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R.R. Donnelley & Sons Company Reports Operating Results (10-K)
Posted by: gurufocus (IP Logged)
Date: February 22, 2012 05:05PM

R.R. Donnelley & Sons Company (RRD) filed Annual Report for the period ended 2011-12-31. Donnelley (rr) has a market cap of $2.48 billion; its shares were traded at around $13.02 with a P/E ratio of 7 and P/S ratio of 0.3. The dividend yield of Donnelley (rr) stocks is 7.9%. Donnelley (rr) had an annual average earning growth of 6.7% over the past 10 years.



Highlight of Business Operations:

Pension and postretirement benefits expenses are expected to decrease by approximately $65.3 million in 2012, primarily reflecting the impact of the pension freeze, partially offset by the impact of lower discount rates and further recognition in operating earnings of historical asset losses that were initially recorded in other comprehensive income. The Company’s pension and postretirement plans were underfunded by $1,074.0 million and $228.4 million, respectively, as of December 31, 2011, as reported in the Company’s Consolidated Balance Sheets and further described in Note 11, Retirement Plans, to the Consolidated Financial Statements. Governmental regulations for measuring pension plan funded status differ from those required under accounting principles generally accepted in the United States of America (“GAAP”) for financial statement preparation. Based on the plans’ regulatory funded status as of January 1, 2011 and future years, required contributions in 2012 under all pension and postretirement plans are expected to be approximately $220.8 million, which is an increase of approximately $162.9 million compared to contributions made in 2011. The Company expects that required contributions in future years will decrease from this level, but changes in market conditions may have a significant impact on the level of required funding. The defined contribution matching contributions and the anticipated increase in healthcare costs due to inflation are expected to partially offset the forecasted decrease in pension and postretirement benefits expenses.

For the year ended December 31, 2011, the Company recorded a net restructuring and impairment provision of $667.8 million compared to $157.9 million in 2010. In 2011, these charges included non-cash pre-tax charges of $392.3 million for the impairment of goodwill for the commercial and forms and labels reporting units within the U.S. Print and Related Services segment and the Latin America and Canada reporting units within the International segment. The goodwill impairment charge resulted from reductions in the estimated fair value of the commercial, forms and labels, Canada and Latin America reporting units, based on lower expectations for future revenue, profitability and cash flows due to continued impacts of electronic substitution on demand for business forms and other products, as well as continued price pressure. In addition, the Company recorded a non-cash charge of $90.7 million primarily related to the impairment of acquired customer relationship intangible assets in the forms and labels reporting unit within the U.S. Print and Related Services segment. For the year ended December 31, 2011, the Company also recorded $76.7 million for workforce reductions of 2,899 employees (of whom 2,790 were terminated as of December 31, 2011) associated with actions resulting from the reorganization of certain operations, primarily related to the closings of certain facilities and headcount reductions due to the Bowne acquisition. In addition, these charges related to the completed or announced closing of four books and directories manufacturing facilities and one commercial manufacturing facility within the U.S. Print and Related Services segment. These actions also included the reorganization of certain operations within the books and directories and magazines, catalogs and retail inserts reporting units within the U.S. Print and Related Services segment, as well as the reorganization of certain operations within the Latin America and Europe reporting units within the International segment. Additionally, the Company incurred other restructuring charges, including lease termination and other facility closure costs of $59.6 million, of which $15.1 million related to multi-employer pension plan partial withdrawal charges primarily due to the completed closing of three manufacturing facilities, and $48.5 million of impairment charges primarily for land, buildings, machinery and equipment and leasehold improvements associated with the facility closings.

Net sales for the International segment for the year ended December 31, 2011 were $2,764.5 million, an increase of $277.8 million, or 11.2%, compared to 2010. The net sales increase was due to the acquisition of Bowne, increased business in Asia and Latin America, changes in foreign exchange rates of $67.1 million, or 2.7%, as well as higher pass-through paper sales. An analysis of net sales by reporting unit follows:

For the year ended December 31, 2010, the Company recorded a net restructuring and impairment provision of $157.9 million compared to $382.7 million in 2009. In 2010, these charges included non-cash pre-tax charges of $61.0 million for the impairment of goodwill for the forms and labels reporting unit within the U.S. Print and Related Services segment. The goodwill impairment charge resulted from reductions in the estimated fair value of the forms and labels reporting unit, based on lower expectations for future revenue and cash flows due to continued impacts of electronic substitution on forms demand and increasing price pressure. In addition, the lower fair value reflects higher estimated spending on information technology and capital equipment, in part to better position this reporting unit for increased growth in labels volume as forms demand continues to decline. Impairment charges also included $26.9 million for the impairment of acquired customer relationship intangible assets in the Global Turnkey Solutions reporting unit within the International segment. The impairment of the customer relationship intangible asset primarily resulted from the termination of a customer contract. Additionally, for the year ended December 31, 2010, the Company recorded $35.9 million for workforce reductions of 1,458 employees (substantially all of whom were terminated as of December 31, 2011) associated with actions resulting from the reorganization of certain operations. These actions included the reorganization of certain operations within the Financial Print reporting unit within the U.S. Print and Related Services segment due to the acquisition of Bowne. In addition, these actions included the closing of one Latin America manufacturing facility, one business process outsourcing manufacturing facility and one Global Turnkey Solutions manufacturing facility within the International segment. Further, continuing charges resulting from the closing of two Global Turnkey Solutions manufacturing facilities in 2009 within the International segment were recorded in 2010. These actions also included the reorganization of certain operations within the magazine, catalog and retail insert and variable print reporting units and the closing of one forms and labels manufacturing facility within the U.S. Print and Related Services segment. In addition, the Company recorded $4.6 million of impairment charges of other long-lived assets and $29.5 million of other restructuring charges. The other restructuring costs included $13.6 million related to multi-employer pension plan partial withdrawal charges primarily attributable to two closed manufacturing facilities within the U.S. Print and Related Services segment, as well as lease termination and other facility closure costs.

Net cash provided by operating activities of operations was $752.5 million for the year ended December 31, 2010, compared to $1,425.8 million for the year ended December 31, 2009. The decrease in operating cash flow reflected the $515.8 million benefit from reductions in net working capital driven by volume declines and efficiency improvement in 2009, a non-recurring tax refund of $164.1 million in 2009, continued price pressures on net sales in 2010, a 2009 $57.5 million long-term customer contract payment and incentive compensation payments in the first quarter of 2010 compared to no such payments in 2009. These decreases were partially offset by higher operating earnings in 2010 driven by cost reductions from productivity and restructuring actions and a $22.2 million payment in the third quarter of 2009 related to the termination of the long-term customer contract in 2009.

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