Log In | Become a Member | Contact Us


Leading printing executives into the future

Connect on Twitter | Facebook | LinkedIn

Featured:     European Coverage     Production Inkjet Analysis

R.R. Donnelley reports loss on sales of $2.4 billion in Q4

Wednesday, February 28, 2007

Press release from the issuing company

CHICAGO, Feb. 27 -- R.R. Donnelley & Sons Company today reported a fourth-quarter 2006 net loss from continuing operations of $1.1 million or $0.01 per share on net sales of $2.5 billion compared to a net loss from continuing operations of $236.0 million or $1.09 per share on net sales of $2.4 billion in the fourth quarter of 2005. The fourth-quarter 2006 net loss from continuing operations included pre-tax charges for impairment ($138.6 million) and restructuring ($29.7 million) totaling $168.3 million, a non-cash, pre-tax write-down of the company's investment in affordable housing partnerships of $16.9 million and a pre-tax gain on the sale of an investment of $7.0 million. The non-cash impairment charge of $138.6 million included: a pre-tax charge of $110.0 million following our annual impairment test of indefinite-lived assets, in accordance with Statement of Financial Accounting Standards No. 142, Accounting for Goodwill and Other Intangible Assets and related to the recognition of impairment of goodwill of the company's global document solutions reporting unit (formerly Astron); a pre-tax charge of $26.3 million reflecting the write-down of the Astron trade name intangible asset associated with the re-branding of Astron to RR Donnelley Global Document Solutions; and a pre-tax charge of $2.3 million related to the impairment of other long-lived assets. Substantially all of the restructuring charges in the fourth quarter of 2006 were associated with the reorganization of certain operations and the exiting of certain business activities. Net earnings from continuing operations in the fourth quarter of 2005 included pre-tax charges for impairment ($364.3 million), restructuring ($13.4 million) and integration ($1.9 million) totaling $379.6 million, substantially all related to a non-cash charge for the recognition of impairment of goodwill and other intangibles of the company's North American forms and labels reporting unit. The company's effective tax rate was 84.2% in the fourth quarter of 2006, reflecting the impact of the non-deductible portion of the non-cash impairment charges. Results of discontinued operations were a net loss of $0.1 million in the fourth quarter of 2006 and net earnings of $73.5 million, substantially all attributable to tax benefits recognized as part of the sale of Peak Technologies, in the fourth quarter of 2005. Including discontinued operations, the net loss was $1.2 million or $0.01 per share in the fourth quarter of 2006 and the net loss was $162.5 million or $0.75 per share in the fourth 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 $153.6 million or $0.70 per diluted share in the fourth quarter of 2006 compared to $134.3 million or $0.62 per diluted share in the fourth quarter of 2005. Non-GAAP net earnings from continuing operations exclude impairment and restructuring charges, a non-cash write-down of the company's investment in affordable housing partnerships and a gain on the sale of an investment in the fourth quarter of 2006 and exclude charges for restructuring, impairment and integration in the fourth quarter of 2005. For non-GAAP comparison purposes, the effective tax rate decreased to 19.2% in the fourth quarter of 2006 from 30.3% in the fourth quarter of 2005, primarily due to favorable settlement of tax audit issues and a higher proportion of taxable income being generated in lower-tax jurisdictions in 2006. A reconciliation of GAAP net earnings to non-GAAP net earnings for these adjustments is presented in the attached tables. "RR Donnelley continues to deliver strong operating results," said Mark A. Angelson, RR Donnelley's Chief Executive Officer. "Our Global Print Solutions segment delivered impressive operating margin expansion for the year, particularly so in light of their strong performance in 2005. The recently completed acquisitions of Banta Corporation and Perry Judd's provide us with much needed additional capacity that we already have started to put to use and that, over time, will reduce our capital requirements." Angelson added, "I am especially pleased with our strong cash performance from continuing operations that exceeded $900 million for the year and allowed us strategically to invest in our business and people while comfortably funding our dividend and servicing our debt." Business Review (Continuing Operations) Due to a previously announced reorganization of managerial responsibilities, effective with the reporting of fourth-quarter 2006 results, the company reports its results in two reportable segments, 1) Global Print Solutions and 2) Global Services, and Corporate. The company has also conformed prior-period financial results to reflect this segment change in all periods presented. Summary Net sales in the quarter were $2.5 billion, up 3.3% from the fourth quarter of 2005. The increase was due to new customer wins and increased volume with existing customers, acquisitions and favorable foreign exchange comparisons, offset in part by continued price pressure. The gross margin rate decreased to 25.7% in the fourth quarter of 2006 from 26.2% in the fourth quarter of 2005, as benefits from higher sales volume and our productivity efforts were more than offset by price pressure and the timing of expenses for discretionary 401K funding. SG&A expense as a percentage of net sales decreased to 11.8% in the fourth quarter of 2006 from 12.3% in the fourth quarter of 2005 due to the benefits of our productivity initiatives and additional sales volume. Operating margin, which was negatively impacted by charges for impairment and restructuring totaling $168.3 million in the fourth quarter of 2006 and by charges for impairment, restructuring and integration totaling $379.6 million in the fourth quarter of 2005, increased to 2.3% in the fourth quarter of 2006 from a loss in the fourth quarter of 2005. Excluding charges for restructuring, impairment and integration, the non-GAAP operating margin in the fourth quarter of 2006 was 9.1% compared to 9.3% in the fourth quarter of 2005, as the benefits of our productivity efforts and increased volume were more than offset by price pressure and the timing of expenses for discretionary 401K funding. Reconciliations of GAAP operating income and margin to non-GAAP operating income and margin are presented in the attached tables. Segments The Global Print Solutions segment includes: our 1) magazine, catalog and retail, 2) directories, 3) book, 4) logistics, 5) direct mail, 6) short-run commercial print, 7) European and 8) Asian operations. Net sales for the Global Print Solutions segment increased 2.3% to $1.6 billion from the fourth quarter of 2005 due to sales increases in our international operations, short-run commercial print and logistics offerings and the Spencer Press acquisition in 2005. The segment's operating margin, which was negatively impacted by charges for restructuring and impairment totaling $3.6 million in the fourth quarter of 2006 and by charges for restructuring, impairment and integration totaling $3.4 million in the fourth quarter of 2005, increased to 14.4% in the fourth quarter of 2006 from 13.3% in the fourth quarter of 2005. Excluding restructuring, impairment and integration charges, the segment's non-GAAP operating margin in the fourth quarter of 2006 increased to 14.6% from 13.5% in the fourth quarter of 2005 resulting from increased sales volume and the benefits of our productivity initiatives that more than offset the impact of price pressure and unfavorable business mix. The Global Services segment includes: our 1) digital solutions, 2) financial print, 3) global document solutions, 4) OfficeTiger and 5) forms, labels and statement printing operations. Net sales for the Global Services segment increased 5.1% to $914.2 million from the fourth quarter of 2005 due to sales growth in financial print as well as the acquisition of OfficeTiger, offset in part by lower sales of statement printing. The segment's operating margin, which was negatively impacted by charges for impairment and restructuring totaling $146.2 million in the fourth quarter of 2006 and by charges for restructuring, impairment and integration totaling $366.0 million in the fourth quarter of 2005 was a loss in the fourth quarter of both 2006 and 2005. Excluding restructuring, impairment and integration charges, the segment's non-GAAP operating margin decreased to 5.6% in the fourth quarter of 2006 from 8.1% in the fourth quarter of 2005. This decrease was due to continued price pressure, the performance of statement printing and incremental non-cash depreciation and purchase accounting-related amortization expenses associated with the acquisition of OfficeTiger. Corporate operating expenses increased to $72.1 million in the fourth quarter of 2006 from $64.9 million in the fourth quarter of 2005. Excluding charges for restructuring and impairment totaling $18.5 million in the fourth quarter of 2006 and charges for restructuring, impairment and integration totaling $10.2 million in the fourth quarter of 2005, corporate operating expenses decreased $1.1 million to $53.6 million from the fourth quarter of the prior year reflecting the benefits of our productivity initiatives. Full-Year Results The company reported net earnings from continuing operations of $402.6 million or $1.84 per diluted share on net sales of $9.3 billion for the full year of 2006 compared to net earnings from continuing operations of $95.6 million or $0.44 per diluted share on net sales of $8.4 billion for the full year of 2005. The full-year 2006 net earnings from continuing operations included: pre-tax charges for impairment ($140.9 million) and restructuring ($65.2 million) totaling $206.1 million, substantially all from the non-cash charge for the impairment of goodwill and other intangibles of the company's global document solutions reporting unit and the reorganization of certain operations and the exiting of certain business activities; a non-cash write-down of the company's investment in affordable housing partnerships of $16.9 million; a gain on the sale of an investment of $7.0 million; and a tax benefit from the realization of a deferred tax asset of $23.5 million. The full-year 2005 net earnings from continuing operations included pre-tax charges for impairment ($370.1 million), restructuring ($49.7 million), and integration ($8.3 million) totaling $428.1 million, including the non-cash charge for the recognition of impairment of goodwill and other intangibles of the company's North American forms and labels reporting unit and the integration of the 2004 acquisition of Moore Wallace. Operating margin, which was negatively impacted by charges for impairment and restructuring totaling $206.1 million for the full year of 2006 and by charges for impairment, restructuring and integration totaling $428.1 million for the full year of 2005, increased to 8.1% for the full year of 2006 from 5.3% for the full year of 2005. Excluding restructuring, integration and impairment charges, non-GAAP operating margin decreased to 10.3% for the full year of 2006 from 10.4% for the full year of 2005, as the benefits from higher sales volume and our productivity efforts were offset by pricing pressure, higher energy costs and unfavorable business mix. The effective tax rate decreased to 32.6% in 2006 from 71.5% in 2005, primarily due to a reduction of non-deductible non-cash impairment charges and a tax benefit from the realization of a deferred tax asset of $23.5 million in 2006. Results of discontinued operations were a net loss of $2.0 million in 2006 and net earnings of $41.5 million in 2005. Including discontinued operations, net earnings were $400.6 million or $1.83 per diluted share for the full year of 2006 and $137.1 million or $0.63 per diluted share for the full year of 2005. Non-GAAP net earnings from continuing operations totaled $558.0 million or $2.55 per diluted share in the full year of 2006 compared to $496.4 million or $2.29 per diluted share in the full year of 2005. Non-GAAP net earnings from continuing operations exclude impairment and restructuring charges, a non-cash write-down of the company's investment in affordable housing partnerships, a gain on the sale of an investment and a tax benefit from the realization of a deferred tax asset in the full year of 2006 and exclude charges for restructuring, impairment and integration in the full year of 2005. For non-GAAP comparison purposes, the effective tax rate decreased to 31.4% in 2006 from 34.8% in 2005, primarily due to favorable settlement of tax audit issues and a higher proportion of taxable income being generated in lower-tax jurisdictions in 2006. A reconciliation of GAAP net earnings to non-GAAP net earnings for these adjustments is presented in the attached tables. 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. 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 34.1%. 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.

 

 

SHARE

Email Icon Email

Print Icon Print

Become a Member

Join the thousands of printing executives who are already part of the WhatTheyThink Community.

Copyright © 2016 WhatTheyThink. All Rights Reserved