to pay out in early 2022; (b) 164,169 Accelerated PSUs granted in 2020, which were scheduled to pay out in early 2023; and (c) 115,232 Accelerated PSUs granted in 2021, which were scheduled to pay out in early 2024; (iii)(a) $852,821 for Accelerated Phantom RSUs that were scheduled to vest in March 2022; and (b) $239,286 for Accelerated Phantom RSUs that were scheduled to vest in March 2023; and (iv) N/A. The estimated value of Mr. Peterson’s Accelerated RSUs and Accelerated PSUs is $7,219,243. |
(5) | In addition to equity awards vesting in the ordinary course in March 2021, a total of 243,829 shares of RRD Common Stock vested in December 2021 as part of the acceleration of equity awards described in footnote 1 above, consisting of (i) an Accelerated Bonus in the amount of $514,250; (ii)(a) 69,691 Accelerated RSUs, which were scheduled to vest in March 2022; (b) 51,978 Accelerated RSUs, which were scheduled to vest in March 2023; and (c) 26,721 Accelerated RSUs, which |
were scheduled to vest in March 2024; (iii)(a) 79,709 Accelerated PSUs granted in 2019, which were scheduled to pay out in early 2022; and (b) 15,730 Accelerated PSUs granted in 2020, which were scheduled to pay out in early 2023; (iii) $672,722 for Accelerated Phantom RSUs that were scheduled to vest in March 2022; and (iv) $365,363 for Accelerated Phantom PSUs granted in 2019, which were scheduled to pay out in early 2022. The estimated value of Mr. Pecaric’s Accelerated RSUs and Accelerated PSUs is $2,645,545, assuming a per share price of $10.85. |
(6) | In addition to equity awards vesting in the ordinary course in March 2021, a total of $2,350,972 was paid in December 2021 as part of the acceleration of phantom equity awards described in footnote 1 above, consisting of (i) N/A; (ii) N/A; (iii)(a) $469,024 for Accelerated Phantom RSUs that were scheduled to vest in March 2022; (b) $381,844 for Accelerated Phantom RSUs that were scheduled to vest in March 2023; and (c) $172,233 for Accelerated Phantom RSUs that were scheduled to vest in March 2024; and (iv)(a) $392,303 for Accelerated Phantom PSUs granted in 2019, which were scheduled to pay out in early 2022; and (b) $745,818 for Accelerated Phantom PSUs granted in 2020, which were scheduled to pay out in early 2023. |
(7) | In addition to equity awards vesting in the ordinary course in March 2021, a total of 315,764 shares of RRD Common Stock vested in December 2021 as part of the acceleration of equity awards described in footnote 1 above, consisting of (i)(a) 50,560 Accelerated RSUs, which were scheduled to vest in March 2022; (b) 50,561 Accelerated RSUs, which were scheduled to vest in March 2023; and (c) 25,757 Accelerated RSUs, which were scheduled to vest in March 2024; (ii)(a) 111,615 Accelerated PSUs granted in 2020, which were scheduled to pay out in early 2023; and (b) 77,271 Accelerated PSUs granted in 2021, which were scheduled to pay out in early 2024; (iii)(a) $846,593 for Accelerated Phantom RSUs that were scheduled to vest in March 2022; (b) $576,764 for Accelerated Phantom RSUs that were scheduled to vest in March 2023; and (c) $220,461 for Accelerated Phantom RSUs that were scheduled to vest in March 2024; and (iv)(a) $1,214,234 for Accelerated Phantom PSUs granted in 2019, which were scheduled to pay out in early 2022; and (b) $879,306 for Accelerated Phantom PSUs granted in 2020, which were scheduled to pay out in early 2023. The estimated value of Ms. Steiner’s Accelerated RSUs and Accelerated PSUs is $3,426,039, assuming a per share price of $10.85. |
Pension Benefits
Generally, effective December 31, 2011, the Company froze benefit accruals under all of its then-existing Federal income tax qualified U.S. defined benefit pension plans (collectively referred to as the Qualified Retirement Plans) that were still open to accruals. Therefore, beginning January 1, 2012, participants generally ceased earning additional benefits under the Qualified Retirement Plans. Thereafter, the Qualified Retirement Plans were merged into one Qualified Retirement Plan and generally no new participants will enter this plan. Before the Qualified Retirement Plans were frozen, accrual rates varied based on age and service. Accruals for the plans were calculated using compensation that generally included salary and annual cash bonus awards. The Qualified Retirement Plan is funded entirely by the Company with contributions made to a trust fund from which the benefits of participants are paid.
The amount of annual earnings that may be considered in calculating benefits under a Federal income tax qualified pension plan is limited by law. The U.S. Internal Revenue Code also places other limitations on pensions that can accrue under tax qualified plans. Prior to being frozen, to the extent an employee’s pension would have accrued under one of the Qualified Retirement Plans if it were not for such limitations, the additional benefits were accrued under an unfunded supplemental pension plan (referred to as the “SERP”). On December 31, 2021, approximately 153 individuals were covered by the SERP as active employees or terminated employees with vested benefits who did not receive payments in 2021, and in 2021 approximately 159 individuals received payments from the SERP. Prior to a change in control of the Company, the SERP is unfunded and provides for payments to be made out of the Company’s general assets. Because the Company froze the Qualified Retirement Plans as of December 31, 2011, generally no additional benefits will accrue under the Qualified Retirement Plan or the related SERP.
Some participants in the Qualified Retirement Plan, including those that have a cash balance or pension equity benefit, can elect to receive either a life annuity or a lump sum amount upon termination. Other participants will receive their Qualified Retirement Plan benefit in the form of a life annuity. Under a life annuity benefit, benefits are paid monthly after retirement for the life of the participant or, if the participant is married or chooses an optional benefit form, generally in a reduced amount for the lives of the participant and spouse or other named beneficiary.
Mr. Peterson, Mr. Sharp and Ms. Steiner were hired after the Qualified Retirement Plan was frozen and thus they are not participants in the Qualified Retirement Plan or the SERP. For Mr. Knotts and Mr. Pecaric, the table below shows the present value of their accumulated benefit under the Qualified Retirement Plan and the SERP as of December 31, 2021.
See Note 9 to the Consolidated Financial Statements included in our annual report on Form 10-K for the fiscal year ended December 31, 2021 for a discussion of the relevant assumptions used in calculating the present value of the current accrued benefit with respect to each NEO under the Qualified Retirement Plan and the SERP set forth in the table below.
2021 Pension Benefits Table
Name |
|
| Plan Name |
| Number of Years Credited Service (#) |
| Present Value of Accumulated Benefit ($)(1) |
| Payments During Last Fiscal Year ($) | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Daniel L. Knotts |
|
| Pension Plan |
|
|
| 25 |
|
|
| $538,832 |
|
|
| — |
|
|
|
| SERP |
|
|
| 25 |
|
|
| $897,696 |
|
|
| — |
|
John P. Pecaric |
|
| Pension Plan |
|
|
| 26 |
|
|
| $620,079 |
|
|
| — |
|
|
|
| SERP |
|
|
| 26 |
|
|
| $168,687 |
|
|
| — |
|
(1) | The present values reflect the 12/31/2001 protected benefit for the legacy RRD cash balance benefits. When the career average benefits were converted to a cash balance account on 12/31/2001, the career average benefit as of that date became a protected benefit. |
Potential Payments Upon Termination or Change in Control
Termination Other Than After a Change in Control
Mr. Knotts
The Company entered into an employment agreement with Mr. Knotts in 2016 (the “Knotts Employment Agreement”) in connection with his appointment as President and CEO. The agreement provides for severance in the event Mr. Knott’s employment is terminated by the Company without “Cause” or by Mr. Knotts for “Good Reason” (in each case, as defined in Mr. Knott’s agreement).
Other NEOS
All of our NEOs (other than Mr. Knotts) entered into restated employment letters with the Company in 2019 entitling them to receive severance under the terms of the Company’s Senior Leadership Separation Pay Plan (“SLSPP”). For each NEO other than Mr. Knotts, the SLSPP provides for payments of certain benefits, as described below, upon termination of employment.
The purpose of the SLSPP is to provide certain severance benefits to key employees of the Company, including the NEOs, other than Mr. Knotts. Under the SLSPP, if an eligible employee is terminated without cause or if an eligible employee resigns for good reason (in each case, as defined in the SLSPP), each a “Qualifying Termination,” then, the eligible employee is eligible to receive the following benefits:
1. | An amount equal to 1.5x of the eligible employee’s annualized total compensation (as defined in the SLSPP), payable in equal periodic installments over an 18-month period; |
2. | A lump-sum amount equal to the amount, if any, that would have been payable to the executive officer under the Company’s annual bonus program for the calendar year in which the separation from service occurs had such executive officer remained employed through such calendar year, based on the Company’s actual performance and pro-rated based on the number of days the executive officer was employed by the Company during the calendar year (the “Pro-Rata Bonus”); |
3. | Continued COBRA coverage (subsidized by the Company at active employee rates) under the Company’s medical (including the executive officer physical program), dental and vision plans for 18 months; and |
4. | Continued coverage (paid by the Company) under the executive officer’s separate individual life and disability policies and financial planning benefit, in each case, for 18 months. |
In addition, the executive officer must execute and comply with a separation agreement, which, among other things, will include restrictive covenants, such as an 18-month post-termination noncompete, an 18-month post termination customer non-solicit, a 24-month post-termination employee non-solicit and a perpetual confidentiality clause.
The benefits to be provided to each NEO in each of those situations are described in the tables below, which assume that the termination took place on December 31, 2021.
Termination After a Change in Control
As previously disclosed, on December 17, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Chatham Delta Parent, Inc., a Delaware corporation (“Parent”), and Chatham Delta Acquisition Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of Parent (“Acquisition Sub”), providing for the merger of Acquisition Sub with and into the Company pursuant to the General Corporation Law of the State of Delaware (the “DGCL”), upon the terms and subject to the conditions set forth in the Merger Agreement (the “Merger”), with the Company surviving the Merger as a wholly owned subsidiary of Parent. Parent and Acquisition Sub are affiliates of Chatham Asset Management, LLC (“CAM”). Information regarding payments in connection with the Merger, which constitutes a Change in Control, is set forth in the table below under the heading “Resignation for Good Reason or Termination without Cause after a Change in Control.”
Mr. Knotts
The Knotts Employment Agreement provides for severance benefits in the event Mr. Knott’s employment is terminated by the Company without “Cause” or by Mr. Knotts for “Good Reason” (in each case, as defined in the Knotts Employment Agreement) following a Change in Control (as defined in the Knotts Employment Agreement). Mr. Knotts is not entitled to tax gross-ups upon a termination after a Change in Control (as defined in his employment agreement). The Knotts Employment Agreement provides that, if an excise tax is triggered, his Change in Control payments will be reduced below the threshold triggering the excise tax if the net, after-tax benefit to Mr. Knotts is higher.
Other NEOs
Each NEO, other than Mr. Knotts, is a party to a Change in Control Agreement, which provides for enhanced severance upon a qualifying termination in connection with a change in control (as defined in the change in control agreements). Specifically, in the event of a termination by the Company for reasons other than cause or on account of the executive officer’s death, or if the executive officer resigns for good reason (in each case, as defined in the Change in Control Agreement) during the 24-month period following the date of a change in control, the executive officer is eligible to receive:
1. | A lump-sum cash payment equal to 2.0X the executive officer’s annualized total compensation (as defined in the Change in Control Agreement); provided that, in some instances, such amount may be paid in equal regular installments over a 24-month period; |
2. | A lump-sum amount equal to the amount, if any, that would have been payable to the executive officer under the Company’s annual bonus program for the calendar year in which the separation from service occurs had such executive officer remained employed through such calendar year, based on the Company’s actual performance and pro-rated based on the number of days the executive officer was employed by the Company during the calendar year; |
3. | Continued COBRA coverage (subsidized at active employee rates) under the Company’s medical (including the executive officer physical program), dental and vision plans for a period of 18 months; and |
4. | Continued coverage (paid by the Company) under the executive officer’s separate individual life and disability policies and the executive officer’s financial planning benefit, in each case, for a period of 24 months. |
Potential Payment Obligations Under Employment Agreements upon Termination of Employment
The following tables set forth our payment obligations under Mr. Knott’s employment agreement and each other NEO’s rights under the SLSPP upon a termination of the employment of our NEOs. The tables do not include payments or benefits that do not discriminate in scope, terms or operation in favor of the NEOs and are generally available to all salaried employees, or pension payments that are discussed in the Pension Benefits section in this Form 10-K/A.
Unless otherwise noted, the descriptions of the payments below are applicable to all of the tables relating to potential payments upon termination or termination after a change in control.
Disability or Death—To the extent that a NEO participates in our pension plan, such NEO could be entitled to pension benefits upon death or disability according to the terms of the pension plan. The employment agreements provide that in the event of disability or death, in addition to payments under the Company’s disability benefits plan or life insurance program, as applicable, and each as available to all salaried employees, each NEO is entitled to benefits paid under a supplemental disability insurance policy or supplemental life insurance policy, as applicable, maintained by the Company for the NEO’s benefit. Pursuant to the terms of the Company’s AIP, each NEO is also entitled to his or her pro-rated annual bonus for the year in which the disability or death occurs, payable at the same time as and to the extent that all other annual bonuses are paid and as available to all salaried employees.
Additionally, all unvested equity awards held by each NEO will immediately vest upon disability or death pursuant to the terms of the applicable award agreements.
Equity Acceleration—Pursuant to the terms of the SLSPP, equity awards for all NEOs other than Mr. Knotts are treated in accordance with the underlying equity award agreements. All agreements for awards through 2018 specify that all equity awards are forfeited in the event of termination by the Company for any reason (other than death, disability or following a change of control) or in the event of the resignation of the NEO. Agreements for awards made after 2018 specify that the NEOs will receive a pro rata portion of their award in the event of a retirement or if the NEO is terminated by the Company without Cause or for Good Reason. In all other cases (other than death, disability or following a change of control), the awards will be forfeited. With respect to Mr. Knotts, all outstanding equity awards will vest in the event Mr. Knotts employment is terminated by the Company without Cause or if Mr. Knotts resigns for Good Reason. All NEOs, including Mr. Knotts, are generally entitled to immediate vesting of all outstanding equity awards upon termination following a change of control (as defined in the applicable performance incentive plan) under the terms of such performance incentive plan.
Value of accelerated RSUs is the fair market value on the date of termination. Value of accelerated PSUs is the fair market value on the date of termination. For purposes of the tables, fair market value is the closing price on December 31, 2021 (the last trading day of the fiscal year) of $11.26 and, based upon the terms of the Merger Agreement, $10.85 for resignations or terminations without Cause after a Change in Control.
Health Care Benefits—The SLSPP provides that, after resignation for good reason or termination without cause, the Company will continue providing medical (including the executive officer physical program), dental, and vision coverage to the NEO that the NEO was eligible to receive immediately prior to such termination for a period of time under COBRA subsidized by the Company at active employee rates. For Mr. Knotts, this period is 24 months after such resignation or termination before a Change in Control, and the last day of the second calendar year following the calendar year in which such termination occurs after a Change in Control. For Mr. Peterson, Mr. Pecaric, Mr. Ryan and Ms. Steiner this period is 18 months after such resignation or termination. In the event of resignation other than for good reason or termination with Cause, the NEO is entitled to the same benefits as all other employees would be entitled to after termination. Benefits payable upon disability or death are described above in “Disability or Death.”
280G Tax Treatment—Upon a change in control (as defined in Section 4999) of the Company, an NEO may be subject to certain excise taxes under Section 4999 of the Internal Revenue Code with respect to payments that are treated as excess
parachute payments under Section 280G. With respect to Mr. Knotts, the Company will reduce the amount of the payments the NEO would otherwise be entitled to receive to below the threshold triggering the excise taxes under Section 4999, provided that the net, after-tax benefit to the NEO is higher.
Mr. Knotts, the Company’s President and Chief Executive Officer, would be entitled to the following:
|
| Resignation for Good Reason or Termination Without Cause ($) |
| Resignation for other than Good Reason or Termination With Cause ($) |
| Resignation for Good Reason or Termination Without Cause after Change in Control ($) |
| Disability ($) |
| Death ($) | |||||||||
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
| 2,270,000 | (1) |
| — |
| 3,393,650 | (3) |
| — | (3) |
|
| — |
| |||
Bonus |
|
| 3,064,500 | (1) |
| — |
| 4,581,428 | (3) |
| — | (4) |
|
| — | (4) | |||
Lump Sum |
|
| — |
|
|
| — |
| 75,000 |
|
| — |
|
|
| — |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units(6) |
|
| — |
|
| — |
| — |
|
| — |
|
|
| — |
| |||
Performance Stock Units(7) |
|
| 13,364,303 |
|
| — |
| 12,877,681 |
|
| 13,364,303 |
|
|
| 13,364,303 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites:(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Termination Health Care |
|
| 23,410 |
|
| — |
| 23,410 |
|
| — |
|
|
|
| — |
| ||
Supplemental Life Insurance |
|
| 4,100 |
|
| — |
| 4,100 |
|
| — |
|
|
|
| 2,000,000 | (9) | ||
Supplemental Disability Insurance |
|
| 28,898 |
|
| — |
| 28,898 |
|
| 3,365,380 | (10) |
|
| — |
| |||
Financial Planning |
|
| 24,000 |
|
| — |
| 24,000 |
|
| — |
|
|
| — |
| |||
Car Allowance |
|
| 33,600 |
|
| — |
| 33,600 |
|
| — |
|
|
| — |
| |||
Total: |
|
| 18,812,811 |
|
| — |
| 21,041,766 |
|
| 16,729,683 |
|
|
| 15,364,303 |
|
(1) | Mr. Knotts is entitled to 2x base salary and 2x target annual bonus as if all targets and objectives had been met, paid over the applicable severance period. |
(2) | Mr. Knotts is entitled to 2.99x base salary and 2.99x target annual bonus as if all targets and objectives had been met, paid over the applicable severance period. Mr. Knotts is also entitled to his pro-rated annual bonus for the year in which the termination after a Change in Control occurs, payable at the same time as and to the extent that all other annual bonuses are paid. This bonus is not reflected in this table as, assuming a termination date of December 31, 2021, Mr. Knotts would have been entitled to this bonus pursuant to the terms of the AIP under which the annual bonus is paid (which provides for payment of the bonus to any participant who is on the payroll of the Company as of December 31) which are the same terms generally available to all salaried employees who participate in the plan. Mr. Knotts is also entitled to a lump sum in the event of a Change in Control. |
(3) | Mr. Knotts is entitled to the same 50% of base salary until age 65 with a maximum $10,000 per month that is generally available to all salaried employees upon disability. |
(4) | Pursuant to the terms of the Company’s AIP, Mr. Knotts is entitled to his pro-rated annual bonus for the year in which the disability or death occurs, payable at the same time as, and to the extent that, all other annual bonuses are paid which are the same terms generally available to all salaried employees who participate in the plan. As Mr. Knotts would have been entitled to his annual bonus on December 31 pursuant to the terms of the AIP, the bonus is not reflected in this table for a termination due to death or disability. |
(5) | Assumes a price per share of $10.85 per the terms of the terms and conditions of the Merger Agreement for Resignation for Good Reason or Termination Without Cause after Change in Control, and $11.26 per share (as of December 31, 2021) for Resignation for Good Reason or Termination Without Cause, Disability or Death. |
(6) | All unvested equity awards held by Mr. Knotts will immediately vest under the terms of the 2012 and 2017 PIP. |
(7) | Mr. Knott's unvested PSU awards will forfeit upon a Resignation for Good Reason or Termination with Cause without a change in control. Under the terms of the Merger Agreement, each RRD PSU in respect of which the performance period has not expired as of the actual Effective Time will vest based on the attainment of the applicable performance metrics at the greater of target and actual level of performance, while each RRD PSU in respect of which the performance period has expired will vest based on actual performance. Based on the foregoing, the Board of Directors determined that PSUs granted in 2020 (523,292 shares) will vest with a 150% performance factor and PSUs granted in 2021 (401,945 shares) will vest at 100%. The amounts in the table reflect these vesting determinations. |
(8) | Except as disclosed, Mr. Knotts receives the same benefits that are generally available to all salaried employees upon death or disability. |
(9) | Represents benefits payable under a supplemental life insurance policy maintained by the Company for the benefit of Mr. Knotts in excess of the amount generally available to all salaried employees. |
(10) | Represents benefits payable under a supplemental disability insurance policy maintained by the Company for the benefit of Mr. Knotts in excess of the amount generally available to all salaried employees. |
Mr. Peterson, the Company’s Executive Vice President and Chief Financial Officer, would be entitled to the following:
|
| Termination Without Cause ($) |
| Termination With Cause ($) |
| Termination Without Cause after a Change in Control ($) |
| Disability ($) |
| Death ($) | ||||||||||||
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
| 900,000 | (1) |
| — |
|
| 1,200,000 | (2) |
|
| — | (3) |
|
| — |
| ||||
Bonus |
|
| 810,000 | (1) |
| — |
|
| 1,080,000 | (2) |
|
| — | (4) |
|
| — | (4) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units(6) |
|
| 977,920 |
|
| — |
|
| 942,312 |
|
|
| 977,920 |
|
|
| 977,920 |
| ||||
Performance Stock Units(7) |
|
| 3,470,963 |
|
| — |
|
| 3,344,578 |
|
|
| 3,470,963 |
|
|
| 3,470,963 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites:(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Termination Health Care |
|
| 33,662 |
|
| — |
|
| 33,662 |
|
|
| — |
|
|
| — |
| ||||
Supplemental Life Insurance(9) |
|
| 15,323 |
|
| — |
|
| 20,430 |
|
|
| — |
|
|
| 2,000,000 |
| ||||
Supplemental Disability Insurance(10) |
|
| 9,142 |
|
| — |
|
| 12,189 |
|
|
| 2,091,335 |
|
|
| — |
| ||||
Financial Planning |
|
| 18,000 |
|
| — |
|
| 24,000 |
|
|
| — |
|
|
| — |
| ||||
Car Allowance |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
| ||||
Total: |
|
| 6,235,009 |
|
| — |
|
| 6,657,170 |
|
|
| 6,540,217 |
|
|
| 6,448,882 |
|
(1) | Upon a Termination Without Cause, Mr. Peterson is entitled to 1.5x Annualized Total Compensation (base salary and target annual bonus) as if all targets and objectives had been met, paid over the applicable severance period. |
(2) | Upon Termination Without Cause after a Change in Control, Mr. Peterson is entitled to 2x Annual Total Compensation if all targets and objectives had been met. Mr. Peterson is also entitled to his pro-rated annual bonus for the year in which the termination after a Change in Control occurs, payable at the same time as and to the extent that all other annual bonuses are paid. This bonus is not reflected in this table as, assuming a termination date of December 31, 2021, Mr. Peterson would have been entitled to this bonus pursuant to the terms of the AIP under which the annual bonus is paid (which provides for payment of the bonus to any participant who is on the payroll of the Company as of December 31) which are the same terms generally available to all salaried employees who participate in the plan. |
(3) | Mr. Peterson is entitled to the same 50% of base salary until age 65 with a maximum $10,000 per month that is generally available to all salaried employees upon disability. |
(4) | Pursuant to the terms of the Company’s AIP, Mr. Peterson is entitled to his pro-rated annual bonus for the year in which the disability or death occurs, payable at the same time as and to the extent that all other annual bonuses are paid which are the same terms generally available to all salaried employees who participate in the plan. As Mr. Peterson would have been entitled to his annual bonus on December 31 pursuant to the terms of the AIP, the bonus is not reflected in this table for a termination due to death or disability. |
(5) | Assumes a price per share of $10.85 per the terms of the terms and conditions of the Merger Agreement for Resignation for Good Reason or Termination Without Cause after Change in Control, and $11.26 per share (as of December 31, 2021) for Resignation for Good Reason or Termination Without Cause. |
(6) | All unvested RSU awards held by Mr. Peterson will immediately vest in the event of a Change in Control or upon disability or death, pursuant to the terms of the applicable award agreements. Mr. Peterson is also entitled to a pro rata portion of unvested RSUs upon a Termination without Cause, Disability or Death. |
(7) | Mr. Peterson's unvested PSU awards will forfeit upon a Termination with Cause without a change in control. His 2020 and 2021 unvested PSUs will be prorated if the termination occurs at least 12 months from the beginning of the performance period. Under the terms of the Merger Agreement, each RRD PSU in respect of which the performance period has not expired as of the actual Effective Time will vest based on the attainment of the applicable performance metrics at the greater of target and actual level of performance, while each RRD PSU in respect of which the performance period has expired will vest based on actual performance. Based on the foregoing, the Board of Directors determined that PSUs granted in 2020 (144,902 shares) will vest with a 150% performance factor and PSUs granted in 2021 (90,903 shares) will vest at 100%. The amounts in the table reflect these vesting determinations. |
(8) | Except as disclosed, Mr. Peterson receives the same benefits that are generally available to all salaried employees upon death or disability. |
(9) | Represents benefits payable under a supplemental life insurance policy maintained by the Company for the benefit of Mr. Peterson in excess of the amount generally available to all salaried employees. |
(10) | Represents benefits payable under a supplemental disability insurance policy maintained by the Company for the benefit of Mr. Peterson in excess of the amount generally available to all salaried employees. |
Mr. Pecaric, the Company’s President, RRD Business Services, would be entitled to the following:
|
| Termination Without Cause ($) |
| Termination With Cause ($) |
| Termination Without Cause after a Change in Control ($) |
| Disability ($) |
| Death ($) | ||||||||||||
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
| 825,000 | (1) |
| — |
|
| 1,100,000 | (2) |
|
| — | (3) |
|
| — |
| ||||
Bonus |
|
| 701,250 | (1) |
| — |
|
| 935,000 | (2) |
|
| — | (4) |
|
| — | (4) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units(6) |
|
| 851,245 |
|
| — |
|
| 820,249 |
|
|
| 851,245 |
|
|
| 851,245 |
| ||||
Performance Stock Units(7) |
|
| 4,411,724 |
|
| — |
|
| 4,251,084 |
|
|
| 4,411,724 |
|
|
| 4,411,724 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites:(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Termination Health Care |
|
| 23,410 |
|
| — |
|
| 23,410 |
|
|
| — |
|
|
| — |
| ||||
Supplemental Life Insurance(9) |
|
| 18,623 |
|
| — |
|
| 24,830 |
|
|
| — |
|
|
| 2,000,000 |
| ||||
Supplemental Disability Insurance(10) |
|
| 14,265 |
|
| — |
|
| 19,020 |
|
|
| 1,593,922 |
|
|
| — |
| ||||
Financial Planning |
|
| 18,000 |
|
| — |
|
| 24,000 |
|
|
| — |
|
|
| — |
| ||||
Car Allowance |
|
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| — |
| |||
Total: |
|
| 6,863,517 |
|
| — |
|
| 7,197,593 |
|
|
| 6,856,891 |
|
|
| 7,262,969 |
|
(1) | Upon a Termination Without Cause, Mr. Pecaric is entitled to 1.5x Annualized Total Compensation (base salary and target annual bonus) as if all targets and objectives had been met, paid over the applicable severance period. |
(2) | Upon Termination Without Cause after a Change in Control, Mr. Pecaric is entitled to 2x Annual Total Compensation if all targets and objectives had been met. Mr. Pecaric is also entitled to his pro-rated annual bonus for the year in which the termination after a Change in Control occurs, payable at the same time as and to the extent that all other annual bonuses are paid. This bonus is not reflected in this table as, assuming a termination date of December 31, 2021, Mr. Pecaric would have been entitled to this bonus pursuant to the terms of the AIP under which the annual bonus is paid (which provides for payment of the bonus to any participant who is on the payroll of the Company as of December 31) which are the same terms generally available to all salaried employees who participate in the plan. |
(3) | Mr. Pecaric is entitled to the same 50% of base salary until age 65 with a maximum $10,000 per month that is generally available to all salaried employees upon disability. |
(4) | Pursuant to the terms of the Company’s AIP, Mr. Pecaric is entitled to his pro-rated annual bonus for the year in which the disability or death occurs, payable at the same time as and to the extent that all other annual bonuses are paid which are the same terms generally available to all salaried employees who participate in the plan. As Mr. Pecaric would have been entitled to his annual bonus on December 31 pursuant to the terms of the AIP, the bonus is not reflected in this table for a termination due to death or disability. |
(5) | Assumes a price per share of $10.85 per the terms of the terms and conditions of the Merger Agreement for Resignation for Good Reason or Termination Without Cause after Change in Control, and $11.26 per share (as of December 31, 2021) for Resignation for Good Reason or Termination Without Cause, Disability or Death. |
(6) | All unvested RSU awards held by Mr. Pecaric will immediately vest in the event of a Change in Control or upon disability or death, pursuant to the terms of the applicable award agreements. Mr. Pecaric is also entitled to a pro rata portion of unvested RSUs upon a Termination without Cause. |
(7) | Mr. Pecaric's unvested PSU awards will forfeit upon a Termination with Cause without a change in control. His 2020 and 2021 unvested PSUs will be prorated if the termination occurs at least 12 months from the beginning of the performance period. Under the terms of the Merger Agreement, each RRD PSU in respect of which the performance period has not expired as of the actual Effective Time will vest based on the attainment of the applicable performance metrics at the greater of target and actual level of performance, while each RRD PSU in respect of which the performance period has expired will vest based on actual performance. Based on the foregoing, the Board of Directors determined that PSUs granted in 2020 (165,600 shares) will vest with a 150% performance factor and PSUs granted in 2021 (165,600 shares) will vest at 100%. The amounts in the table reflect these vesting determinations. |
(8) | Except as disclosed, Mr. Pecaric receives the same benefits that are generally available to all salaried employees upon death or disability. |
(9) | Represents benefits payable under a supplemental life insurance policy maintained by the Company for the benefit of Mr. Pecaric in excess of the amount generally available to all salaried employees. |
(10) | Represents benefits payable under a supplemental disability insurance policy maintained by the Company for the benefit of Mr. Pecaric in excess of the amount generally available to all salaried employees. |
Mr. Ryan, the Company’s former President, RRD Marketing Solutions, received $1,485,000, representing 1.5x the sum of his base salary and target annual bonus if all targets and objectives had been met, paid over the applicable severance period in connection with the termination of his employment. Mr. Ryan is also entitled to a pro-rated AIP payment of $234,538 in connection with his termination of employment, which is payable in 2022. He is also entitled to the following continuing benefits and perquisites: (1) Post-Termination Health Care ($34,121), Supplemental Life Insurance ($10,493), Supplemental Disability Insurance ($14,561) ,and Financial Planning ($18,000). Mr. Ryan also received pro-rated vesting of his restricted stock units valued at $402,635 at the time of vesting. Mr. Ryan’s performance stock units were pro-rated over their performance periods through his termination date but were not vested or paid in 2021. Mr. Ryan’s PSUs (73,460 shares) will vest under the terms of the Merger Agreement with a 150% performance factor for a total payout of $1,195,562.
Mr. Sharp, the Company’s Executive Vice President and Chief Accounting Officer, would be entitled to the following:
|
| Termination Without Cause ($) |
| Termination With Cause ($) |
|
| Termination Without Cause after a Change in Control ($) |
| Disability ($) |
| Death ($) | |||||||||||||||
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
| 517,500 | (1) |
|
| — |
|
|
| 690,000 | (2) |
|
| — | (3) |
|
| — |
| ||||||
Bonus |
|
| 258,750 | (1) |
|
| — |
|
|
| 345,000 | (2) |
|
| — | (4) |
|
| — | (4) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units(6) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||
Performance Stock Units(7) |
|
| 741,094 |
|
|
| — |
|
|
| 714,109 |
|
|
| 741,094 |
|
|
| 741,094 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites:(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Termination Health Care |
|
| 34,615 |
|
|
| — |
|
|
| 34,615 |
|
|
| — |
|
|
| — |
| ||||||
Supplemental Life Insurance(9) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| ||||||
Supplemental Disability Insurance(10) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,502,587 |
|
|
| — |
| ||||||
Financial Planning |
|
| 18,000 |
|
|
| — |
|
|
| 24,000 |
|
|
| — |
|
|
| — |
| ||||||
Car Allowance |
|
|
| — |
|
|
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||
Total: |
|
| 1,569,959 |
|
|
| — |
|
|
| 1,807,724 |
|
|
| 2,243,681 |
|
|
| 741,094 |
|
(1) | Upon a Termination Without Cause, Mr. Sharp is entitled to 1.5x Annualized Total Compensation (base salary and target annual bonus) as if all targets and objectives had been met, paid over the applicable severance period. |
(2) | Upon Termination Without Cause after a Change in Control, Mr. Sharp is entitled to 2x Annual Total Compensation if all targets and objectives had been met. Mr. Sharp is also entitled to her pro-rated annual bonus for the year in which the termination after a Change in Control occurs, payable at the same time as and to the extent that all other annual bonuses are paid. This bonus is not reflected in this table as, assuming a termination date of December 31, 2021, Mr. Sharp would have been entitled to this bonus pursuant to the terms of the AIP under which the annual bonus is paid (which provides for payment of the bonus to any participant who is on the payroll of the Company as of December 31) which are the same terms generally available to all salaried employees who participate in the plan. |
(3) | Mr. Sharp is entitled to the same 50% of base salary until age 65 with a maximum $10,000 per month that is generally available to all salaried employees upon disability. |
(4) | Pursuant to the terms of the Company’s AIP, Mr. Sharp is entitled to his pro-rated annual bonus for the year in which the disability or death occurs, payable at the same time as and to the extent that all other annual bonuses are paid which are the same terms generally available to all salaried employees who participate in the plan. As Mr. Sharp would have been entitled to his annual bonus on December 31 pursuant to the terms of the AIP, the bonus is not reflected in this table for a termination due to death or disability. |
(5) | Assumes a price per share of $10.85 per the terms of the terms and conditions of the Merger Agreement for Resignation for Good Reason or Termination Without Cause after Change in Control, and $11.26 per share (as of December 31, 2021) for Resignation for Good Reason or Termination Without Cause, Disability or Death. |
(6) | Mr. Sharp does not have any outstanding RSUs. |
(7) | Mr. Sharps's unvested PSU awards will forfeit upon a Termination with Cause without a change in control. His 2020 and 2021 unvested PSUs will be prorated if the termination occurs at least 12 months from the beginning of the performance period. Under the terms of the Merger Agreement, each RRD PSU in respect of which the performance period has not expired as of the actual Effective Time will vest based on the attainment of the applicable performance metrics at the greater of target and actual level of performance, while each RRD PSU in respect of which the performance period has expired will vest based on actual performance. Based on the foregoing, the Board of Directors determined that PSUs granted in 2020 (12,129 shares) will vest with a 150% performance factor and PSUs granted in 2021 (47,623 shares) will vest at 100%. The amounts in the table reflect these vesting determinations. |
(8) | Except as disclosed, Mr. Ryan receives the same benefits that are generally available to all salaried employees upon death or disability. |
(9) | Mr. Sharp was not enrolled in a supplemental life insurance policy maintained by the Company in 2021. |
(10) | Mr. Sharp was not enrolled in a supplemental disability insurance policy maintained by the Company in 2021. |
Ms. Steiner, the Company’s Executive Vice President and General Counsel, would be entitled to the following:
|
| Termination Without Cause ($) |
| Termination With Cause ($) |
| Termination Without Cause after a Change in Control ($) |
| Disability ($) |
| Death ($) | ||||||||||||
Cash: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Base Salary |
|
| 772,500 | (1) |
| — |
|
| 1,030,000 | (2) |
|
| — | (3) |
|
| — |
| ||||
Bonus |
|
| 618,000 | (1) |
| — |
|
| 824,000 | (2) |
|
| — | (4) |
|
| — | (4) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:(5) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Stock Units(6) |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
| ||||
Performance Stock Units(7) |
|
| 1,437,773 |
|
| — |
|
| 1,385,420 |
|
|
| 1,437,773 |
|
|
| 1,437,773 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Benefits and Perquisites:(8) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Post-Termination Health Care |
|
| 23,624 |
|
| — |
|
| 23,624 |
|
|
| — |
|
|
| — |
| ||||
Supplemental Life Insurance(9) |
|
| 5,903 |
|
| — |
|
| 7,870 |
|
|
| — |
|
|
| 2,000,000 |
| ||||
Supplemental Disability Insurance(10) |
|
| 9,209 |
|
| — |
|
| 12,279 |
|
|
| 3,671,622 |
|
|
| — |
| ||||
Financial Planning |
|
| 18,000 |
|
| — |
|
| 24,000 |
|
|
| — |
|
|
| — |
| ||||
Car Allowance |
|
| — |
|
| — |
|
| — |
|
|
| — |
|
|
| — |
| ||||
Total: |
|
| 2,885,009 |
|
| — |
|
| 3,307,193 |
|
|
| 5,109,395 |
|
|
| 3,437,773 |
|
(1) | Upon a Termination Without Cause, Ms. Steiner is entitled to 1.5x Annualized Total Compensation (base salary and target annual bonus) as if all targets and objectives had been met, paid over the applicable severance period. |
(2) | Upon Termination Without Cause after a Change in Control, Ms. Steiner is entitled to 2x Annual Total Compensation if all targets and objectives had been met. Ms. Steiner is also entitled to her pro-rated annual bonus for the year in which the termination after a Change in Control occurs, payable at the same time as and to the extent that all other annual bonuses are paid. This bonus is not reflected in this table as, assuming a termination date of December 31, 2021, Ms. Steiner would have been entitled to this bonus pursuant to the terms of the AIP under which the annual bonus is paid (which provides for payment of the bonus to any participant who is on the payroll of the Company as of December 31) which are the same terms generally available to all salaried employees who participate in the plan. |
(3) | Ms. Steiner is entitled to the same 50% of base salary until age 65 with a maximum $10,000 per month that is generally available to all salaried employees upon disability. |
(4) | Pursuant to the terms of the Company’s AIP, Ms. Steiner is entitled to her pro-rated annual bonus for the year in which the disability or death occurs, payable at the same time as and to the extent that all other annual bonuses are paid which are the same terms generally available to all salaried employees who participate in the plan. As Ms. Steiner would have been entitled to her annual bonus on December 31 pursuant to the terms of the AIP, the bonus is not reflected in this table for a termination due to death or disability. |
(5) | Assumes a price per share of $10.85 per the terms of the terms and conditions of the Merger Agreement for Resignation for Good Reason or Termination Without Cause after Change in Control, and $11.26 per share (as of December 31, 2021) for Resignation for Good Reason or Termination Without Cause, Disability or Death. |
(6) | Ms. Steiner does not have any outstanding RSUs. |
(7) | Ms. Steiner's unvested PSU awards will forfeit upon a Termination with Cause without a change in control. Her 2020 and 2021 unvested PSUs will be prorated if the termination occurs at least 12 months from the beginning of the performance period. Under the terms of the Merger Agreement, each RRD PSU in respect of which the performance period has not expired as of the actual Effective Time will vest based on the attainment of the applicable performance metrics at the greater of target and actual level of performance, while each RRD PSU in respect of which the performance period has expired will vest based on actual performance. Based on the foregoing, the Board of Directors determined that PSUs granted in 2020 (44,487 shares) will vest with a 150% performance factor and PSUs granted in 2021 (60,958 shares) will vest at 100%. The amounts in the table reflect these vesting determinations. |
(8) | Except as disclosed, Ms. Steiner receives the same benefits that are generally available to all salaried employees upon death or disability. |
(9) | Represents benefits payable under a supplemental life insurance policy maintained by the Company for the benefit of Ms. Steiner in excess of the amount generally available to all salaried employees. |
(10) | Represents benefits payable under a supplemental disability insurance policy maintained by the Company for the benefit of Ms. Steiner in excess of the amount generally available to all salaried employees. |
Director Compensation
Pursuant to the Company’s director compensation program, each non-employee director receives an annual cash retainer of $105,000 and an annual equity retainer of RSUs with a fair market value of $140,000. In addition, each director will also receive, as applicable, the following additional cash and equity retainers:
Cash:
•$25,000, for serving as the Chair of the Audit or HR Committees
•$20,000, for serving as Chair of the Corporate Responsibility & Governance Committee
•$75,000, for serving as Chair of the Board
Equity:
•$75,000, for serving as the Chair of the Board
Director RSUs cliff vest on the first anniversary of grant. In the event of termination of service on the Board prior to a vesting date, all RSUs will vest. Dividend equivalents on the awards are deferred (credited with interest quarterly at the same rate as five-year U.S. government bonds) and paid out in cash with the corresponding RSU.
Fair market value is defined as the closing price of the Company’s stock on the date of grant.
With the assistance of the its compensation consultant, the foregoing compensation program is reviewed annually by the Company’s HR Committee, taking into account the compensation and practices of the Company’s peer group. Based on this review, no changes were made to the director compensation program in 2021 from the prior year.
The Board has established stock ownership guidelines for all non-employee directors. These guidelines are designed to encourage the Board to have a meaningful equity ownership in the Company, thereby linking their interests with those of our stockholders. Pursuant to the stock ownership guideline, which was updated at the Human Resources Committee meeting in July 2021, each non-employee director is expected to own and retain 5x their annual cash retainer in shares of capital stock or equivalents in the Company within five years from the annual meeting at which he or she is elected to the Board. For those non-employee directors who do not meet the guideline, it is expected that progress will be made towards the goal on an annual basis. The HR Committee monitors compliance with the guidelines and conducts a formal review on an annual basis.
2021 Non-Employee Director Compensation Table
Directors who are our employees receive no additional fee for service as a director. Non-employee directors receive compensation as described above.
Name |
| Fees Earned or Paid in Cash ($)(1) |
| Stock Awards ($) |
| All Other Compensation ($)(2)(3) |
| Total ($) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Irene M. Esteves |
|
|
| 130,000 |
|
|
|
|
| 140,000 |
|
|
|
|
| 4,527 |
|
|
|
|
| 274,527 |
|
|
Susan M. Gianinno |
|
|
| 125,000 |
|
|
|
|
| 140,000 |
|
|
|
|
| 4,527 |
|
|
|
|
| 269,527 |
|
|
Timothy R. McLevish |
|
|
| 130,000 |
|
|
|
|
| 140,000 |
|
|
|
|
| 4,527 |
|
|
|
|
| 274,527 |
|
|
Jamie Moldafsky |
|
|
| 105,000 |
|
|
|
|
| 140,000 |
|
|
|
|
| 4,527 |
|
|
|
|
| 249,527 |
|
|
P. Cody Phipps(4) |
|
|
| 105,000 |
|
|
|
|
| 140,000 |
|
|
|
|
| 8,926 |
|
|
|
|
| 253,926 |
|
|
John C. Pope |
|
|
| 180,000 |
|
|
|
|
| 215,000 |
|
|
|
|
| 6,953 |
|
|
|
|
| 401,953 |
|
|
James Ray, Jr.(5) |
|
|
| 128,877 |
|
|
|
|
| 171,836 |
|
|
|
|
| — |
|
|
|
|
| 300,713 |
|
|
(1) | In accordance with the director compensation plan effective October 1, 2016, amounts in this column include a cash annual retainer of $105,000 plus $25,000 for serving as the Chair of the Audit or HR Committees; $20,000 for serving as the Chair of the Corporate Responsibility & Governance Committee; and $75,000 for serving as the Chair of the Board. |
(2) | The amounts shown in this column constitute restricted stock units granted under the Company’s 2017 PIP awarded as payment of non-employee director annual equity retainers and the equity award for serving as Chair of the Board or a Chair of committees calculated as set forth above. The grant date fair value with respect to the restricted stock units is determined in accordance with ASC Topic 718. See Note
(4) Mr. Phipps resigned from the Board effective July 28, 2021. (5) Mr. Ray was appointed to the Board effective February 26, 2021, as such, his total retainer and stock award grant includes the standard annual amount plus a proration of compensation prior to his election by shareholders at the 2021 annual meeting of shareholders. CEO Pay Ratio Disclosure In accordance with Item 402(u) of Regulation S-K, public companies are required to disclose the ratio of the median annual total compensation of all employees other than the CEO to the annual total compensation of the CEO. In accordance with this rule, we are providing the following information about the relationship of the median annual total compensation of our employees and the annual total compensation of Daniel L. Knotts, our CEO. For the fiscal year ended December 31, 2021, the annual total compensation of our previously identified median employee was $27,981 and the annual total compensation of Mr. Knotts as set forth in the summary compensation table in this Form 10-K/A was $9,146,449. Based on this information, the ratio of the annual total compensation of Mr. Knotts to the median of the annual total compensation of all employees was estimated to be 327 to 1. This pay ratio is a reasonable estimate calculated in a manner consistent with SEC rules based on payroll and employment records and the methodologies described below. Annual total compensation was calculated in accordance with the requirements of Item 402(c)(2)(x) of Regulation S-K. With respect to the CEO, we used the amount reported as total compensation in the summary compensation table included in this Form 10-K/A. To identify our median employee we pulled annual base salary and hourly wages (including overtime) for approximately 31,700 employees as of December 31, 2020, excluding the employees described below. No cost-of-living adjustment was applied and we used an exchange rate based on the monthly average for December 2020 to convert salaries and wages to comparable US dollar amounts. In accordance with SEC rules and interpretations, for purposes of this calculation, we excluded 1,653 employees from the following countries based on the small number of employees in each such country: Barbados (112 employees), Chile (27 employees), Costa Rica (14 employees), Czech Republic (298 employees), Grenada (6 employees), Guatemala (12 employees), Honduras (35 employees), Hungary (391 employees), Philippines (367 employees), Saint Lucia (7 employees), Sri Lanka (364 employees) and Trinidad and Tobago (20 employees). This process resulted in a representative employee selected in accordance with SEC guidance. Our resulting median employee is located in Asia. As of December 31, 2021, there has been no change in the Company’s employee population or employee compensation arrangements that the Company believes would significantly impact the pay ratio disclosure. The SEC’s rules for identifying our median compensated employee and calculating the pay ratio based on that employee’s annual total compensation allow companies to adopt a variety of methodologies, to apply certain exclusions and to make reasonable estimates and assumptions to reflect the employee population and compensation practices. As a result, the pay ratio reported by other companies may not be comparable to the pay ratio determined above, as other companies have different employee populations and compensation practices and may use different methodologies, exclusions, estimates and assumptions in calculating their own pay ratios. APPENDIX A -RECONCILIATION OF NON-GAAP FINANCIAL MEASURE Reconciliation of GAAP to Non-GAAP Income from Operations For the Twelve Months Ended December 31, 2019 (UNAUDITED) (in millions)
|
|
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information regarding the ownership of RRD Common Stock as of January 31, 2022 by the persons or groups of stockholders that are known to us to be the beneficial owners of more than 5% of the shares of RRD Common Stock as of January 31, 2022 (using the number of shares outstanding on that date for calculating the percentage). The information regarding beneficial owners of more than 5% of RRD Common Stock is based solely on public filings made by such owners with the SEC.
The following table sets forth the total number of shares of RRD Common Stock beneficially owned and the percentage of the outstanding shares of RRD Common Stock so owned as of January 31, 2022 by:
|