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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
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
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
77 WEST WACKER DRIVE, CHICAGO,
ILLINOIS 60601
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (312) 326-8000
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 the
filing requirements for the past 90 days.
X
Yes------- No -------
NUMBER OF SHARES OF COMMON STOCK
OUTSTANDING
AS OF OCTOBER 31, 1994 153,398,170
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PART I
FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PAGE
INDEX NUMBER(S)
----- ---------
Condensed Consolidated Statements of Income (Unaudited) for the
three and nine month periods ended September 30, 1994 and
1993.......................................................... 3
Condensed Consolidated Balance Sheets (Unaudited) at September
30, 1994 and December 31, 1993................................ 4-5
Condensed Consolidated Statements of Cash Flows (Unaudited) for
the nine months ended September 30, 1994 and 1993............. 6
Notes to Condensed Consolidated Financial Statements (Unau-
dited)........................................................ 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Results of Operations--Comparison of Third Quarter and First
Nine Months 1994 to 1993...................................... 8
Changes in Financial Condition................................. 8-9
2
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(THOUSANDS OF DOLLARS, EXCEPT SHARE DATA)
THIRD QUARTER YEAR TO DATE
----------------------- -----------------------
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
----------------------- -----------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Net sales.................... $ 1,242,973 $ 1,123,848 $ 3,431,188 $ 3,078,153
Cost of sales................ 987,927 891,826 2,764,470 2,475,945
----------- ----------- ----------- -----------
Gross profit................. 255,046 232,022 666,718 602,208
Selling and administrative
expenses.................... 122,848 110,156 356,118 319,441
Restructuring charge......... -- -- -- 90,000
----------- ----------- ----------- -----------
Earnings from operations..... 132,198 121,866 310,600 192,767
Interest expense........... 13,569 11,149 37,768 33,613
Other (income) expense,
net....................... 880 (1,945) 6,356 1,065
----------- ----------- ----------- -----------
Total other expense........ 14,449 9,204 44,124 34,678
----------- ----------- ----------- -----------
Earnings before income taxes
and cumulative effect of
accounting changes.......... 117,749 112,662 266,476 158,089
Provision for income taxes... 37,679 43,211 85,272 57,975
----------- ----------- ----------- -----------
Net income from operations
before cumulative effect of
accounting changes.......... 80,070 69,451 181,204 100,114
Cumulative effect of change
in accounting for
postretirement benefits
other than pensions
(net of $80.1 million in tax
benefits)................... -- -- -- (127,700)
Cumulative effect of change
in accounting for
income taxes................ -- -- -- 58,200
----------- ----------- ----------- -----------
Net income................... $ 80,070 $ 69,451 $ 181,204 $ 30,614
=========== =========== =========== ===========
Income (charge) per share:
Operations before
cumulative effect of
accounting changes........ $ 0.52 $ 0.45 $ 1.18 $ 0.65
Cumulative effect of change
in accounting for
postretirement benefits
other than pensions (net
of tax benefits).......... -- -- -- (0.82)
Cumulative effect of change
in accounting for income
taxes..................... -- -- -- 0.37
----------- ----------- ----------- -----------
Net income................. $ 0.52 $ 0.45 $ 1.18 $ 0.20
=========== =========== =========== ===========
Cash dividends............. $ 0.16 $ 0.14 $ 0.44 $ 0.40
=========== =========== =========== ===========
Average shares outstanding... 153,816,000 154,474,000 154,117,000 154,684,000
=========== =========== =========== ===========
See accompanying Notes to Condensed Consolidated Financial Statements.
3
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
ASSETS
1994 1993
---------- ----------
Cash and equivalents................................... $ 21,460 $ 10,716
Receivables, less allowance for doubtful accounts of
$17,414 and
$14,795 at September 30, 1994 and December 31, 1993,
respectively.......................................... 946,279 825,207
Inventories, principally at LIFO cost.................. 302,594 243,714
Prepaid expenses....................................... 27,349 30,277
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Total current assets............................... 1,297,682 1,109,914
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Property, plant and equipment, at cost................. 3,679,823 3,361,255
Accumulated depreciation............................... (1,835,820) (1,686,779)
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Net property, plant and equipment.................. 1,844,003 1,674,476
Goodwill--net.......................................... 540,780 493,672
Other.................................................. 429,478 375,964
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Total assets....................................... $4,111,943 $3,654,026
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
4
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
SEPTEMBER 30, 1994 AND DECEMBER 31, 1993
(THOUSANDS OF DOLLARS)
LIABILITIES AND SHAREHOLDERS' EQUITY
1994 1993
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Accounts payable....................................... $ 398,053 $ 333,862
Accrued compensation................................... 87,263 78,284
Short-term debt........................................ 37,400 37,428
Current and deferred income taxes...................... 66,213 40,698
Other accrued liabilities.............................. 228,905 195,169
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Total current liabilities............................ 817,834 685,441
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Long-term debt......................................... 876,389 673,422
Deferred income taxes.................................. 258,875 272,959
Other noncurrent liabilities........................... 213,776 178,213
Shareholders' equity:
Common stock, at stated value........................ 330,612 330,612
Retained earnings, including cumulative translation
adjustments of ($5,497) and ($13,140) at September
30, 1994 and December 31, 1993, respectively........ 1,753,600 1,629,673
Reacquired common stock, at cost..................... (139,143) (116,294)
---------- ----------
Total shareholders' equity......................... 1,945,069 1,843,991
---------- ----------
Total liabilities and shareholders' equity......... $4,111,943 $3,654,026
========== ==========
See accompanying Notes to Condensed Consolidated Financial Statements.
5
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS ENDED SEPTEMBER 30
(THOUSANDS OF DOLLARS)
1994 1993
--------- ---------
Cash flows provided by (used in) operating activities:
Net income from operations before cumulative effect of
accounting changes.................................... $ 181,204 $ 100,114
Depreciation and amortization.......................... 232,599 203,881
Net change in assets and liabilities................... (47,395) (56,879)
Other.................................................. 5,598 6,562
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Net cash provided by operating activities............ 372,006 253,678
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Cash flows used for investing activities:
Capital expenditures................................... (338,584) (233,318)
Other investments including acquisitions, net of cash
acquired.............................................. (104,860) (106,501)
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Net cash used for investing activities............... (443,444) (339,819)
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Cash flows from (used for) financing activities:
Net increase in borrowings............................. 170,008 177,326
Disposition of reacquired common stock................. 18,689 13,030
Acquisition of common stock............................ (38,637) (40,086)
Cash dividends on common stock......................... (67,821) (61,887)
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Net cash from financing activities................... 82,239 88,383
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Effect of exchange rate changes on cash and equivalents.. (57) (1,486)
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Net increase in cash and equivalents..................... 10,744 756
Cash and equivalents at beginning of period.............. 10,716 12,348
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Cash and equivalents at end of period.................... $ 21,460 $ 13,104
========= =========
See accompanying Notes to Condensed Consolidated Financial Statements.
6
R. R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Note 1. The condensed consolidated financial statements included herein are
unaudited (although the balance sheet at December 31, 1993 is condensed from
the audited balance sheet at that date) and have been prepared by the company
to conform with the requirements applicable to this quarterly report on Form
10-Q. Certain information and footnote disclosures, normally included in
financial statements prepared in accordance with generally accepted accounting
principles, have been omitted as permitted by such requirements. However, the
company believes that the disclosures made are adequate to make the information
presented not misleading. These condensed consolidated financial statements
should be read in conjunction with the consolidated financial statements and
the related notes included in the company's 1993 annual report on Form 10-K.
The condensed consolidated financial statements included herein reflect, in
the opinion of the company, all adjustments (which include only normal,
recurring adjustments) necessary to present fairly the financial information
for such periods.
Note 2. Components of the company's inventories at September 30, 1994 and
December 31, 1993 were as follows:
(THOUSANDS OF DOLLARS)
--------------------------
SEPTEMBER 30, DECEMBER 31,
1994 1993
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Raw materials........................................ $148,613 $142,739
Work in process...................................... 239,883 154,477
Operating supplies................................... 39,183 32,192
Progress billings.................................... (75,939) (40,299)
LIFO reserve......................................... (49,146) (45,395)
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Total inventories................................ $302,594 $243,714
======== ========
Note 3. The following provides supplemental cash flow information:
(THOUSANDS OF DOLLARS)
--------------------------
NINE MONTHS ENDED
SEPTEMBER 30
--------------------------
1994 1993
------------- ------------
Interest paid, net of capitalized interest........... $ 30,797 $ 23,201
Income taxes paid.................................... $ 65,945 $ 46,493
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS--COMPARISON OF THIRD QUARTER 1994 TO THIRD QUARTER 1993
Net sales increased 10.6% above the prior year reflecting higher volume from
new products and services, new customers, recent expansions and acquisitions.
Net sales from international operations were 39% above the prior year and
represented over 11% of total company sales in the quarter. International sales
growth included new operations in Europe, Asia and Latin America, including the
recent acquisition of a 51% interest in Chilean-based Editorial Lord Cochrane,
which was fully consolidated in operating results beginning July 1, 1994.
Gross profit increased 9.9%, reflecting higher volume partially offset by
higher depreciation and amortization, increased start-up expenses and a higher
LIFO provision. Selling and administrative expenses were 11.5% above the prior
year, due to the higher volume, recent expansions and new operations. Other
expense increased $5.2 million reflecting higher interest expense (due to
larger commercial paper balances and higher interest rates), lower investment
income and higher minority interest expense. The effective tax rate of 32% in
1994 was lower than the 1993 rate reflecting benefits associated with life
insurance programs, credits associated with affordable housing investment
programs and the one-time impact on the deferred income tax provision in the
third quarter of 1993, related to the federal tax rate increase. As a result of
the volume increase and the lower effective tax rate, net income increased
15.3%, which exceeded the growth in sales. Earnings per share were $0.52, up
15.6%, reflecting net income growth and fewer average shares outstanding.
RESULTS OF OPERATIONS--COMPARISON OF FIRST NINE MONTHS 1994 TO FIRST NINE
MONTHS 1993
Net sales increased 11.5% above the prior year reflecting higher volume from
new products and services, new customers, recent expansions and acquisitions.
Net sales from international operations were 31% above the prior year and
represented approximately 11% of total company sales in the first nine months
of 1994. International sales growth included new operations in Europe, Asia and
Latin America, including the recent acquisition of a 51% interest in Chilean-
based Editorial Lord Cochrane, which was fully consolidated in operating
results beginning July 1, 1994.
Gross profit increased 10.7%, reflecting higher sales volume partially offset
by higher depreciation and amortization, increased start-up expenses and a
higher LIFO provision. Selling and administrative expenses increased 11.5% due
to the higher volume, recent expansions and new operations. Other expense
increased $9.4 million reflecting higher interest expense (due to larger
commercial paper balances and higher interest rates), lower investment income
and higher minority interest expense. The effective tax rate of 32% in 1994 was
lower than the 1993 rate reflecting benefits associated with life insurance
programs, credits associated with affordable housing investment programs and
the one-time impact on the deferred income tax provision in the third quarter
of 1993, related to the federal tax rate increase. As a result of the volume
increase and the lower effective tax rate, net income increased 12.6% over
1993, excluding the restructuring charge and accounting changes reflected in
the first quarter of 1993. Earnings per share of $1.18 increased 13.5%,
excluding the one-time items, reflecting net income growth and fewer average
shares outstanding.
CHANGES IN FINANCIAL CONDITION
With the growth in cash flow and the credit facilities and shelf registration
discussed below, management believes the company has the financial strength and
flexibility to fund current operations and growth. Net income from operations
plus depreciation and amortization was $413.8 million, up 13.4% from the prior
year, excluding the restructuring charge recorded in the first quarter of 1993.
Capital investment during the first nine months totaled $443.4 million,
including new equipment to meet the growing needs of present and new customers;
expansion of manufacturing plants; and
8
acquisitions and joint venture investments. Full year capital spending is
estimated to be $525 million. Working capital increased $55.4 million from
December 31, 1993 primarily from increased receivables and inventories
reflecting recent acquisitions and increased volume partially offset by higher
accounts payable balances.
At September 30, 1994, the company continues to have two unused revolving
credit facilities totaling $550 million with a number of banks. These credit
facilities provide support for the issuance of commercial paper and other
credit needs. At September 30, 1994, the company had effective shelf
registration statements permitting it to issue, from time to time, up to $500
million in debt securities. Under the shelf registration statements, the
company issued $200 million of medium term notes during October and early
November, 1994. The notes bear interest rates between 7.01% and 7.96% (with a
weighted average interest rate of 7.55%) with maturity dates ranging from 1997
to 1999. The proceeds from these issues were used to retire commercial paper
debt.
9
PART II
OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3(ii)(a)By-Laws
3(ii)(b)Amendment to By-Laws adopted October 27, 1994
10 1993 Stock Purchase Plan, as amended
12 Statement of Computation of Ratio of Earnings to Fixed Charges
27 Financial Data Schedule
(b) No Current Report on Form 8-K was filed during the third quarter of 1994.
10
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
R. R. Donnelley & Sons Company
/s/ William L. White
By __________________________________
William L. White
Controller
(Authorized Officer and
Chief Accounting Officer)
November 14, 1994
Date __________________________
11