UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number
R.R. DONNELLEY & SONS COMPANY
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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(Zip code) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
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Trading Symbol(s) |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated filer |
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Non-Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
As of August 2, 2021,
R.R. DONNELLEY & SONS COMPANY
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021
TABLE OF CONTENTS
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Page |
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PART I |
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Item 1. |
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Condensed Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020 |
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4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2021 and 2020 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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35 |
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Item 4. |
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35 |
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PART II |
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Item 1. |
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36 |
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Item 1A. |
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Item 2. |
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36 |
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Item 6. |
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37 |
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38 |
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2
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions, except per share data)
(UNAUDITED)
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June 30, |
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December 31, |
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2021 |
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2020 |
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ASSETS |
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Cash and cash equivalents |
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$ |
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$ |
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Receivables, less allowances for credit losses of $ |
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Inventories (Note 4) |
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Assets held-for-sale |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment-net (Note 5) |
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Goodwill (Note 6) |
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Other intangible assets-net (Note 6) |
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Deferred income taxes |
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Operating lease assets |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities and other |
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Short-term operating lease liabilities |
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Short-term and current portion of long-term debt (Note 15) |
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Total current liabilities |
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Long-term debt (Note 15) |
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Pension liabilities |
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Other postretirement benefits plan liabilities |
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Long-term income tax liability |
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Long-term operating lease liabilities |
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Other noncurrent liabilities |
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Total liabilities |
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Commitments and Contingencies (Note 14) |
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EQUITY (Note 10) |
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RRD stockholders' equity |
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Preferred stock, $ |
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Authorized: |
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Common stock, $ |
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Authorized: |
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Issued: |
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Additional paid-in-capital |
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Accumulated deficit |
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Accumulated other comprehensive loss |
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Treasury stock, at cost, |
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Total RRD stockholders' equity |
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Noncontrolling interests |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements
3
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net sales |
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Cost of sales |
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Gross profit |
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Selling, general and administrative expenses (exclusive of depreciation and amortization) |
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Restructuring, impairment and other expense -net (Note 7) |
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Depreciation and amortization |
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Other operating expense |
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Income (loss) from operations |
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Interest expense-net |
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Loss on debt extinguishment |
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Investment and other income-net |
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Loss from continuing operations before income taxes |
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Income tax (benefit) expense |
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Net loss from continuing operations |
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(Loss) gain on sale of discontinued operations, net of tax |
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— |
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Gain (loss) from discontinued operations, net of tax |
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— |
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— |
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Net income (loss) from discontinued operations (Note 2) |
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— |
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— |
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( |
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Net loss |
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Less: income attributable to noncontrolling interests |
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— |
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Net loss attributable to RRD common stockholders |
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$ |
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$ |
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$ |
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$ |
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Basic and diluted net (loss) earnings per share attributable to RRD common stockholders (Note 11): |
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Continuing Operations |
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$ |
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$ |
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$ |
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$ |
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Discontinued Operations |
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$ |
— |
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$ |
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$ |
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$ |
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Net loss attributable to RR Donnelley stockholders |
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$ |
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$ |
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$ |
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$ |
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Weighted average number of common shares outstanding: |
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Basic |
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Diluted |
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See Notes to Condensed Consolidated Financial Statements
4
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(in millions)
(UNAUDITED)
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Three Months Ended |
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Six Months Ended |
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June 30, |
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June 30, |
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2021 |
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2020 |
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2021 |
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2020 |
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Net loss |
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$ |
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$ |
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$ |
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$ |
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Other comprehensive income (loss), net of tax (Note 12): |
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Translation adjustments |
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Adjustments for net periodic pension and postretirement benefits plan cost |
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Changes in fair value of derivatives |
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Other comprehensive income (loss) |
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Comprehensive income (loss) |
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( |
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Less: comprehensive income (loss) attributable to non-controlling interests |
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— |
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Comprehensive income (loss) attributable to RRD common stockholders |
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$ |
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$ |
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$ |
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$ |
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See Notes to Condensed Consolidated Financial Statements
5
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions)
(UNAUDITED)
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Six Months Ended |
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June 30, |
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2021 |
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2020 |
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OPERATING ACTIVITIES |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash used in operating activities: |
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Impairment charges and other-net |
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Depreciation and amortization |
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(Benefit) provision for credit losses |
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Share-based compensation |
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Deferred income taxes |
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Net pension and other postretirement benefits plan income |
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(Gain) loss on disposition of businesses and other assets |
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Loss on debt extinguishment |
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Other |
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Changes in operating assets and liabilities: |
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Accounts receivable-net |
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Inventories |
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Prepaid expenses and other current assets |
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Accounts payable |
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( |
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Current income taxes |
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( |
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Accrued liabilities and other |
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Pension and other postretirement benefits plan contributions |
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( |
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Net cash used in operating activities |
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( |
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( |
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INVESTING ACTIVITIES |
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Capital expenditures |
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( |
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( |
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Disposition of businesses |
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( |
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Proceeds from sales of property, plant and equipment |
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Proceeds related to company-owned life insurance |
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Net cash used in investing activities |
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( |
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FINANCING ACTIVITIES |
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Payments of current maturities and long-term debt |
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( |
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( |
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Proceeds from issuances of long-term debt |
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— |
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Proceeds from credit facility borrowings |
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Payments on credit facility borrowings |
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( |
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( |
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Debt issuance costs |
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( |
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— |
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Dividends paid |
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— |
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( |
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Payments of withholding taxes on share-based compensation |
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( |
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( |
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Other financing activities |
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( |
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( |
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Net cash provided by financing activities |
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Effect of exchange rate on cash, cash equivalents and restricted cash |
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( |
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Net (decrease) increase in cash, cash equivalents and restricted cash |
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( |
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Cash, cash equivalents and restricted cash at beginning of year |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
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$ |
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Supplemental cash flow disclosures: |
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Operating cash flows provided by discontinued operations |
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$ |
— |
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$ |
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Investing cash flows used in discontinued operations |
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$ |
— |
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$ |
( |
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See Notes to Condensed Consolidated Financial Statements
6
1. Basis of Presentation
The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (“RRD,” the “Company,” “we,” “us,” and “our”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and the related notes thereto included in our latest Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 24, 2021. Operating results for the six months ended June 30, 2021 are not indicative of the results that may be expected for the fiscal year ending December 31, 2021. All significant intercompany transactions have been eliminated in consolidation. These unaudited condensed consolidated interim financial statements include estimates and assumptions of management that affect the amounts reported in the condensed consolidated financial statements. Actual results could differ from these estimates.
In 2020, to focus on our core product and service offerings, we completed our plan to exit our Logistics Business. This business included Print Logistics, which was disposed of on July 2, 2018; Courier Logistics, which was disposed of on March 2, 2020; DLS Worldwide, which was disposed of November 2, 2020; and International Logistics which was disposed of on November 3, 2020. These businesses were included in the Business Services segment and primarily provided logistics services to a broad range of clients in the United States and globally. The financial results of these businesses have been excluded from continuing operations and segment results for all periods presented unless otherwise noted. Refer to Note 2 –Discontinued Operations to our Condensed Consolidated Financial Statements for additional information.
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash at June 30, 2021 and December 31, 2020 reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows.
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Cash and cash equivalents |
|
$ |
|
|
|
$ |
|
|
|
Restricted cash - current (a) |
|
|
|
|
|
|
|
|
|
Restricted cash - noncurrent (b) |
|
|
|
|
|
|
|
|
|
Total cash, cash equivalents and restricted cash |
|
$ |
|
|
|
$ |
|
|
|
(a) |
Included within Prepaid expenses and other current assets within the Condensed Consolidated Balance Sheets |
|
(b) |
Included within Other noncurrent assets within the Condensed Consolidated Balance Sheets |
Cash payments for income taxes were $
2. Discontinued Operations
In the fourth quarter of 2020, we completed our plan to exit our Logistics business, which was a component of the Business Services reporting segment. The Logistics business was comprised of DLS Worldwide, International Logistics, Print Logistics and Courier Logistics. In November 2020, we sold our DLS Worldwide and International Logistics businesses as part of our strategic shift to exit non-core businesses in order to pursue portfolio optimization and to reduce debt. As part of this strategic shift, we previously sold Print Logistics in July 2018 and Courier Logistics in March 2020. During the six months ended June 30, 2021, we finalized working capital adjustments and settled certain other contingencies related to the divested businesses, the impact of which is included in the Gain on sale of the discontinued operations, net of tax.
As part of the divestitures, we entered into transition services agreements with the buyers to assist them in the transition of certain functions, including, but not limited to, information technology, finance, and human resources. Further, we entered into several commercial agreements whereby we continue to receive logistics services from the divested business. Our involvement with the divested businesses is not material in the three or six-month periods ended June 30, 2021.
We have reflected the Courier Logistics business, the DLS Worldwide business, and the International Logistics business, as discontinued operations for all periods presented in the Condensed Consolidated Statements of Operations.
7
Results of discontinued operations for the three and six months ended June 30, 2020 were as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||
|
|
June 30, |
|
|
June 30, |
|
||
|
|
2020 |
|
|
2020 |
|
||
|
Net sales |
$ |
|
|
|
$ |
|
|
|
Cost of sales |
|
( |
) |
|
|
( |
) |
|
Selling, general, administrative and other operating expenses |
|
( |
) |
|
|
( |
) |
|
Restructuring, impairment and other expense |
|
( |
) |
|
|
( |
) |
|
Operating income (loss) from discontinued operations |
|
|
|
|
|
( |
) |
|
Income tax expense |
|
( |
) |
|
|
( |
) |
|
Net gain (loss) from discontinued operations |
$ |
|
|
|
$ |
( |
) |
Net sales includes sales from the Logistics businesses to RRD which were previously eliminated in consolidation and have been recast and are now shown as external sales within the financial results of discontinued operations above. These net sales were $
Restructuring, impairment, and other expenses included $
3. Revenue Recognition
Disaggregation of Revenue
The following table presents net sales disaggregated by products and services:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Commercial print |
|
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Packaging |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Labels |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct marketing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital print and fulfillment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Statements |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supply chain management |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forms |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business process outsourcing |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Digital and creative solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net sales |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Variable Consideration
Certain clients may receive volume-based rebates or early payment discounts, which are accounted for as variable consideration. We estimate these amounts based on the expected amount to be earned by our clients and reduce revenue accordingly. We do not expect significant changes to estimates of variable consideration. Given the nature of our products and the history of returns, product returns are not significant.
Contract Balances
The following table provides information about contract liabilities from contracts with clients:
|
|
Contract Liabilities |
|
|
Short-Term |
|
Balance at December 31, 2020 |
$ |
|
Balance at June 30, 2021 |
$ |
8
Contract liabilities primarily relate to client advances received prior to completion of performance obligations. Reductions in contract liabilities are a result of our completion of performance obligations.
Revenue recognized during the six months ended June 30, 2021 from amounts included in contract liabilities at the beginning of the period was approximately $
4. Inventories
The components of inventories, net of excess and obsolescence reserves for raw materials and finished goods, at June 30, 2021 and December 31, 2020 were as follows:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Raw materials and manufacturing supplies |
|
$ |
|
|
|
$ |
|
|
|
Work in process |
|
|
|
|
|
|
|
|
|
Finished goods |
|
|
|
|
|
|
|
|
|
LIFO reserve |
|
|
( |
) |
|
|
( |
) |
|
Total inventories |
|
$ |
|
|
|
$ |
|
|
5. Property, Plant and Equipment
The components of property, plant and equipment at June 30, 2021 and December 31, 2020 were as follows:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Land |
|
$ |
|
|
|
$ |
|
|
|
Buildings |
|
|
|
|
|
|
|
|
|
Machinery and equipment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
Total property, plant and equipment-net |
|
$ |
|
|
|
$ |
|
|
During the three and six months ended June 30, 2021 depreciation expense was $
During the fourth quarter of 2017, we entered into an agreement to sell a printing facility in Shenzhen, China and transfer the related land use rights. As of June 30, 2021, we have received deposits in accordance with the terms of the agreement of approximately $
6. Goodwill and Other Intangible Assets
The carrying amount of goodwill at June 30, 2021 and December 31, 2020 were as follows:
|
|
|
Business Services |
|
|
Marketing Solutions |
|
|
|
|
Total |
|
|||
|
Net book value as of December 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
Accumulated impairment losses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
( |
) |
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange |
|
|
( |
) |
|
|
— |
|
|
|
|
|
( |
) |
|
Net book value as of June 30, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated impairment losses |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
( |
) |
|
Total |
|
$ |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
9
The components of other intangible assets at June 30, 2021 and December 31, 2020 were as follows:
|
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
||
|
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
||||||
|
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client relationships |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Trade names |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Trademarks, licenses and agreements |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Patents |
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
Total amortizable other intangible assets |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Amortization expense for other intangible assets was $
7. Restructuring, Impairment and Other
For the three and six months ended June 30, 2021 and 2020, we recorded the following net restructuring, impairment and other expenses:
|
|
|
Three Months Ended |
||||||||
|
|
|
June 30, 2021 |
||||||||
|
|
|
Employee |
|
Other Restructuring |
|
Multi-Employer Pension Plan |
|
Impairment and |
|
|
|
|
|
Terminations |
|
Charges |
|
Charges |
|
Other |
|
Total |
|
Business Services |
|
$ |
|
$ |
|
$ |
|
$( |
|
$ |
|
Marketing Solutions |
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
( |
|
— |
|
|
|
Total |
|
$ |
|
$ |
|
$ |
|
$( |
|
$ |
|
|
|
Three Months Ended |
||||||||
|
|
|
June 30, 2020 |
||||||||
|
|
|
Employee |
|
Other Restructuring |
|
Multi-Employer Pension Plan |
|
Impairment and |
|
|
|
|
|
Terminations |
|
Charges |
|
Charges |
|
Other |
|
Total |
|
Business Services |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
Marketing Solutions |
|
|
|
|
|
|
|
— |
|
|
|
Corporate |
|
|
|
|
|
— |
|
— |
|
|
|
Total |
|
$ |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
|
June 30, 2021 |
|
|||||||||||||||||
|
|
|
Employee |
|
|
Other Restructuring |
|
|
Multi-Employer Pension Plan |
|
|
Impairment and |
|
|
|
|
|
||||
|
|
|
Terminations |
|
|
Charges |
|
|
Charges |
|
|
Other |
|
|
Total |
|
|||||
|
Business Services |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Marketing Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
|
|
Six Months Ended |
|
|||||||||||||||||
|
|
|
June 30, 2020 |
|
|||||||||||||||||
|
|
|
Employee |
|
|
Other Restructuring |
|
|
Multi-Employer Pension Plan |
|
|
Impairment and |
|
|
|
|
|
||||
|
|
|
Terminations |
|
|
Charges |
|
|
Charges |
|
|
Other |
|
|
Total |
|
|||||
|
Business Services |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
Marketing Solutions |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Corporate |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
10
Restructuring, Impairment and Other
For the three and six months ended June 30, 2021, we recorded net restructuring charges of $
For the three and six months ended June 30, 2020, we recorded net restructuring charges of $
Restructuring and Multiemployer Pension Plan (“MEPP”) Reserves
Restructuring and MEPP reserves as of December 31, 2020 and June 30, 2021, and changes during the six months ended June 30, 2021, were as follows:
|
|
|
|
|
|
|
Restructuring |
|
|
Foreign |
|
|
|
|
|
|
|
|
|
||
|
|
|
December 31, |
|
|
and Other |
|
|
Exchange and |
|
|
Cash |
|
|
June 30, |
|
|||||
|
|
|
2020 |
|
|
Charges |
|
|
Other |
|
|
Paid |
|
|
2021 |
|
|||||
|
Employee terminations |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
MEPP withdrawal obligations |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
The current portion of restructuring reserves of $
Payments on our MEPP withdrawal obligations are scheduled to be substantially completed by 2034. Changes based on uncertainties in these estimated withdrawal obligations could affect the ultimate charges related to MEPP withdrawals. Refer to Note 14 – Commitment and Contingencies to our Condensed Consolidated Financial Statements for further details.
The restructuring liabilities classified as “other” primarily consisted of reserves for employee termination litigation and environmental matters. Any potential recoveries or additional charges could affect amounts reported in our condensed consolidated financial statements.
11
8. Retirement Plans
Components of net pension and other postretirement benefits plan (“OPEB”) income for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Pension income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net pension income |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OPEB income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected return on plan assets |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Amortization, net |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Net OPEB income |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
During the six months ended June 30, 2021 and 2020, we contributed $
9. Share-Based Compensation
In March 2021, we awarded our annual share-based compensation grants, which consisted of
In addition, in March 2021 we granted
Compensation expense for these plans was $
12
10. Equity
Our equity as of December 31, 2020 and June 30, 2021, and changes during the three and six months ended June 30, 2021, were as follows:
|
|
Common |
|
|
Additional Paid-in- |
|
|
Treasury |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Total RRD's Stockholders' |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
|
|
Stock |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
||||||||
|
Balance at December 31, 2020 |
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of share-based awards, net of withholdings and other |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance at March 31, 2021 |
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of share-based awards, net of withholdings and other |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at June 30, 2021 |
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
On May 17, 2021, our Board of Directors approved an amendment to the Stockholder Rights Agreement. The amendment raises from
Our equity as of December 31, 2019 and June 30, 2020, and changes during three and six months ended June 30, 2020, were as follows:
|
|
Common |
|
|
Additional Paid-in- |
|
|
Treasury |
|
|
Accumulated |
|
|
Accumulated Other Comprehensive |
|
|
Total RRD's Stockholders' |
|
|
Noncontrolling |
|
|
Total |
|
||||||||
|
|
Stock |
|
|
Capital |
|
|
Stock |
|
|
Deficit |
|
|
Loss |
|
|
Equity |
|
|
Interests |
|
|
Equity |
|
||||||||
|
Balance at December 31, 2019 |
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net (loss) income |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of share-based awards, net of withholdings and other |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cash dividends paid |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Cumulative impact of adopting ASU 2016-03, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Distributions to noncontrolling interests |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Balance at March 31, 2020 |
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Net loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share-based compensation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of share-based awards, net of withholdings and other |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
( |
) |
|
Balance at June 30, 2020 |
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
`
11. Earnings per Share
Basic earnings per share is calculated by dividing net earnings attributable to RRD common stockholders by the weighted average number of common shares outstanding for the period. In computing diluted earnings per share, basic earnings per share is adjusted for the assumed issuance of all potentially dilutive share-based awards, including stock options, restricted stock units and performance share units. Performance share units are excluded if the performance targets upon which the issuance of the shares is contingent have not been achieved and the respective performance period has not been completed as of the end of the current period. Additionally, stock options are considered anti-dilutive when the exercise price exceeds the average market value of our stock price during the applicable period. In periods when we are in a net loss, share-based awards are excluded from the calculation of earnings per share as their inclusion would have an anti-dilutive effect.
13
During the six months ended June 30, 2021 and 2020,
The reconciliation of the numerator and denominator of the basic and diluted earnings per share calculation and the anti-dilutive share-based awards for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||
|
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
|
2021 |
|
|
|
2020 |
|
||
|
Basic and diluted net (loss) earnings per share attributable to RRD common stockholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Discontinued operations |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
Net loss attributable to RR Donnelley stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to RRD common stockholders - continuing operations |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
Net earnings (loss) from discontinued operations, net of income taxes |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
Net loss attributable to RRD common stockholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Basic and Diluted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of anti-dilutive share-based awards: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted stock units |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
|
|
12. Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) and income tax expense (benefit) allocated to each component for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
June 30, 2021 |
|
|
June 30, 2021 |
|
||||||||||||||||||
|
|
Before |
|
|
|
|
|
|
Net of |
|
|
Before |
|
|
|
|
|
|
Net of |
|
||||
|
|
Tax |
|
|
Income |
|
|
Tax |
|
|
Tax |
|
|
Income |
|
|
Tax |
|
||||||
|
|
Amount |
|
|
Tax |
|
|
Amount |
|
|
Amount |
|
|
Tax |
|
|
Amount |
|
||||||
|
Translation adjustments |
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
Adjustments for net periodic pension and OPEB cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
Three Months Ended |
|
|
Six Months Ended |
|
||||||||||||||||||
|
|
June 30, 2020 |
|
|
June 30, 2020 |
|
||||||||||||||||||
|
|
Before |
|
|
|
|
|
|
Net of |
|
|
Before |
|
|
|
|
|
|
Net of |
|
||||
|
|
Tax |
|
|
Income |
|
|
Tax |
|
|
Tax |
|
|
Income |
|
|
Tax |
|
||||||
|
|
Amount |
|
|
Tax |
|
|
Amount |
|
|
Amount |
|
|
Tax |
|
|
Amount |
|
||||||
|
Translation adjustments |
$ |
|
|
|
$ |
— |
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
— |
|
|
$ |
( |
) |
|
Adjustments for net periodic pension and OPEB cost |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivatives |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Other comprehensive income (loss) |
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
14
Accumulated other comprehensive loss by component as of December 31, 2020 and June 30, 2021, and changes during the six months ended June 30, 2021, were as follows:
|
|
Changes in the Fair Value of Derivatives |
|
|
Pension and OPEB Cost |
|
|
Translation Adjustments |
|
|
Total |
|
|
||||
|
Balance at December 31, 2020 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
|
Other comprehensive loss before reclassifications |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
Net change in accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
Balance at June 30, 2021 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Accumulated other comprehensive loss by component as of December 31, 2019 and June 30, 2020, and changes during the six months ended June 30, 2020, were as follows:
|
|
Changes in the Fair Value of Derivatives |
|
|
Pension and OPEB Cost |
|
|
Translation Adjustments |
|
|
Total |
|
||||
|
Balance at December 31, 2019 |
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
$ |
( |
) |
|
Other comprehensive loss before reclassifications |
|
( |
) |
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
Net change in accumulated other comprehensive loss |
|
( |
) |
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
Balance at June 30, 2020 |
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Reclassifications from accumulated other comprehensive loss for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
|
Classification in the Condensed |
||||||||||
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
Consolidated Statements of Operations |
||||
|
Amortization of pension and OPEB cost: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net actuarial loss |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Investment and other income-net |
|
Net prior service credit |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
Investment and other income-net |
|
Reclassifications before tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax benefit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification, net of tax |
|
|
|
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized loss |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
Interest expense-net |
|
Reclassification, net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total reclassifications, net of tax |
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
13. Segment Information
Our segments and their product and service offerings are summarized below:
Business Services
Business Services provides customized solutions at scale to help clients inform, service and transact with their customers. The segment’s primary product and service offerings include commercial print, packaging, labels, statement printing, supply chain management, forms and business process outsourcing. This segment also includes all of our operations in Asia, Europe, Canada and Latin America.
Marketing Solutions
Marketing Solutions leverages an integrated portfolio of data analytics, creative services and multichannel execution to deliver comprehensive, end-to-end solutions. The segment’s primary product and service offerings include direct marketing, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services.
15
Corporate
Certain selling general and administrative expenses are not directly attributable to our operating segments and are therefore reported at Corporate. These expenses include executive, legal, finance, communications, certain facility costs and last-in-first-out inventory provisions. In addition, certain costs and earnings of employee benefit plans, such as pension and OPEB expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages our cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.
Information by Segment
We have disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by our chief operating decision-maker and is most consistent with the presentation of profitability reported within the Condensed Consolidated Financial Statements.
|
|
|
Three Months Ended |
|
||||||||||
|
|
|
June 30, 2021 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
Depreciation |
|
|
|
|
|
|
Total |
|
Intersegment |
|
Net |
|
from |
|
and |
|
Capital |
|
|
|
|
Sales |
|
Sales |
|
Sales |
|
Operations |
|
Amortization |
|
Expenditures |
|
|
Business Services |
|
$ |
|
$( |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
Marketing Solutions |
|
|
|
( |
|
|
|
|
|
|
|
|
|
|
Total operating segments |
|
|
|
( |
|
|
|
|
|
|
|
|
|
|
Corporate |
|
— |
|
— |
|
— |
|
( |
|
|
|
|
|
|
Total operations |
|
$1,165.7 |
|
$(20.1) |
|
$1,145.6 |
|
$ |
|
$ |
|
$ |
|
|
|
|
Three Months Ended |
|
||||||||||
|
|
|
June 30, 2020 |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
Depreciation |
|
|
|
|
|
|
Total |
|
Intersegment |
|
Net |
|
from |
|
and |
|
Capital |
|
|
|
|
Sales |
|
Sales |
|
Sales |
|
Operations |
|
Amortization |
|
Expenditures |
|
|
Business Services |
|
$ |
|
$( |
|
$ |
|
$ |
|
$ |
|
$ |
|
|
Marketing Solutions |
|
|
|
( |
|
|
|
( |
|
|
|
|
|
|
Total operating segments |
|
|
|
( |
|
|
|
|
|
|
|
|
|
|
Corporate |
|
— |
|
— |
|
— |
|
( |
|
|
|
|
|
|
Total operations |
|
$1,027.3 |
|
$(17.7) |
|
$1,009.6 |
|
$( |
|
$ |
|
$ |
|
|
|
|
Six Months Ended |
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
June 30, 2021 |
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
Operations |
|
|||
|
|
|
Total |
|
|
|
|
Intersegment |
|
|
|
|
Net |
|
|
|
|
from |
|
|
|
|
and |
|
|
|
|
Capital |
|
|
As of |
|
|||||||
|
|
|
Sales |
|
|
|
|
Sales |
|
|
|
|
Sales |
|
|
|
|
Operations |
|
|
|
|
Amortization |
|
|
|
|
Expenditures |
|
|
June 30, 2021 |
|
|||||||
|
Business Services |
|
$ |
|
|
|
|
|
$ |
( |
) |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketing Solutions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating segments |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operations |
|
$ |
2,357.3 |
|
|
|
|
$ |
(38.6 |
) |
|
|
|
$ |
2,318.7 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
16
|
|
|
Six Months Ended |
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
June 30, 2020 |
|
|
|
|
|
|||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
|
|
|
Depreciation |
|
|
|
|
|
|
|
|
Operations |
|
|||
|
|
|
Total |
|
|
|
|
Intersegment |
|
|
|
|
Net |
|
|
|
|
from |
|
|
|
|
and |
|
|
|
|
Capital |
|
|
As of |
|
|||||||
|
|
|
Sales |
|
|
|
|
Sales |
|
|
|
|
Sales |
|
|
|
|
Operations |
|
|
|
|
Amortization |
|
|
|
|
Expenditures |
|
|
December 31, 2020 |
|
|||||||
|
Business Services |
|
$ |
|
|
|
|
|
$ |
( |
) |
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
|
Marketing Solutions |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating segments |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate |
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
— |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operations |
|
$ |
2,264.2 |
|
|
|
|
$ |
(37.7 |
) |
|
|
|
$ |
2,226.5 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
$ |
|
|
Net restructuring, impairment and other expenses by segment are described in Note 7, Restructuring, Impairment and Other.
14. Commitments and Contingencies
We are subject to laws and regulations relating to the protection of the environment. We provide for expenses associated with environmental remediation obligations when such amounts are probable and can be reasonably estimated. Such accruals are adjusted as new information develops or circumstances change and are generally not discounted. We have been designated as a potentially responsible party or have received claims in
Our understanding of the financial strength of other potentially responsible parties at the multiparty sites and of other liable parties at the previously owned facilities has been considered, where appropriate, in the determination of our estimated liability. We believe that our recorded accruals, recorded in Accrued liabilities and other and Other noncurrent liabilities, are adequate to cover our share of the potential costs of remediation at each of the multiparty sites and the previously and currently owned facilities. It is not possible to quantify with certainty the potential impact of actions regarding environmental matters, particularly remediation and other compliance efforts that we may undertake in the future. However, in our opinion, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material effect on our consolidated results of operations, financial position or cash flows.
In April 2019, we received a subpoena from the SEC related to previous business dealings with the Brazilian Ministry of Education. The SEC and Department of Justice (“DOJ”) are investigating the matter, and we are cooperating as they conduct their investigations.
In addition, the Brazil authorities are also investigating the matter and in June 2021 the Company learned that Brazil's Comptroller General of the Union ("CGU") issued an administrative enforcement notice with charges related to previous business dealings between an administrative body of the Brazilian Ministry of Education and the Company's former Brazilian subsidiary, RR Donnelley Editora e Gráfica (“RRD-Brazil”). The administrative enforcement notice forms the basis of an administrative proceeding against the former Brazilian subsidiary (which filed for bankruptcy liquidation in March 2019) and its immediate parent, RR Donnelley Holdings B.V. The Company also is named as a party in this proceeding. The administrative enforcement notice alleges that former employees of RRD-Brazil engaged in anticompetitive and other business misconduct in connection with services provided to the Ministry of Education. We are pursuing our defenses in this matter and analyzing potential courses of action with local legal counsel.
From time to time, our clients file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by us from these parties could be considered preference items and subject to return.
We also regularly investigate matters reported to our whistleblower hotline and are currently investigating matters in certain foreign locations. In addition, we may be party to litigation arising in the ordinary course of business.
We believe that the final resolution of these preference items, investigations, and litigation will not have a material effect on our consolidated results of operations, financial position or cash flows.
17
Contingencies related to LSC Communication, Inc. and Subsidiaries (“LSC”) and Donnelley Financial Solutions, Inc. (“Donnelley Financial”)
Subsequent to the spinoff of LSC Communications, Inc. and Subsidiaries (“LSC”) and Donnelley Financial Solutions, Inc. (“Donnelley Financial”) on October 1, 2016, we may be contingently liable for obligations under various operating leases for office, warehouse and manufacturing locations of LSC and Donnelley Financial. In the event that LSC or Donnelley Financial, or any successor lessee, fail to make lease payments or fail to pay other obligations under these lease agreements, we may be required to satisfy those obligations to the lessor. Our exposure to these potential contingent liabilities decreases over time as LSC and Donnelley Financial pay monthly lease obligations and as the leases expire. As of June 30, 2021 these potential contingent obligations were $
On April 13, 2020, LSC announced that it, along with most of its U.S. subsidiaries, voluntarily filed for business reorganization under Chapter 11 of the U.S. Bankruptcy Code. In September 2020, a third-party (the “Buyer”) offered to buy the assets and assume certain obligations of LSC. Although the buyer assumed the majority of LSC’s existing leases, we continue to be contingently liable for these leases until their termination or renewal.
In May and June 2020 we became aware that LSC failed to make required monthly contributions to certain of their multiemployer pension plans (“MEPP”). In accordance with laws and regulations governing multiemployer pension plans, we believe that we and Donnelley Financial, as former members of the control group, are contingently liable on a joint and several liability basis for LSC’s MEPP obligations. We believe that the total undiscounted MEPP obligations for which LSC was responsible was approximately $
During the six months ended June 30, 2021, we and Donnelley Financial commenced negotiations with each of the three MEPPs to settle the MEPP liabilities and, we successfully negotiated a settlement with two of the three plans. As a result of these settlements, in the same period, we recorded a $
18
15. Debt
Debt at June 30, 2021 and December 31, 2020 consisted of the following:
|
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Borrowings under the ABL Credit Facility |
$ |
|
|
|
$ |
— |
|
|
8.875% debentures due April 15, 2021 |
|
— |
|
|
|
|
|
|
7.000% notes due February 15, 2022 |
|
|
|
|
|
|
|
|
6.500% notes due November 15, 2023 |
|
|
|
|
|
|
|
|
Term Loan due January 15, 2024 (a) |
|
|
|
|
|
|
|
|
6.000% notes due April 1, 2024 |
|
|
|
|
|
|
|
|
6.125% secured notes due November 1, 2026 |
|
|
|
|
|
— |
|
|
8.250% notes due July 1, 2027 |
|
|
|
|
|
|
|
|
6.625% debentures due April 15, 2029 |
|
|
|
|
|
|
|
|
8.500% notes due April 15, 2029 |
|
|
|
|
|
|
|
|
8.820% debentures due April 15, 2031 |
|
|
|
|
|
|
|
|
Unamortized debt issuance costs |
|
( |
) |
|
|
( |
) |
|
Total debt |
|
|
|
|
|
|
|
|
Less: current portion |
|
|
|
|
|
|
|
|
Long-term debt |
$ |
|
|
|
$ |
|
|
|
(a) |
|
The fair values of the notes and debentures, which were determined using the market approach based upon quoted prices or interest rates available to us for debt obligations with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of our total debt at June 30, 2021 and December 31, 2020 was greater than its book value by approximately $
On April 28, 2021, we completed an offering of $
On April 16, 2021, we amended our senior secured asset-based revolving credit facility (the “ABL Credit Facility”) to, among other things, extend the maturity date from
The amount available to be borrowed under the ABL Credit Facility is equal to the lesser of (a) $
Borrowings under the ABL Credit Facility bear interest at a rate dependent on the average quarterly availability and is calculated according to a base rate (except in certain circumstances, based on the prime rate) or a Eurocurrency rate (except in certain circumstances, based on LIBOR) plus an applicable margin. The applicable margin for base rate loans ranges from
19
Based on our Borrowing Base as of June 30, 2021 and letters of credit, we had approximately $
During the second quarter of 2021, we utilized proceeds from the offerings of the 2026 Notes to repay $
The credit agreements for our ABL Credit Facility (the “ABL Credit Agreement”) and Term Loan (the "Term Loan Credit Agreement"), and the indenture for the 2026 Notes (the “2026 Notes Indenture”) contain customary affirmative and negative covenants including negative covenants restricting, among other things, our ability to incur or guarantee debt, or issue preferred stock, make certain loans or investments, make certain restricted payments (including payments on certain other debt, external dividends, and stock repurchases), incur liens securing other debt, consummate certain fundamental transactions, enter into certain transactions with affiliates and consummate asset sales. The ABL Credit Agreement contains a covenant which requires us to maintain a minimum fixed charge coverage ratio of
Interest paid was $
Interest income was $
16. Derivatives
All derivatives are recorded as other current or noncurrent assets or other current or noncurrent liabilities in the Condensed Consolidated Balance Sheets at their respective fair values. Unrealized gains and losses related to derivatives are recorded in the Condensed Consolidated Statements of Operations, or in other comprehensive income (loss), net of applicable income taxes, depending on the purpose for which the derivative is held. At the inception of a hedge transaction, we formally document the hedge relationship and the risk management objective for undertaking the hedge. In addition, we assess both at inception of the hedge and on an ongoing basis, whether the derivative in the hedging transaction has been highly effective in offsetting changes in fair value or cash flows of the hedged item and whether the derivative is expected to continue to be highly effective. The impact of any ineffectiveness is also recognized in the Condensed Consolidated Statements of Operations.
We are exposed to the impact of foreign currency fluctuations based on our global operations. Foreign currency fluctuations affect the U.S. dollar value of revenues earned and expenses incurred in foreign currencies. We are also exposed to currency risk to the extent we own assets or incur liabilities, or enter into other transactions that are not in the functional currency of the subsidiary in which we operate. We employ different practices to manage these risks, including where appropriate the use of derivative instruments, such as foreign currency forwards. To the extent the gains and losses associated with the fair values of foreign currency derivatives are recognized in the Consolidated Statements of Operations, they are generally offset by gains and losses on underlying payables and receivables. We do not use derivative financial instruments for trading or speculative purposes. The aggregate notional value of the forward contracts at June 30, 2021 and December 31, 2020 was $
20
In 2019 and 2020, we entered into interest rate swap agreements to manage interest rate risk exposure, effectively changing the interest rate on $
The fair value of the remaining $
Our foreign currency contracts and interest rate swap are subject to master netting agreements that allow us to settle positive and negative positions with the respective counterparties. Under these master netting agreements, net settlement generally permits us or the counterparty to determine the net amount payable for contracts due on the same date and in the same currency for similar types of derivative transactions. The master netting agreements generally also provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event.
We manage credit risk for our derivative positions on a counterparty-by-counterparty basis, considering the net portfolio exposure with each counterparty, consistent with our risk management strategy for such transactions. Our agreements with each of our counterparties contain a provision where we could be declared in default on our derivative obligations if we either default or, in certain cases, are capable of being declared in default of any of our indebtedness greater than specified thresholds. These agreements also contain a provision where we could be declared in default subsequent to a merger or restructuring type event if the creditworthiness of the resulting entity is materially weakened.
As of June 30, 2021 and December 31, 2020, the fair values of our derivative financial instruments and their classifications on the Condensed Consolidated Balance Sheets were as follows:
|
|
Classification on Consolidated Balance Sheets |
|
June 30, 2021 |
|
|
December 31, 2020 |
|
||
|
Derivative assets |
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts: |
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments |
Prepaid expenses and other current assets |
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities |
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts: |
|
|
|
|
|
|
|
|
|
|
Not designated as hedging instruments |
Accrued liabilities and other |
|
$ |
— |
|
|
$ |
|
|
|
Interest rate swap agreements: |
|
|
|
|
|
|
|
|
|
|
Designated as cash flow hedges |
Accrued liabilities and other |
|
|
|
|
|
|
|
|
|
Designated as cash flow hedges |
Other noncurrent liabilities |
|
|
|
|
|
|
|
|
The pre-tax losses (gains) recognized on derivative financial instruments in the Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
Classification of Loss (Gain) Recognized in the Consolidated Statements of Operations |
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Derivatives not designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
Selling, general and administrative expenses |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
Interest expense, net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21
The pre-tax (gains) losses recognized on derivative financial instruments in the Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2021 and 2020 were as follows:
|
|
|
Three Months Ended June 30, |
|
|
Six Months Ended June 30, |
|
||||||||||
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
||||
|
Derivatives designated as cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap agreements |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
17. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2019, the FASB issued ASU No. 2019-12 “Simplifying the Accounting for Income Taxes (Topic 740)” (“ASU 2019-12”), which simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in Accounting Standards Codification (“ASC”) 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. ASU 2019-12 is effective for public entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, however early adoption was permitted. We adopted ASU 2019-12 on
Accounting Pronouncements Issued and Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform, which provides companies with optional guidance, including expedients and exceptions for applying generally accepted accounting principles to contracts and other transactions affected by reference rate reform, such as LIBOR, was effective upon issuance and will be applied to future contracts with changes to the reference rate. To date, we have had no such modification to any of our contracts. We are currently evaluating the prospective impact of the standard, and we will adopt ASU 2020-04 upon such contract modification. The impact of the standard is not expected to be material to our Consolidated Financial Statements.
22
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Company Overview
R.R. Donnelley & Sons Company (“RRD,” the “Company,” “we,” “us,” and “our”), a Delaware corporation, helps organizations communicate more effectively by working to create, manage, produce, distribute and process content on behalf of our clients. We assist clients in developing and executing multichannel communication strategies that engage audiences, reduce costs, drive revenues and enhance compliance. Our innovative content management offering, production platform, supply chain management, outsourcing capabilities and customized consultative expertise assists our clients in the delivery of integrated messages across multiple media to highly targeted audiences at optimal times to their customers in virtually every private and public sector. We have strategically located operations that provide local service and responsiveness while leveraging the economic, geographic and technological advantages of a global organization.
Segment Descriptions
Our segments and their product and service offerings are summarized below:
Business Services
Business Services provides customized solutions at scale to help clients inform, service and transact with their customers. The segment’s primary product and service offerings include commercial print, packaging, labels, statement printing, supply chain management, forms and business process outsourcing. This segment also includes all of our operations in Asia, Europe, Canada and Latin America.
Marketing Solutions
Marketing Solutions leverages an integrated portfolio of data analytics, creative services and multichannel execution to deliver comprehensive, end-to-end solutions. The segment’s primary product and service offerings include direct marketing, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services.
Corporate
Certain selling general and administrative expenses are not directly attributable to our operating segments and are therefore reported at Corporate. These expenses include executive, legal, finance, communications, certain facility costs and last-in-first-out inventory provisions. In addition, certain costs and earnings of employee benefit plans, such as OPEB expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages our cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.
Discontinued Operations
In the fourth quarter of 2020, we sold DLS Worldwide and International Logistics which completed our plan to exit our Logistics business, a component of the Business Services reporting segment. The Logistics business was comprised of DLS Worldwide, International Logistics, Print Logistics and Courier Logistics. These transactions are part of our strategy to optimize our portfolio and reduce debt. As part of our plan, we previously sold the Print Logistics business in July 2018 and the Courier Logistics business in March 2020. Accordingly, we have reflected the Print Logistics business, Courier Logistics business, the DLS Worldwide business, and the International Logistics business as discontinued operations. The financial results of these businesses have been excluded from continuing operations and segment results for all periods presented unless otherwise noted. Refer to Note 2 –Discontinued Operations to our Condensed Consolidated Financial Statements for additional information.
Executive Overview
Response to COVID-19
In 2020, the COVID-19 pandemic created, and continues to create, significant business challenges for companies around the world, including many of our clients across the broad number of industries we serve. In response to the pandemic, we established a formal operating plan that we are utilizing to manage our business through this challenging global business environment. Our operating plan consists of three clear priorities: to protect the health and safety of our employees, to sustain operational and supply chain continuity, and to effectively manage our business performance and liquidity throughout this very volatile period.
23
EMPLOYEES HEALTH AND SAFETY
We are continually evolving our policies and procedures to adhere to the latest best practices being provided by the Centers for Disease Control (“CDC”) and World Health Organization (“WHO”). Our cross-functional COVID Task Force created at the onset of the pandemic has developed safety measures, policies, and procedures for our workplace. We have implemented flexible working policies, including telecommuting and staggered shifts, while allowing for voluntary leaves of absence. We recently have begun to welcome employees back into our offices in a cautious and phased approach. We continue to enforce social distancing policies within all of our facilities, require unvaccinated employees to wear face coverings, and provide training for adherence to personal hygiene best practices in line with CDC and WHO guidelines.
SUPPLY CHAIN CONTINUITY
We have activated our business continuity plans and are leveraging our strong supply chain partnerships to continue to meet the ongoing needs of our 30,000 global clients. We remain fully operational across the 28 countries in which we operate.
BUSINESS IMPACT
Although the COVID-19 pandemic significantly impacted the Company’s financial results in 2020, and continues to create some challenges in 2021, we believe that there are three primary factors that are helping mitigate the top line impact from the pandemic. These factors include our diverse portfolio of products and services, the lack of client concentration, and the products and services we have introduced to meet the evolving needs of our clients.
The extent to which the pandemic will continue to impact our business, results of operations, financial position and cash flows will depend on future developments which remain highly uncertain and cannot be fully predicted or estimated at this time. However, amidst the global uncertainty posed by COVID-19, we are positioning the Company to weather economic uncertainty and protect the short and long-term interests of our stakeholders. Continuing into 2021, we remain laser-focused on lowering our cost structure and on maintaining a sufficient level of liquidity.
Second Quarter Overview
Net sales increased by $136.0 million, or 13.5%, for the three months ended June 30, 2021 compared to the same period in 2020. Second quarter net sales were favorably impacted by $21.7 million due to changes in foreign exchange rates. Net sales also increased due to higher volume reflecting strengthening demand for most of our products and services. Notably, higher demand for e-commerce sales have contributed to the growth in our Packaging and Labels products. The increase also reflects continued recovery from the COVID-19 pandemic, partially offset by last year’s Census project, which was completed in mid-2020.
Income from operations for the three months ended June 30, 2021 was $28.2 million, an increase of $47.2 million compared to a loss of $19.0 million for the prior year period. The increase was primarily driven by higher sales, cost control initiatives and lower restructuring and impairment expenses, partially offset by unfavorable foreign exchange rates and higher incentive compensation.
We continue to assess opportunities to reduce our cost structure and enhance productivity throughout the business. During the three months ended June 30, 2021, we realized significant cost savings from recent and previous restructuring activities including the reorganization of administrative and support functions across all segments, several facility consolidations, and asset rationalization. These savings were partially offset by the effect of unfavorable exchange rates.
Net cash used in operating activities for the six months ended June 30, 2021 was $64.8 million as compared to $44.2 million used in operating activities for the six months ended June 30, 2020. The increase in 2021 was primarily driven by $23.9 million of LSC bankruptcy related payments primarily associated with lump sum settlements of two MEPP plans, higher tax and incentive compensation payments, and a $9.2 million payment to terminate certain interest rates swaps, partially offset by lower restructuring and interest payments.
Outlook
While client demand for our products and services continues to strengthen, ongoing challenges including labor shortages, supply chain disruption, inflationary increases and shipping delays caused by container shortages in key ports including China, remain. These issues, combined with the ongoing uncertainty related to the COVID-19 pandemic, create added challenges when predicting future business performance. Excluding the unpredictability related to these factors, we now expect net sales for 2021 to be up by 1% to 3% taking into consideration reductions from the ending of the 2020 Census project and one-time pandemic related projects completed in 2020 offset by further economic recovery as the year progresses.
24
Our outlook assumes that the U.S. economy and the economies of the foreign countries in which we operate will continue to recover from the economic effects of COVID-19, although the recovery may be uneven given the uncertainty of the pandemic. Our outlook also assumes that we will be able to pass on to our clients a substantial majority of material price increases, and that we will not experience any substantial operational outages related to labor shortages and supply chain interruptions. We continue to leverage our client relationships in order to provide a larger share of their communications needs. In addition, we expect to continue cost control and productivity initiatives, including selected facility consolidations and asset rationalizations.
We initiated several restructuring actions during the past three years to further reduce our overall cost structure. These restructuring actions included the closures of manufacturing facilities as well as the reorganization and consolidation of certain operations. These and future cost reduction actions are expected to have a positive impact on operating earnings in 2021 and in future years. In addition, we expect to implement other cost reduction opportunities, which may result in additional restructuring charges. These restructuring actions will be funded by cash generated from operations and cash on hand or, if necessary, by utilizing our credit facilities.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2021 AS COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2020
The following table shows the results of operations for the three months ended June 30, 2021 and 2020:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Net sales |
|
1,145.6 |
|
|
|
1,009.6 |
|
|
|
136.0 |
|
|
|
13.5 |
% |
|
Cost of sales |
|
928.1 |
|
|
|
817.3 |
|
|
|
110.8 |
|
|
|
13.6 |
% |
|
Gross profit |
|
217.5 |
|
|
|
192.3 |
|
|
|
25.2 |
|
|
|
13.1 |
% |
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
143.8 |
|
|
|
138.8 |
|
|
|
5.0 |
|
|
|
3.6 |
% |
|
Restructuring, impairment and other-net |
|
9.7 |
|
|
|
28.4 |
|
|
|
(18.7 |
) |
|
|
(65.8 |
%) |
|
Depreciation and amortization |
|
32.9 |
|
|
|
36.9 |
|
|
|
(4.0 |
) |
|
|
(10.8 |
%) |
|
Other operating expense |
|
2.9 |
|
|
|
7.2 |
|
|
|
(4.3 |
) |
|
|
(59.7 |
%) |
|
Income (loss) from operations |
$ |
28.2 |
|
|
$ |
(19.0 |
) |
|
$ |
47.2 |
|
|
nm |
|
|
Consolidated
Continuing Operations
Net sales for the three months ended June 30, 2021 increased $136.0 million, or 13.5%, to $1,145.6 million versus the same period in 2020. Net sales increased by $21.7 million due to favorable changes in foreign exchange rates. Net sales also increased due to higher volume reflecting strengthening demand for most of our products and services. Notably, higher demand for e-commerce sales have contributed to the growth in our Packaging and Labels products. The increase also reflects continued recovery from the COVID-19 pandemic, partially offset by last year’s Census project, which was completed in mid-2020.
Cost of sales for the three months ended June 30, 2021 increased $110.8 million, or 13.6%, to $928.1 million versus the same period in 2020. Total cost of sales increased primarily due to higher volume across most of our products and services and higher cost of raw materials, partially offset by the favorable impact of cost reduction activities. As a percentage of net sales, cost of sales remained relatively unchanged for the three months ended June 30, 2021 versus the same period in 2020.
Gross profit increased $25.2 million to $217.5 million for the three months ended June 30, 2021 versus the same period in 2020, primarily due to higher volume. Our gross margin percentage remained relatively unchanged for the three months ended June 30, 2021 versus the same period in 2020.
Selling, general and administrative expenses increased $5.0 million to $143.8 million for the three months ended June 30, 2021 versus the same period in 2020 primarily as a result of increased incentive compensation expense, largely attributable to the increase in our stock price and unfavorable exchange rates, partially offset by cost control initiatives. As a percentage of net sales, selling, general and administrative expenses decreased from 13.7% to 12.6% for the three months ended June 30, 2021 versus the same period in 2020, reflecting the benefit of restructuring actions and other costs control initiatives.
25
For the three months ended June 30, 2021, net restructuring, impairment and other charges decreased $18.7 million to $9.7 million. The decrease was primarily driven by lower restructuring activity, including a $10.5 million reduction in employee termination costs, and lower consulting costs compared to the prior year. See Note 7, Restructuring, Impairment and Other, and Note 14, Commitment and Contingencies, within the Notes to the Condensed Consolidated Financial Statements for further discussion.
Depreciation and amortization decreased $4.0 million to $32.9 million for the three months ended June 30, 2021 compared to the same period in 2020. Depreciation and amortization included $4.8 million of amortization of other intangible assets related to client relationships and trade names for each of the three months ended June 30, 2021 and 2020.
Other operating expense for the three months ended June 30, 2021 was $2.9 million compared to $7.2 million in the same period in 2020. The decrease was primarily the result of lower expenses related to the SEC and DOJ investigations and the prior year included a $2.9 million loss on a business disposition which did not occur in the current period.
Income from operations for the three months ended June 30, 2021 was $28.2 million, an increase of $47.2 million compared to a loss of $19.0 million for the three months ended June 30, 2020.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Interest expense-net |
$ |
38.5 |
|
|
$ |
34.6 |
|
|
$ |
3.9 |
|
|
|
11.3 |
% |
|
Investment and other income-net |
|
(4.9 |
) |
|
|
(3.4 |
) |
|
|
(1.5 |
) |
|
|
44.1 |
% |
|
Loss on debt extinguishment |
|
6.2 |
|
|
|
0.4 |
|
|
|
5.8 |
|
|
nm |
|
|
Net interest expense increased by $3.9 million to $38.5 million for the three months ended June 30, 2021 versus the same period in 2020. Net interest expense included $9.2 million related to the termination of certain interest rate swaps. Refer to Note 16 – Derivatives within the Notes to the Condensed Consolidated Financial Statements for further discussion. Excluding the effects of the swap termination, our interest expense decreased approximately $5 million primarily due to prior repurchases and repayment of higher interest rate debt and lower average borrowings and interest rates on the ABL Credit Facility.
The loss on debt extinguishment in the three month period ended June 30, 2021 primarily resulted from the write-off of debt issuance costs and discount related to the Term Loan.
Investment and other income-net for the three months ended June 30, 2021 and 2020 was $4.9 million and $3.4 million respectively, primarily comprised of net OPEB and pension income.
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Loss from continuing operations before income taxes |
$ |
(11.6 |
) |
|
$ |
(50.6 |
) |
|
$ |
39.0 |
|
|
|
(77.1 |
%) |
|
Income tax (benefit) expense |
|
(2.4 |
) |
|
|
6.6 |
|
|
|
(9.0 |
) |
|
nm |
|
|
The income tax benefit and expense for the three months ended June 30, 2021 and 2020 were primarily driven by the mix of earnings, the tax impact of our interest expense, and changes in tax laws.
Net loss attributable to RRD common stockholders was $9.4 million for the three months ended June 30, 2021 compared to a loss of $57.2 million for the three months ended June 30, 2020.
Information by Segment
Business Services
|
|
|
Three Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in millions, except percentages) |
|
|||||
|
Net sales |
|
$ |
909.6 |
|
|
$ |
795.6 |
|
|
Income from operations |
|
|
55.2 |
|
|
|
17.1 |
|
|
Operating margin |
|
|
6.1 |
% |
|
|
2.1 |
% |
|
Restructuring, impairment and other-net |
|
|
3.3 |
|
|
|
9.7 |
|
26
Net sales for the Business Services segment for the three months ended June 30, 2021 were $909.6 million, an increase of $114.0 million, or 14.3%, compared to the same period in 2020. Net sales increased $21.7 million due to favorable changes in exchange rates. Net sales also increased due to higher volume reflecting strengthening demand for most of our products and services. Notably, higher demand for e-commerce sales have contributed to the growth in our Packaging and Labels products. The increase also reflects continued recovery from the COVID-19 pandemic. The following table summarizes net sales by products and services in the Business Services segment:
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
Products and Services |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Commercial print |
|
$ |
340.3 |
|
|
$ |
275.5 |
|
|
$ |
64.8 |
|
|
|
23.5 |
% |
|
Packaging |
|
|
179.7 |
|
|
|
150.4 |
|
|
|
29.3 |
|
|
|
19.5 |
% |
|
Labels |
|
|
131.3 |
|
|
|
113.7 |
|
|
|
17.6 |
|
|
|
15.5 |
% |
|
Statements |
|
|
99.3 |
|
|
|
101.9 |
|
|
|
(2.6 |
) |
|
|
(2.6 |
%) |
|
Supply chain management |
|
|
67.3 |
|
|
|
64.9 |
|
|
|
2.4 |
|
|
|
3.7 |
% |
|
Forms |
|
|
48.8 |
|
|
|
48.6 |
|
|
|
0.2 |
|
|
|
0.4 |
% |
|
Business process outsourcing |
|
|
42.9 |
|
|
|
40.6 |
|
|
|
2.3 |
|
|
|
5.7 |
% |
|
Total Business Services |
|
$ |
909.6 |
|
|
$ |
795.6 |
|
|
$ |
114.0 |
|
|
|
14.3 |
% |
Business Services segment income from operations increased $38.1 million to $55.2 million for the three months ended June 30, 2021, primarily due to higher volume, cost control initiatives and lower restructuring, impairment and other expenses, partially offset by unfavorable foreign exchange rates of approximately $10.0 million.
Marketing Solutions
|
|
|
Three Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in millions, except percentages) |
|
|||||
|
Net sales |
|
$ |
236.0 |
|
|
$ |
214.0 |
|
|
Income (loss) from operations |
|
|
9.0 |
|
|
|
(1.8 |
) |
|
Operating margin |
|
|
3.8 |
% |
|
|
(0.8 |
%) |
|
Restructuring and other-net |
|
|
2.5 |
|
|
|
2.2 |
|
Net sales for the Marketing Solutions segment for the three months ended June 30, 2021 were $236.0 million, an increase of $22.0 million, or 10.3%, compared to the same period in 2020. Net sales increased primarily due to higher volume and higher prices, partially offset by the effects of the 2020 Census contract, which was substantially completed by June 30, 2020.
The following table summarizes net sales by products and services in the Marketing Solutions segment:
|
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
Products and Services |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Direct marketing |
|
$ |
113.6 |
|
|
$ |
108.0 |
|
|
$ |
5.6 |
|
|
|
5.2 |
% |
|
Digital print and fulfillment |
|
|
101.7 |
|
|
|
84.7 |
|
|
|
17.0 |
|
|
|
20.1 |
% |
|
Digital and creative solutions |
|
|
20.7 |
|
|
|
21.3 |
|
|
|
(0.6 |
) |
|
|
(2.8 |
%) |
|
Total Marketing Solutions |
|
$ |
236.0 |
|
|
$ |
214.0 |
|
|
$ |
22.0 |
|
|
|
10.3 |
% |
Marketing Solutions segment income from operations for the three months ended June 30, 2021 was $9.0 million, an increase of $10.8 million compared to a loss of $1.8 million for the same period in 2020, primarily due to higher volume reflective of continued recovery from the COVID-19 pandemic and cost control initiatives, partially offset by the Census contract which was substantially completed by mid-2020.
27
Corporate
Corporate operating expenses during the three months ended June 30, 2021 were $36.0 million, an increase of $1.7 million compared to the same period in 2020. The increase is primarily driven by increased incentive compensation expense, largely attributable to an increase in our stock price, partially offset by lower other selling, generally and administrative expenses.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2021 AS COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2020
The following table shows the results of operations for the six months ended June 30, 2021 and 2020:
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Net sales |
|
2,318.7 |
|
|
|
2,226.5 |
|
|
|
92.2 |
|
|
|
4.1 |
% |
|
Cost of sales |
|
1,877.1 |
|
|
|
1,785.9 |
|
|
|
91.2 |
|
|
|
5.1 |
% |
|
Gross profit |
|
441.6 |
|
|
|
440.6 |
|
|
|
1.0 |
|
|
|
0.2 |
% |
|
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
297.1 |
|
|
|
298.7 |
|
|
|
(1.6 |
) |
|
|
(0.5 |
%) |
|
Restructuring, impairment and other-net |
|
15.5 |
|
|
|
39.6 |
|
|
|
(24.1 |
) |
|
|
(60.9 |
%) |
|
Depreciation and amortization |
|
66.7 |
|
|
|
76.1 |
|
|
|
(9.4 |
) |
|
|
(12.4 |
%) |
|
Other operating expense |
|
9.0 |
|
|
|
12.1 |
|
|
|
(3.1 |
) |
|
|
(25.6 |
%) |
|
Income from operations |
$ |
53.3 |
|
|
$ |
14.1 |
|
|
$ |
39.2 |
|
|
nm |
|
|
Consolidated
Continuing Operations
Net sales for the six months ended June 30, 2021 increased $92.2 million, or 4.1%, to $2,318.7 million versus the same period in 2020. Net sales increased $36.2 million due to favorable changes in foreign exchange rates and were unfavorably impacted by $6.5 million due to the Chile business closure in 2020. In addition to these factors, net sales also increased due to higher volume reflecting strengthening demand for most of our products and services. Notably, higher demand for e-commerce sales have contributed to the growth in our Packaging and Labels products. The increase also reflects continued recovery from the COVID-19 pandemic, partially offset by the Census project, which was completed in mid-2020.
Cost of sales for the six months ended June 30, 2021 increased $91.2 million, or 5.1%, to $1,877.1 million versus the same period in 2020, primarily due to higher volume and higher cost of raw materials.
Gross profit increased $1.0 million to $441.6 million for the six months ended June 30, 2021 versus the same period in 2020, primarily due to higher volume. Gross margin percentage decreased from 19.8% to 19.0% for the six months ended June 30, 2021 versus the same period in 2020, primarily reflecting the impact of unfavorable foreign exchange rates and rising costs of raw materials.
Selling, general and administrative expenses decreased $1.6 million to $297.1 million for the six months ended June 30, 2021 versus the same period in 2020, reflecting cost control initiatives, partially offset by unfavorable foreign exchange rates and higher incentive compensation expense. As a percentage of net sales, selling, general and administrative expenses was 12.8% for the six months ended June 30, 2021 versus 13.4% in the same period in 2020.
For the six months ended June 30, 2021, net restructuring, impairment and other expense decreased by $24.1 million to $15.5 million versus the same period in 2020. The decrease was primarily driven by lower restructuring activity, gains on sale of several facilities, and modest gains related to the settlement of certain LSC MEPP liabilities. See Note 7, Restructuring, Impairment, and Other, and Note 14, Commitment and Contingencies within the Notes to the Condensed Consolidated Financial Statements for further discussion.
Depreciation and amortization decreased $9.4 million to $66.7 million for the six months ended June 30, 2021 compared to the same period in 2020. Depreciation and amortization included $9.5 million and $9.7 million of amortization of other intangible assets related to client relationships and trade names for the six months ended June 30, 2021 and 2020, respectively.
28
Other operating expense for the six months ended June 30, 2021 was $9.0 million compared to $12.1 million for the same period in 2020. Other operating expenses in both periods primarily included expenses related to the ongoing SEC and DOJ investigations.
Income from operations for the six months ended June 30, 2021 was $53.3 million, an increase of $39.2 million compared to the six months ended June 30, 2020.
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Interest expense-net |
$ |
69.0 |
|
|
$ |
68.5 |
|
|
$ |
0.5 |
|
|
|
0.7 |
% |
|
Investment and other income-net |
|
(9.7 |
) |
|
|
(7.2 |
) |
|
|
2.5 |
|
|
|
34.7 |
% |
|
Loss on debt extinguishment |
|
6.2 |
|
|
|
0.2 |
|
|
|
6.0 |
|
|
nm |
|
|
Net interest expense increased $0.5 million to $69.0 million for the six months ended June 30, 2021 versus the same period in 2020. Net interest expense included $9.2 million related to the termination of certain interest rate swaps in the second quarter of 2021. See Note 16 – Derivatives within the Notes to the Condensed Consolidated Financial Statements for further discussion. Excluding the effects of the swap termination, our interest expense decreased approximately $9 million, primarily due to prior repurchases and repayment of higher interest rate debt and lower average borrowings and interest rates on the newly amended ABL Credit Facility.
Investment and other income, net for the six months ended June 30, 2021 and 2020 was $9.7 million and $7.2 million, respectively, and principally comprised of net pension and OPEB income.
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Loss from continuing operations before income taxes |
$ |
(12.2 |
) |
|
$ |
(47.4 |
) |
|
$ |
35.2 |
|
|
|
(74.3 |
%) |
|
Income tax (benefit) expense |
|
(1.3 |
) |
|
|
2.8 |
|
|
|
4.1 |
|
|
nm |
|
|
The income tax benefit and expense for the six months ended June 30, 2021 and 2020 were primarily driven by the mix of earnings, the tax impact of our interest expense and changes in tax laws.
Discontinued Operations
Net income from discontinued operations was $0.6 million for the six months ended June 30, 2021 compared to a loss of $19.9 million in the same period in 2020. The net income from discontinued operations for the six months ended June 30, 2021 reflects the settlement of certain contingencies associated with the business divestitures and final net working capital adjustments. The net loss from discontinued operations in the first half of 2020 was primarily driven by a $20.6 million non-cash charge related to impairment of goodwill and $9.1 million pre-tax loss on the sale of our Courier Logistics business.
Net loss attributable to RRD common stockholders was $10.7 million and $70.2 million for the six months ended June 30, 2021 and 2020, respectively.
Information by Segment
Business Services
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in millions, except percentages) |
|
|||||
|
Net sales |
|
$ |
1,831.7 |
|
|
$ |
1,688.7 |
|
|
Income from operations |
|
|
108.4 |
|
|
|
54.8 |
|
|
Operating margin |
|
|
5.9 |
% |
|
|
3.2 |
% |
|
Restructuring, impairment and other-net |
|
|
6.7 |
|
|
|
15.4 |
|
|
Other operating expense |
|
|
— |
|
|
|
0.2 |
|
29
Net sales for the Business Services segment for the six months ended June 30, 2021 were $1,831.7 million, an increase of $143.0 million, or 8.5%, compared to the six months ended June 30, 2020. Net sales increased $36.2 million due to favorable changes in foreign exchange rates and were unfavorably impacted by $6.5 million due to the Chile business closure in 2020. Net sales also increased due to higher volume reflecting strengthening demand for most of our products and services. Notably, higher demand for e-commerce sales have contributed to the growth in our Packaging and Labels products. The increase also reflects continued recovery from the COVID-19 pandemic. The following table summarizes net sales by products and services in the Business Services segment:
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
Products and Services |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Commercial print |
|
$ |
676.8 |
|
|
$ |
638.9 |
|
|
$ |
37.9 |
|
|
|
5.9 |
% |
|
Packaging |
|
|
354.1 |
|
|
|
265.5 |
|
|
|
88.6 |
|
|
|
33.4 |
% |
|
Labels |
|
|
260.0 |
|
|
|
235.3 |
|
|
|
24.7 |
|
|
|
10.5 |
% |
|
Statements |
|
|
217.8 |
|
|
|
228.8 |
|
|
|
(11.0 |
) |
|
|
(4.8 |
%) |
|
Supply chain management |
|
|
140.0 |
|
|
|
134.6 |
|
|
|
5.4 |
|
|
|
4.0 |
% |
|
Forms |
|
|
97.6 |
|
|
|
101.0 |
|
|
|
(3.4 |
) |
|
|
(3.4 |
%) |
|
Business process outsourcing |
|
|
85.4 |
|
|
|
84.6 |
|
|
|
0.8 |
|
|
|
0.9 |
% |
|
Total Business Services |
|
$ |
1,831.7 |
|
|
$ |
1,688.7 |
|
|
$ |
143.0 |
|
|
|
8.5 |
% |
Business Services segment income from operations increased $53.6 million to $108.4 million for the six months ended June 30, 2021, primarily due to increased volume, increased prices, cost reductions and lower restructuring, impairment and other expenses, partially offset by the impact of unfavorable foreign exchange rates of approximately $20 million.
Marketing Solutions
|
|
|
Six Months Ended |
|
|||||
|
|
|
June 30, |
|
|||||
|
|
|
2021 |
|
|
2020 |
|
||
|
|
|
(in millions, except percentages) |
|
|||||
|
Net sales |
|
$ |
487.0 |
|
|
$ |
537.8 |
|
|
Income from operations |
|
|
22.8 |
|
|
|
23.1 |
|
|
Operating margin |
|
|
4.7 |
% |
|
|
4.3 |
% |
|
Restructuring and other-net |
|
|
4.7 |
|
|
|
2.7 |
|
Net sales for the Marketing Solutions segment for the six months ended June 30, 2021 were $487.0 million, a decrease of $50.8 million compared to the six months ended June 30, 2020. Net sales decreased due to lower volume in direct marketing attributable to the 2020 Census contract, which was substantially completed in mid-2020, partially offset by higher order volume from several existing customers reflecting continued recovery from the COVID-19 pandemic. The following table summarizes net sales by products and services in the Marketing Solutions segment:
|
|
|
Six Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
June 30, |
|
|
|
|
|
|
|
|
|
|||||
|
Products and Services |
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(in millions, except percentages) |
|
|||||||||||||
|
Direct marketing |
|
$ |
244.5 |
|
|
$ |
290.8 |
|
|
$ |
(46.3 |
) |
|
|
(15.9 |
%) |
|
Digital print and fulfillment |
|
|
199.2 |
|
|
|
198.3 |
|
|
|
0.9 |
|
|
|
0.5 |
% |
|
Digital and creative solutions |
|
|
43.3 |
|
|
|
48.7 |
|
|
|
(5.4 |
) |
|
|
(11.1 |
%) |
|
Total Marketing Solutions |
|
$ |
487.0 |
|
|
$ |
537.8 |
|
|
$ |
(50.8 |
) |
|
|
(9.4 |
%) |
Marketing Solutions segment income from operations decreased $0.3 million to $22.8 million for the six months ended June 30, 2021 as a result of the 2020 Census contract which was substantially completed in mid-2020, partially offset by cost control initiatives.
Corporate
Corporate operating expenses during the six months ended June 30, 2021 were $77.9 million, compared to $63.8 million for the six months ended June 30, 2021, an increase of $14.1 million. The increase was primarily driven by increased incentive compensation expense, largely attributable to an increase in our stock price.
30
LIQUIDITY AND CAPITAL RESOURCES
We believe that we have sufficient liquidity to support our ongoing operations and to invest in future growth to create value for our stockholders. Our operating cash flows, existing cash balances and available capacity under our asset-based senior secured revolving credit facility (the “ABL Credit Facility”) are our primary sources of liquidity and are expected to be used for, among other things, capital expenditures, completion of restructuring programs and payment of interest and principal on our long-term debt obligations.
The following describes our cash flows for the six months ended June 30, 2021 and 2020.
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
|
|
(in millions) |
|
|||||||||
|
Net cash used in operating activities |
$ |
(64.8 |
) |
|
$ |
(44.2 |
) |
|
$ |
(20.6 |
) |
|
Net cash used in investing activities |
|
(23.7 |
) |
|
|
(14.2 |
) |
|
|
(9.5 |
) |
|
Net cash provided by financing activities |
|
25.2 |
|
|
|
211.1 |
|
|
|
(185.9 |
) |
|
Effect of exchange rates on cash, cash equivalents and restricted cash |
|
1.9 |
|
|
|
(4.3 |
) |
|
|
6.2 |
|
|
Net (decrease) increase in cash, cash equivalents and restricted cash |
$ |
(61.4 |
) |
|
$ |
148.4 |
|
|
$ |
(209.8 |
) |
Operating cash inflows are largely attributable to sales of our products and services. Operating cash outflows are largely attributable to recurring expenditures for raw materials, labor, rent, interest, taxes and other operating activities.
Net cash used in operating activities was $64.8 million compared to $44.2 million in 2020. The increase in 2021 was driven by $23.9 million of LSC bankruptcy related payments primarily associated with lump sum settlements of two MEPP plans, higher tax and incentive compensation payments, and a $9.2 million payment to terminate certain interest rates swaps, partially offset by lower restructuring and interest payments. Included in net cash used in operating activities were the following operating cash outflows:
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
|
|
(in millions) |
|
|||||||||
|
Income tax payments, net of tax refunds |
$ |
25.7 |
|
|
$ |
11.4 |
|
|
$ |
14.3 |
|
|
Interest payments |
|
54.6 |
|
|
|
67.8 |
|
|
|
(13.2 |
) |
|
Performance-based compensation payments |
|
56.6 |
|
|
|
41.4 |
|
|
|
15.2 |
|
|
Restructuring payments |
|
16.5 |
|
|
|
34.5 |
|
|
|
(18.0 |
) |
|
Payments on interest rate swap terminations |
|
9.2 |
|
|
|
— |
|
|
|
9.2 |
|
|
Pension and other postretirement benefits plan contributions |
|
2.6 |
|
|
|
4.2 |
|
|
|
(1.6 |
) |
|
LSC bankruptcy related payments including MEPP |
|
23.9 |
|
|
|
— |
|
|
|
23.9 |
|
Significant cash (outflows) inflows included in investing and financing activities for each period were as follows:
|
|
Six Months Ended |
|
|
|
|
|
|||||
|
|
June 30, |
|
|
|
|
|
|||||
|
|
2021 |
|
|
2020 |
|
|
$ Change |
|
|||
|
|
(in millions) |
|
|||||||||
|
Capital expenditures |
$ |
(29.9 |
) |
|
$ |
(38.1 |
) |
|
$ |
8.2 |
|
|
Proceeds from issuances of long-term debt |
|
451.1 |
|
|
|
— |
|
|
|
451.1 |
|
|
Proceeds from sale of property, plant and equipment |
|
7.5 |
|
|
|
4.7 |
|
|
|
2.8 |
|
|
Disposition of businesses |
|
(1.4 |
) |
|
|
16.1 |
|
|
|
(17.5 |
) |
|
Payments of current maturities and long-term debt |
|
(444.6 |
) |
|
|
(152.7 |
) |
|
|
(291.9 |
) |
|
Net borrowings under credit facilities |
|
30.0 |
|
|
|
368.0 |
|
|
|
(338.0 |
) |
|
Dividends paid |
|
— |
|
|
|
(2.1 |
) |
|
|
2.1 |
|
Proceeds from disposition of businesses in 2020 principally reflect the sale of the Courier Logistics business.
31
Proceeds from issuances of long-term debt during the six months ended June 30, 2021 reflects the issuance of $450 million of 6.125% senior secured notes due 2026 during the second quarter. Payments of current maturities and long-term debt in the first half of 2021 primarily reflects the repayment of $387.6 million of principal on the Term Loan and the repayment of $55.6 million of the debentures that matured on April 15, 2021. Payments of current maturities and long-term debt in the first half of 2020 represent repurchases of outstanding debt with maturities from 2020 to 2024 along with the repayment of the remaining balance of the notes that matured on June 15, 2020. We had $30 million of borrowings under our ABL Credit Facility at the end of the second quarter of 2021. In the first half of 2020, we increased our borrowings under the ABL Credit Facility to retain financial flexibility in light of the emerging COVID-19 pandemic.
LIQUIDITY
Cash and cash equivalents of $237.2 million as of June 30, 2021 included $24.3 million in the U.S. and $212.9 million at international locations. Included in Cash and cash equivalents at June 30, 2021 were $23.4 million of short-term investments, which primarily consisted of short-term deposits and money market funds. These investments are held at institutions with sound credit ratings and are expected to be highly liquid. We maintain cash pooling structures that enable participating international locations to draw on our international cash resources to meet local liquidity needs. Foreign cash balances may be loaned from certain cash pools to U.S. operating entities on a temporary basis in order to reduce our short-term borrowing costs or for other purposes. As a result of the Tax Act, we have opportunities to repatriate foreign cash, primarily generated from current year earnings, in a tax efficient manner.
The current availability under the ABL Credit Facility as of June 30, 2021 is shown in the table below:
|
|
|
June 30, 2021 |
|
|
|
Availability |
|
(in millions) |
|
|
|
Borrowing base |
|
$ |
555.3 |
|
|
|
|
|
|
|
|
Usage |
|
|
|
|
|
Borrowings under the ABL Credit Facility |
|
$ |
30.0 |
|
|
Outstanding letters of credit |
|
$ |
63.3 |
|
|
|
|
|
|
|
|
Current availability at June 30, 2021 |
|
$ |
462.0 |
|
|
Cash and cash equivalents |
|
|
237.2 |
|
|
Total available liquidity (a) |
|
$ |
699.2 |
|
|
(a) |
Total available liquidity does not include credit facilities of non-U.S. subsidiaries, which are uncommitted facilities. |
The failure of a financial institution supporting the ABL Credit Facility would reduce the size of our committed facility unless a replacement institution was added. At June 30, 2021, the ABL Credit Facility was supported by eight U.S. financial institutions.
On April 16, 2021, we amended the ABL Credit Facility to, among other things, extend the maturity date from September 29, 2022 to April 16, 2026 and reduce the aggregate commitments from $800 million to $650 million.
Dispositions
During the fourth quarter of 2017, we entered into an agreement to sell a printing facility in Shenzhen, China and transfer the related land use rights. As of June 30, 2021, we have received deposits in accordance with the terms of the agreement of approximately $123.3 million. These deposits are recorded in Other noncurrent liabilities on the Condensed Consolidated Balance Sheets. In accordance with the agreement, additional scheduled deposits are required to be paid to us with the final payment due in 2022. The closing date of the final sales transaction is uncertain at this time due to the uncertainty around the timing of the regulatory process including government approvals. Gross proceeds from the sale are expected to be approximately $250.0 million, subject to changes in the exchange rate. If the buyer fails to comply with terms of the agreement or terminates for any reason, we are entitled to retain 30% of the purchase price as liquidated damages. As of June 30, 2021, the carrying cost of the building and land use rights is recorded in Other noncurrent assets and is not material.
Dividends
On April 6, 2020, the Board of Directors of the Company made a decision to suspend all dividends payments as part of the Company’s response to the COVID-19 pandemic.
32
MANAGEMENT OF MARKET RISK
We are exposed to interest rate risk on our variable debt and price risk on our fixed-rate debt. Including the effect of the floating-to-fixed interest rate swaps (see Note 16, Derivatives, to the Condensed Consolidated Financial Statements), approximately 95.0% of our outstanding debt was comprised of fixed-rate debt as of June 30, 2021.
We assess market risk based on changes in interest rates utilizing a sensitivity analysis that measures the potential loss in earnings, fair values and cash flows based on a hypothetical 10% change in interest rates. Using this sensitivity analysis, such changes would not have a material effect on interest income or expense and cash flows and would change the fair values of fixed-rate debt at June 30, 2021 and December 31, 2020 by approximately $30.7 million and $23.7 million, respectively.
We are exposed to the impact of foreign currency fluctuations based on our global operations. Foreign currency fluctuations affect the U.S. dollar value of revenues earned and expenses incurred in foreign currencies. We are also exposed to currency risk to the extent we own assets or incur liabilities, or enter into other transactions that are not in the functional currency of the subsidiary in which we operate. We employ different practices to manage these risks, including where appropriate the use of derivative instruments, such as foreign currency forwards. As of June 30, 2021 and December 31, 2020, the aggregate notional amount of outstanding foreign currency contracts was approximately $268.7 million and $220.7 million, respectively (see Note 16, Derivatives, to the Condensed Consolidated Financial Statements). The net unrealized gain from these foreign currency contracts was $1.9 million at June 30, 2021 and $3.6 million at December 31, 2020. We do not use derivative financial instruments for trading or speculative purposes.
OTHER INFORMATION
Litigation and Contingent Liabilities
For a discussion of certain litigation, see Note 14, Commitments and Contingencies, to the Condensed Consolidated Financial Statements.
New Accounting Pronouncements and Pending Accounting Standards
Recently issued accounting standards and their estimated effect on our condensed consolidated financial statements are described in Note 17, New Accounting Pronouncements, to the Condensed Consolidated Financial Statements.
CAUTIONARY STATEMENT
This Quarterly Report on Form 10-Q and any documents incorporated by reference contain forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on our beliefs and assumptions. Generally, forward-looking statements include information concerning our possible or assumed future actions, events, or results of operations. These statements may include, or be preceded or followed by, the words “may,” “will,” “should,” “might,” “could,” “would,” “potential,” “possible,” “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” “hope” or similar expressions and their negative variations. We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.
Forward-looking statements are not guarantees of performance. The factors identified below are believed to be significant factors, but not necessarily all of the significant factors, that could cause actual results to differ materially from those expressed in any forward-looking statement. Unpredictable or unknown factors could also have material effects on us.
The following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q and under the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, could affect our future results and could cause those results or other outcomes to differ materially from those expressed or implied in our forward-looking statements:
|
|
• |
adverse changes in global economic conditions and the resulting effect on the businesses of our clients, including changes related to COVID-19; |
|
|
• |
demand for our products and services, including fluctuating orders specifically related to COVID-19; |
|
|
• |
adverse changes in global economic conditions and the resulting effect on the businesses of our clients; |
|
|
• |
changes in customer preferences or a failure to otherwise manage relationships with our significant clients; |
|
|
• |
loss of brand reputation and decreases in quality of client support and service offerings; |
|
|
• |
political and regulatory risks and uncertainty in the countries in which we operate or sell our products and services; |
33
|
|
• |
taxation related risks in multiple jurisdictions; |
|
|
• |
adverse credit market conditions and other issues that may affect our ability to obtain future financing on favorable terms; |
|
|
• |
limitations on our borrowing capacity in our credit facilities; |
|
|
• |
increases in interest rates; |
|
|
• |
our ability to make payments on, reduce or extinguish any of our material indebtedness; |
|
|
• |
supply chain issues, including changes in the availability or costs of key materials (such as ink, and paper) or increases in shipping costs; additionally, shipping quotas imposed by major carriers such as Fedex and UPS may impact our cost of shipping and our ability to timely fulfil orders; |
|
|
• |
our ability to improve operating efficiency rapidly enough to meet market conditions; |
|
|
• |
impairment of assets as a result of a decline in our individual reporting units’ expected profitability; |
|
|
• |
our ability and/or our vendors’ ability to implement and maintain information technology and security measures sufficient to protect against breaches and data leakage or the failure to properly use and protect customer, Company and employee information and data, particularly in light of the increased prevalence of remote working arrangements during COVID-19; |
|
|
• |
a failure in or breach of data held in the computer systems we and our vendors maintain; |
|
|
• |
increased pricing pressure as a result of the competitive environment in which we operate; |
|
|
• |
our ability to execute on our portfolio optimization strategies, including potential sales of non-core assets; |
|
|
• |
increasing health care and benefits costs for employees and retirees; |
|
|
• |
changes in our pension and OPEB obligations; |
|
|
• |
adverse trends or events in our operations outside of the United States; |
|
|
• |
the effect of inflation, changes in currency exchange rates and changes in interest rates; |
|
|
• |
catastrophic events which may damage our facilities or otherwise disrupt the business; |
|
|
• |
the effect of changes in laws and regulations, including changes in accounting standards, trade, tax, environmental compliance, health and welfare benefits, price controls and other regulatory matters and the cost, which could be substantial, of complying with these laws and regulations; |
|
|
• |
changes in the regulations applicable to our clients, which may adversely impact demand for our products and services; |
|
|
• |
factors that affect client demand, including changes in postal rates, postal regulations and service levels, changes in the capital markets, changes in advertising markets, clients’ budgetary constraints and changes in clients’ short-range and long-range plans; |
|
|
• |
failures or errors in our products and services; |
|
|
• |
changes in technology, including electronic substitution and migration of paper based documents to digital data formats, and our ability to adapt to these changes; |
|
|
• |
inability to hire and retain a skilled and diverse workforce; |
|
|
• |
potential contingent obligations related to leases, multiemployer pension plan liabilities, environmental liabilities, and other liabilities associated with the bankruptcy of LSC; |
|
|
• |
the spinoffs resulting in significant tax liability; and |
|
|
• |
other risks and uncertainties detailed from time to time in our filings with the SEC. |
Because forward-looking statements are subject to assumptions and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking statements. There may be other risks and uncertainties that we are unable to identify at this time or that we do not currently expect to have a material impact on the business. Undue reliance should not be placed on such statements, which speak only as of the date of this document or the date of any document that may be incorporated by reference into this document.
34
Consequently, readers of this Quarterly Report on Form 10-Q should consider these forward-looking statements only as our current plans, estimates and beliefs. We undertake no obligation to update or revise any forward-looking statements in this Quarterly Report on Form 10-Q to reflect any new events or any change in conditions or circumstances.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
See Item 2 of Part I under “Management of Market Risk.” There have been no significant changes to our market risk since December 31, 2020. For a discussion of exposure to market risk, refer to Part II, Item 7A – Quantitative and Qualitative Disclosures about Market Risk, set forth in our 2020 Form 10-K.
Item 4. Controls and Procedures
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(a) |
Disclosure controls and procedures. |
As required by Rule 13a-15(b) and Rule 15d-15(e) of the Securities Exchange Act of 1934, the Company’s management, including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining effective disclosure controls and procedures, as defined under Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934. As of June 30, 2021, an evaluation was performed under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures as of June 30, 2021 were effective in ensuring information required to be disclosed in our SEC reports was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information was accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
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(b) |
Changes in internal control over financial reporting. |
There were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter ended June 30, 2021 that had materially affected, or were reasonably likely to materially affect, our internal control over financial reporting. We have not experienced any material impact to our internal controls over financial reporting despite the fact that most of our employees are working remotely due to the COVID-19 pandemic. We are continually monitoring and assessing the impact of the COVID-19 pandemic on our internal controls to ensure they remain effective.
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PART II— OTHER INFORMATION
Item 1. Legal Proceedings
For a discussion of certain litigation, see Note 14, Commitments and Contingencies, to the Condensed Consolidated Financial Statements.
Item 1A. Risk Factors
There is no material change in the information reported under "Part 1 -Item 1A Risk Factors" contained in our annual Report on Form 10-K for the fiscal year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no issuer purchases of equity securities during the three months ended June 30, 2021.
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Item 6. Exhibits
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4.1 |
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4.2 |
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Form of 6.125% Senior Secured Notes due 2026 (included in Exhibit 4.1). |
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4.3 |
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4.4 |
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10.1 |
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31.1* |
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31.2* |
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32.1** |
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32.2** |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
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104 |
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Cover Page Interactive Data File (embedded within the Inline XBRL document) |
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* |
Filed herewith |
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** |
Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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R.R. DONNELLEY & SONS COMPANY |
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By: |
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/s/ TERRY D. PETERSON |
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Terry D. Peterson |
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Executive Vice President and Chief Financial Officer Duly Authorized Officer and Principal Financial Officer |
Date: August 4, 2021
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