Exhibit 99.1
RR Donnelley | NEWS RELEASE |
RR Donnelley Reports Second-Quarter 2006 Results
Highlights:
Ø | Second-Quarter GAAP net earnings from continuing operations of $124.4 million or $0.57 per diluted share in 2006 compared to $95.3 million or $0.44 per diluted share in 2005 |
Ø | Second-Quarter Non-GAAP net earnings from continuing operations of $133.6 million or $0.61 per diluted share in 2006 compared to $110.6 million or $0.51 per diluted share in 2005 |
Ø | Reaffirms full-year, 2006 Non-GAAP net earnings per diluted share from continuing operations guidance of $2.45 to $2.50, but trending toward the high end of the range |
Ø | Investor Day to be held in Chicago on Tuesday, September 26, 2006 |
CHICAGO, August 1, 2006 — R.R. Donnelley & Sons Company (NYSE: RRD) today reported second-quarter 2006 net earnings from continuing operations of $124.4 million or $0.57 per diluted share on net sales of $2.3 billion compared to net earnings from continuing operations of $95.3 million or $0.44 per diluted share on net sales of $1.9 billion in the second quarter of 2005. The second-quarter 2006 net earnings from continuing operations included charges for restructuring ($12.7 million) and impairment ($1.9 million) totaling $14.6 million, substantially all of which were associated with the reorganization of certain operations and the exiting of certain business activities. Net earnings from continuing operations in the second quarter of 2005 included charges for restructuring ($22.2 million), integration ($2.6 million) and impairment ($2.2 million) totaling $27.0 million, primarily related to the integration of the 2004 acquisition of Moore Wallace. The company’s effective tax rate decreased to 31.9% in the second quarter of 2006 from 35.8% in the second quarter of 2005, primarily reflecting the benefit from a larger proportion of taxable income being generated in lower tax jurisdictions, a reduction in the statutory tax rate in Canada and the reversal of non-US tax valuation allowances. Discontinued operations produced net income of $0.8 million in the second quarter of 2006 and a net loss of $4.6 million in the second quarter of 2005. Including discontinued operations, net earnings were $125.2 million or $0.57 per diluted share in the second quarter of 2006 compared to net earnings of $90.7 million or $0.42 per diluted share in the second quarter of 2005.
The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP (Generally Accepted Accounting Principles) measures, are useful because that information is an appropriate measure for evaluating the company’s operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management’s effectiveness with specific reference to these indicators. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
Non-GAAP net earnings from continuing operations totaled $133.6 million or $0.61 per diluted share in the second quarter of 2006 compared to $110.6 million or $0.51 per diluted share in the second quarter of 2005. Non-GAAP net earnings from continuing operations exclude charges for restructuring and impairment in the second quarter of 2006 and exclude charges for restructuring, impairment and integration in the second quarter of 2005. A reconciliation of GAAP net earnings to non-GAAP net earnings for these adjustments is presented in the attached tables.
“We are pleased with our second-quarter results,” said Mark A. Angelson, RR Donnelley’s Chief Executive Officer. “Our Publishing and Retail Services segment delivered strong revenue growth and expanded margins. Our Integrated Print Communications segment, led by the financial print business, posted strong revenue and profit growth. We continued to win in the marketplace in each of our segments.”
RR DONNELLEY REPORTS SECOND-QUARTER 2006 RESULTS
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Angelson added, “During the quarter, we benefited as we ramped up our new and expanded customer relationships and as we continued to integrate the strategic acquisitions that broadened our business services capabilities and the tuck-in acquisitions that increased our flexibility and responsiveness.”
Business Review (Continuing Operations)
Following are the results for the company and each reportable segment.
Summary
Net sales in the quarter were $2.3 billion, up 17.7% from the second quarter of 2005. The increase was primarily due to acquisitions, namely The Astron Group, Asia Printers Group, OfficeTiger, Spencer Press, Poligrafia, the Charlestown, Indiana print operations of Adplex-Rhodes and Critical Mail Continuity Services, as well as new customer wins and increased volume with existing customers in the Publishing and Retail Services and Integrated Print Communications segments, offset in part by continued pricing pressure. The gross margin rate decreased to 27.5% in the second quarter of 2006 from 27.6% in the second quarter of 2005, reflecting, in part, higher year-over-year paper prices that largely were passed through to customers. SG&A expense as a percentage of net sales was 12.1% in both the second quarter of 2006 and 2005. Operating margin, which was negatively impacted by charges for restructuring and impairment totaling $14.6 million in the second quarter of 2006 and by charges for restructuring, impairment and integration totaling $27.0 million in the second quarter of 2005, was 9.8% in the second quarter of 2006 compared to 9.1% in the second quarter of 2005.
Excluding charges for restructuring, impairment and integration, the non-GAAP operating margin in the second quarter of 2006 was 10.4% compared to 10.5% in the second quarter of 2005. Pricing pressure, increased information technology investment and higher energy prices were offset, in part, by increased volume and the benefits of our productivity efforts. Reconciliations of GAAP operating income and margin to non-GAAP operating income and margin are presented in the attached tables.
Segments
The company reports its results in four reportable segments: 1) Publishing and Retail Services, 2) Integrated Print Communications, 3) Forms and Labels and 4) Corporate.
The Publishing and Retail Services segment includes: our 1) magazine, catalog and retail, 2) directories, 3) book, 4) European, 5) Asian, 6) logistics and 7) premedia businesses. Net sales for the Publishing and Retail Services segment increased 14.8% to $1.1 billion from the second quarter of 2005 primarily due to sales increases in our international operations and directory business and the acquisitions of the Asia Printers Group, Spencer Press, the Charlestown, Indiana print operations of Adplex-Rhodes and Poligrafia. The segment’s operating margin, which was negatively impacted by charges for restructuring of $3.2 million in the second quarter of 2006 and by charges for restructuring and impairment totaling $7.3 million in the second quarter of 2005, was 15.5% in the second quarter of 2006 compared to 14.3% in the second quarter of 2005. Excluding restructuring and impairment charges, the segment’s non-GAAP operating margin for the second quarter of 2006 was 15.8% compared to 15.0% in the second quarter of 2005, primarily resulting from increased sales volume, favorable business mix shift and the benefits of our productivity initiatives that more than offset the impact of pricing pressure and higher energy and paper prices.
The Integrated Print Communications segment includes: our 1) direct mail and business communications services, 2) financial print, 3) short-run commercial print and 4) business process outsourcing (The Astron Group and OfficeTiger) businesses. Net sales for the Integrated Print
RR DONNELLEY REPORTS SECOND-QUARTER 2006 RESULTS
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Communications segment increased 33.5% to $727.2 million from the second quarter of 2005, primarily due to the acquisitions of The Astron Group and OfficeTiger as well as sales growth in our financial print, short-run commercial print and direct mail businesses. The segment’s operating margin, which was negatively impacted by charges for restructuring and impairment totaling $8.5 million in the second quarter of 2006 and by charges for restructuring, impairment and integration totaling $2.9 million in the second quarter of 2005, decreased to 9.6% in the second quarter of 2006 from 11.9% in the second quarter of 2005. Excluding restructuring, impairment and integration charges, the segment’s non-GAAP operating margin decreased to 10.8% in the second quarter of 2006 from 12.4% in the second quarter of 2005. This decrease was due to mix shift to lower margin businesses and incremental non-cash depreciation and purchase accounting-related amortization expenses associated with the acquisitions of The Astron Group and OfficeTiger.
The Forms and Labels segment includes: our 1) forms, 2) labels, 3) office products, 4) Latin American and 5) Canadian businesses. Net sales for the segment increased 3.5% to $423.6 million in the second quarter of 2006 from the second quarter of 2005, primarily due to favorable foreign exchange rates and increased volume in our Latin American business. The segment’s operating margin, which was negatively impacted by charges for restructuring and impairment totaling $2.2 million in the second quarter of 2006 and by charges for restructuring, impairment and integration totaling $2.1 million in the second quarter of 2005, decreased to 7.5% in the second quarter of 2006 from 7.9% in the second quarter of 2005. Excluding restructuring, impairment and integration charges, non-GAAP operating margin decreased to 8.0% in the second quarter of 2006 from 8.4% in the second quarter of 2005, primarily due to continued pricing pressure, offset in part by increased sales volume and the benefits of our productivity efforts.
Corporate operating expenses decreased to $53.8 million in the second quarter of 2006 from $60.9 million in the second quarter of 2005. Excluding charges for restructuring of $0.7 million in the second quarter of 2006 and restructuring and integration totaling $14.7 million in the second quarter of 2005, corporate operating expenses increased $6.9 million to $53.1 million from the second quarter of the prior year primarily due to additional investment in information technology.
Outlook — 2006 Full-Year Non-GAAP EPS from Continuing Operations Reaffirmed
For the full year of 2006, RR Donnelley is projecting non-GAAP net earnings per diluted share from continuing operations to be in the range of $2.45 to $2.50, but trending toward the high end of the range. This guidance includes the expected dilutive impact from both the acquisition of OfficeTiger and the adoption, in the first quarter of 2006, of SFAS No. 123(R)—Share-Based Payment, and assumes no shares repurchased under the authorization available to the company. The non-GAAP effective tax rate for 2006 is expected to be approximately 34.5%.
GAAP net earnings per diluted share from continuing operations in 2006 may include restructuring, impairment and integration charges, the resolution of certain tax items and other items that are not currently determinable, but may be significant. For that reason, the company is unable to provide full-year GAAP net earnings estimates at this time.
Investor Day to be held September 26, 2006 in Chicago
An Investor Day will be held near RR Donnelley’s corporate headquarters in Chicago on Tuesday, September 26, 2006. The company plans to provide a review of its businesses and discuss its strategic initiatives, financial outlook, and priorities for capital deployment. Management presentations will be followed by a question and answer session. This meeting will be webcast and details will be posted in advance on the company’s website, www.rrdonnelley.com.
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Conference Call
RR Donnelley will host a conference call to discuss its second-quarter results on Tuesday, August 1, 2006, at 10:00 am Eastern Time (9:00 am Central Time). The company will provide a live webcast of the earnings conference call, which can be accessed via the Internet at www.rrdonnelley.com (“Investors”). Individuals wishing to participate can join the conference call by dialing (706) 634-1139. A webcast replay will be archived on the company’s web site for 30 days after the call. In addition, a telephonic replay of the call will be available for seven days at (706) 645-9291, passcode 2894319.
About RR Donnelley
RR Donnelley (NYSE: RRD) is the world’s premier full-service provider of print and related services, including business process outsourcing. Founded more than 140 years ago, the company provides solutions in commercial printing, direct mail, financial printing, print fulfillment, forms and labels, logistics, call centers, transactional print-and-mail, print management, online services, digital photography, color services, and content and database management to customers in the publishing, healthcare, advertising, retail, technology, financial services and many other industries. The largest companies in the world and others rely on RR Donnelley’s scale, scope and insight through a comprehensive range of online tools, variable printing services and market-specific solutions. For more information, visit the company’s web site atwww.rrdonnelley.com.
Use of Forward-Looking Statements
This news release contains “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Readers are cautioned not to place undue reliance on these forward-looking statements and any such forward-looking statements are qualified in their entirety by reference to the following cautionary statements. All forward-looking statements speak only as of the date of this news release and are based on current expectations and involve a number of assumptions, risks and uncertainties that could cause the actual results to differ materially from such forward-looking statements. The company does not undertake to and specifically declines any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statement or to reflect the occurrence of anticipated or unanticipated events. The factors that could cause material differences in the expected results of RR Donnelley include, without limitation, the following: the successful execution and integration of acquisitions and the performance of the company’s businesses following acquisitions; the ability to implement comprehensive plans for the execution of cross-selling, cost containment, asset rationalization and other key strategies; competitive pressures in all markets in which the company operates; factors that affect customer demand, including changes in postal rates and postal regulations, changes in the capital markets, changes in advertising markets, the rate of migration from paper-based forms to digital format, customers’ budgetary constraints and customers’ changes in short-range and long-range plans; shortages or changes in availability, or increases in costs of, key materials (such as ink, paper and fuel); and other risks and uncertainties described in RR Donnelley’s periodic filings with the Securities and Exchange Commission (SEC). Readers are strongly encouraged to read the full cautionary statements contained in RR Donnelley’s filings with the SEC. RR Donnelley disclaims any obligation to update or revise any forward-looking statements.
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
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R. R. Donnelley & Sons Company
Consolidated Balance Sheets
As of June 30, 2006 and December 31, 2005
(UNAUDITED)
(In millions, except per share data)
June 30, 2006 | December 31, 2005 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 138.5 | $ | 366.7 | ||||
Receivables, less allowance for doubtful accounts | 1,570.9 | 1,529.1 | ||||||
Inventories | 522.6 | 481.4 | ||||||
Prepaid expenses and other current assets | 91.4 | 67.5 | ||||||
Deferred income taxes | 168.7 | 177.0 | ||||||
Total Current Assets | 2,492.1 | 2,621.7 | ||||||
Property, plant and equipment - net | 2,138.9 | 2,138.6 | ||||||
Goodwill | 2,974.5 | 2,750.7 | ||||||
Other intangible assets - net | 1,166.3 | 1,094.3 | ||||||
Prepaid pension cost | 517.1 | 514.1 | ||||||
Other noncurrent assets | 311.7 | 254.3 | ||||||
Total Assets | $ | 9,600.6 | $ | 9,373.7 | ||||
Liabilities | ||||||||
Current Liabilities | ||||||||
Accounts payable | 661.6 | 718.1 | ||||||
Accrued liabilities | 810.8 | 826.9 | ||||||
Short-term debt and current portion of long-term debt | 330.2 | 269.1 | ||||||
Total Current Liabilities | 1,802.6 | 1,814.1 | ||||||
Long-term debt | 2,357.9 | 2,365.4 | ||||||
Postretirement benefits | 333.4 | 330.6 | ||||||
Deferred income taxes | 586.7 | 596.8 | ||||||
Other noncurrent liabilities | 627.3 | 541.2 | ||||||
Liabilities from discontinued operations | 3.5 | 1.4 | ||||||
Total Liabilities | $ | 5,711.4 | $ | 5,649.5 | ||||
Shareholders’ Equity | ||||||||
Preferred stock, $1.00 par value | — | — | ||||||
Authorized shares: 2.0; Issued: None | ||||||||
Common stock, $1.25 par value | ||||||||
Authorized shares: 500.0 | ||||||||
Issued shares: 243.0 in 2006 and 2005 | 303.7 | 303.7 | ||||||
Additional paid-in capital | 2,850.6 | 2,888.2 | ||||||
Retained earnings | 1,564.1 | 1,439.4 | ||||||
Accumulated other comprehensive loss | (71.1 | ) | (90.2 | ) | ||||
Unearned compensation | — | (44.9 | ) | |||||
Treasury stock, at cost, 25.1 shares in 2006 (2005-25.5 shares) | (758.1 | ) | (772.0 | ) | ||||
Total Shareholders’ Equity | $ | 3,889.2 | $ | 3,724.2 | ||||
Total Liabilities and Shareholders’ Equity | $ | 9,600.6 | $ | 9,373.7 | ||||
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
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R. R. Donnelley & Sons Company
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2006 and 2005
(In millions, except per share data)
(UNAUDITED)
Three months ending June 30, | Six months ending June 30, | |||||||||||||||||||||||||||||||||||||||||||||||
2 0 0 6 GAAP | ADJUST- MENTS | 2 0 0 6 NON- GAAP | 2 0 0 5 GAAP | ADJUST- MENTS | 2 0 0 5 NON- GAAP | 2 0 0 6 GAAP | ADJUST- MENTS | 2 0 0 6 NON- GAAP | 2 0 0 5 GAAP | ADJUST- MENTS TO NON- GAAP | 2 0 0 5 NON- GAAP | |||||||||||||||||||||||||||||||||||||
Net sales | $ | 2,273.7 | — | $ | 2,273.7 | $ | 1,932.1 | — | $ | 1,932.1 | $ | 4,540.6 | — | $ | 4,540.6 | $ | 3,858.6 | — | $ | 3,858.6 | ||||||||||||||||||||||||||||
Cost of sales (exclusive of depreciation and amortization shown below) | 1,648.0 | — | 1,648.0 | 1,399.2 | — | 1,399.2 | 3,309.4 | — | 3,309.4 | 2,766.2 | (0.1 | ) | 2,766.1 | |||||||||||||||||||||||||||||||||||
Selling, general and administrative expenses (exclusive of depreciation and amortization shown below) | 275.2 | — | 275.2 | 233.2 | (2.6 | ) | 230.6 | 537.3 | — | 537.3 | 484.7 | (5.0 | ) | 479.7 | ||||||||||||||||||||||||||||||||||
Restructuring and impairment charges - net | 14.6 | (14.6 | ) | — | 24.4 | (24.4 | ) | — | 31.2 | (31.2 | ) | — | 36.6 | (36.6 | ) | — | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 114.2 | — | 114.2 | 99.6 | — | 99.6 | 229.0 | — | 229.0 | 198.3 | — | 198.3 | ||||||||||||||||||||||||||||||||||||
Total operating expenses | 2,052.0 | (14.6 | ) | �� | 2,037.4 | 1,756.4 | (27.0 | ) | 1,729.4 | 4,106.9 | (31.2 | ) | 4,075.7 | 3,485.8 | (41.7 | ) | 3,444.1 | |||||||||||||||||||||||||||||||
Income from continuing operations | 221.7 | 14.6 | 236.3 | 175.7 | 27.0 | 202.7 | 433.7 | 31.2 | 464.9 | 372.8 | 41.7 | 414.5 | ||||||||||||||||||||||||||||||||||||
Interest expense - net | 35.6 | — | 35.6 | 23.7 | — | 23.7 | 70.5 | — | 70.5 | 44.8 | — | 44.8 | ||||||||||||||||||||||||||||||||||||
Investment and other income (expense) - net | (3.7 | ) | — | (3.7 | ) | (3.8 | ) | — | (3.8 | ) | (4.5 | ) | — | (4.5 | ) | (4.4 | ) | — | (4.4 | ) | ||||||||||||||||||||||||||||
Earnings from continuing operations before income taxes and minority interest | 182.4 | 14.6 | 197.0 | 148.2 | 27.0 | 175.2 | 358.7 | 31.2 | 389.9 | 323.6 | 41.7 | 365.3 | ||||||||||||||||||||||||||||||||||||
Income tax expense | 58.2 | 5.4 | 63.6 | 53.1 | 11.7 | 64.8 | 120.7 | 11.6 | 132.3 | 119.6 | 18.0 | 137.6 | ||||||||||||||||||||||||||||||||||||
Minority interest | (0.2 | ) | — | (0.2 | ) | (0.2 | ) | — | (0.2 | ) | (0.6 | ) | — | (0.6 | ) | (0.5 | ) | — | (0.5 | ) | ||||||||||||||||||||||||||||
Net earnings from continuing operations | 124.4 | 9.2 | 133.6 | 95.3 | 15.3 | 110.6 | 238.6 | 19.6 | 258.2 | 204.5 | 23.7 | 228.2 | ||||||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations - net of tax | 0.8 | (0.8 | ) | — | (4.6 | ) | 4.6 | — | (1.5 | ) | 1.5 | — | (6.9 | ) | 6.9 | — | ||||||||||||||||||||||||||||||||
Net earnings | $ | 125.2 | $ | 8.4 | $ | 133.6 | $ | 90.7 | $ | 19.9 | $ | 110.6 | $ | 237.1 | $ | 21.1 | $ | 258.2 | $ | 197.6 | $ | 30.6 | $ | 228.2 | ||||||||||||||||||||||||
Earnings per share: | ||||||||||||||||||||||||||||||||||||||||||||||||
Basic: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings from continuing operations | $ | 0.57 | $ | 0.62 | $ | 0.44 | $ | 0.52 | $ | 1.10 | $ | 1.19 | $ | 0.95 | $ | 1.06 | ||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | — | — | (0.02 | ) | — | (0.01 | ) | — | (0.03 | ) | — | |||||||||||||||||||||||||||||||||||||
Net earnings | $ | 0.57 | $ | 0.62 | $ | 0.42 | $ | 0.52 | $ | 1.09 | $ | 1.19 | $ | 0.92 | $ | 1.06 | ||||||||||||||||||||||||||||||||
Diluted: | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings from continuing operations | $ | 0.57 | $ | 0.61 | $ | 0.44 | $ | 0.51 | $ | 1.09 | $ | 1.18 | $ | 0.94 | $ | 1.06 | ||||||||||||||||||||||||||||||||
Income (loss) from discontinued operations, net of tax | — | — | (0.02 | ) | — | (0.01 | ) | — | (0.03 | ) | — | |||||||||||||||||||||||||||||||||||||
Net earnings | $ | 0.57 | $ | 0.61 | $ | 0.42 | $ | 0.51 | $ | 1.08 | $ | 1.18 | $ | 0.91 | $ | 1.06 | ||||||||||||||||||||||||||||||||
Weighted average common shares outstanding: | ||||||||||||||||||||||||||||||||||||||||||||||||
Basic | 216.9 | 216.9 | 213.5 | 213.5 | 216.4 | 216.4 | 214.4 | 214.4 | ||||||||||||||||||||||||||||||||||||||||
Diluted | 218.9 | 218.9 | 215.1 | 215.1 | 218.3 | 218.3 | 216.1 | 216.1 |
The company believes that certain non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful because that information is an appropriate measure for evaluating the company’s operating performance. Internally, the company uses this non-GAAP information as an indicator of business performance, and evaluates management’s effectiveness with specific reference to this indicator. These measures should be considered in addition to, not a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.
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R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures
IN MILLIONS, EXCEPT PER SHARE DATA
(UNAUDITED)
Three months ended June 30, 2006 | Three months ended June 30, 2005 | ||||||||||||||||||||||||||
Income (loss) from continuing operations | Operating margin | Net earnings (loss) | Net earnings (loss) per diluted share | Income from continuing operations | Operating margin | Net earnings (loss) | Net earnings (loss) per diluted share | ||||||||||||||||||||
GAAP basis measures | $ | 221.7 | 9.8 | % | $ | 125.2 | $ | 0.57 | $ | 175.7 | 9.1 | % | $ | 90.7 | $ | 0.42 | |||||||||||
Non-GAAP adjustments: | |||||||||||||||||||||||||||
Restructuring and impairment charges, net (1) | 14.6 | 0.6 | % | 9.2 | 0.04 | 24.4 | 1.3 | % | 15.1 | 0.07 | |||||||||||||||||
Integration charges (2) | — | — | — | — | 2.6 | 0.1 | % | 1.6 | 0.01 | ||||||||||||||||||
Income tax adjustments (3) | — | — | (1.4 | ) | (0.01 | ) | |||||||||||||||||||||
Net (income) loss from discontinued operations (4) | (0.8 | ) | — | 4.6 | 0.02 | ||||||||||||||||||||||
Total non-GAAP adjustments | 14.6 | 0.6 | % | 8.4 | 0.04 | 27.0 | 1.4 | % | 19.9 | 0.09 | |||||||||||||||||
Non-GAAP measures | $ | 236.3 | 10.4 | % | $ | 133.6 | $ | 0.61 | $ | 202.7 | 10.5 | % | $ | 110.6 | $ | 0.51 | |||||||||||
(1) | Restructuring and impairment (pre-tax): Operating results for the three months ended June 30, 2006 and 2005 were affected by the following restructuring and impairment charges: |
• | 2006 included $10.2 million for employee termination costs substantially all of which were associated with restructuring actions resulting from the reorganization of certain operations and the exiting of certain business activities; $2.5 million of other restructuring costs, primarily lease termination costs; and $1.9 million for impairment of other long-lived assets. |
• | 2005 included $5.0 million for employee termination costs primarily related to the elimination of duplicative administrative functions resulting from the Moore Wallace acquisition and other actions to restructure operations; $17.2 million of other restructuring costs, primarily related to lease termination costs and relocation costs associated with the Moore Wallace acquisition and the relocation of a Logistics facility, and $2.2 million of impairment of long-lived assets primarily related to the abandonment of assets in the Forms and Labels and Publishing and Retail Services segments. |
(2) | Integration charges (pre-tax): Operating income included post-acquisition integration charges of $2.6 million in the three months ended June 30, 2005 related to the Moore Wallace acquisition. |
(3) | Income tax adjustments: Income tax expense for the three months ended June 30, 2005 included certain items and adjustments to reflect the Company’s estimated pro-forma tax rate of 37.0%. |
(4) | Net (income) loss from discontinued operations: The net income from discontinued operations for the three months ended June 30, 2006 primarily reflects the expected sublease of a facility previously occupied by the Company’s package logistics business. For the three months ended June 30, 2005, the net loss from discontinued operations primarily reflects the results of the Peak Technologies business. |
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
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R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures
IN MILLIONS, EXCEPT PER SHARE DATA
(UNAUDITED)
Six months ended June 30, 2006 | Six months ended June 30, 2005 | |||||||||||||||||||||||||
Income (loss) from continuing operations | Operating margin | Net earnings (loss) | Net earnings (loss) per diluted share | Income from continuing operations | Operating margin | Net earnings (loss) | Net earnings (loss) per diluted share | |||||||||||||||||||
GAAP basis measures | $ | 433.7 | 9.6 | % | $ | 237.1 | $ | 1.08 | $ | 372.8 | 9.7 | % | $ | 197.6 | $ | 0.91 | ||||||||||
Non-GAAP adjustments: | ||||||||||||||||||||||||||
Restructuring and impairment charges, net (1) | 31.2 | 0.7 | % | 19.6 | 0.09 | 36.6 | 0.9 | % | 22.7 | 0.11 | ||||||||||||||||
Integration charges (2) | — | — | — | — | 5.1 | 0.1 | % | 3.2 | 0.02 | |||||||||||||||||
Income tax adjustments (3) | — | — | (2.2 | ) | (0.01 | ) | ||||||||||||||||||||
Net loss from discontinued operations (4) | 1.5 | 0.01 | 6.9 | 0.03 | ||||||||||||||||||||||
Total non-GAAP adjustments | 31.2 | 0.7 | % | 21.1 | 0.10 | 41.7 | 1.0 | % | 30.6 | 0.15 | ||||||||||||||||
Non-GAAP measures | $ | 464.9 | 10.2 | % | $ | 258.2 | $ | 1.18 | $ | 414.5 | 10.7 | % | $ | 228.2 | $ | 1.06 | ||||||||||
(1) | Restructuring and impairment (pre-tax): Operating results for the six months ended June 30, 2006 and 2005 were affected by the following restructuring and impairment charges: |
• | 2006 included $23.7 million for employee termination costs substantially all of which were associated with restructuring actions resulting from the reorganization of certain operations and the exiting of certain business activities; $5.2 million of other restructuring costs, primarily lease termination costs; and $2.3 million for impairment of other long-lived assets. |
• | 2005 included $8.2 million for employee termination costs primarily related to the elimination of duplicative administrative functions resulting from the Moore Wallace acquisition and other actions to restructure operations; $24.9 million of other restructuring costs, primarily related to lease termination costs and relocation costs associated with the Moore Wallace acquisition, the relocation of a Logistics facility, and the exiting of a U.K. financial print facility, and $3.5 million of impairment of long-lived assets primarily related to the abandonment of assets in the Forms and Labels and Publishing and Retail Services segments. |
(2) | Integration charges (pre-tax): Operating income included post-acquisition integration charges of $5.1 million in the six months ended June 30, 2005 primarily related to the Moore Wallace acquisition and Corporate information systems integration. |
(3) | Income tax adjustments: Income tax expense in 2005 included certain items and adjustments to reflect the Company’s estimated pro-forma tax rate of 37.7%. |
(4) | Net loss from discontinued operations: Net loss from discontinued operations for the six months ended June 30, 2006 primarily reflects costs resulting from a subtenant bankruptcy related to a facility previously occupied by the Company’s package logistics business. For the six months ended June 30, 2005, the net loss from discontinued operations primarily includes the results of the Peak Technologies business. |
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
Page 9 of 13
R. R. Donnelley & Sons Company
Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation
For the three months ended June 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Publishing and Retail Services | Integrated Print Communications | Forms and Labels | Corporate | Consolidated | ||||||||||||||||
Three Months Ended June 30, 2006 | ||||||||||||||||||||
Net Sales | $ | 1,122.9 | $ | 727.2 | $ | 423.6 | $ | — | $ | 2,273.7 | ||||||||||
Operating Expense | 949.2 | 657.1 | 391.9 | 53.8 | 2,052.0 | |||||||||||||||
Operating Income (Loss) | 173.7 | 70.1 | 31.7 | (53.8 | ) | 221.7 | ||||||||||||||
Operating Margin % | 15.5 | % | 9.6 | % | 7.5 | % | nm | 9.8 | % | |||||||||||
Non-GAAP Adjustments | ||||||||||||||||||||
Restructuring charges | 3.2 | 7.1 | 1.7 | 0.7 | 12.7 | |||||||||||||||
Impairment charges | — | 1.4 | 0.5 | — | 1.9 | |||||||||||||||
Integration charges | — | — | — | — | — | |||||||||||||||
Total Non-GAAP Adjustments | 3.2 | 8.5 | 2.2 | 0.7 | 14.6 | |||||||||||||||
Operating income (loss) excluding restructuring, impairment and integration charges | $ | 176.9 | $ | 78.6 | $ | 33.9 | $ | (53.1 | ) | $ | 236.3 | |||||||||
Operating margin before restructuring, impairment and integration charges % | 15.8 | % | 10.8 | % | 8.0 | % | nm | 10.4 | % | |||||||||||
Depreciation and amortization | 58.4 | 34.2 | 14.5 | 7.1 | 114.2 | |||||||||||||||
Capital expenditures | 60.4 | 17.7 | 6.0 | 2.7 | 86.8 | |||||||||||||||
Three Months Ended June 30, 2005 | ||||||||||||||||||||
Net Sales | $ | 978.3 | $ | 544.7 | $ | 409.1 | $ | — | $ | 1,932.1 | ||||||||||
Operating Expense | 838.5 | 480.1 | 376.9 | 60.9 | 1,756.4 | |||||||||||||||
Operating Income (Loss) | 139.8 | 64.6 | 32.2 | (60.9 | ) | 175.7 | ||||||||||||||
Operating Margin % | 14.3 | % | 11.9 | % | 7.9 | % | nm | 9.1 | % | |||||||||||
Non-GAAP Adjustments | ||||||||||||||||||||
Restructuring charges | 6.2 | 2.6 | 0.9 | 12.5 | 22.2 | |||||||||||||||
Impairment charges | 1.1 | 0.2 | 0.9 | — | 2.2 | |||||||||||||||
Integration charges | — | 0.1 | 0.3 | 2.2 | 2.6 | |||||||||||||||
Total Non-GAAP Adjustments | 7.3 | 2.9 | 2.1 | 14.7 | 27.0 | |||||||||||||||
Operating income (loss) excluding restructuring, impairment and integration | $ | 147.1 | $ | 67.5 | $ | 34.3 | $ | (46.2 | ) | $ | 202.7 | |||||||||
Operating margin before restructuring, impairment and integration charges % | 15.0 | % | 12.4 | % | 8.4 | % | nm | 10.5 | % | |||||||||||
Depreciation and amortization | 51.9 | 24.7 | 15.6 | 7.4 | 99.6 | |||||||||||||||
Capital expenditures | 100.1 | 15.5 | 4.6 | 10.2 | 130.4 |
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
Page 10 of 13
R. R. Donnelley & Sons Company
Segment GAAP to Non-GAAP Operating Income and Margin Reconciliation
For the six months ended June 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Publishing and Retail Services | Integrated Print Communications | Forms and Labels | Corporate | Consolidated | ||||||||||||||||
Six Months Ended June 30, 2006 | ||||||||||||||||||||
Net Sales | $ | 2,236.5 | $ | 1,454.7 | $ | 849.4 | $ | — | $ | 4,540.6 | ||||||||||
Operating Expense | 1,912.2 | 1,308.3 | 784.2 | 102.2 | 4,106.9 | |||||||||||||||
Operating Income (Loss) | 324.3 | 146.4 | 65.2 | (102.2 | ) | 433.7 | ||||||||||||||
Operating Margin % | 14.5 | % | 10.1 | % | 7.7 | % | nm | 9.6 | % | |||||||||||
Non-GAAP Adjustments | ||||||||||||||||||||
Restructuring charges | 9.8 | 9.7 | 2.7 | 6.7 | 28.9 | |||||||||||||||
Impairment charges | — | 1.8 | 0.5 | — | 2.3 | |||||||||||||||
Integration charges | — | — | — | — | — | |||||||||||||||
Total Non-GAAP Adjustments | 9.8 | 11.5 | 3.2 | 6.7 | 31.2 | |||||||||||||||
Operating income (loss) excluding restructuring, impairment and integration charges | $ | 334.1 | $ | 157.9 | $ | 68.4 | $ | (95.5 | ) | $ | 464.9 | |||||||||
Operating margin before restructuring, impairment and integration charges % | 14.9 | % | 10.9 | % | 8.1 | % | nm | 10.2 | % | |||||||||||
Depreciation and amortization | 117.4 | 67.5 | 29.1 | 15.0 | 229.0 | |||||||||||||||
Capital expenditures | 126.0 | 35.5 | 10.2 | 6.0 | 177.7 | |||||||||||||||
Six Months Ended June 30, 2005 | ||||||||||||||||||||
Net Sales | $ | 1,960.6 | $ | 1,076.7 | $ | 821.3 | $ | — | $ | 3,858.6 | ||||||||||
Operating Expense | 1,668.3 | 947.7 | 757.0 | 112.8 | 3,485.8 | |||||||||||||||
Operating Income (Loss) | 292.3 | 129.0 | 64.3 | (112.8 | ) | 372.8 | ||||||||||||||
Operating Margin % | 14.9 | % | 12.0 | % | 7.8 | % | nm | 9.7 | % | |||||||||||
Non-GAAP Adjustments | ||||||||||||||||||||
Restructuring charges | 7.5 | 6.8 | 3.6 | 15.2 | 33.1 | |||||||||||||||
Impairment charges | 1.1 | 0.3 | 2.1 | — | 3.5 | |||||||||||||||
Integration charges | 0.5 | 0.2 | 0.8 | 3.6 | 5.1 | |||||||||||||||
Total Non-GAAP Adjustments | 9.1 | 7.3 | 6.5 | 18.8 | 41.7 | |||||||||||||||
Operating income (loss) excluding restructuring, impairment and integration | $ | 301.4 | $ | 136.3 | $ | 70.8 | $ | (94.0 | ) | $ | 414.5 | |||||||||
Operating margin before restructuring, impairment and integration charges % | 15.4 | % | 12.7 | % | 8.6 | % | nm | 10.7 | % | |||||||||||
Depreciation and amortization | 103.4 | 48.2 | 31.7 | 15.0 | 198.3 | |||||||||||||||
Capital expenditures | 178.3 | 21.3 | 9.7 | 14.9 | 224.2 |
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
Page 11 of 13
R. R. Donnelley & Sons Company
Condensed Consolidated Statements of Cash Flows
For the six months ended June 30, 2006 and 2005
(IN MILLIONS)
(UNAUDITED)
2006 | 2005 | |||||||
OPERATING ACTIVITIES | ||||||||
Net earnings | $ | 237.1 | $ | 197.6 | ||||
Net loss from discontinued operations | 1.5 | 6.9 | ||||||
Adjustments to reconcile net earnings to cash provided by operating activities | 295.0 | 309.7 | ||||||
Changes in operating assets and liabilities of continuing operations | (290.3 | ) | (85.4 | ) | ||||
Net cash provided by operating activities of continuing operations | 243.3 | 428.8 | ||||||
Net cash used in operating activities of discontinued operations | (0.5 | ) | (8.2 | ) | ||||
Net cash provided by operating activities | 242.8 | 420.6 | ||||||
INVESTING ACTIVITIES | ||||||||
Net cash used in investing activities of continuing operations | (412.3 | ) | (1,142.5 | ) | ||||
Net cash used in investing activities of discontinued operations | — | (0.5 | ) | |||||
Net cash used in investing activities | (412.3 | ) | (1,143.0 | ) | ||||
FINANCING ACTIVITIES | ||||||||
Net cash provided by (used in) financing activities of continuing operations | (62.7 | ) | 536.1 | |||||
Net cash provided by (used in) financing activities | (62.7 | ) | 536.1 | |||||
Effect of exchange rates on cash flows and cash equivalents | 4.0 | (3.9 | ) | |||||
Net decrease in cash and cash equivalents | (228.2 | ) | (190.2 | ) | ||||
Cash and cash equivalents at beginning of period | 366.7 | 641.8 | ||||||
Cash and cash equivalents at end of period | $ | 138.5 | $ | 451.6 | ||||
Supplemental non-cash disclosure: | ||||||||
Acquisition of assets through direct financing | $ | 10.8 | $ | — | ||||
Acquisition of business—purchase price payable | 8.7 | — | ||||||
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
Page 12 of 13
R.R. Donnelley & Sons Company
Revenue Reconciliation Reported to Pro Forma
For the three months ended June 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Reported net sales | Adjustment for net sales of acquired businesses | Pro forma net sales | |||||||||
Three Months Ended June 30, 2006 | |||||||||||
Publishing and Retail Services | $ | 1,122.9 | $ | — | $ | 1,122.9 | |||||
Integrated Print Communications | 727.2 | 8.7 | 735.9 | ||||||||
Forms and Labels | 423.6 | — | 423.6 | ||||||||
Corporate | — | — | — | ||||||||
Consolidated | $ | 2,273.7 | $ | 8.7 | $ | 2,282.4 | |||||
Three Months Ended June 30, 2005 | |||||||||||
Publishing and Retail Services | $ | 978.3 | $ | 63.3 | $ | 1,041.6 | |||||
Integrated Print Communications | 544.7 | 142.4 | 687.1 | ||||||||
Forms and Labels | 409.1 | — | 409.1 | ||||||||
Corporate | — | — | — | ||||||||
Consolidated | $ | 1,932.1 | $ | 205.7 | $ | 2,137.8 | |||||
Net sales change | |||||||||||
Publishing and Retail Services | 14.8 | % | 7.8 | % | |||||||
Integrated Print Communications | 33.5 | % | 7.1 | % | |||||||
Forms and Labels | 3.5 | % | 3.5 | % | |||||||
Corporate | |||||||||||
Consolidated | 17.7 | % | 6.8 | % |
The reported results of the company include the results of acquired businesses from the acquisition date forward. The company has provided this schedule to reconcile reported net sales for the three months ended June 30, 2006 and 2005 to pro forma net sales as if the acquisitions took place at the beginning of the respective periods.
For the quarter ended June 30, 2006 the adjustment for net sales of acquired businesses reflects the net sales of OfficeTiger (acquired April 27, 2006) as if the acquisition had occurred on April 1, 2006.
For the quarter ended June 30, 2005 the adjustment for net sales of acquired businesses reflects the net sales of The Astron Group (acquired June 20, 2005), Asia Printers Group (acquired July 7, 2005), the Charlestown, Indiana print facility acquired from Adplex-Rhodes (acquired August 18, 2005), Poligrafia (acquired September 5, 2005), Spencer Press (acquired November 9, 2005) and OfficeTiger (acquired April 27, 2006) for the three months ended June 30, 2005 as if the respective acquisitions had occurred on April 1, 2005.
RR DONNELLEY REPORTS SECOND QUARTER 2006 RESULTS
Page 13 of 13
R.R. Donnelley & Sons Company
Revenue Reconciliation Reported to Pro Forma
For the six months ended June 30, 2006 and 2005
$ IN MILLIONS
(UNAUDITED)
Reported net sales | Adjustment for net sales of acquired businesses | Pro forma net sales | |||||||||
Six Months Ended June 30, 2006 | |||||||||||
Publishing and Retail Services | $ | 2,236.5 | $ | — | $ | 2,236.5 | |||||
Integrated Print Communications | 1,454.7 | 35.2 | 1,489.9 | ||||||||
Forms and Labels | 849.4 | — | 849.4 | ||||||||
Corporate | — | — | — | ||||||||
Consolidated | $ | 4,540.6 | $ | 35.2 | $ | 4,575.8 | |||||
Six Months Ended June 30, 2005 | |||||||||||
Publishing and Retail Services | $ | 1,960.6 | $ | 120.7 | $ | 2,081.3 | |||||
Integrated Print Communications | 1,076.7 | 299.5 | 1,376.2 | ||||||||
Forms and Labels | 821.3 | — | 821.3 | ||||||||
Corporate | — | — | — | ||||||||
Consolidated | $ | 3,858.6 | $ | 420.2 | $ | 4,278.8 | |||||
Net sales change | |||||||||||
Publishing and Retail Services | 14.1 | % | 7.5 | % | |||||||
Integrated Print Communications | 35.1 | % | 8.3 | % | |||||||
Forms and Labels | 3.4 | % | 3.4 | % | |||||||
Corporate | |||||||||||
Consolidated | 17.7 | % | 6.9 | % |
The reported results of the company include the results of acquired businesses from the acquisition date forward. The company has provided this schedule to reconcile reported net sales for the six months ended June 30, 2006 and 2005 to pro forma net sales as if the acquisitions took place at the beginning of the respective periods.
For the six months ended June 30, 2006 the adjustment for net sales of acquired businesses reflects the net sales of OfficeTiger (acquired April 27, 2006) as if the acquisition had occurred on January 1, 2006.
For the six months ended June 30, 2005 the adjustment for net sales of acquired businesses reflects the net sales of The Astron Group (acquired June 20, 2005), Asia Printers Group (acquired July 7, 2005), the Charlestown, Indiana print facility acquired from Adplex-Rhodes (acquired August 18, 2005), Poligrafia (acquired September 5, 2005), Spencer Press (acquired November 9, 2005) and OfficeTiger (acquired April 27, 2006) for the six months ended June 30, 2005 as if the respective acquisitions had occurred on January 1, 2005.