Acquisitions and Dispositions | 9 Months Ended |
Sep. 30, 2014 |
Business Combinations [Abstract] | ' |
Acquisitions and Dispositions | ' |
2. Acquisitions and Dispositions |
2014 Dispositions |
On August 15, 2014, the Company sold the assets and liabilities of Journalism Online, LLC (“Journalism Online”), a provider of online subscription management services, for net proceeds of $10.7 million, of which $7.7 million was received as of September 30, 2014, resulting in a gain of $11.2 million. The gain was included in net investment and other (income) expense in the Consolidated Statement of Operations. The operations of the Journalism Online business were included in the Strategic Services segment. |
On August 11, 2014, the Company’s subsidiary, RR Donnelley Argentina S.A. (“RRDA”), filed for bankruptcy liquidation in bankruptcy court in Argentina. The bankruptcy petition was approved by the court shortly thereafter and a bankruptcy trustee was appointed. As a result of the bankruptcy liquidation, the Company recorded a loss of $16.4 million in net investment and other (income) expense for the three months ended September 30, 2014. Effective as of the court’s approval, the operating results of RRDA are no longer included in the Company’s consolidated results of operations. RRDA had net sales of $22.1 million and a loss before income taxes of $3.4 million for the nine months ended September 30, 2014, compared to net sales of $40.8 million and a loss before income taxes of $3.1 million for the nine months ended September 30, 2013. The operations of RRDA were included in the International segment. |
On February 7, 2014, the Company sold the assets and liabilities of Office Tiger Global Real Estate Service Inc. (“GRES”), its commercial and residential real estate advisory services, for net proceeds of $2.3 million and a loss of $0.8 million, which was recognized in net investment and other (income) expense in the Consolidated Statements of Operations. The operations of the GRES business were included in the International segment. |
2014 Acquisitions |
On March 25, 2014, the Company acquired substantially all of the North American operations of Esselte Corporation (“Esselte”), a developer and manufacturer of nationally branded and private label office and stationery products. The acquisition, combined with the Company’s existing products, created a more competitive and efficient office products supplier capable of supplying enhanced offerings across the combined customer base. The purchase price for Esselte included $82.3 million in cash and 1.0 million shares of RR Donnelley common stock, or a total transaction value of $100.6 million based on the Company’s closing share price on March 24, 2014. Esselte’s operations are included in the Variable Print segment. |
On March 10, 2014, the Company acquired the assets of MultiCorpora R&D Inc. and MultiCorpora International Inc. (together “MultiCorpora”) for approximately $6.0 million. MultiCorpora is an international provider of translation technology solutions. The acquisition of MultiCorpora expanded the capabilities of the Company’s translation services offering which supports clients’ multi-lingual communications. MultiCorpora’s operations are included in the Strategic Services segment. |
On January 31, 2014, the Company acquired Consolidated Graphics, Inc. (“Consolidated Graphics”), a provider of digital and commercial printing, fulfillment services, print management and proprietary Internet-based technology solutions, with operations in North America, Europe and Asia. The acquisition enhanced the Company’s ability to provide integrated communications solutions for its customers. The purchase price for Consolidated Graphics was $359.9 million in cash and 16.0 million shares of RR Donnelley common stock, or a total transaction value of $660.6 million based on the Company’s closing share price on January 30, 2014, plus the assumption of Consolidated Graphics’ debt of $118.4 million. Immediately following the acquisition, the Company repaid substantially all of the debt assumed. Consolidated Graphics’ operations are primarily included in the Variable Print segment. In the second quarter of 2014, Consolidated Graphics’ operations in the Czech Republic and Japan were moved from the Variable Print segment to the Europe and Asia reporting units, respectively, within the International segment to reflect corresponding changes in the management reporting structure of the organization. |
For the nine months ended September 30, 2014, the Company recorded $8.2 million of acquisition-related expenses associated with acquisitions completed or contemplated, within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. Acquisition-related expenses for the three months ended September 30, 2014 were de minimis. |
The Esselte, MultiCorpora and Consolidated Graphics acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including other intangible assets, based on their estimated fair values at the applicable acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill associated with these acquisitions is primarily attributable to the synergies expected to arise as a result of the acquisitions. |
For Esselte, the fair value of the identifiable net assets acquired of approximately $110.1 million exceeded the purchase price of $100.6 million, resulting in a bargain purchase gain of $9.5 million for the nine months ended September 30, 2014, which was recorded in net investment and other (income) expense. A $1.0 million reduction in this gain was recognized as a loss during the three months ended September 30, 2014 as a result of finalizing the working capital settlement. The gain on the bargain purchase was primarily attributable to the Company’s ability to utilize certain tax operating losses. |
The tax deductible goodwill related to the Consolidated Graphics, Esselte and MultiCorpora acquisitions was $74.1 million. |
Based on the valuations, the final purchase price allocations for these acquisitions were as follows: |
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Accounts receivable | $ | 241.4 | | | | | | | | | | | | | |
Inventories | | 89.6 | | | | | | | | | | | | | |
Prepaid expenses and other current assets | | 17.3 | | | | | | | | | | | | | |
Property, plant and equipment | | 334.1 | | | | | | | | | | | | | |
Other intangible assets | | 205 | | | | | | | | | | | | | |
Other noncurrent assets | | 11.9 | | | | | | | | | | | | | |
Goodwill | | 300.1 | | | | | | | | | | | | | |
Accounts payable and accrued liabilities | | (218.0 | ) | | | | | | | | | | | | |
Other noncurrent liabilities | | (57.5 | ) | | | | | | | | | | | | |
Deferred taxes-net | | (96.6 | ) | | | | | | | | | | | | |
Total purchase price-net of cash acquired | | 827.3 | | | | | | | | | | | | | |
Less: debt assumed | | 118.4 | | | | | | | | | | | | | |
Less: value of common stock issued | | 319 | | | | | | | | | | | | | |
Less: gain on bargain purchase | | 9.5 | | | | | | | | | | | | | |
Net cash paid | $ | 380.4 | | | | | | | | | | | | | |
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The fair values of other intangible assets, technology and goodwill associated with the acquisitions of Esselte, MultiCorpora and Consolidated Graphics were determined to be Level 3 under the fair value hierarchy. The following table presents the fair values, valuation techniques and related unobservable inputs for these Level 3 measurements: |
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| Fair Value | | | Valuation Technique | | Unobservable Input | | Range | | | | | |
Customer relationships | $ | 178.2 | | | Excess earnings | | Discount rate | | 17.0% - 21.0% | | | | | |
Attrition rate | 5.0% - 9.5% | | | | |
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Trade names | | 26.5 | | | Relief-from-royalty method | | Discount rate | | 19.00% | | | | | |
Royalty rate (after-tax) | 0.5% - 1.5% | | | | |
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Technology | | 1.1 | | | Excess earnings | | Discount rate | | | 17.00% | | | | | |
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The fair values of property, plant and equipment associated with the Consolidated Graphics, Esselte, and MultiCorpora acquisitions were determined to be Level 3 under the fair value hierarchy. Property, plant and equipment values were estimated using either the cost or market approach, if a secondhand market existed. |
2013 Disposition |
During the fourth quarter of 2013, the Company sold the assets and liabilities of R.R. Donnelley SAS (“MRM France”), its direct mail business located in Cosne sur Loire, France, for a loss of $17.9 million, which was recognized in net investment and other (income) expense in the Consolidated Statements of Operations. The loss included cash incentive payments due to the purchaser of $18.8 million, of which $16.4 million was paid as of September 30, 2014 with the remaining balance to be paid by January 2016. The operations of the MRM France business were included in the International segment. |
For the three and nine months ended September 30, 2013, the Company recorded $1.1 million and $2.2 million of acquisition-related expenses, respectively, associated with acquisitions contemplated within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations. |
Pro forma results |
The following unaudited pro forma financial information for the three and nine months ended September 30, 2014 and 2013 presents the combined results of operations of the Company and the 2014 acquisitions described above, as if the acquisitions had occurred at January 1, 2013. |
The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had these acquisitions been completed as of the beginning of the periods presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition. Pro forma adjustments are tax-effected at the applicable statutory tax rates. |
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| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | |
| 2014 | | | 2013 | | | 2014 | | | 2013 | |
Net sales | $ | 2,957.80 | | | $ | 2,952.80 | | | $ | 8,686.90 | | | $ | 8,699.20 | |
Net earnings attributable to RR Donnelley common shareholders | | 68.5 | | | | 16.6 | | | | 127.3 | | | | 83.2 | |
Net earnings per share attributable to RR Donnelley common | | | | | | | | | | | | | | | |
shareholders: |
Basic | $ | 0.34 | | | $ | 0.08 | | | $ | 0.64 | | | $ | 0.42 | |
Diluted | $ | 0.34 | | | $ | 0.08 | | | $ | 0.63 | | | $ | 0.42 | |
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The unaudited pro forma financial information includes amortization of purchased intangibles of $19.9 million and $60.8 million for the three and nine months ended September 30, 2014, respectively and $21.2 million and $64.0 million for the three and nine months ended September 30, 2013, respectively. The unaudited pro forma financial information includes restructuring, impairment and other charges from operations of $13.6 million and $61.5 million for the three and nine months ended September 30, 2014, respectively and $47.1 million and $111.9 million for the three and nine months ended September 30, 2013, respectively. |
Additionally, the pro forma adjustments affecting net earnings attributable to RR Donnelley common shareholders for the three and nine months ended September 30, 2014 and 2013 were as follows: |
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| Three Months Ended | | | Nine Months Ended | |
| September 30, | | | September 30, | |
| 2014 | | | 2013 | | | 2014 | | | 2013 | |
Depreciation and amortization of purchased assets, pre-tax | $ | 1.3 | | | $ | (2.7 | ) | | $ | 2.9 | | | $ | (7.2 | ) |
Acquisition-related expenses, pre-tax | | (0.1 | ) | | | 2.1 | | | | 18.8 | | | | (14.4 | ) |
Restructuring, impairment and other charges, pre-tax | | 6.3 | | | | (6.2 | ) | | | 28.4 | | | | (27.4 | ) |
Inventory fair value adjustments, pre-tax | | — | | | | — | | | | 14.3 | | | | (14.3 | ) |
Other pro forma adjustments, pre-tax | | 2.2 | | | | (7.7 | ) | | | (2.3 | ) | | | (6.3 | ) |
Income taxes | | (3.4 | ) | | | 1.4 | | | | (17.1 | ) | | | 19.3 | |
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