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RR Donnelley Q1 Net Down 92% On Changes

Thursday, May 07, 2009

Press release from the issuing company

CHICAGO -- R.R. Donnelley & Sons Company today reported first-quarter net earnings from continuing operations attributable to common shareholders of $13.9 million or $0.07 per diluted share on net sales of $2.5 billion compared to net earnings from continuing operations attributable to common shareholders of $182.0 million or $0.85 per diluted share on net sales of $3.0 billion in the first quarter of 2008.  The first-quarter net earnings from continuing operations attributable to common shareholders included pre-tax charges for restructuring ($41.4 million) and impairment ($12.8 million) totaling $54.2 million in 2009 and for restructuring ($5.2 million) and impairment ($1.7 million) totaling $6.9 million in 2008.  Substantially all of the restructuring charges in both the first quarter of 2009 and the first quarter of 2008 were associated with the reorganization of certain operations and the exiting of certain business activities.  The Company’s effective tax rate increased to 41.4% in the first quarter of 2009 from 16.3% in the first quarter of 2008 due to a $38 million tax benefit recognized in the first quarter of 2008 from the favorable settlement of certain federal income tax audits for the years 2000 through 2002 as well as the loss of tax benefits in certain foreign tax jurisdictions in 2009.

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 attributable to common shareholders totaled $49.2 million or $0.24 per diluted share in the first quarter of 2009 compared to $148.5 million or $0.69 per diluted share in the first quarter of 2008.  First-quarter non-GAAP net earnings attributable to common shareholders exclude restructuring and impairment charges and, in 2008, the benefit of the reversal of tax reserves and income from discontinued operations.  For non-GAAP comparison purposes, the effective tax rate increased to 37.1% in the first quarter of 2009 from 33.8% in the first quarter of 2008 due primarily to the loss of tax benefits in certain foreign tax jurisdictions in 2009.  A reconciliation of GAAP net earnings to non-GAAP net earnings for these adjustments is presented in the attached tables.

"In contrast with our strong performance in the first quarter of 2008, during the first quarter of 2009 we saw the full impact of the contraction in the global economy.  This significantly reduced


demand in most of the end-markets that we serve,” said Thomas J. Quinlan III, RR Donnelley's President and Chief Executive Officer.  "Despite the resulting decline in revenues, I am pleased with the exceptional cash flow from operations of nearly $540 million, an increase of nearly $415 million from last year's first quarter.  This increase was due to a tax refund, the absence of 2008 incentive compensation that would have been paid in the first quarter of 2009 and the benefit of working capital management that offset lower operating results.  We have enhanced our already strong liquidity position, ending the first quarter of 2009 with $2.6 billion in available liquidity.”

Quinlan added, “Our tight financial discipline continues to be focused on maximizing cash flow and maintaining liquidity.  As we evaluate deployment of capital, we seek to enhance operational excellence as we serve our customers and to deliver the best long-term returns to our shareholders."

Business Review (Continuing Operations) The company reports its results in two reportable segments:  1) U.S. Print and Related Services and 2) International.  The company reports as Corporate its unallocated expenses associated with general and administrative activities.

Summary

Net sales in the quarter were $2.5 billion, down 18.1% from the first quarter of 2008 including a 3.5% negative impact from changes in foreign exchange rates.  The remaining decrease was caused by volume declines across substantially all product lines and continued price pressure, offset slightly by the acquisitions of Pro Line Printing and PROSA.  Gross margin decreased to 23.3% in the first quarter of 2009 from 26.0% in the first quarter of 2008 due to volume and price declines and lower by-products recovery, offset in part by the benefits of our continued productivity efforts and lower variable compensation expense.  SG&A expense as a percentage of net sales in the first quarter of 2009 was unchanged from the first quarter of 2008 at 11.5% as continued productivity efforts offset the impact of lower sales.  Operating margin, which was negatively impacted by charges for restructuring and impairment of $54.2 million in the first quarter of 2009 and $6.9 million in the first quarter of 2008, decreased to 3.6% in the first quarter of 2009 from 9.0% in the first quarter of 2008.

Excluding charges for restructuring and impairment, the non-GAAP operating margin in the first quarter of 2009 decreased to 5.8% from 9.2% in the first quarter of 2008, as the benefits from our productivity efforts and lower expense for intangible amortization and variable compensation were more than offset by volume and price declines.

Segments

Net sales for the U.S. Print and Related Services segment in the quarter decreased 14.9% to $1.9 billion from the first quarter of 2008 due to volume declines across all product lines and continuing price pressure throughout the segment.  The segment’s operating margin, which was negatively impacted by charges for restructuring and impairment of $32.7 million in the first quarter of 2009 and $5.3 million in the first quarter of 2008, decreased to 6.0% in the first quarter of 2009 from 11.9% in the first quarter of 2008.  Excluding restructuring and impairment charges, the segment’s non-GAAP operating margin decreased to 7.7% in the first quarter of 2009 from 12.1% in the first quarter of 2008, as the impact of volume and price declines and lower by-products recovery were only partially offset by the benefits of continued productivity efforts and lower variable compensation expense.


Net sales for the International segment in the quarter decreased 27.5% to $548.2 million from the first quarter of 2008 including a 13.8% negative impact from changes in foreign exchange rates.  The remaining decrease was caused by volume declines in most product lines and price pressure in Europe and Asia.  Partially offsetting these declines were volume increases in Latin America.  The segment’s operating margin, which was negatively impacted by charges for restructuring and impairment of $18.3 million in the first quarter of 2009 and restructuring charges of $2.8 million in the first quarter of 2008, decreased to 3.0% in the first quarter of 2009 from 6.5% in the first quarter of 2008.  Excluding restructuring and impairment charges, the segment’s non-GAAP operating margin decreased to 6.3% in the first quarter of 2009 from 6.8% in the first quarter of 2008 as the impact of volume and price declines was partially offset by the benefits of continued productivity efforts, the elimination of amortization expense on certain intangible assets that were impaired in the fourth quarter of 2008 and lower variable compensation expense.

Unallocated Corporate operating expense decreased to $43.5 million in the first quarter of 2009 from $46.0 million in the first quarter of 2008.  Excluding charges for restructuring of $3.2 million in the first quarter of 2009 and a restructuring reversal of $1.2 million in the first quarter of 2008, Corporate operating expense decreased $6.9 million to $40.3 million in the first quarter of 2009, primarily through continued cost control efforts.

 

 

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