R.R. Donnelley & Sons Company Reports Operating Results (10-Q)
R.R. Donnelley & Sons Company is a premier provider of commercial printinginformation services and logistics. The company helps the customers communicate more efficiently and effectively as they use words and images to inform educate entertain and sell. In each of the businesses the company uses the distinctive capabilities to manage and distribute words and images in ways that provide the greatest value to every customer. The company has manufacturing plants with a broad range of capabilities to serve our customers' needs. R.r. Donnelley & Sons Company has a market cap of $4.26 billion; its shares were traded at around $20.75 with a P/E ratio of 9.9 and P/S ratio of 0.4. The dividend yield of R.r. Donnelley & Sons Company stocks is 5%. R.r. Donnelley & Sons Company had an annual average earning growth of 7.9% over the past 10 years. Highlight of Business Operations: 2009 losses related to debt extinguishment: included a $10.3 million pre-tax loss on the repurchases of $466.4 million of the 5.625% senior notes due January 15, 2012 and $174.2 million of the 4.95% senior notes due May 15, 2010, as well as the reclassification of a pre-tax loss of $2.7 million from accumulated other comprehensive income to investment and other expense due to the change in the hedged forecasted interest payments resulting from the repurchase of the 4.95% senior notes.
2009 losses related to debt extinguishment: included a $10.3 million pre-tax loss on the repurchases of $466.4 million of the 5.625% senior notes due January 15, 2012 and $174.2 million of the 4.95% senior notes due May 15, 2010, as well as the reclassification of a pre-tax loss of $2.7 million from accumulated other comprehensive income to investment and other expense due to the change in the hedged forecasted interest payments resulting from the repurchase of the 4.95% senior notes.
As a result of its cost reduction efforts, as well as the improving trends in net sales, the Company anticipates higher full-year payouts under its employee incentive compensation plans as compared to 2008, for which no payouts were made under the Companys primary incentive compensation plans. Incentive compensation expense in the third quarter of 2009 totaled approximately $40 million, an increase of approximately $77 million as compared to the third quarter of 2008, during which the Company reduced its accrued liabilities for these plans because of the declining economy. Of this increase, approximately $56 million, $13 million and $8 million was reflected in the U.S. Print and Related Services segment, International segment and Corporate, respectively.
Cash flows from continuing operations for the nine months ended September 30, 2009 increased $406.0 million compared to the nine months ended September 30, 2008, despite the declines in net sales and earnings. This increase reflected the receipt of income tax refunds of $161.4 million and decreases in working capital requirements driven by volume declines and a focus on improved working capital management. The Company also reduced its capital expenditures by $105.8 million, or 44.3%, compared to the nine months ended September 30, 2008. The strong operating cash flow in the nine months ended September 30, 2009 enabled the Company to improve its total available liquidity. As of September 30, 2009, cash and cash equivalents totaled $414.9 million and approximately $1.7 billion was available for borrowings under the Companys committed credit facilities. Total debt decreased from $4.1 billion at December 31, 2008 to $3.4 billion at September 30, 2009. In addition, the Company received proceeds from the issuance of $350.0 million of long-term senior notes, which the Company used, along with borrowings under the credit facility and cash on hand, to repurchase $640.6 million of senior notes. See Liquidity and Capital Resources for further discussion.
Net sales for the three months ended September 30, 2009 decreased $401.5 million, or 14.0%, to $2,463.1 million versus the same period in the prior year. Changes in foreign exchange rates decreased net sales by $50.6 million, or 1.8%, while the acquisition of PROSA increased net sales $4.2 million, or 0.1%. The remaining decreases were primarily attributable to significant volume declines and continued price pressures across most products and services as customer demand decreased due to the global economic slowdown.
For the three months ended September 30, 2009, the Company recorded a net restructuring and impairment provision of $131.7 million compared to $23.4 million in the same period of 2008. In 2009, these charges included $117.3 million, discounted for future cash payments, for the termination of a long-term significant customer contract in the business process outsourcing reporting unit within the International segment, which allowed the Company to withdraw from certain unprofitable operations in this area. In addition, these charges included $7.5 million for workforce reductions of 344 employees (of whom 295 were terminated as of September 30, 2009) associated with actions resulting from the reorganization of certain operations. These actions also included the closing of one Latin America manufacturing facility within the International segment. In addition, the Company recorded $1.2 million of impairment charges of other long-lived assets and $5.7 million of other restructuring costs, including lease termination and other facility closure costs. Net restructuring
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