Highlights: CHICAGO, May 1 /PRNewswire-FirstCall/ -- R.R. Donnelley
& Sons Company (NYSE:RRD) today reported first-quarter 2007 net
earnings from continuing operations of $138.9 million or $0.63 per
diluted share on net sales of $2.8 billion compared to net earnings
from continuing operations of $114.2 million or $0.52 per diluted
share on net sales of $2.3 billion in the first quarter of 2006.
The first-quarter net earnings from continuing operations included,
in 2007, pre-tax charges for restructuring ($11.3 million) and
impairment ($0.1 million) totaling $11.4 million and in 2006,
pre-tax charges for restructuring ($16.2 million) and impairment
($0.4 million) totaling $16.6 million, substantially all associated
with the reorganization of certain operations and the exiting of
certain business operations. The company's effective tax rate
decreased to 32.8% in the first quarter of 2007 from 35.5% in the
first quarter of 2006, primarily reflecting an increased benefit
from the domestic manufacturing deduction and the benefit from a
larger proportion of taxable income being generated in lower tax
jurisdictions in 2007. The company recorded a loss from
discontinued operations of $0.1 million in the first quarter of
2007 and $2.3 million in the first quarter of 2006. Including
discontinued operations, net earnings were $138.8 million or $0.63
per diluted share in the first quarter of 2007 and $111.9 million
or $0.51 per diluted share in the first quarter of 2006. 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 $145.9 million or $0.66 per diluted share in the
first quarter of 2007 compared to $124.4 million or $0.57 per
diluted share in the first quarter of 2006. Non-GAAP net earnings
from continuing operations exclude restructuring and impairment
charges in the first quarter of both 2007 and 2006. For non-GAAP
comparison purposes, the effective tax rate decreased to 33.1% in
the first quarter of 2007 from 35.8% in the first quarter of 2006,
primarily reflecting an increased benefit from the domestic
manufacturing deduction and the benefit from a larger proportion of
taxable income being generated in lower tax jurisdictions in 2007.
A reconciliation of GAAP net earnings to non-GAAP net earnings for
these adjustments is presented in the attached tables. "We are
pleased by the strong operating results in the first quarter," said
Tom Quinlan, RR Donnelley's President and Chief Executive Officer.
"Our integration of Banta Corporation and Perry Judd's, both of
which were acquired in the first quarter, has been seamless to
customers and has begun to deliver the promised synergy benefits.
As we began to manage the assets and workload from each legacy
company as one RR Donnelley, we loaded our platform very
efficiently in the quarter. Our Global Print Solutions segment
continued to deliver strong results with good revenue growth and,
while Banta and Perry Judd's carried a lower operating margin
pre-acquisition, solid integration efforts and strong performance
in our legacy business began to close the margin gap. Our Global
Services segment, led by our financial print offering, posted solid
operating performance, improving profitability significantly from
the fourth-quarter of 2006. Cash from continuing operations was
strong in the seasonally lighter first quarter." Quinlan added, "We
want to thank Mark Angelson for his guidance and leadership. Under
his direction, the company made great progress over the past three
years. Our leadership team and our exceptionally talented employees
will continue to execute our proven strategy for serving customers
with the broadest range of products and services, maintaining
intense financial discipline, and striving to be the highest
quality and lowest cost producer in each sector that we serve."
Business Review (Continuing Operations) The company reports its
results in two reportable segments, 1) Global Print Solutions and
2) Global Services, and Corporate. Summary During the first quarter
of 2007, we acquired Banta Corporation and Perry Judd's, both of
which had a lower operating margin historically. Our proven
financial discipline and approach to achieving productivity
increases already have had a positive margin impact in these
operations, and we see opportunities for continued improvement. Net
sales in the quarter were $2.8 billion, up 23.2% from the first
quarter of 2006. The increase was due to acquisitions as well as
new customer wins and increased volume with existing customers and
favorable foreign exchange comparisons, offset in part by continued
price pressure. The gross margin rate decreased to 26.4% in the
first quarter of 2007 from 26.7% in the first quarter of 2006
reflecting the inclusion of the historically lower- margin Banta
and Perry Judd's operations that more than offset the benefits from
higher sales volume and our productivity efforts. SG&A expense
as a percentage of net sales was 11.6% in the first quarter of both
2007 and 2006. Operating margin, which was negatively impacted by
charges for impairment and restructuring totaling $11.4 million in
the first quarter of 2007 and $16.6 million in the first quarter of
2006, was 9.3% in the first quarter of both 2007 and 2006.
Excluding charges for restructuring and impairment, non-GAAP
operating income increased 18.1% to $269.9 million in the first
quarter of 2007 compared to the first quarter of 2006. Non-GAAP
operating margin in the first quarter of 2007 was 9.7% compared to
10.1% in the first quarter of 2006 reflecting the inclusion of the
historically lower-margin Banta and Perry Judd's operations that
more than offset the benefits from higher sales volume and our
productivity efforts. Reconciliations of GAAP operating income and
margin to non-GAAP operating income and margin are presented in the
attached tables. Segments Net sales for the Global Print Solutions
segment increased 32.8% to $1.8 billion from the first quarter of
2006 due to the Banta and Perry Judd's acquisitions as well as
sales increases in our international operations, short-run
commercial print, book and logistics offerings and favorable
foreign exchange comparisons. The segment's operating margin, which
was negatively impacted by restructuring charges of $4.3 million in
the first quarter of 2007 and $5.2 million in the first quarter of
2006, decreased to 12.4% in the first quarter of 2007 from 12.9% in
the first quarter of 2006. Excluding restructuring charges, the
segment's non-GAAP operating income increased 26.0% to $229.8
million. Non-GAAP operating margin in the first quarter of 2007
decreased to 12.6% from 13.3% in the first quarter of 2006
reflecting the inclusion of the historically lower-margin Banta and
Perry Judd's operations that more than offset the benefits of our
productivity initiatives. Net sales for the Global Services segment
increased 8.5% to $970.8 million from the first quarter of 2006 due
to the acquisitions of OfficeTiger in April, 2006 and Banta as well
as sales growth in financial print and favorable foreign exchange
comparisons, offset in part by lower sales of statement printing.
The segment's operating margin, which was negatively impacted by
charges for restructuring and impairment totaling $3.0 million in
the first quarter of 2007 and $5.4 million in the first quarter of
2006, decreased to 9.0% in the first quarter of 2007 from 9.3% in
the first quarter of 2006. Non- GAAP operating margin decreased to
9.3% in the first quarter of 2007 from 9.9% in the first quarter of
2006. This decrease was due to continued price pressure and the
performance of statement printing. Corporate operating expenses
increased to $54.3 million in the first quarter of 2007 from $48.4
million in the first quarter of 2006. Excluding restructuring
charges of $4.1 million in the first quarter of 2007 and $6.0
million in the first quarter of 2006, corporate operating expenses
increased $7.8 million to $50.2 million from the first quarter of
the prior year reflecting the acquisitions of Banta and Perry
Judd's that more than offset the benefit of our productivity
initiatives and a $5.8 million reversal of post-retirement expenses
related to the voluntary retirement of Mark Angelson. Outlook --
2007 Full-Year Non-GAAP EPS from Continuing Operations For the full
year of 2007, RR Donnelley is projecting non-GAAP net earnings per
diluted share from continuing operations to be in the range of
$2.70 to $2.75, but trending toward the high end of the range. This
guidance includes the impact of the previously announced
acquisitions and assumes no shares repurchased under the
authorization available to the company. The non- GAAP effective tax
rate for 2007 is expected to be approximately 33.7%. GAAP net
earnings per diluted share from continuing operations in 2007 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 Meeting to be held June 21, 2007
in New York City An Investor Meeting will be held in New York City
on Thursday, June 21, 2007 from 10:00 AM - 1:30 PM (Eastern Time).
The company plans to provide an overview of its product and service
offerings and discuss its business initiatives, financial outlook,
and priorities for capital deployment. A management presentation
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, http://www.rrdonnelley.com/. Conference Call RR
Donnelley will host a conference call and simultaneous webcast to
discuss its first-quarter results today, Tuesday, May 1, at 10:00
a.m. Eastern Time (9:00 a.m. Central Time). The live webcast will
be accessible on RR Donnelley's web site:
http://www.rrdonnelley.com/. 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 5969650. 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, labels, forms, 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 at http://www.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. R. R.
Donnelley & Sons Company Consolidated Balance Sheets As of
March 31, 2007 and December 31, 2006 (UNAUDITED) (In millions,
except per share data) March 31, 2007 December 31, 2006 Assets
Current Assets Cash and cash equivalents $299.6 $211.4 Restricted
cash equivalents 34.8 - Receivables, less allowance for doubtful
accounts 2,010.9 1,638.6 Inventories 626.0 501.8 Prepaid expenses
and other current assets 89.5 70.4 Deferred income taxes 124.4 94.8
Total Current Assets 3,185.2 2,517.0 Property, plant and equipment
- net 2,556.8 2,142.3 Goodwill 3,565.5 2,886.8 Other intangible
assets - net 1,485.8 1,119.8 Prepaid pension cost 763.9 638.6 Other
noncurrent assets 438.7 331.3 Total Assets $11,995.9 $9,635.8
Liabilities Current Liabilities Accounts payable 918.7 749.1
Accrued liabilities 965.0 839.2 Short-term debt and current portion
of long-term debt 348.5 23.5 Total Current Liabilities 2,232.2
1,611.8 Long-term debt 3,601.8 2,358.6 Postretirement benefit
obligations 292.8 288.0 Deferred income taxes 860.0 604.1 Other
noncurrent liabilities 730.1 645.4 Liabilities from discontinued
operations 2.9 3.2 Total Liabilities $7,719.8 $5,511.1
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 2007 and 2006
303.7 303.7 Additional paid-in capital 2,831.3 2,871.8 Retained
earnings 1,669.0 1,615.0 Accumulated other comprehensive income
(loss) 140.7 62.1 Treasury stock, at cost, 22.3 shares in 2007
(2006 - 24.2 shares) (668.6) (727.9) Total Shareholders' Equity
$4,276.1 $4,124.7 Total Liabilities and Shareholders' Equity
$11,995.9 $9,635.8 As of January 1, 2007, the Company adopted FIN
48, "Accounting for Uncertainty in Income Taxes -- an
Interpretation of FASB Statement No. 109". Upon adoption, the
Company recorded increases to other noncurrent liabilities,
goodwill, and other noncurrent assets of $82.8 million, $27.6
million, and $1.4 million, respectively, and decreases to accrued
liabilities and noncurrent deferred income tax liabilities of $15.1
million and $13.8 million, respectively. The net effect of these
changes to assets and liabilities of $24.9 million was recorded as
a cumulative effect adjustment to retained earnings. R. R.
Donnelley & Sons Company Consolidated Statements of Operations
Three Months Ended March 31, 2007 and 2006 (In millions, except per
share data) (UNAUDITED) Three months ended March 31, ADJUSTMENTS
2007 ADJUSTMENTS 2006 2007 TO NON- TO NON- GAAP NON-GAAP GAAP 2006
NON-GAAP GAAP Net sales $2,792.6 $- $2,792.6 $2,266.9 $- $2,266.9
Cost of sales (exclusive of depreciation and amortization shown
below) 2,056.0 - 2,056.0 1,661.5 - 1,661.5 Selling, general and
administrative expenses (exclusive of depreciation and amortization
shown below) 324.5 - 324.5 262.1 - 262.1 Restructuring and
impairment charges - net 11.4 (11.4) - 16.6 (16.6) - Depreciation
and amortization 142.2 - 142.2 114.8 - 114.8 Total operating
expenses 2,534.1 (11.4) 2,522.7 2,055.0 (16.6) 2,038.4 Income from
continuing operations 258.5 11.4 269.9 211.9 16.6 228.5 Interest
expense - net 53.4 - 53.4 34.8 - 34.8 Investment and other income
(expense) - net 2.2 - 2.2 (0.8) - (0.8) Earnings from continuing
operations before income taxes and minority interest 207.3 11.4
218.7 176.3 16.6 192.9 Income tax expense 67.9 4.4 72.3 62.6 6.4
69.0 Minority interest 0.5 - 0.5 (0.5) - (0.5) Net earnings from
continuing operations 138.9 7.0 145.9 114.2 10.2 124.4 Income
(loss) from discontinued operations - net of tax (0.1) 0.1 - (2.3)
2.3 - Net earnings $138.8 $7.1 $145.9 $111.9 $12.5 $124.4 Earnings
per share: Basic: Net earnings from continuing operations $0.64
$0.67 $0.53 $0.57 Loss from discontinued operations, net of tax - -
(0.01) - Net earnings $0.64 $0.67 $0.52 $0.57 Diluted: Net earnings
from continuing operations $0.63 $0.66 $0.52 $0.57 Loss from
discontinued operations, net of tax - - (0.01) - Net earnings $0.63
$0.66 $0.51 $0.57 Weighted average common shares outstanding: Basic
218.5 218.5 216.5 216.5 Diluted 220.5 220.5 217.8 217.8 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. R.R. Donnelley & Sons Company
Reconciliation of GAAP to Non-GAAP Measures IN MILLIONS, EXCEPT PER
SHARE AND MARGIN DATA (UNAUDITED) Three months ended March 31, 2007
Net earnings Income from per continuing Operating Net diluted
operations margin earnings share GAAP basis measures $258.5 9.3%
$138.8 $0.63 Non-GAAP adjustments: Restructuring and impairment
charges, net (1) 11.4 0.4% 7.0 0.03 Net loss from discontinued
operations (2) - - 0.1 - Total non-GAAP adjustments 11.4 0.4% 7.1
0.03 Non-GAAP measures $269.9 9.7% $145.9 $0.66 (1) Restructuring
and impairment (pre-tax): Operating results for the three months
ended March 31, 2007 and 2006, respectively, were affected by the
following restructuring and impairment charges: -- $9.3 million and
$13.5 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; $2.0 million and $2.7 million of other
restructuring costs, including lease termination and other facility
closure costs; and $0.1 million and $0.4 million of impairment of
other long-lived assets. (2) Net loss from discontinued operations:
Net loss from discontinued operations included costs of $0.1
million and $2.3 million for the three months ended March 31, 2007
and 2006, respectively, which primarily reflect costs resulting
from a subtenant bankruptcy related to a facility previously
occupied by the Company's package logistics business. R.R.
Donnelley & Sons Company Reconciliation of GAAP to Non-GAAP
Measures IN MILLIONS, EXCEPT PER SHARE AND MARGIN DATA (UNAUDITED)
Three months ended March 31, 2006 Net earnings Income from per
continuing Operating Net diluted operations margin earnings share
GAAP basis measures $211.9 9.3% $111.9 $0.51 Non-GAAP adjustments:
Restructuring and impairment charges, net (1) 16.6 0.8% 10.2 0.05
Net loss from discontinued operations (2) - - 2.3 0.01 Total
non-GAAP adjustments 16.6 0.8% 12.5 0.06 Non-GAAP measures $228.5
10.1% $124.4 $0.57 (1) Restructuring and impairment (pre-tax):
Operating results for the three months ended March 31, 2007 and
2006, respectively, were affected by the following restructuring
and impairment charges: -- $9.3 million and $13.5 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; $2.0 million and $2.7 million of other
restructuring costs, including lease termination and other facility
closure costs; and $0.1 million and $0.4 million of impairment of
other long-lived assets. (2) Net loss from discontinued operations:
Net loss from discontinued operations included costs of $0.1
million and $2.3 million for the three months ended March 31, 2007
and 2006, respectively, which primarily reflect costs resulting
from a subtenant bankruptcy related to a facility previously
occupied by the Company's package logistics business. R.R.
Donnelley & Sons Company Segment GAAP to Non-GAAP Operating
Income and Margin Reconciliation For the three months ended March
31, 2007 and 2006 $ IN MILLIONS (UNAUDITED) Global Print Global
Solutions Services Corporate Consolidated Three Months Ended March
31, 2007 Net Sales $1,821.8 $970.8 $- $2,792.6 Operating Expense
1,596.3 883.5 54.3 2,534.1 Operating Income (Loss) 225.5 87.3
(54.3) 258.5 Operating Margin % 12.4% 9.0% nm 9.3% Non-GAAP
Adjustments Restructuring charges 4.3 2.9 4.1 11.3 Impairment
charges - 0.1 - 0.1 Integration charges - - - - Total Non-GAAP
Adjustments 4.3 3.0 4.1 11.4 Operating income (loss) excluding
restructuring, impairment and integration charges $229.8 $90.3
$(50.2) $269.9 Operating margin before restructuring, impairment
and integration charges % 12.6% 9.3% nm 9.7% Depreciation and
amortization 90.9 42.6 8.7 142.2 Capital expenditures 90.8 14.4 4.2
109.4 Three Months Ended March 31, 2006 Net Sales $1,371.8 $895.1
$- $2,266.9 Operating Expense 1,194.6 812.0 48.4 2,055.0 Operating
Income (Loss) 177.2 83.1 (48.4) 211.9 Operating Margin % 12.9% 9.3%
nm 9.3% Non-GAAP Adjustments Restructuring charges 5.2 5.0 6.0 16.2
Impairment charges - 0.4 - 0.4 Integration charges - - - - Total
Non-GAAP Adjustments 5.2 5.4 6.0 16.6 Operating income (loss)
excluding restructuring, impairment and integration $182.4 $88.5
$(42.4) $228.5 Operating margin before restructuring, impairment
and integration charges % 13.3% 9.9% nm 10.1% Depreciation and
amortization 67.6 39.4 7.8 114.8 Capital expenditures 76.4 11.2 3.3
90.9 R. R. Donnelley & Sons Company Condensed Consolidated
Statements of Cash Flows For the three months ended March 31, 2007
and 2006 IN MILLIONS (UNAUDITED) 2007 2006 Operating Activities Net
earnings $138.8 $111.9 Net loss from discontinued operations 0.1
2.3 Adjustment to reconcile net earnings to cash provided by
operating activities 153.6 142.0 Changes in operating assets and
liabilities (70.8) (146.6) Net cash provided by operating
activities of continuing operations 221.7 109.6 Net cash used in
operating activities of discontinued operations (0.3) (0.6) Net
cash provided by operating activities 221.4 109.0 Net cash used in
investing activities of continuing operations (1,654.9) (90.1) Net
cash (used in) provided by investing activities of discontinued
operations - - Net cash used in investing activities (1,654.9)
(90.1) Net cash provided by (used in) financing activities of
continuing operations 1,519.2 (65.8) Net cash used in financing
activities of discontinued operations - - Net cash provided by
(used in) financing activities 1,519.2 (65.8) Effect of exchange
rate on cash and cash equivalents 2.5 0.9 Net increase (decrease)
in cash and cash equivalents 88.2 (46.0) Cash and cash equivalents
at beginning of period 211.4 366.7 Cash and cash equivalents at end
of period $299.6 $320.7 R.R. Donnelley & Sons Company Revenue
Reconciliation Reported to Pro Forma For the three months ended
March 31, 2007 and 2006 $ IN MILLIONS (UNAUDITED) Adjustment for
net sales of Reported acquired Pro forma net sales businesses net
sales Three Months Ended March 31, 2007 Global Print Solutions
$1,821.8 $48.6 $1,870.4 Global Services 970.8 1.5 972.3
Consolidated $2,792.6 $50.1 $2,842.7 Three Months Ended March 31,
2006 Global Print Solutions $1,371.8 $434.7 $1,806.5 Global
Services 895.1 43.4 938.5 Consolidated $2,266.9 $478.1 $2,745.0 Net
sales change Global Print Solutions 32.8% 3.5% Global Services 8.5%
3.6% Consolidated 23.2% 3.6% 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 March 31, 2007 and
2006 to pro forma net sales as if the acquisitions took place at
the beginning of the respective periods. For the three months ended
March 31, 2007, the adjustment for net sales of acquired businesses
reflects the net sales of Banta Corporation (acquired January 9,
2007) and Perry Judd's Holdings Incorporated (acquired January 24,
2007). For the three months ended March 31, 2006 the adjustment for
net sales of acquired businesses reflects the net sales of
OfficeTiger Holdings, Inc. (acquired April 27, 2006), Banta
Corporation (acquired January 9, 2007) and Perry Judd's Holdings
Incorporated (acquired January 24, 2007). DATASOURCE: R. R.
Donnelley & Sons Company CONTACT: Media, Doug Fitzgerald, EVP,
Marketing & Communications, +1- 312-326-7740, , or Investors,
Dan Leib, SVP, Finance, +1-312-326-7710, , both of R. R. Donnelley
& Sons Company Web site: http://www.rrdonnelley.com/
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