UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☒ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2018
OR
☐ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number 1-4694
R.R. DONNELLEY & SONS COMPANY
(Exact name of registrant as specified in its charter)
Delaware |
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36-1004130 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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35 West Wacker Drive, Chicago, Illinois |
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60601 |
(Address of principal executive offices) |
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(Zip code) |
(312) 326-8000
(Registrant’s telephone number, including area code)
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.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).
Yes ☒ No ☐
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.
Large Accelerated filer |
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☒ |
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Accelerated filer |
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☐ |
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Non-Accelerated filer |
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☐ (Do not check if a smaller reporting company) |
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Smaller reporting company |
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☐ |
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Emerging growth company |
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☐ |
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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 ☐ No ☒
As of April 27, 2018, 70.3 million shares of common stock were outstanding.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2018
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 March 31, 2018 and December 31, 2017 |
3 |
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Condensed Consolidated Statements of Operations for the three months ended March 31, 2018 and 2017 |
4 |
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5 |
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Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2018 and 2017 |
6 |
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7 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
23 |
Item 3. |
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32 |
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Item 4. |
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32 |
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PART II |
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Item 1. |
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33 |
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Item 2. |
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33 |
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Item 4. |
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33 |
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Item 6. |
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34 |
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35 |
2
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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March 31, |
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December 31, |
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2018 |
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2017 |
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ASSETS |
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Cash and cash equivalents |
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$ |
235.2 |
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$ |
273.4 |
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Receivables, less allowances for doubtful accounts of $38.4 in 2018 (2017 - $32.4) |
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1,345.4 |
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1,417.6 |
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Inventories (Note 3) |
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339.9 |
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416.8 |
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Prepaid expenses and other current assets |
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115.8 |
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109.1 |
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Total current assets |
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2,036.3 |
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2,216.9 |
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Property, plant and equipment-net (Note 4) |
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588.7 |
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615.1 |
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Goodwill (Note 5) |
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590.7 |
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588.5 |
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Other intangible assets-net (Note 5) |
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136.3 |
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143.3 |
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Deferred income taxes |
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73.3 |
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81.7 |
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Other noncurrent assets |
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255.3 |
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259.0 |
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Total assets |
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$ |
3,680.6 |
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$ |
3,904.5 |
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LIABILITIES |
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Accounts payable |
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$ |
860.8 |
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$ |
1,094.7 |
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Accrued liabilities |
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349.2 |
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447.5 |
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Short-term and current portion of long-term debt (Note 14) |
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219.1 |
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10.8 |
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Total current liabilities |
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1,429.1 |
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1,553.0 |
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Long-term debt (Note 14) |
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1,969.4 |
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2,098.9 |
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Pension liabilities |
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93.6 |
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102.7 |
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Other postretirement benefits plan liabilities |
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108.8 |
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113.2 |
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Long-term income tax liability |
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59.4 |
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59.4 |
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Other noncurrent liabilities |
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208.6 |
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180.2 |
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Total liabilities |
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3,868.9 |
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4,107.4 |
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Commitments and Contingencies (Note 13) |
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EQUITY (Note 9) |
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RRD stockholders' equity |
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Preferred stock, $1.00 par value |
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Authorized: 2.0 shares; Issued: None |
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— |
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— |
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Common stock, $0.01 par value |
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Authorized: 165.0 shares; |
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Issued: 89.0 shares in 2018 and 2017 |
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0.9 |
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0.9 |
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Additional paid-in-capital |
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3,412.5 |
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3,444.0 |
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Accumulated deficit |
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(2,232.3 |
) |
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(2,225.7 |
) |
Accumulated other comprehensive loss |
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(82.7 |
) |
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(103.7 |
) |
Treasury stock, at cost, 18.7 shares in 2018 (2017 - 18.9 shares) |
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(1,301.2 |
) |
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(1,333.1 |
) |
Total RRD stockholders' equity |
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(202.8 |
) |
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(217.6 |
) |
Noncontrolling interests |
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14.5 |
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14.7 |
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Total equity |
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(188.3 |
) |
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(202.9 |
) |
Total liabilities and equity |
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$ |
3,680.6 |
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$ |
3,904.5 |
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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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March 31, |
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2018 |
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2017 |
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Products net sales |
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$ |
1,286.6 |
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$ |
1,271.5 |
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Services net sales |
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421.2 |
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387.4 |
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Total net sales |
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1,707.8 |
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1,658.9 |
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Products cost of sales (exclusive of depreciation and amortization) |
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1,051.9 |
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1,007.8 |
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Services cost of sales (exclusive of depreciation and amortization) |
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361.2 |
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324.3 |
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Total cost of sales |
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1,413.1 |
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1,332.1 |
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Products gross profit |
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234.7 |
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263.7 |
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Services gross profit |
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60.0 |
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63.1 |
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Total gross profit |
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294.7 |
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326.8 |
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Selling, general and administrative expenses (exclusive of depreciation and amortization) |
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214.6 |
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225.8 |
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Restructuring and other-net (Note 6) |
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0.8 |
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9.1 |
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Depreciation and amortization |
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47.2 |
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48.6 |
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Other operating income |
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(0.1 |
) |
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— |
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Income from operations |
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32.2 |
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43.3 |
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Interest expense-net |
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41.7 |
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48.3 |
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Investment and other (income) expense-net |
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(5.6 |
) |
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44.6 |
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Loss on debt extinguishment |
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0.1 |
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— |
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Loss before income taxes |
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(4.0 |
) |
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(49.6 |
) |
Income tax expense |
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5.3 |
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0.2 |
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Net loss |
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(9.3 |
) |
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(49.8 |
) |
Less: Income attributable to noncontrolling interests |
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0.3 |
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0.3 |
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Net loss attributable to RRD common stockholders |
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$ |
(9.6 |
) |
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$ |
(50.1 |
) |
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Net loss per share attributable to RRD common stockholders (Note 10): |
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Basic net loss per share |
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$ |
(0.14 |
) |
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$ |
(0.71 |
) |
Diluted net loss per share |
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$ |
(0.14 |
) |
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$ |
(0.71 |
) |
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Dividends declared per common share |
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$ |
0.14 |
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$ |
0.14 |
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Weighted average number of common shares outstanding: |
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Basic |
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70.3 |
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70.1 |
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Diluted |
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70.3 |
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70.1 |
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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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March 31, |
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2018 |
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2017 |
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Net loss |
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$ |
(9.3 |
) |
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$ |
(49.8 |
) |
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Other comprehensive income (loss), net of tax (Note 11): |
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Translation adjustments |
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18.9 |
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9.0 |
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Adjustment for net periodic pension and postretirement benefits plan cost |
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2.6 |
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0.7 |
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Adjustment for available-for-sale securities |
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— |
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(32.3 |
) |
Other comprehensive income (loss) |
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21.5 |
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(22.6 |
) |
Comprehensive income (loss) |
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12.2 |
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(72.4 |
) |
Less: comprehensive income attributable to noncontrolling interests |
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0.8 |
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0.5 |
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Comprehensive income (loss) attributable to RRD common stockholders |
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$ |
11.4 |
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$ |
(72.9 |
) |
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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Three Months Ended |
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March 31, |
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2018 |
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2017 |
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OPERATING ACTIVITIES |
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Net loss |
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$ |
(9.3 |
) |
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$ |
(49.8 |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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47.2 |
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48.6 |
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Provision for doubtful accounts receivable |
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8.4 |
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1.7 |
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Share-based compensation |
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1.2 |
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1.9 |
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Deferred income taxes |
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3.9 |
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(1.6 |
) |
Changes in uncertain tax positions |
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— |
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0.2 |
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Loss on disposition of available-for-sale securities-net |
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— |
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51.6 |
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Net pension and other postretirement benefits plan income |
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(3.8 |
) |
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(3.6 |
) |
Other |
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(0.7 |
) |
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4.5 |
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Changes in operating assets and liabilities: |
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Accounts receivable-net |
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74.0 |
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94.2 |
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Inventories |
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15.4 |
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6.2 |
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Prepaid expenses and other current assets |
|
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(5.8 |
) |
|
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(3.9 |
) |
Accounts payable |
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(240.9 |
) |
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(125.7 |
) |
Income taxes payable and receivable |
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(0.8 |
) |
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5.2 |
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Accrued liabilities and other |
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(22.8 |
) |
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(29.6 |
) |
Pension and other postretirement benefits plan contributions |
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(6.3 |
) |
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(4.9 |
) |
Net cash used in operating activities |
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(140.3 |
) |
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(5.0 |
) |
INVESTING ACTIVITIES |
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Capital expenditures |
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(21.5 |
) |
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(26.1 |
) |
Proceeds from sales of investments and other assets |
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47.7 |
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123.2 |
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Proceeds/(payments) related to company-owned life insurance |
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1.2 |
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(11.7 |
) |
Proceeds from disposal of business |
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0.3 |
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— |
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Net cash provided by investing activities |
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27.7 |
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|
85.4 |
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FINANCING ACTIVITIES |
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Net proceeds from other short-term debt |
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35.4 |
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4.7 |
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Payments of current maturities and long-term debt |
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(0.1 |
) |
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— |
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Proceeds from credit facility borrowings |
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366.0 |
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|
280.0 |
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Payments on credit facility borrowings |
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(324.0 |
) |
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(425.0 |
) |
Dividends paid |
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(9.8 |
) |
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(9.8 |
) |
Payments of withholding taxes on share-based compensation |
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(0.7 |
) |
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(1.9 |
) |
Other financing activities |
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(0.7 |
) |
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(1.3 |
) |
Net cash provided by (used in) financing activities |
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66.1 |
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(153.3 |
) |
Effect of exchange rate on cash, cash equivalents and restricted cash |
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4.4 |
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1.5 |
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Net decrease in cash, cash equivalents and restricted cash |
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(42.1 |
) |
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(71.4 |
) |
Cash, cash equivalents and restricted cash at beginning of year |
|
|
301.5 |
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|
335.9 |
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Cash, cash equivalents and restricted cash at end of period |
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$ |
259.4 |
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$ |
264.5 |
|
See Notes to Condensed Consolidated Financial Statements
6
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (the “Company” or “RRD”) 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 the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. 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.
Spinoff Transactions
On October 1, 2016, we completed the separation of our financial communications and data services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and our publishing and retail-centric print services and office products business (“LSC Communications, Inc.” or “LSC”) into two separate publicly-traded companies (the “Separation”). We completed the tax-free distribution of approximately 26.2 million shares, or 80.75%, of the outstanding common stock of each of Donnelley Financial and LSC, to RRD stockholders (the “Distribution”). The Distribution was made to RRD stockholders of record as of the close of business on September 23, 2016, who received one share of Donnelley Financial common stock and one share of LSC common stock for every eight shares of RRD common stock held as of the record date. Immediately following the Distribution, we held approximately 6.2 million shares of Donnelley Financial common stock and approximately 6.2 million shares of LSC common stock.
In March 2017, we sold all of the approximately 6.2 million shares of LSC common stock retained by us and used the proceeds to repay a portion of the outstanding borrowings under the Company’s then-existing credit facility. In June 2017 and August 2017, we exchanged all of the approximately 6.2 million shares of Donnelley Financial common stock for certain outstanding senior indebtedness of the Company, which obligations were subsequently cancelled and discharged upon delivery to the Company.
Revision of Net Sales and Cost of Sales
During the third quarter of 2017, the Company identified an error in the accounting for certain contracts with an inventory buy-back option in the Business Services segment. As a result, the error, which was determined by management to be immaterial to the previously issued financial statements, has been corrected herein from the amounts previously reported. There was no impact to net loss, net loss per share, or the Condensed Consolidated Statements of Comprehensive Income (Loss). The impact of the revision was to reduce previously reported net sales and cost of sales by $17.4 million, respectively, for the three months ended March 31, 2017.
The following table presents the impact of the related balance sheet revision on the March 31, 2017 Condensed Consolidated Balance Sheet:
|
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As Reported |
|
|
Adjustments |
|
|
As Revised |
|
|||
Receivables, less allowance for doubtful accounts |
|
$ |
1,268.9 |
|
|
$ |
(24.8 |
) |
|
$ |
1,244.1 |
|
Inventories |
|
|
375.9 |
|
|
|
6.5 |
|
|
|
382.4 |
|
Accounts payable |
|
|
884.8 |
|
|
|
(18.3 |
) |
|
|
866.5 |
|
The March 31, 2017 Consolidated Statement of Cash Flows has also been revised to reflect the impact of the above balance sheet revision.
7
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
Cash, Cash Equivalents and Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash at March 31, 2018 and December 31, 2017 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.
|
|
March 31, 2018 |
|
|
December 31, 2017 |
|
||
Cash and cash equivalents |
|
$ |
235.2 |
|
|
$ |
273.4 |
|
Restricted cash - current (a) |
|
|
24.1 |
|
|
|
28.0 |
|
Restricted cash - noncurrent (b) |
|
|
0.1 |
|
|
|
0.1 |
|
Total cash, cash equivalents and restricted cash |
|
$ |
259.4 |
|
|
$ |
301.5 |
|
(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. |
Income Taxes
The effective income tax rate for the three months ended March 31, 2018 was (132.5%), compared to (0.4%) in the same period in 2017, and is primarily driven by the inability to recognize a tax benefit on certain losses and limitations on the Company’s interest expense deduction as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Non-deductible interest expense will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance was recorded. The effective income tax rate for the three months ended March 31, 2017 reflects the impact of the $51.6 million realized loss on the sale of LSC retained shares. The sale generated a capital loss which will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance was recorded.
Cash payments for income taxes were $9.2 million and $15.2 million for the three months ended March 31, 2018 and 2017, respectively. Cash refunds for income taxes were $7.1 million and $18.9 million for the three months ended March 31, 2018 and 2017, respectively.
On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (SAB 118) which provides guidance for companies analyzing their accounting for the income tax effects of the Tax Act. SAB 118 provides that a company may report provisional amounts based on reasonable estimates. The provisional estimates are then subject to adjustment during a measurement period up to one year and should be accounted for as a prospective change. At December 31, 2017, we were able to make reasonable provisional estimates of the one-time transition tax and impact to deferred taxes; however we continue to analyze our data and refine our estimated amounts accordingly, and continue to interpret any guidance or subsequent clarification of the tax law. As a result, we may make adjustments to the provisional amounts recorded, throughout the year, in accordance with the guidance outlined in SAB 118. During the first quarter of 2018, we made an adjustment of $2.3 million to increase the provisional amounts recorded at December 31, 2017.
Deferred U.S. income taxes and foreign taxes have historically not been provided on the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries for which such excess is considered to be permanently reinvested in those operations. We continue to analyze the global working capital and cash requirements and the potential tax liabilities attributable to repatriation, but we have yet to determine whether to change the prior assertion and repatriate earnings. We will record the tax effects of any change in the prior assertion in the period the analysis is complete and reasonable estimates are made.
2. Revenue Recognition
On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605. All revenue recognized in the Condensed Statements of Operations is considered to be revenue from contracts with customers.
8
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
We recorded a net increase to opening retained earnings of $12.9 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to the timing of revenue recognition for certain inventory that has been billed but not yet shipped.
Disaggregation of Revenue
The following table presents the Company’s net sales disaggregated by products and services:
|
Three Months Ended |
|
|||||
|
March 31, |
|
|||||
|
2018 |
|
|
2017 |
|
||
Products |
|
||||||
Commercial print |
$ |
462.2 |
|
|
$ |
499.2 |
|
Statements |
|
159.8 |
|
|
|
157.7 |
|
Direct mail |
|
148.1 |
|
|
|
132.4 |
|
Packaging |
|
141.4 |
|
|
|
108.7 |
|
Labels |
|
117.5 |
|
|
|
113.1 |
|
Digital print and fulfillment |
|
110.8 |
|
|
|
112.0 |
|
Supply chain management |
|
79.8 |
|
|
|
75.5 |
|
Forms |
|
67.0 |
|
|
|
72.9 |
|
Total products net sales |
$ |
1,286.6 |
|
|
$ |
1,271.5 |
|
Services |
|
||||||
Logistics |
$ |
327.2 |
|
|
$ |
296.1 |
|
Business process outsourcing |
|
61.2 |
|
|
|
53.2 |
|
Digital and creative solutions |
|
31.3 |
|
|
|
36.3 |
|
Direct mail |
|
1.5 |
|
|
|
1.8 |
|
Total services net sales |
$ |
421.2 |
|
|
$ |
387.4 |
|
Total net sales |
$ |
1,707.8 |
|
|
$ |
1,658.9 |
|
Products
Our products revenue is primarily recognized at a point in time. We generally recognize revenue for products sales upon the transfer of control of the products to the client which typically occurs upon transfer of title and risk of ownership, which is generally upon shipment to the client. For certain products sales, we are able to recognize revenue for completed inventory billed but not yet shipped at the client’s direction.
The following is a description of our products:
Commercial Print
We generate revenue by providing various commercial printing products and offer a full range of branded materials including manuals, publications, brochures, business cards, flyers, post cards, posters and promotional items.
Statements
We generate revenue by creating critical business communications, including customer billings, financial statements, healthcare communications and insurance documents. Our capabilities include design and composition, variable imaging, email, archival and digital mail interaction, as well as our innovative RRDigital solution set.
Direct Mail
We generate revenue by providing print production, including touch mailings, and postal optimization strategies.
9
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
We generate revenue by providing packaging print for clients in consumer electronics, life sciences, cosmetics and consumer packaged goods industries.
Labels
We generate revenue by producing custom labels for clients across multiple industries including warehouse and distribution, retail, pharmaceutical, manufacturing and consumer packaging. We offer distribution and shipping labels, healthcare and durable goods labels, promotional labels and consumer product goods packaging labels.
Digital Print and Fulfillment
We generate revenue by providing various in-store marketing materials, using our digital and offset printing capabilities, including in-store signage and point-of-purchase displays. We also create photobooks.
Supply Chain Management
We generate revenue by providing workflow design to assembly, configuration, kitting and fulfillment for clients in consumer electronics, telecommunications, life sciences, cosmetics, education and industrial industries.
Forms
We generate revenue by producing a variety of forms including invoices, order forms and business forms that support both the private and public sectors for clients in financial, government, retail, healthcare and business services industries.
Services
Our services revenue is recognized both at a point in time as well as over time. Our logistics revenue is primarily recognized over time as the performance obligation is completed. Due to the short transit period of logistics performance obligations, the timing of revenue recognition does not require significant judgment. Our business process outsourcing and digital and creative solutions revenue is recognized over time or at a point in time, depending on the nature of the service which could be either recurring or project-based.
Logistics
We generate revenue by providing specialized transportation and distribution services. These services are comprised of freight services, including truckload, less-than-truckload, intermodal and international freight forwarding; international mail and parcel distribution; print logistics services, including distribution of retail and newsstand printed materials; and courier services including same day and next day delivery.
Business Process Outsourcing
We generate revenue by providing outsourcing services including creative services, research and analytics, financial management and other services for legal providers, insurance, telecommunications, utilities, retail and financial services companies.
Digital and Creative Solutions
We generate revenue by creating and managing content designed to speak directly to customers, including print and digital advertising, direct marketing and direct mail design, packaging design, marketing and sales collateral and in-store marketing.
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.
10
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
The following table provides information about contract assets and contract liabilities from contracts with clients:
|
Contract Assets |
|
|
Contract Liabilities |
|
||||||
|
Short-Term |
|
|
Short-Term |
|
|
Long-Term |
|
|||
Balance at January 1, 2018 |
$ |
4.0 |
|
|
$ |
30.3 |
|
|
$ |
1.4 |
|
Balance at March 31, 2018 |
|
5.2 |
|
|
|
23.7 |
|
|
|
1.2 |
|
Contract liabilities primarily relate to client advances received prior to completion of performance obligations. Reductions in contract liabilities are a result of the Company’s completion of performance obligations.
Revenue recognized during the three months ended March 31, 2018 from amounts included in contract liabilities at the beginning of the period was approximately $21.0 million. During the three months ended March 31, 2018, we reclassified $4.0 million of contract assets to receivables as a result of the completion of the performance obligation and the right to the consideration becoming unconditional.
Practical Expedients and Exemptions
As part of the adoption of Topic 606, we have elected practical expedients and exemptions allowable under the guidance.
We account for shipping and handling activities performed after the control of a good has been transferred to the client as a fulfillment cost. We accrue for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur.
We apply Topic 606 to a portfolio of contracts (or performance obligations) with similar characteristics as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ significantly from applying this guidance to the individual contracts (or performance obligations) within that portfolio.
When the output method for measure of progress is determined appropriate, we recognize revenue in the amount for which we have the right to invoice for revenue that is recognized over time and for which we can demonstrate that the invoiced amount corresponds directly with the value to the client for the performance completed to date.
We generally expense sales commissions and other costs to obtain a contract when incurred, because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses.
We exclude sales taxes and other similar taxes from the measurement of the transaction price. We do not disclose the value of unsatisfied performance obligations, nor do we disclose the timing of revenue recognition for contracts with an original expected length of one year or less.
3. Inventories
The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at March 31, 2018 and December 31, 2017 were as follows:
|
|
March 31, 2018 |
|
|
December 31, 2017 |
|
||
Raw materials and manufacturing supplies |
|
$ |
152.9 |
|
|
$ |
161.1 |
|
Work in process |
|
|
72.0 |
|
|
|
75.0 |
|
Finished goods |
|
|
132.5 |
|
|
|
198.2 |
|
LIFO reserve |
|
|
(17.5 |
) |
|
|
(17.5 |
) |
Total inventories |
|
$ |
339.9 |
|
|
$ |
416.8 |
|
11
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
4. Property, Plant and Equipment
The components of the Company’s property, plant and equipment at March 31, 2018 and December 31, 2017 were as follows:
|
|
March 31, 2018 |
|
|
December 31, 2017 |
|
||
Land |
|
$ |
53.6 |
|
|
$ |
56.1 |
|
Buildings |
|
|
414.5 |
|
|
|
417.3 |
|
Machinery and equipment |
|
|
1,899.5 |
|
|
|
1,885.2 |
|
|
|
|
2,367.6 |
|
|
|
2,358.6 |
|
Less: Accumulated depreciation |
|
|
(1,778.9 |
) |
|
|
(1,743.5 |
) |
Total property, plant and equipment-net |
|
$ |
588.7 |
|
|
$ |
615.1 |
|
During the three months ended March 31, 2018 and 2017, depreciation expense was $33.3 million and $35.7 million, respectively.
During the fourth quarter of 2017, we entered into an agreement to sell a building and transfer the related land use rights to a third party for a facility in the Business Services segment. During the three months ended December 31, 2017 and March 31, 2018, we received deposits in accordance with the terms of the agreement of approximately $12.5 million and $32.1 million, respectively, which are recorded in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The terms of the agreement require the buyer to make additional deposits to us through the close date, which is expected to occur in 2020. As of March 31, 2018, we continue to classify the carrying cost of the building within property, plant and equipment and record depreciation expense. The carrying cost of the land use rights are classified in other noncurrent assets.
5. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill for the three months ended March 31, 2018 were as follows:
|
|
Business Services |
|
|
Marketing Solutions |
|
|
Total |
|
|||
Net book value as of December 31, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
$ |
2,759.8 |
|
|
$ |
519.5 |
|
|
$ |
3,279.3 |
|
Accumulated impairment losses |
|
|
(2,436.7 |
) |
|
|
(254.1 |
) |
|
|
(2,690.8 |
) |
Total |
|
|
323.1 |
|
|
|
265.4 |
|
|
|
588.5 |
|
Foreign exchange |
|
|
2.2 |
|
|
|
— |
|
|
|
2.2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net book value as of March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
2,775.2 |
|
|
|
519.5 |
|
|
|
3,294.7 |
|
Accumulated impairment losses |
|
|
(2,449.9 |
) |
|
|
(254.1 |
) |
|
|
(2,704.0 |
) |
Total |
|
$ |
325.3 |
|
|
$ |
265.4 |
|
|
$ |
590.7 |
|
The components of other intangible assets at March 31, 2018 and December 31, 2017 were as follows:
|
|
March 31, 2018 |
|
|
December 31, 2017 |
|
||||||||||||||||||
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
||
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
|
Carrying |
|
|
Accumulated |
|
|
Net Book |
|
||||||
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
|
Amount |
|
|
Amortization |
|
|
Value |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client relationships |
|
$ |
539.5 |
|
|
$ |
(424.1 |
) |
|
$ |
115.4 |
|
|
$ |
534.1 |
|
|
$ |
(412.4 |
) |
|
$ |
121.7 |
|
Patents |
|
|
2.0 |
|
|
|
(2.0 |
) |
|
|
— |
|
|
|
2.0 |
|
|
|
(2.0 |
) |
|
|
— |
|
Trademarks, licenses and agreements |
|
|
26.2 |
|
|
|
(25.3 |
) |
|
|
0.9 |
|
|
|
26.2 |
|
|
|
(25.2 |
) |
|
|
1.0 |
|
Trade names |
|
|
36.9 |
|
|
|
(16.9 |
) |
|
|
20.0 |
|
|
|
36.8 |
|
|
|
(16.2 |
) |
|
|
20.6 |
|
Total other intangible assets |
|
$ |
604.6 |
|
|
$ |
(468.3 |
) |
|
$ |
136.3 |
|
|
$ |
599.1 |
|
|
$ |
(455.8 |
) |
|
$ |
143.3 |
|
Amortization expense for other intangible assets was $7.0 million and $7.5 million for the three months ended March 31, 2018 and 2017, respectively.
12
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
For the three months ended March 31, 2018 and 2017, the Company recorded the following net restructuring and other expenses:
|
|
Three Months Ended March 31, 2018 |
|
|||||||||||||||||||||
|
|
Employee |
|
|
Other Restructuring |
|
|
Total Restructuring |
|
|
|
|
|
|
Multi-Employer Pension Plan |
|
|
|
|
|
||||
|
|
Terminations |
|
|
Charges |
|
|
Charges |
|
|
Other |
|
|
Charges |
|
|
Total |
|
||||||
Business Services |
|
$ |
1.8 |
|
|
$ |
1.0 |
|
|
$ |
2.8 |
|
|
$ |
(4.9 |
) |
|
$ |
0.5 |
|
|
$ |
(1.6 |
) |
Marketing Solutions |
|
|
1.1 |
|
|
|
— |
|
|
|
1.1 |
|
|
|
0.3 |
|
|
|
0.1 |
|
|
|
1.5 |
|
Corporate |
|
|
0.3 |
|
|
|
0.6 |
|
|
|
0.9 |
|
|
|
— |
|
|
|
— |
|
|
|
0.9 |
|
Total |
|
$ |
3.2 |
|
|
$ |
1.6 |
|
|
$ |
4.8 |
|
|
$ |
(4.6 |
) |
|
$ |
0.6 |
|
|
$ |
0.8 |
|
|
|
Three Months Ended March 31, 2017 |
|
|||||||||||||||||||||
|
|
Employee |
|
|
Other Restructuring |
|
|
Total Restructuring |
|
|
|
|
|
|
Multi-Employer Pension Plan |
|
|
|
|
|
||||
|
|
Terminations |
|
|
Charges |
|
|
Charges |
|
|
Other |
|
|
Charges |
|
|
Total |
|
||||||
Business Services |
|
$ |
3.8 |
|
|
$ |
1.1 |
|
|
$ |
4.9 |
|
|
$ |
— |
|
|
$ |
0.5 |
|
|
$ |
5.4 |
|
Marketing Solutions |
|
|
1.1 |
|
|
|
0.4 |
|
|
|
1.5 |
|
|
|
0.5 |
|
|
|
0.1 |
|
|
|
2.1 |
|
Corporate |
|
|
1.5 |
|
|
|
0.1 |
|
|
|
1.6 |
|
|
|
— |
|
|
|
— |
|
|
|
1.6 |
|
Total |
|
$ |
6.4 |
|
|
$ |
1.6 |
|
|
$ |
8.0 |
|
|
$ |
0.5 |
|
|
$ |
0.6 |
|
|
$ |
9.1 |
|
Restructuring and Other
For the three months ended March 31, 2018, the Company recorded net restructuring charges of $3.2 million for employee termination costs. These charges primarily relate to the reorganization of selling, general and administrative functions across each segment and an announced facility closure in the Business Services segment. The Company also incurred lease termination and other restructuring charges of $1.6 million for the three months ended March 31, 2018. Additionally, the Company recorded a $4.9 million net gain on the sale of previously impaired assets in the Business Services segment. These assets were impaired in 2015.
For the three months ended March 31, 2017, the Company recorded net restructuring charges of $6.4 million for employee termination costs. These charges primarily related to ceasing the Company’s relationship in a joint venture within the Business Services segment, the reorganization of certain operations and one facility closure in the Marketing Solutions segment. The Company also incurred lease termination and other restructuring charges of $1.6 million for the three months ended March 31, 2017 and recorded impairment charges of $0.5 million related to equipment associated with a facility closure in the Marketing Solutions segment.
Multi-Employer Pension Plan (MEPP) Charges
For the three months ended March 31, 2018 and 2017, the Company recorded charges of $0.6 million for MEPP withdrawal obligations unrelated to facility closures. The total liabilities for the withdrawal obligations associated with the Company’s decision to withdraw from all multi-employer pension plans included in accrued liabilities and other noncurrent liabilities are $5.1 million and $31.0 million, respectively, as of March 31, 2018.
13
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
The restructuring reserve as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
Restructuring |
|
|
Exchange and |
|
|
Cash |
|
|
March 31, |
|
|||||
|
|
2017 |
|
|
Charges |
|
|
Other |
|
|
Paid |
|
|
2018 |
|
|||||
Employee terminations |
|
$ |
9.6 |
|
|
$ |
3.2 |
|
|
$ |
(0.1 |
) |
|
$ |
(5.1 |
) |
|
$ |
7.6 |
|
MEPP withdrawal obligations related to facility closures |
|
|
11.0 |
|
|
|
0.2 |
|
|
|
— |
|
|
|
(0.4 |
) |
|
|
10.8 |
|
Lease terminations and other |
|
|
2.9 |
|
|
|
1.4 |
|
|
|
— |
|
|
|
(1.4 |
) |
|
|
2.9 |
|
Total |
|
$ |
23.5 |
|
|
$ |
4.8 |
|
|
$ |
(0.1 |
) |
|
$ |
(6.9 |
) |
|
$ |
21.3 |
|
The current portion of restructuring reserves of $9.1 million at March 31, 2018 was included in accrued liabilities, while the long-term portion of $12.2 million, primarily related to multi-employer pension plan withdrawal obligations related to facility closures, employee terminations in litigation within the Business Services segment and lease termination costs, was included in other noncurrent liabilities at March 31, 2018.
The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by March 2019, excluding employee terminations in litigation within the Business Services segment.
Payments on all of the Company’s multi-employer pension plan 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 multi-employer pension plan withdrawals.
The restructuring liabilities classified as “lease terminations and other” consisted of lease terminations, other facility closing costs and contract termination costs. Payments on certain of the lease obligations are scheduled to continue until 2020. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Company’s financial statements.
7. Employee Benefits
The components of the estimated net pension and other postretirement benefits plan income for the three months ended March 31, 2018 and 2017 were as follows:
|
Three Months Ended |
|
|||||
|
March 31, |
|
|||||
|
2018 |
|
|
2017 |
|
||
Pension expense (income): |
|
|
|
|
|
|
|
Service cost |
$ |
0.2 |
|
|
$ |
0.2 |
|
Interest cost |
|
7.8 |
|
|
|
7.8 |
|
Expected return on plan assets |
|
(12.6 |
) |
|
|
(12.3 |
) |
Amortization, net |
|
2.0 |
|
|
|
1.7 |
|
Settlements |
|
0.3 |
|
|
|
— |
|
Net pension income |
$ |
(2.3 |
) |
|
$ |
(2.6 |
) |
|
|
|
|
|
|
|
|
Other postretirement benefits plan expense (income): |
|
|
|
|
|
|
|
Service cost |
$ |
0.4 |
|
|
$ |
0.3 |
|
Interest cost |
|
2.6 |
|
|
|
2.8 |
|
Expected return on plan assets |
|
(3.5 |
) |
|
|
(3.4 |
) |
Amortization, net |
|
(0.7 |
) |
|
|
(0.7 |
) |
Net other postretirement benefit income |
$ |
(1.2 |
) |
|
$ |
(1.0 |
) |
During the three months ended March 31, 2018, the Company contributed $6.3 million to its benefit plans.
14
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
The Company adopted ASU No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, with retrospective adoption, during the first quarter of 2018 and records benefit service costs in cost of sales and selling, general and administrative expenses. The other components, which include interest cost, expected return on plan assets, net amortization and settlements, are recorded in Investment and other (income) expense-net within the Condensed Consolidated Statements of Operations. Previously, all pension and postretirement benefits expense (income) was recorded in cost of sales and selling, general and administrative expenses. See Note 16, New Accounting Pronouncements, for further discussion and impact of adoption.
8. Share-Based Compensation
Share-based compensation expense totaled $1.2 million and $1.9 million for the three months ended March 31, 2018 and 2017, respectively.
In March 2018, the Company awarded its annual share-based compensation grants, which consisted of 683,076 restricted stock units with a grant date fair value of $6.10 per unit and 683,076 performance share units also with a grant date fair value of $6.10 per unit. The restricted stock units are subject to a three year graded vesting period and the performance share units are subject to a 34 month cliff vesting period. Dividends are not paid on restricted stock units.
In addition, during the three months ended March 31, 2018, the Company granted 798,105 cash-settled stock units (“phantom stock units”). The Company’s share price on the date of grant was $7.31. The phantom stock units vest and are payable in three equal installments over a period of three years after the grant date. Phantom stock units are not shares of the Company’s common stock and therefore the recipients of these awards do not receive ownership interest in the Company or shareholder voting rights. Phantom stock unit awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee, termination of the grantee’s employment under certain circumstances or a change in control of the Company. All phantom stock unit awards are classified as liability awards due to their expected settlement in cash, and are included in accrued liabilities in the Condensed Consolidated Balance Sheets. Compensation expense for these awards is measured based upon the fair value of the awards at the end of each reporting period. Dividends are not paid on phantom stock units.
9. Equity
The Company’s equity as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
|
|
RRD |
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' |
|
|
Noncontrolling |
|
|
|
|
|
||
|
|
Equity |
|
|
Interest |
|
|
Total Equity |
|
|||
Balance at December 31, 2017 |
|
$ |
(217.6 |
) |
|
$ |
14.7 |
|
|
$ |
(202.9 |
) |
Cumulative impact of adopting Topic 606, net of tax |
|
|
12.9 |
|
|
|
— |
|
|
|
12.9 |
|
Net (loss) income |
|
|
(9.6 |
) |
|
|
0.3 |
|
|
|
(9.3 |
) |
Other comprehensive income |
|
|
21.0 |
|
|
|
0.5 |
|
|
|
21.5 |
|
Share-based compensation |
|
|
1.2 |
|
|
|
— |
|
|
|
1.2 |
|
Issuance of share-based awards, net of withholdings and other |
|
|
(0.9 |
) |
|
|
— |
|
|
|
(0.9 |
) |
Cash dividends paid |
|
|
(9.8 |
) |
|
|
— |
|
|
|
(9.8 |
) |
Distributions to noncontrolling interests |
|
|
— |
|
|
|
(1.0 |
) |
|
|
(1.0 |
) |
Balance at March 31, 2018 |
|
$ |
(202.8 |
) |
|
$ |
14.5 |
|
|
$ |
(188.3 |
) |
15
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
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 the Company’s stock price during the applicable period. In periods when the Company is 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.
During the three months ended March 31, 2018 and 2017, no shares of common stock were purchased by the Company; however shares were withheld for tax liabilities upon the vesting of equity awards.
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 months ended March 31, 2018 and 2017 were as follows:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Net loss per share attributable to RRD common stockholders: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(0.14 |
) |
|
$ |
(0.71 |
) |
Diluted |
|
$ |
(0.14 |
) |
|
$ |
(0.71 |
) |
|
|
|
|
|
|
|
|
|
Numerator: |
|
|
|
|
|
|
|
|
Net loss attributable to RRD common stockholders |
|
$ |
(9.6 |
) |
|
$ |
(50.1 |
) |
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Basic and Diluted |
|
|
70.3 |
|
|
|
70.1 |
|
|
|
|
|
|
|
|
|
|
Weighted average number of anti-dilutive share-based awards: |
|
|
|
|
|
|
|
|
Stock options |
|
|
1.1 |
|
|
|
1.3 |
|
Restricted stock units |
|
|
0.9 |
|
|
|
0.5 |
|
Total |
|
|
2.0 |
|
|
|
1.8 |
|
|
|
|
|
|
|
|
|
|
Dividends declared per common share |
|
$ |
0.14 |
|
|
$ |
0.14 |
|
11. Other Comprehensive Income (Loss)
The components of other comprehensive income (loss) and income tax expense (benefit) allocated to each component for the three months ended March 31, 2018 and 2017 were as follows:
|
Three Months Ended |
|
|
Three Months Ended |
|
||||||||||||||||||
|
March 31, 2018 |
|
|
March 31, 2017 |
|
||||||||||||||||||
|
Before |
|
|
|
|
|
|
Net of |
|
|
Before |
|
|
|
|
|
|
Net of |
|
||||
|
Tax |
|
|
Income |
|
|
Tax |
|
|
Tax |
|
|
Income |
|
|
Tax |
|
||||||
|
Amount |
|
|
Tax |
|
|
Amount |
|
|
Amount |
|
|
Tax |
|
|
Amount |
|
||||||
Translation adjustments |
$ |
18.9 |
|
|
$ |
— |
|
|
$ |
18.9 |
|
|
$ |
9.0 |
|
|
$ |
— |
|
|
$ |
9.0 |
|
Adjustment for net periodic pension and other postretirement benefits plan cost |
|
3.6 |
|
|
|
1.0 |
|
|
|
2.6 |
|
|
|
1.0 |
|
|
|
0.3 |
|
|
|
0.7 |
|
Adjustments for available-for-sale securities |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(35.3 |
) |
|
|
(3.0 |
) |
|
|
(32.3 |
) |
Other comprehensive income (loss) |
$ |
22.5 |
|
|
$ |
1.0 |
|
|
$ |
21.5 |
|
|
$ |
(25.3 |
) |
|
$ |
(2.7 |
) |
|
$ |
(22.6 |
) |
16
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
Accumulated other comprehensive income (loss) by component as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
|
|
|
Pension and Other Postretirement Benefits Plan Cost |
|
|
Translation Adjustments |
|
|
Total |
|
|||
Balance at December 31, 2017 |
|
|
$ |
(144.6 |
) |
|
$ |
40.9 |
|
|
$ |
(103.7 |
) |
Other comprehensive income before reclassifications |
|
|
|
1.4 |
|
|
|
18.4 |
|
|
|
19.8 |
|
Amounts reclassified from accumulated other comprehensive loss |
|
|
|
1.2 |
|
|
|
— |
|
|
|
1.2 |
|
Net change in accumulated other comprehensive (loss) income |
|
|
|
2.6 |
|
|
|
18.4 |
|
|
|
21.0 |
|
Balance at March 31, 2018 |
|
|
$ |
(142.0 |
) |
|
$ |
59.3 |
|
|
$ |
(82.7 |
) |
Accumulated other comprehensive income (loss) by component as of December 31, 2016 and March 31, 2017, and changes during the three months ended March 31, 2017, were as follows:
|
Changes in the Fair Value of Available-for-Sale Securities |
|
|
Pension and Other Postretirement Benefits Plan Cost |
|
|
Translation Adjustments |
|
|
Total |
|
||||
Balance at December 31, 2016 |
$ |
119.3 |
|
|
$ |
(159.5 |
) |
|
$ |
(15.5 |
) |
|
$ |
(55.7 |
) |
Other comprehensive (loss) income before reclassifications |
|
(60.9 |
) |
|
|
— |
|
|
|
8.8 |
|
|
|
(52.1 |
) |
Amounts reclassified from accumulated other comprehensive (loss) income |
|
28.6 |
|
|
|
0.7 |
|
|
|
— |
|
|
|
29.3 |
|
Net change in accumulated other comprehensive (loss) income |
|
(32.3 |
) |
|
|
0.7 |
|
|
|
8.8 |
|
|
|
(22.8 |
) |
Balance at March 31, 2017 |
$ |
87.0 |
|
|
$ |
(158.8 |
) |
|
$ |
(6.7 |
) |
|
$ |
(78.5 |
) |
Reclassifications from accumulated other comprehensive income (loss) for the three months ended March 31, 2018 and 2017 were as follows:
|
Three Months Ended March 31, |
|
|
Classification in the Condensed Consolidated |
|||||
|
2018 |
|
|
2017 |
|
|
Statements of Operations |
||
Amortization of pension and other postretirement benefits plan cost: |
|
|
|
|
|
|
|
|
|
Net actuarial loss |
$ |
2.0 |
|
|
$ |
1.7 |
|
|
Investment and other (income) expense-net |
Net prior service credit |
|
(0.7 |
) |
|
|
(0.7 |
) |
|
Investment and other (income) expense-net |
Settlements |
|
0.3 |
|
|
|
— |
|
|
Investment and other (income) expense-net |
Reclassifications before tax |
|
1.6 |
|
|
|
1.0 |
|
|
|
Income tax benefit |
|
0.4 |
|
|
|
0.3 |
|
|
|
Reclassification, net of tax |
$ |
1.2 |
|
|
$ |
0.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale securities: |
|
|
|
|
|
|
|
|
|
Loss on equity securities, before tax |
$ |
— |
|
|
$ |
46.6 |
|
|
Investment and other (income) expense-net |
Income tax benefit |
|
— |
|
|
|
18.0 |
|
|
|
Reclassification, net of tax |
|
— |
|
|
|
28.6 |
|
|
|
Total reclassifications, net of tax |
$ |
1.2 |
|
|
$ |
29.3 |
|
|
|
12. Segment Information
During the first quarter of 2018, management realigned the Company’s reportable segments to reflect changes in the global operating structure of the Company and the manner in which the chief operating decision maker assesses information for decision-making purposes. All prior year amounts have been reclassified to conform to the Company’s current reporting structure.
17
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
The Company’s 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, logistics, statement printing, labels, packaging, supply chain management, forms and business process outsourcing. This segment also includes all of the Company’s 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 mail, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services.
Corporate
Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, 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 other postretirement benefits plan expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages the Company’s cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.
Information by Segment
The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported within the Condensed Consolidated Financial Statements.
|
|
Three Months Ended |
|
|
|
|
|
|||||||||||||||||||||
|
|
March 31, 2018 |
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
|
Depreciation |
|
|
|
|
|
|
Operations |
|
|||
|
|
Total |
|
|
Intersegment |
|
|
Net |
|
|
from |
|
|
and |
|
|
Capital |
|
|
As of |
|
|||||||
|
|
Sales |
|
|
Sales |
|
|
Sales |
|
|
Operations |
|
|
Amortization |
|
|
Expenditures |
|
|
March 31, 2018 |
|
|||||||
Business Services |
|
$ |
1,445.5 |
|
|
$ |
(29.4 |
) |
|
$ |
1,416.1 |
|
|
$ |
39.8 |
|
|
$ |
34.0 |
|
|
$ |
16.7 |
|
|
$ |
2,813.3 |
|
Marketing Solutions |
|
|
298.0 |
|
|
|
(6.3 |
) |
|
|
291.7 |
|
|
|
12.3 |
|
|
|
11.9 |
|
|
|
3.0 |
|
|
|
678.4 |
|
Total operating segments |
|
|
1,743.5 |
|
|
|
(35.7 |
) |
|
|
1,707.8 |
|
|
|
52.1 |
|
|
|
45.9 |
|
|
|
19.7 |
|
|
|
3,491.7 |
|
Corporate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(19.9 |
) |
|
|
1.3 |
|
|
|
1.8 |
|
|
|
188.9 |
|
Total operations |
|
$ |
1,743.5 |
|
|
$ |
(35.7 |
) |
|
$ |
1,707.8 |
|
|
$ |
32.2 |
|
|
$ |
47.2 |
|
|
$ |
21.5 |
|
|
$ |
3,680.6 |
|
|
|
Three Months Ended |
|
|
|
|
|
|||||||||||||||||||||
|
|
March 31, 2017 |
|
|
|
|
|
|||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets of |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) |
|
|
Depreciation |
|
|
|
|
|
|
Operations |
|
|||
|
|
Total |
|
|
Intersegment |
|
|
Net |
|
|
from |
|
|
and |
|
|
Capital |
|
|
As of |
|
|||||||
|
|
Sales |
|
|
Sales |
|
|
Sales |
|
|
Operations |
|
|
Amortization |
|
|
Expenditures |
|
|
December 31, 2017 |
|
|||||||
Business Services |
|
$ |
1,409.8 |
|
|
$ |
(33.4 |
) |
|
$ |
1,376.4 |
|
|
$ |
58.7 |
|
|
$ |
35.1 |
|
|
$ |
14.9 |
|
|
$ |
2,989.5 |
|
Marketing Solutions |
|
|
290.9 |
|
|
|
(8.4 |
) |
|
|
282.5 |
|
|
|
4.9 |
|
|
|
12.2 |
|
|
|
4.6 |
|
|
|
717.0 |
|
Total operating segments |
|
|
1,700.7 |
|
|
|
(41.8 |
) |
|
|
1,658.9 |
|
|
|
63.6 |
|
|
|
47.3 |
|
|
|
19.5 |
|
|
|
3,706.5 |
|
Corporate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(20.3 |
) |
|
|
1.3 |
|
|
|
6.6 |
|
|
|
198.0 |
|
Total operations |
|
$ |
1,700.7 |
|
|
$ |
(41.8 |
) |
|
$ |
1,658.9 |
|
|
$ |
43.3 |
|
|
$ |
48.6 |
|
|
$ |
26.1 |
|
|
$ |
3,904.5 |
|
Restructuring and other expenses by segment are described in Note 6, Restructuring and Other.
18
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
13. Commitments and Contingencies
The Company is subject to laws and regulations relating to the protection of the environment. The Company provides 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. The Company has been designated as a potentially responsible party or has received claims in two active federal and state Superfund and other multiparty remediation sites. In addition to these sites, the Company may also have the obligation to remediate six other previously and currently owned facilities. At the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that the Company’s liability could be joint and several, meaning that the Company could be required to pay an amount in excess of its proportionate share of the remediation costs.
The Company’s 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 the Company’s estimated liability. The Company believes that its recorded reserves, recorded in accrued liabilities and other noncurrent liabilities, are adequate to cover its 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 the Company may undertake in the future. However, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.
From time to time, the Company’s clients and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows.
14. Debt
The Company’s debt at March 31, 2018 and December 31, 2017 consisted of the following:
|
March 31, 2018 |
|
|
December 31, 2017 |
|
||
Borrowings under the Credit Agreement |
$ |
258.0 |
|
|
$ |
216.0 |
|
11.25% senior notes due February 1, 2019 (a) |
|
172.2 |
|
|
|
172.2 |
|
7.625% senior notes due June 15, 2020 |
|
238.4 |
|
|
|
238.4 |
|
7.875% senior notes due March 15, 2021 |
|
447.3 |
|
|
|
447.2 |
|
8.875% debentures due April 15, 2021 |
|
80.9 |
|
|
|
80.9 |
|
7.00% senior notes due February 15, 2022 |
|
140.0 |
|
|
|
140.0 |
|
6.50% senior notes due November 15, 2023 |
|
290.6 |
|
|
|
290.6 |
|
6.00% senior notes due April 1, 2024 |
|
298.3 |
|
|
|
298.3 |
|
6.625% debentures due April 15, 2029 |
|
157.9 |
|
|
|
157.9 |
|
8.820% debentures due April 15, 2031 |
|
69.0 |
|
|
|
69.0 |
|
Other (b) |
|
46.9 |
|
|
|
10.8 |
|
Unamortized debt issuance costs |
|
(11.0 |
) |
|
|
(11.6 |
) |
Total debt |
|
2,188.5 |
|
|
|
2,109.7 |
|
Less: current portion |
|
(219.1 |
) |
|
|
(10.8 |
) |
Long-term debt |
$ |
1,969.4 |
|
|
$ |
2,098.9 |
|
(a) |
As of March 31, 2018 and December 31, 2017, the interest rate on the 11.25% senior notes due February 1, 2019 was 13.25%, the maximum rate on these notes, as a result of previous ratings downgrades. |
(b) |
Includes other miscellaneous debt obligations, primarily at foreign subsidiaries, and capital leases. |
19
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
The fair values of the senior notes and debentures, which were determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s total debt was greater than its book value by approximately $34.6 million and $18.8 million at March 31, 2018 and December 31, 2017, respectively.
On September 29, 2017, the Company entered into an asset-based revolving credit facility (the “Credit Agreement”) which amended and restated the Company’s prior $800.0 million senior secured revolving credit facility dated September 30, 2016. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $800.0 million subject to a borrowing base. The amount available to be borrowed under the Credit Agreement is equal to the lesser of (a) $800.0 million and (b) the aggregate amount of accounts receivable, inventory, machinery and equipment and fee-owned real estate of the Company and certain of its domestic subsidiaries (the “Guarantors”) (collectively, the “Borrowing Base”), subject to certain eligibility criteria and advance rates. The aggregate amount of real estate, machinery and equipment that can be included in the Borrowing Base cannot exceed $200.0 million.
The Company’s obligations under the Credit Agreement are guaranteed by the Guarantors and are secured by a security interest in certain assets of the Company and its domestic subsidiaries, including accounts receivable, inventory, deposit accounts, securities accounts, investment property, machinery, equipment and, to the extent related to the foregoing, general intangibles, documents and instruments, as well as 65% of the equity interests of their first-tier foreign subsidiaries.
The Credit Agreement contains customary restrictive covenants, including a covenant which requires the Company to maintain a minimum fixed charge coverage ratio under certain circumstances. In addition, the Company’s ability to undertake certain actions, including, among other things, prepay certain junior debt, incur additional unsecured indebtedness and make certain restricted payments depends on satisfaction of certain conditions, including, among other things, meeting minimum availability thresholds under the Credit Agreement. The Credit Agreement generally allows annual dividend payments of up to $60.0 million in aggregate, though additional dividends may be allowed subject to certain conditions.
Borrowings under the Credit Agreement bear interest at a rate dependent on the average quarterly availability under the Credit Agreement and is calculated according to a base rate (prime rate) or a Eurocurrency rate (London Inter-bank Offered Rate or “LIBOR”) plus an applicable margin. The applicable margin for base rate loans ranges from 0.25% to 0.50% and the applicable margin for Eurocurrency loans ranges from 1.25% to 1.50%. In addition, a fee is payable quarterly on the unused portion of the amount available to be borrowed under the Credit Agreement. The fee accrues at a rate of either 0.25% or 0.375% depending upon the average usage of the facility.
The Credit Agreement is scheduled to mature on September 29, 2022, at which time all outstanding amounts under the Credit Agreement will be due and payable. Borrowings under the Credit Agreement may be used for working capital and general corporate purposes.
Based on the Company’s borrowing base as of March 31, 2018 and existing borrowings, the Company had approximately $477.3 million borrowing capacity available under the Credit Agreement.
The weighted average interest rate on borrowings under the Company’s current and prior credit facilities was 3.1% and 3.5% during the three months ended March 31, 2018 and 2017, respectively.
Interest paid, net of interest capitalized, was $38.1 million and $38.3 million for the three months ended March 31, 2018 and 2017, respectively.
Interest income was $0.5 million and $0.9 million for the three months ended March 31, 2018 and 2017, respectively.
20
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
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 other comprehensive income (loss), net of applicable income taxes, or in the Condensed Consolidated Statements of Operations, depending on the purpose for which the derivative is held. At the inception of a hedge transaction, the Company formally documents the hedge relationship and the risk management objective for undertaking the hedge. In addition, the Company assesses 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.
The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary or operating unit, the Company is exposed to currency risk. Periodically, the Company uses foreign exchange spot and forward contracts to hedge exposures resulting from foreign exchange fluctuations. Accordingly, the gains and losses associated with the fair values of foreign currency exchange contracts are recognized in the Condensed Consolidated Statements of Operations and are generally offset by gains and losses on underlying payables, receivables and net investments in foreign subsidiaries. The Company does not use derivative financial instruments for trading or speculative purposes. The aggregate notional value of the forward contracts at March 31, 2018 and December 31, 2017 was $189.6 million and $215.9 million, respectively. The fair values of foreign currency contracts were determined to be Level 2 under the fair value hierarchy and are valued using market exchange rates.
The total fair value of the Company’s foreign currency contracts, which were the only derivatives not designated as hedges, included in prepaid expenses and other current assets at March 31, 2018 and December 31, 2017 was $3.9 million and $2.2 million, respectively. In addition, there was $0.1 million of these derivatives included in accrued liabilities at March 31, 2018.
16. New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changed the presentation of net periodic pension and postretirement benefit cost (net benefit cost) within the Statement of Operations. Under the previous guidance, net benefit cost was reported as an employee cost within income from operations. The amendment required the bifurcation of net benefit cost, with the service cost component presented with other employee compensation costs in income from operations while the other components are presented separately outside of income from operations. The Company retrospectively adopted this guidance as of January 1, 2018. See Note 7, Employee Benefits, for further discussion. The impact of adoption was a $1.0 million increase in cost of sales, $3.1 million increase in selling, general and administrative expenses and $4.1 million decrease in investment and other expense-net for the three months ended March 31, 2017 to the amounts previously reported.
In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606),” which outlined a single comprehensive model for entities to use in accounting for revenue using a five-step process that superseded virtually all existing revenue guidance. ASU 2014-09 also required additional quantitative and qualitative disclosures. During 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” and ASU 2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which clarified the revenue recognition implementation guidance on principal versus agent considerations, identifying performance obligations, determining whether an entity's promise to grant a license provides a customer with either a right to use or a right to access the entity's intellectual property, assessing the collectability criteria, presentation of sales and similar taxes, noncash consideration and various other items. The standard allowed the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or a modified retrospective adoption, meaning the standard is applied only to the most current period. The Company adopted the guidance as of January 1, 2018 using the modified retrospective approach. See Note 2, Revenue Recognition, for further discussion.
21
R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(in millions, except per share data, unless otherwise indicated)
In accordance with Topic 606, the impact of adoption as compared to the prior guidance on the Company’s Condensed Consolidated Statements of Operations was an increase of $5.2 million in total net sales and increase of $1.2 million in total gross profit for the three months ended March 31, 2018. Additionally, the impact of adoption as compared to the prior guidance was a decrease of $67.6 million in inventories, decrease of $80.7 million in accrued liabilities and increase of $14.0 million in stockholders' equity at March 31, 2018. No other financial statement line item was materially impacted.
Accounting Pronouncements Issued and Not Yet Adopted
In February 2018, the FASB issued ASU No. 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which permits the reclassification of tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the Tax Act. The standard also requires entities to disclose whether or not they elected to reclassify the tax effects related to the Tax Act as well as their policy for releasing income tax effects from accumulated other comprehensive income. The standard allows the option of applying either a retrospective adoption, meaning the standard is applied to all periods in which the effect of the Tax Act is recognized, or applying the amendments in the period of adoption, meaning an adjustment is made to stockholders’ equity as of the beginning of the reporting period. ASU 2018-02 will be effective in the first quarter of 2019; however early adoption is permitted for interim and annual periods, including the reporting period in which the Tax Act was enacted. The Company is currently evaluating the impact of ASU 2018-02 on the Condensed Consolidated Financial Statements.
In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions in the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. The Company has not yet completed its assessment and therefore has not yet elected an accounting policy.
In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” which requires lessees to record most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted; however the Company plans to adopt the standard in the first quarter of 2019. The Company is currently evaluating the impact of ASU 2016-02 on the Condensed 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 increase compliance. Our innovative content management offering, production platform, logistics services, 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
During the first quarter of 2018, management realigned the Company’s reportable segments to reflect changes in the global operating structure of the Company and the manner in which the chief operating decision maker assesses information for decision-making purposes. All prior year amounts have been reclassified to conform to the Company’s current reporting structure.
The Company’s 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, logistics, statement printing, labels, packaging, supply chain management, forms and business process outsourcing. This segment also includes all of the Company’s 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 mail, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services.
Corporate
Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, 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 other postretirement benefits plan expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages the Company’s cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs.
Products and Services
The Company separately reports its net sales, related costs of sales and gross profit for our product and service offerings. Our product offerings primarily consist of commercial print, statements, direct mail, labels, in-store marketing, digital print, packaging, supply chain management, forms and other related products procured through our print management offering. Our service offerings primarily consist of logistics, business process outsourcing services and digital and creative solutions.
Executive Overview
First Quarter Overview
Net sales increased by $48.9 million, or 2.9%, for the three months ended March 31, 2018 compared to the same period in 2017. The first quarter of 2018 included a $26.2 million increase due to changes in foreign exchange rates, which accounted for 1.6 percentage points of the increase in net sales. The remaining increase in net sales was due to higher volume in both segments and higher fuel surcharges in the Business Services segment, partially offset by price pressure in the Business Services segment.
23
The Company continues to strategically assess opportunities to reduce its cost structure and enhance productivity throughout the business. During the three months ended March 31, 2018, the Company realized cost savings from previous restructuring activities including the reorganization of administrative and support functions across all segments, as well as facility consolidations.
Net cash used in operating activities for the three months ended March 31, 2018 was $140.3 million as compared to $5.0 million for the three months ended March 31, 2017. The decrease in net cash flow from operating activities related primarily to net unfavorable changes in working capital and higher cash taxes.
On May 2, 2018, the Company announced that it had entered into a definitive agreement to sell certain assets and liabilities of its Print Logistics business. The sale is expected to close in the third quarter of 2018 and is subject to customary closing conditions.
Financial Review
In the financial review that follows, the Company discusses its consolidated results of operations, financial position, cash flows and certain other information. This discussion should be read in conjunction with our Condensed Consolidated Financial Statements and related notes.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2018 AS COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2017
The following table shows the results of operations for the three months ended March 31, 2018 and 2017:
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
|
(in millions, except percentages) |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products net sales |
$ |
1,286.6 |
|
|
$ |
1,271.5 |
|
|
$ |
15.1 |
|
|
|
1.2 |
% |
Services net sales |
|
421.2 |
|
|
|
387.4 |
|
|
|
33.8 |
|
|
|
8.7 |
% |
Total net sales |
|
1,707.8 |
|
|
|
1,658.9 |
|
|
|
48.9 |
|
|
|
2.9 |
% |
Products cost of sales (exclusive of depreciation and amortization) |
|
1,051.9 |
|
|
|
1,007.8 |
|
|
|
44.1 |
|
|
|
4.4 |
% |
Services cost of sales (exclusive of depreciation and amortization) |
|
361.2 |
|
|
|
324.3 |
|
|
|
36.9 |
|
|
|
11.4 |
% |
Total cost of sales |
|
1,413.1 |
|
|
|
1,332.1 |
|
|
|
81.0 |
|
|
|
6.1 |
% |
Products gross profit |
|
234.7 |
|
|
|
263.7 |
|
|
|
(29.0 |
) |
|
|
(11.0 |
%) |
Services gross profit |
|
60.0 |
|
|
|
63.1 |
|
|
|
(3.1 |
) |
|
|
(4.9 |
%) |
Total gross profit |
|
294.7 |
|
|
|
326.8 |
|
|
|
(32.1 |
) |
|
|
(9.8 |
%) |
Selling, general and administrative expenses (exclusive of depreciation and amortization) |
|
214.6 |
|
|
|
225.8 |
|
|
|
(11.2 |
) |
|
|
(5.0 |
%) |
Restructuring and other-net |
|
0.8 |
|
|
|
9.1 |
|
|
|
(8.3 |
) |
|
|
(91.2 |
%) |
Depreciation and amortization |
|
47.2 |
|
|
|
48.6 |
|
|
|
(1.4 |
) |
|
|
(2.9 |
%) |
Other operating income |
|
(0.1 |
) |
|
|
— |
|
|
|
(0.1 |
) |
|
nm |
|
|
Income from operations |
$ |
32.2 |
|
|
$ |
43.3 |
|
|
$ |
(11.1 |
) |
|
|
(25.6 |
%) |
Consolidated
Net sales of products for the three months ended March 31, 2018 increased $15.1 million, or 1.2%, to $1,286.6 million versus the same period in 2017. The first quarter of 2018 included a $23.5 million, or 1.8%, increase due to changes in foreign exchange rates. Net sales of products also increased due to higher volume in packaging and direct mail, which was more than offset by lower volume in commercial print due to ongoing secular pressure and lower specialty card sales, as well as price pressure.
Net sales from services for the three months ended March 31, 2018 increased $33.8 million, or 8.7%, to $421.2 million versus the same period in 2017, including a $2.7 million, or 0.7%, increase due to changes in foreign exchange rates. Net sales from services increased primarily due to higher volume and increased fuel surcharges in logistics, as well as higher volume in business process outsourcing, partially offset by lower volume in digital and creative solutions and price pressure.
24
Products cost of sales for the three months ended March 31, 2018 increased $44.1 million, or 4.4%, to $1,051.9 million versus the same period in 2017. Products cost of sales increased primarily due to unfavorable impact due to changes in foreign exchange rates, higher volume in packaging, as well as cost inflation, including higher paper costs in Asia, and operational inefficiencies due to volume reductions from two clients, partially offset by lower volume in commercial print, along with cost control initiatives across the organization. As a percentage of net sales, products cost of sales increased 2.5 percentage points for the three months ended March 31, 2018 versus the same period in 2017.
Services cost of sales increased $36.9 million, or 11.4%, for the three months ended March 31, 2018 versus the same period in 2017, primarily due to higher volume in logistics and business process outsourcing, as well as higher costs of transportation in logistics, partially offset by cost control initiatives. As a percentage of net sales, services cost of sales increased 2.1 percentage points for the three months ended March 31, 2018 versus the same period in 2017.
Products gross profit decreased $29.0 million to $234.7 million for the three months ended March 31, 2018 versus the same period in 2017, primarily due to price pressures, unfavorable impact due to changes in foreign exchange rates, cost inflation, including higher paper costs in commercial print and an unfavorable mix in commercial print, partially offset by cost control initiatives. Products gross margin decreased from 20.7% to 18.2%.
Services gross profit decreased $3.1 million to $60.0 million for the three months ended March 31, 2018 versus the same period in 2017, primarily due to higher costs of transportation in logistics and price pressures, partially offset by increased fuel surcharges in logistics. Services gross margin decreased from 16.3% to 14.2%.
Selling, general and administrative expenses decreased $11.2 million to $214.6 million for the three months ended March 31, 2018 versus the same period in 2017 reflecting cost control initiatives, partially offset by higher bad debt expense in 2018, which included an $8.3 million charge due to a client-related bankruptcy, and foreign currency expense. As a percentage of net sales, selling, general and administrative expenses decreased from 13.6% to 12.6% for the three months ended March 31, 2018 versus the same period in 2017, due to the impact of the aforementioned expenses.
For the three months ended March 31, 2018, the Company recorded net restructuring and other expenses of $0.8 million. These expenses included $3.2 million for employee termination costs. These charges primarily relate to the reorganization of selling, general and administrative functions across each segment and an announced facility closure in the Business Services segment. The Company also incurred lease termination and other restructuring charges of $1.6 million for the three months ended March 31, 2018. Additionally, the Company recorded a $4.9 million net gain on the sale of previously impaired assets in the Business Services segment. These assets were impaired in 2015. The Company also recorded $0.6 million of other charges for multi-employer pension plan withdrawal obligations unrelated to facility closures. See Note 6, Restructuring and Other, within the Notes to the Condensed Consolidated Financial Statements for further discussion.
Depreciation and amortization decreased $1.4 million to $47.2 million for the three months ended March 31, 2018 compared to the same period in 2017 primarily due to lower capital spending in recent years compared to historical levels. Depreciation and amortization included $7.0 million and $7.5 million of amortization of other intangible assets related to client relationships, trade names, trademarks, licenses and agreements for the three months ended March 31, 2018 and 2017, respectively.
Income from operations for the three months ended March 31, 2018 was $32.2 million, a decrease of $11.1 million, or 25.6%, compared to the three months ended March 31, 2017.
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
|
(in millions, except percentages) |
|
|||||||||||||
Interest expense-net |
$ |
41.7 |
|
|
$ |
48.3 |
|
|
$ |
(6.6 |
) |
|
|
(13.7 |
%) |
Investment and other (income) expense-net |
|
(5.6 |
) |
|
|
44.6 |
|
|
|
50.2 |
|
|
nm |
|
Net interest expense decreased by $6.6 million for the three months ended March 31, 2018 versus the same period in 2017, primarily due to lower average borrowings during three months ended March 31, 2018.
Investment and other (income) expense-net for the three months ended March 31, 2018 and 2017 was income of $5.6 million and expense of $44.6 million, respectively. During the three months ended March 31, 2017, the Company sold its retained interest in LSC which resulted in a net realized loss of $51.6 million, partially offset by income of $1.3 million from affordable housing investments. See Note 11, Other Comprehensive Income (Loss), for further discussion.
25
Three Months Ended |
|
|
|
|
|
|
|
|
|
||||||
|
March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
|
(in millions, except percentages) |
|
|||||||||||||
Loss before income taxes |
$ |
(4.0 |
) |
|
$ |
(49.6 |
) |
|
$ |
45.6 |
|
|
|
(91.9 |
%) |
Income tax expense |
|
5.3 |
|
|
|
0.2 |
|
|
|
(5.1 |
) |
|
nm |
|
|
Effective income tax rate |
|
(132.5 |
%) |
|
|
(0.4 |
%) |
|
|
|
|
|
|
|
|
The effective income tax rate for the three months ended March 31, 2018 was (132.5%), compared to (0.4%) in the same period in 2017. The effective income tax rate for 2018 is primarily driven by the inability to recognize a tax benefit on certain losses and limitations on the interest expense deduction as a result of the Tax Act. Non-deductible interest expense will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance was recorded. The effective income tax rate for the three months ended March 31, 2017 reflects the impact of the $51.6 million realized loss on the sale of LSC retained shares. The sale generated a capital loss which will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance was recorded.
Income attributable to noncontrolling interests was $0.3 million for the three months ended March 31, 2018 and 2017.
Net loss attributable to RRD common stockholders, excluding the impact from non-controlling interests, for the three months ended March 31, 2018 was $9.6 million, or $0.14 per diluted share, compared to $50.1 million, or $0.71 per diluted share, for the three months ended March 31, 2017.
Information by Segment
Business Services
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
|
|
(in millions, except percentages) |
|
|||||
Net sales |
|
$ |
1,416.1 |
|
|
$ |
1,376.4 |
|
Income from operations |
|
|
39.8 |
|
|
|
58.7 |
|
Operating margin |
|
|
2.8 |
% |
|
|
4.3 |
% |
Restructuring and other-net |
|
|
(1.6 |
) |
|
|
5.4 |
|
Other operating income |
|
|
(0.1 |
) |
|
|
— |
|
Net sales for the Business Services segment for the three months ended March 31, 2018 were $1,416.1 million, an increase of $39.7 million, or 2.9%, compared to 2017. The first quarter of 2018 included a $26.2 million increase due to changes in foreign exchange rates. The remaining increase in net sales was due to higher volume in packaging and logistics as well as increased fuel surcharges in logistics, partially offset by lower volume in commercial print due to ongoing secular pressure and lower specialty card sales and price pressures across the segment. The following table summarizes net sales by products and services in the Business Services segment:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|||||
Products and Services |
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
Commercial print |
|
$ |
462.2 |
|
|
$ |
499.2 |
|
|
$ |
(37.0 |
) |
|
|
(7.4 |
%) |
Logistics |
|
|
327.2 |
|
|
|
296.1 |
|
|
|
31.1 |
|
|
|
10.5 |
% |
Statements |
|
|
159.8 |
|
|
|
157.7 |
|
|
|
2.1 |
|
|
|
1.3 |
% |
Packaging |
|
|
141.4 |
|
|
|
108.7 |
|
|
|
32.7 |
|
|
|
30.1 |
% |
Labels |
|
|
117.5 |
|
|
|
113.1 |
|
|
|
4.4 |
|
|
|
3.9 |
% |
Supply chain management |
|
|
79.8 |
|
|
|
75.5 |
|
|
|
4.3 |
|
|
|
5.7 |
% |
Forms |
|
|
67.0 |
|
|
|
72.9 |
|
|
|
(5.9 |
) |
|
|
(8.1 |
%) |
Business process outsourcing |
|
|
61.2 |
|
|
|
53.2 |
|
|
|
8.0 |
|
|
|
15.0 |
% |
Total Business Services |
|
$ |
1,416.1 |
|
|
$ |
1,376.4 |
|
|
$ |
39.7 |
|
|
|
2.9 |
% |
26
Business Services segment income from operations decreased $18.9 million for the three months ended March 31, 2018, primarily due to an unfavorable impact due to changes in foreign exchange rates, unfavorable mix in sales, price pressures, higher cost of transportation in logistics, cost inflation, including higher paper costs in our products in Asia and operational inefficiencies due to volume reductions from two clients, partially offset by cost control initiatives and increased fuel surcharges.
Marketing Solutions
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
|
|
(in millions, except percentages) |
|
|||||
Net sales |
|
$ |
291.7 |
|
|
$ |
282.5 |
|
Income (loss) from operations |
|
|
12.3 |
|
|
|
4.9 |
|
Operating margin |
|
|
4.2 |
% |
|
|
1.7 |
% |
Restructuring and other-net |
|
|
1.5 |
|
|
|
2.1 |
|
Net sales for the Marketing Solutions segment for the three months ended March 31, 2018 were $291.7 million, an increase of $9.2 million, or 3.3%, compared to 2017. Net sales increased primarily due to higher volume in direct mail, partially offset by lower volume in digital and creative solutions and digital print and fulfillment. The following table summarizes net sales by products and services in the Marketing Solutions segment:
|
|
Three Months Ended |
|
|
|
|
|
|
|
|
|
|||||
|
|
March 31, |
|
|
|
|
|
|
|
|
|
|||||
Products and Services |
|
2018 |
|
|
2017 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
(in millions, except percentages) |
|
|||||||||||||
Direct mail |
|
$ |
149.6 |
|
|
$ |
134.2 |
|
|
$ |
15.4 |
|
|
|
11.5 |
% |
Digital print and fulfillment |
|
|
110.8 |
|
|
|
112.0 |
|
|
|
(1.2 |
) |
|
|
(1.1 |
%) |
Digital and creative solutions |
|
|
31.3 |
|
|
|
36.3 |
|
|
|
(5.0 |
) |
|
|
(13.8 |
%) |
Total Marketing Solutions |
|
$ |
291.7 |
|
|
$ |
282.5 |
|
|
$ |
9.2 |
|
|
|
3.3 |
% |
Marketing Solutions segment income from operations increased $7.4 million to $12.3 million for the three months ended March 31, 2018, primarily due to cost control initiatives and higher volume in direct mail, partially offset by lower volume in digital and creative solutions.
Corporate
Corporate operating expenses during the three months ended March 31, 2018 were $19.9 million, a decrease of $0.4 million compared to the same period in 2017. The decrease was primarily driven by cost control initiatives, offset by higher bad debt expense in 2018 due to a client-related bankruptcy. The following table summarizes unallocated operating expenses and certain items impacting comparability within the activities presented as Corporate:
|
|
Three Months Ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
|
|
(in millions) |
|
|||||
Operating expenses |
|
$ |
19.9 |
|
|
$ |
20.3 |
|
Spinoff-related transaction expenses |
|
|
— |
|
|
|
2.1 |
|
Restructuring and other-net |
|
|
0.9 |
|
|
|
1.6 |
|
LIQUIDITY AND CAPITAL RESOURCES
The Company believes it has sufficient liquidity to support its ongoing operations and to invest in future growth to create value for its stockholders. Operating cash flows and available capacity under the Company’s $800.0 million asset-based senior secured revolving credit facility (the “Credit Agreement”) are the Company’s primary sources of liquidity and are expected to be used for, among other things, capital expenditures necessary to support productivity improvement and growth, completion of restructuring programs, acquisitions, payment of interest and principal on the Company’s long-term debt obligations, and distributions to stockholders that may be approved by the Board of Directors.
The following describes the Company’s cash flows for the three months ended March 31, 2018 and 2017.
27
Cash Flows From Operating Activities
Operating cash inflows are largely attributable to sales of the Company’s 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 $140.3 million for the three months ended March 31, 2018 compared to $5.0 million during the same period in 2017. The increase in net cash used in operating activities related primarily to net unfavorable changes in working capital and higher cash taxes.
Cash Flows From Investing Activities
Net cash provided by investing activities for the three months ended March 31, 2018 was $27.7 million compared to $85.4 million during the same period in 2017. Capital expenditures were $21.5 million during the first three months of 2018, a decrease of $4.6 million as compared to the same period of 2017. For the three months ended March 31, 2018, cash provided by investing activities included $32.1 million cash received as a deposit for the expected sale of a facility and cash proceeds from the sale of investments and other assets of $15.6 million. For the three months ended March 31, 2017, cash provided by investing activities included net proceeds of $121.4 million from the sale of the Company’s investment in LSC.
Cash Flows From Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2018 was $66.1 million compared to net cash used in financing activities of $153.3 million in the same period in 2017. During the three months ended March 31, 2018, the Company increased its borrowings under credit facilities by $42.0 million, compared to a reduction in borrowings under credit facilities of $145.0 million during the three months ended March 31, 2017. During the three months ended March 31, 2018, the Company also received $35.4 million in net short-term loan proceeds. Dividends paid were $9.8 million during the three months ended March 31, 2018 and 2017.
LIQUIDITY
Cash and cash equivalents of $235.2 million as of March 31, 2018 included $39.9 million in the U.S. and $195.3 million at international locations. The Company has recognized deferred tax liabilities of $5.9 million as of March 31, 2018 related to local taxes on certain foreign earnings that are not considered to be permanently reinvested. Certain other cash balances of foreign subsidiaries, if repatriated to the U.S., may be subject to additional tax which would depend on income tax laws and circumstances at the time of distribution. In addition, repatriation of some foreign cash balances is further restricted by local laws. Management regularly evaluates whether foreign earnings are expected to be permanently reinvested. This evaluation requires judgment about the future operating and liquidity needs of the Company and its foreign subsidiaries. Changes in economic and business conditions, foreign or U.S. tax laws, or the Company’s financial situation could result in changes to these judgments and the need to record additional tax liabilities.
Included in cash and cash equivalents at March 31, 2018 were $13.7 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.
In March 2017, the Company sold the 6,242,802 common shares it retained upon the spinoff of LSC for net proceeds of $121.4 million. The proceeds of this sale were used to repay a portion of the outstanding borrowings under the Company’s credit facility. In June 2017, the Company exchanged 6,143,208 of the 6,242,802 common shares of Donnelley Financial retained upon the spinoff for $111.6 million of aggregate principal of certain outstanding senior notes. In August 2017, the Company disposed of its remaining retained shares in Donnelley Financial via a second debt-for-equity exchange, pursuant to which the Company exchanged 99,594 shares of Donnelley Financial’s common stock for $1.9 million of aggregate principal of certain outstanding senior notes. Such debt obligations were cancelled and discharged upon delivery to the Company.
On September 29, 2017, the Company entered into the Credit Agreement, an asset-based revolving credit facility which amended and restated the Company’s prior $800.0 million senior secured revolving credit facility dated September 30, 2016. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $800.0 million subject to a borrowing base. The amount available to be borrowed under the Credit Agreement is equal to the lesser of (a) $800.0 million and (b) the aggregate amount of accounts receivable, inventory, machinery and equipment and fee-owned real estate of the Company and certain of its domestic subsidiaries (the “Guarantors”) (collectively, the “Borrowing Base”), subject to certain eligibility criteria and advance rates. The aggregate amount of real estate, machinery and equipment that can be included in the Borrowing Base cannot exceed $200.0 million.
28
The Company’s obligations under the Credit Agreement are guaranteed by the Guarantors and are secured by a security interest in certain assets of the Company and its domestic subsidiaries, including accounts receivable, inventory, deposit accounts, securities accounts, investment property, machinery and equipment and, to the extent related to the foregoing, general intangibles, documents and instruments, as well as 65% of the equity interests of its first-tier foreign subsidiaries.
The Credit Agreement contains customary restrictive covenants, including a covenant which requires the Company to maintain a minimum fixed charge coverage ratio under certain circumstances. In addition, the Company’s ability to undertake certain actions, including, among other things, prepay certain junior debt, incur additional unsecured indebtedness and make certain restricted payments depends on satisfaction of certain conditions, including, among other things, meeting minimum availability thresholds under the Credit Agreement.
Borrowings under the Credit Agreement bear interest at a rate dependent on the average quarterly availability under the Credit Agreement and is calculated according to a base rate (prime rate) or a Eurocurrency rate (LIBOR) plus an applicable margin. The applicable margin for base rate loans ranges from 0.25% to 0.50% and the applicable margin for Eurocurrency loans ranges from 1.25% to 1.50%. In addition, a fee is payable quarterly on the unused portion of the amount available to be borrowed under the Credit Agreement. The fee accrues at a rate of either 0.25% or 0.375% depending upon the average usage of the facility.
The Credit Agreement is scheduled to mature on September 29, 2022, at which time all outstanding amounts under the Credit Agreement will be due and payable. Borrowings under the Credit Agreement may be used for working capital and general corporate purposes.
There were $258.0 million of borrowings under the Credit Agreement as of March 31, 2018.
The current availability under the Credit Agreement as of March 31, 2018 is shown in the table below:
|
|
March 31, 2018 |
|
|
Availability |
|
(in millions) |
|
|
Credit Agreement |
|
$ |
800.0 |
|
Availability reduction due to available borrowing base |
|
|
29.0 |
|
|
|
$ |
771.0 |
|
Usage |
|
|
|
|
Borrowings under the Credit Agreement |
|
$ |
258.0 |
|
Outstanding letters of credit |
|
|
35.7 |
|
|
|
$ |
293.7 |
|
|
|
|
|
|
Current availability at March 31, 2018 |
|
$ |
477.3 |
|
Cash and cash equivalents |
|
|
235.2 |
|
Total available liquidity (a) |
|
$ |
712.5 |
|
(a) |
Total available liquidity does not include credit facilities of non-U.S. subsidiaries, which are uncommitted facilities. |
As of March 31, 2018, the Company was in compliance with the debt covenants under the Credit Agreement and expects to remain in compliance based on management’s estimates of operating and financial results for 2018 and the foreseeable future. As of March 31, 2018, the Company met all the conditions required to borrow under the Credit Agreement and management expects the Company to continue to meet the borrowing conditions.
The failure of a financial institution supporting the Credit Agreement would reduce the size of the Company’s committed facility unless a replacement institution was added. Currently, the Credit Agreement is supported by eight U.S. financial institutions.
As of March 31, 2018, the Company had $184.1 million in other uncommitted credit facilities, primarily outside the U.S. (the “Other Facilities”). There were $74.4 million in outstanding letters of credit, bank guarantees and bank acceptance drafts which reduced availability, of which $35.7 million were issued under the Credit Agreement. Total borrowings under the Credit Agreement and the Other Facilities (the “Combined Facilities”) were $304.7 million as of March 31, 2018.
29
The Company’s liquidity may be affected by its credit ratings. During the first quarter of 2018, Moody’s downgraded the Company’s long-term corporate credit rating from B1 to B2 and downgraded the senior unsecured debt credit rating from B2 to B3. The outlook remained stable. The Company’s Standard & Poor Rating Services (“S&P”) and Moody’s credit ratings as of March 31, 2018 are shown in the table below:
|
S&P |
|
Moody's |
Long-term corporate credit rating |
B, Stable |
|
B2, Stable |
Senior unsecured debt |
B |
|
B3 |
Dividends
During the three months ended March 31, 2018, the Company paid cash dividends of $9.8 million. On April 5, 2018, the Board of Directors of the Company declared a quarterly cash dividend of $0.14 per common share, payable on June 1, 2018 to stockholders of record on May 15, 2018.
MANAGEMENT OF MARKET RISK
The Company is exposed to interest rate risk on its variable debt and price risk on its fixed-rate debt. At March 31, 2018, the Company’s variable-interest borrowings were $304.7 million. Approximately 86.0% of the Company’s outstanding debt was comprised of fixed-rate debt as of March 31, 2018.
The Company assesses 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 March 31, 2018 and December 31, 2017 by approximately $46.0 million and $48.9 million, respectively.
The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent that borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary, the Company is exposed to currency risk and may enter into foreign exchange spot and forward contracts to hedge the currency risk. As of March 31, 2018 and December 31, 2017, the aggregate notional amount of outstanding foreign currency contracts was approximately $189.6 million and $215.9 million, respectively (see Note 15, Derivatives, to the Condensed Consolidated Financial Statements). Net unrealized gains (losses) from these foreign currency contracts were $3.8 million at March 31, 2018 and $2.2 million at December 31, 2017. The Company does not use derivative financial instruments for trading or speculative purposes.
OTHER INFORMATION
Litigation and Contingent Liabilities
For a discussion of certain litigation involving the Company, see Note 13, 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 the Company’s consolidated financial statements are described in Note 16, 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 the beliefs and assumptions of the Company. Generally, forward-looking statements include information concerning possible or assumed future actions, events, or results of operations of the Company. 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. The Company claims 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.
30
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 the Company.
The following important factors, in addition to those discussed elsewhere in this Quarterly Report on Form 10-Q, could affect the future results of the Company and could cause those results or other outcomes to differ materially from those expressed or implied in its forward-looking statements:
|
• |
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; |
|
• |
adverse credit market conditions and other issues that may affect the Company’s ability to obtain future financing on favorable terms; |
|
• |
the Company’s ability to make payments on, reduce or extinguish any of its material indebtedness; |
|
• |
changes in the availability or costs of key materials (such as ink, paper and fuel) or increases in shipping costs; |
|
• |
the ability of the Company to improve operating efficiency rapidly enough to meet market conditions; |
|
• |
the ability by the Company and/or its vendors 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; |
|
• |
increased pricing pressure as a result of the competitive environment in which the Company operates; |
|
• |
successful negotiation, execution and integration of acquisitions; |
|
• |
increasing health care and benefits costs for employees and retirees; |
|
• |
changes in the Company’s pension and other postretirement 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 the Company’s 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 the Company’s clients, which may adversely impact demand for the Company’s 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 the Company’s products and services; |
|
• |
changes in technology, including electronic substitution and migration of paper based documents to digital data formats, and the ability of the Company to adapt to these changes; |
|
• |
inability to hire and retain employees; |
|
• |
the spinoffs resulting in significant tax liability; and |
|
• |
other risks and uncertainties detailed from time to time in the Company’s 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. 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.
31
Consequently, readers of this Quarterly Report on Form 10-Q should consider these forward-looking statements only as the Company’s current plans, estimates and beliefs. The Company does not undertake and specifically disclaims any obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect future events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. The Company undertakes 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 the Company’s market risk since December 31, 2017. For a discussion of exposure to market risk, refer to Part II, Item 7A – Quantitative and Qualitative Disclosures about Market Risk, set forth in the Company’s 2017 Form 10-K.
Item 4. Controls and Procedures
(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 March 31, 2018, 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 March 31, 2018 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.
(b) |
Changes in internal control over financial reporting. |
There were no changes in the Company’s 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 March 31, 2018 that had materially affected, or were reasonably likely to materially affect, the Company’s internal control over financial reporting.
32
For a discussion of certain litigation involving the Company, see Note 13, Commitments and Contingencies, to the Condensed Consolidated Financial Statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
ISSUER PURCHASES OF EQUITY SECURITIES |
|
|||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
|
Total Number of Shares Purchased (a) |
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
|
Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs |
|
|||
January 1, 2018 - January 31, 2018 |
|
|
— |
|
|
$ |
— |
|
|
— |
|
$ |
— |
|
February 1, 2018 - February 28, 2018 |
|
— |
|
|
— |
|
|
— |
|
$ |
— |
|
||
March 1, 2018 - March 31, 2018 |
|
|
97,472 |
|
|
|
7.31 |
|
|
— |
|
$ |
— |
|
Total |
|
|
97,472 |
|
|
$ |
7.31 |
|
|
— |
|
|
|
|
(a) |
Shares withheld for tax liabilities upon vesting of equity awards. |
___________________________________
The Credit Agreement generally allows annual dividend payments of up to $60.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. For more detail refer to the Credit Agreement and its amendments filed as exhibits to this Quarterly Report on Form 10-Q.
Item 4: Mine Safety Disclosures
Not applicable
33
10.1* |
|
|
|
|
|
10.2* |
|
|
|
|
|
10.3* |
|
|
|
|
|
31.1* |
|
|
|
|
|
31.2* |
|
|
|
|
|
32.1** |
|
|
|
|
|
32.2** |
|
|
|
|
|
101.INS |
|
XBRL Instance Document |
|
|
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
101.LAB |
|
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
* |
Filed herewith |
** |
Furnished herewith |
34
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.
R.R. DONNELLEY & SONS COMPANY |
||
|
|
|
By: |
|
/s/ TERRY D. PETERSON |
|
|
Terry D. Peterson |
|
|
Executive Vice President and Chief Financial Officer |
Date: May 2, 2018
35
Exhibit 10.1
R.R. DONNELLEY & SONS COMPANY
STOCK UNIT AWARD
This Stock Unit Award (“Award”) is granted as of February 28, 2018 by R.R. Donnelley & Sons Company, a Delaware corporation (the “Company”), to XXXXXX (“Grantee”).
1.Grant of Award. This Award is in recognition of your hard work and dedication over the last several years and is granted as an incentive for the Grantee to remain an employee of the Company and share in the future success of the Company. The Company hereby credits to Grantee XXXXX stock units (the “Stock Units”), subject to the restrictions and on the terms and conditions set forth herein. This Award is made pursuant to the provisions of the Company’s 2017 Performance Incentive Plan (the “2017 PIP”). Capitalized terms not defined herein shall have the meanings specified in the 2017 PIP. Grantee shall indicate acceptance of this Award by signing and returning a copy hereof.
(a)Except to the extent otherwise provided in paragraph 2(b) or 3 below, the Stock Units shall vest and be payable in three equal installments on each of:
|
• |
March 2, 2019 |
|
• |
March 2, 2020 |
|
• |
March 2, 2021 |
(b)Upon the Acceleration Date associated with a Change in Control, the Stock Units shall, in accordance with the terms of the 2017 PIP, become fully vested.
3.Treatment Upon Separation from Service.
(a)If Grantee has a separation from service (within the meaning of Treasury Regulation § 1.409A-1(h), hereinafter a “Separation from Service”) by reason of death or Disability (as defined in the applicable Company long-term disability policy as in effect at the time of Grantee’s disability), the Stock Units shall become fully vested of the date of such Separation from Service.
(b)If Grantee has a Separation from Service other than for death or Disability, the Stock Units, if unvested, shall be forfeited.
4.Issuance of Common Stock in Satisfaction of Stock Units. As soon as practicable, but not more than 2½ months following the vesting date, the Company shall issue one share of common stock of the Company (“Common Stock”) to Grantee for each Stock Unit that has vested on such date. Each Stock Unit shall be cancelled upon the issuance of a share of Common Stock with respect thereto.
5.Dividends. No dividends or dividend equivalents will accrue with respect to the Stock Units.
6.Rights as a Shareholder. Prior to issuance, Grantee shall not have the right to vote, nor have any other rights of ownership in, the shares of Common Stock to be issued in satisfaction of Stock Units upon their vesting.
(a)As a condition precedent to the issuance to Grantee of any shares of Common Stock pursuant to this Award, the Grantee shall, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award. If Grantee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to Grantee.
(b)Grantee may elect to satisfy his obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of previously owned whole shares of Common Stock for which Grantee has good title, free and clear of all liens and encumbrances, having a fair market value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the “Tax Date”), equal to the Required Tax Payments, (3) directing the Company to withhold a number of shares of Common Stock otherwise issuable to Grantee pursuant to this Award having a fair market value, determined as of the Tax Date, equal to the Required Tax Payments or (4) any combination of (1)-(3). Any fraction of a share of Common Stock which would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by Grantee. No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full. For purposes of this Award, the fair market value of a share of Common Stock on a specified date shall be determined by reference to the closing stock price in trading of the Common Stock on such date or, if no such trading in the Common Stock occurred on such date, then on the next preceding date when such trading occurred.
(a)Grantee hereby acknowledges that the Company’s relationship with the customer or customers Grantee serves, and with other employees, is special and unique, based upon the development and maintenance of good will resulting from the customers' and other employees’ contacts with the Company and its employees, including Grantee. As a result of Grantee’s position and customer contacts, Grantee recognizes that Grantee will gain valuable information about (i) the Company’s relationship with its customers, their buying habits, special needs, and purchasing policies, (ii) the Company’s pricing policies, purchasing policies, profit structures, and margin needs, (iii) the skills, capabilities and other employment-related information relating to Company employees, and (iv) and other matters of which Grantee would not otherwise know and that is not otherwise readily available. Such knowledge is essential to the business of the Company and Grantee recognizes that, if Grantee has a Separation from Service, the Company will be required to rebuild that customer relationship to retain the customer's business. Grantee recognizes that during a period following
Separation from Service, the Company is entitled to protection from Grantee’s use of the information and customer and employee relationships with which Grantee has been entrusted by the Company during Grantee’s employment.
(b) Grantee acknowledges and agrees that any injury to the Company’s customer relationships, or the loss of those relationships, would cause irreparable harm to the Company. Accordingly, Grantee shall not, while employed by the Company and for a period of one year from the date of Grantee’s Separation from Service for any reason, including Separation from Service initiated by the Company with or without cause, directly or indirectly, either on Grantee’s own behalf or on behalf of any other person, firm or entity, solicit or provide services that are the same as or similar to the services the Company provided or offered while Grantee was employed by the Company to any customer or prospective customer of the Company (i) with whom Grantee had direct contact during the last two years of Grantee’s employment with the Company or about whom Grantee learned confidential information as a result of his or her employment with the Company or (ii) with whom any person over whom Grantee had supervisory authority at any time had direct contact during the last two years of Grantee’s employment with the Company or about whom such person learned confidential information as a result of his or her employment with the Company.
(c)Grantee shall not, while employed by the Company and for a period of two years following Grantee’s Separation from Service for any reason, including Separation from Service initiated by the Company with or without cause, either directly or indirectly solicit, induce or encourage any individual who was a Company employee at the time of, or within six months prior to, Grantee’s Separation from Service, to terminate their employment with the Company or accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, nor shall Grantee cooperate with any others in doing or attempting to do so. As used herein, the term "solicit, induce or encourage" includes, but is not limited to, (i) initiating communications with a Company employee relating to possible employment, (ii) offering bonuses or other compensation to encourage a Company employee to terminate his or her employment with the Company and accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, or (iii) referring Company employees to personnel or agents employed by any entity, including but not limited to competitors, suppliers or customers of the Company.
(a)The Company shall pay all original issue or transfer taxes with respect to the issuance or delivery of shares of Common Stock pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use reasonable efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto.
(b)Nothing in this Award shall confer upon Grantee any right to continue in the employ of the Company or any other company that is controlled, directly or indirectly, by the Company or to interfere in any way with the right of the Company to terminate Grantee’s employment at any time.
(c)This Award shall be governed in accordance with the laws of the state of Delaware.
(d)This Award shall be binding upon and inure to the benefit of any successor or successors to the Company.
(e)Neither this Award nor the Stock Units nor any rights hereunder or thereunder may be transferred or assigned by Grantee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or other procedures approved by the Company. Any other transfer or attempted assignment, pledge or hypothecation, whether or not by operation of law, shall be void.
(f)The Human Resources Committee of the Board of Directors of the Company (the “Committee”), as from time to time constituted, shall have the right to determine any questions which arise in connection with this Agreement or the Stock Units. This Agreement and the Stock Units are subject to the provisions of the 2017 PIP and shall be interpreted in accordance therewith.
(g)If Grantee is a resident of Canada, Grantee further agrees and represents that any acquisitions of Common Stock hereunder are for his own account for investment, and without the present intention of distributing or selling such Common Stock or any of them. Further, the Company and its subsidiaries expressly reserve the right at any time to dismiss Grantee free from any liability, or any claim under this Award, except as provided herein or in any agreement entered into hereunder. Any obligation of the Company under this Award to make any payment at any future date or issue Common Stock merely constitutes the unfunded and unsecured promise of the Company to make such payment or issue such Common Stock; any payment shall be from the Company’s general assets in accordance with this Award and the issuance of any Common Stock shall be subject to the Company’s compliance with all applicable laws including securities law and the laws its jurisdiction of incorporation or continuance, as applicable, and no Grantee shall have any interest in, or lien or prior claim upon, any property of the Company or any subsidiary by reason of that obligation. If Grantee is a resident of Canada, Grantee hereby indemnifies the Company against and agrees to hold it free and harmless from any loss, damage, expense or liability resulting to the Company if any sale or distribution of the Common Stock by Grantee is contrary to the representations and agreements referred to above.
(h)If there is any inconsistency between the terms and conditions of this Award and the terms and conditions of Grantee’s employment agreement, employment letter or other similar agreement, the terms and conditions of such agreement shall control.
(i)This Award is intended to be exempt from section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder, as a “short-term deferral.” This Award shall be administered and interpreted to the extent possible in a manner consistent with the intent expressed in this paragraph. If any compensation or benefits provided by this Award may result in the application of section 409A of the Code, the Company shall, in consultation with you, modify this Award as necessary in order to exclude such compensation from the definition of
“deferred compensation” within the meaning of such section 409A of the Code or in order to comply with the provisions of section 409A of the Code. By signing this Agreement you acknowledge that if any amount paid or payable to you becomes subject to section 409A of the Code, you are solely responsible for the payment of any taxes and interest due as a result.
IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its duly authorized officer.
R.R. Donnelley & Sons Company
Title: EVP, Chief Human Resources Officer
All of the terms of this Award are accepted as of this _____ day of March, 2018.
______________________________
Exhibit 10.2
R.R. DONNELLEY & SONS COMPANY
PERFORMANCE UNIT AWARD (2017 PIP)
This Performance Unit Award (“Award”) is granted as of February 28, 2018 (the “Grant Date”), by R. R. Donnelley & Sons Company (the “Company”) to XXXXXXXXX (“Grantee”).
1.Grant of Award. This Award is in recognition of your hard work and dedication over the last several years and is granted as an incentive for the Grantee to remain an employee of the Company and share in the future success of the Company. The Company hereby credits to Grantee XXXXX stock units (the “Performance Units”), subject to the restrictions and on the terms and conditions set forth herein. This Award is made pursuant to the provisions of the R. R. Donnelley & Sons Company 2017 Performance Incentive Plan (“2017 PIP”). Capitalized terms not defined herein shall have the meanings specified in the 2017 PIP. Grantee shall indicate acceptance of this Award by signing and returning a copy hereof.
2.Determination of Achievement; Distribution of Award.
(a)The number of shares of common stock, par value $0.01 per share, of the Company (the “Common Stock”) payable in respect of the Performance Units will be determined based on the attainment of Cumulative Free Cash Flow against the “Cumulative Free Cash Flow Matrix as shown on Attachment A hereto. Promptly following the filing of the Company’s Annual Report on Form 10-K for the year ended December 31, 2020 (or promptly following such earlier date as of which, pursuant to Section 4 hereof, to be made), the Committee (as defined in the 2017 PIP) shall determine the attainment against the “Cumulative Free Cash Flow Matrix” of the Company’s Cumulative Free Cash Flow.
(b)Distribution with respect to this Award shall be made to Grantee as soon as practicable following the determination described in (a) above but no later than 75 days thereafter. Distribution of this Award may be made in Common Stock, cash (based upon the fair market value of the Common Stock on the date of distribution) or any combination thereof as determined by the Committee.
3.Dividends; Voting.
(a)No dividends or dividend equivalents will accrue with respect to the Performance Units.
(b)Grantee shall have no rights to vote shares of common stock represented by the Performance Units unless and until distribution with respect to this Award is made in Common Stock pursuant to paragraph 2(b) above.
4.Treatment upon Separation or Termination.
(a)Notwithstanding any other agreement with Grantee to the contrary, if Grantee’s employment terminates by reason of death or Disability (as defined in the applicable Company long-term disability policy as in effect at the time of Grantee’s disability), fifty percent of any unvested Performance Units shall vest and become payable, assuming the attainment of target performance (100% achievement) or, if greater, based on actual performance through the date of death or determination of Disability.
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(b)Except as set forth in Grantee’s employment agreement, if any, with the Company, if Grantee’s employment terminates for any reason other than by death or Disability, any unvested Performance Units shall be forfeited.
5.Treatment upon Change in Control. Notwithstanding anything provided in the 2017 PIP or any other agreement with Grantee to the contrary, upon the Acceleration Date associated with a Change in Control, all of the Performance Units shall vest and become payable at the fifty percent payout level with respect to that number of shares of Common Stock that would be payable or, if greater, based on actual performance through the Change in Control Date.
6.Withholding Taxes
(a)As a condition precedent to the issuance to Grantee of any shares of Common Stock pursuant to this Award, the Grantee shall, upon request by the Company, pay to the Company such amount of cash as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes (the “Required Tax Payments”) with respect to the Award. If Grantee shall fail to advance the Required Tax Payments after request by the Company, the Company may, in its discretion, deduct any Required Tax Payments from any amount then or thereafter payable by the Company to Grantee.
(b)Grantee may elect to satisfy his obligation to advance the Required Tax Payments by any of the following means: (1) a cash payment to the Company, (2) delivery to the Company of previously owned whole shares of Stock for which Grantee has good title, free and clear of all liens and encumbrances, having a fair market value, determined as of the date the obligation to withhold or pay taxes first arises in connection with the Award (the “Tax Date”), equal to the Required Tax Payments, or (3) directing the Company to withhold a number of shares of Common Stock otherwise issuable to Grantee pursuant to this Award having a fair market value, determined as of the Tax Date, equal to the Required Tax Payments or any combination of (1)-(3). Any fraction of a share of Common Stock that would be required to satisfy such an obligation shall be disregarded and the remaining amount due shall be paid in cash by Grantee. No certificate representing a share of Common Stock shall be delivered until the Required Tax Payments have been satisfied in full. For purposes of this Award, the fair market value of a share of Common Stock on a specified date shall be determined by reference to the closing stock price in trading of the Common Stock on such date, or, if no such trading in the Common Stock occurred on such date, then on the next preceding date when such trading occurred.
7.Miscellaneous
(a)The Company shall pay all original issue or transfer taxes with respect to the issuance or delivery of shares of Common Stock pursuant hereto and all other fees and expenses necessarily incurred by the Company in connection therewith, and will use reasonable efforts to comply with all laws and regulations which, in the opinion of counsel for the Company, shall be applicable thereto.
(b)Nothing in this Award shall confer upon Grantee any right to continue in the employ of the Company or any other company that is controlled, directly or indirectly, by the Company or to interfere in any way with the right of the Company to terminate Grantee’s employment at any time.
(c)No interest shall accrue at any time on this Award or the Performance Units.
(d)This Award shall be governed in accordance with the laws of the state of Illinois.
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(e)This Award shall be binding upon and inure to the benefit of any successor or successors to the Company.
(f)Neither this Award nor the Performance Units nor any rights hereunder or thereunder may be transferred or assigned by Grantee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or other procedures approved by the Company. Any other transfer or attempted assignment, pledge or hypothecation, whether or not by operation of law, shall be void.
(g)The Committee, as from time to time constituted, shall have the right to determine any questions that arise in connection with this Agreement or the Performance Units. This Agreement and the Performance Units are subject to the provisions of the Plan and shall be interpreted in accordance therewith.
(h)If there is any inconsistency between the terms and conditions of this Award and the terms and conditions of the Employment Agreement, the terms and conditions of the Employment Agreement shall control.
IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its duly authorized officer.
R. R. DONNELLEY & SONS COMPANY
By:
Name: Sheila Rutt
Title: EVP, Chief Human Resources Officer
All of the terms of this Agreement are accepted as of this _______ day of March, 2018.
___________________________
Grantee:
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DEFINITIONS:
“Free Cash Flow” for a fiscal year shall be equal to net cash provided by (used in) operating activities of continuing operations for such year less capital expenditures (as reported in the Financial Statements) for such year. Free Cash Flow shall be adjusted by the Committee, as it shall deem reasonably necessary and appropriate, to avoid any increase or diminution in the opportunity conveyed by the Performance Units that could result from (i) (whether at the time of or subsequent to) any acquisition or disposition of any business or division (whether by merger, stock purchase or sale, sale or purchase of assets, or otherwise) made by the Company or (ii) other significant events that in the Committee’s judgment have caused an increase or diminution in the opportunity conveyed by the Performance units (including, but not limited to, significant changes in financial or capital structure, significant regulatory changes, or significant changes in tax laws).
“Cumulative Free Cash Flow” shall equal the sum of the Free Cash Flow amounts for the years ended December 31, 2018, 2019 and 2020.
“Financial Statements” shall mean the Company’s consolidated financial statements included in the Company’s Annual Report on Form 10-K filed for the applicable year.
CUMULATIVE FREE CASH FLOW MATRIX:
The attainment of Cumulative Free Cash Flow shall be compared to the matrix below to determine the payout under the Performance Units, if any.
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Exhibit 10.3
R.R. DONNELLEY & SONS COMPANY
CASH-SETTLED STOCK UNIT AWARD
This Cash-Settled Stock Unit Award (“Award”) is granted as of XXXXXX, 2018 by R.R. Donnelley & Sons Company, a Delaware corporation (the “Company”), to XXXXXX (“Grantee”).
1.Grant of Award. This Award is in recognition of Grantee’s hard work and dedication over the last several years and is granted as an incentive for the Grantee to remain an employee of the Company and share in the future success of the Company. The Company hereby credits to Grantee XXXXX cash-settled stock units (the “Stock Units”), subject to the restrictions and on the terms and conditions set forth herein. This Award is made pursuant to the provisions of the Company’s 2017 Performance Incentive Plan (the “2017 PIP”). Capitalized terms not defined herein shall have the meanings specified in the 2017 PIP. Grantee shall indicate acceptance of this Award by signing and returning a copy hereof.
(a)Except to the extent otherwise provided in paragraph 2(b) or 3 below, the Stock Units shall vest and be payable in three equal installments following three consecutive vesting periods (each, a “Vesting Period”) ending on each of:
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• |
March 2, 2019 |
|
• |
March 2, 2020 |
|
• |
March 2, 2021 |
(b)Notwithstanding anything contained herein to the contrary, upon a Change in Control, treatment of this Award, including, without limitation, with respect to vesting and payment of such Award, shall be governed by the terms of the 2017 PIP.
3.Treatment Upon Separation from Service.
(a)If Grantee has a separation from service (within the meaning of Treasury Regulation § 1.409A-1(h), hereinafter a “Separation from Service”) by reason of death or a termination by the Company due to Disability (as defined below), all unvested Stock Units shall become fully vested of the date of such Separation from Service.
(b)If Grantee has a Separation from Service other than for death or Disability, any portion of the Stock Units that is unvested as of the date of such Separation from Service shall be forfeited.
(c)For purposes of this Award, “Disability” shall mean that Grantee has become entitled to long-term disability benefits under the Company’s long-term disability plan.
4.Cash Payment in Satisfaction of Stock Units. As soon as practicable, but not more than 2½ months following the vesting date, or at such later time as provided under paragraph 9(g) of this Agreement, the Company shall make a cash payment to Grantee equal to the Fair Market Value of a share of common stock of the Company (“Common Stock”), determined as of such vesting date, for each Stock Unit that became vested on such date. Each Stock Unit shall be cancelled upon the payment with respect thereto.
5.Dividends. No dividends or dividend equivalents will accrue with respect to the Stock Units.
6.Rights as a Shareholder. Grantee shall not have the right to vote, nor have any other rights of ownership in, any shares of Common Stock relating to the Stock Units.
7.Withholding Taxes. Each payment with respect to the Stock Units shall be subject to withholding of such amounts as the Company may be required, under all applicable federal, state, local or other laws or regulations, to withhold and pay over as income or other withholding taxes with respect to the Award.
(a)Grantee hereby acknowledges that the Company’s relationship with the customer or customers Grantee serves, and with other employees, is special and unique, based upon the development and maintenance of good will resulting from the customers' and other employees’ contacts with the Company and its employees, including Grantee. As a result of Grantee’s position and customer contacts, Grantee recognizes that Grantee will gain valuable information about (i) the Company’s relationship with its customers, their buying habits, special needs, and purchasing policies, (ii) the Company’s pricing policies, purchasing policies, profit structures, and margin needs, (iii) the skills, capabilities and other employment-related information relating to Company employees, and (iv) and other matters of which Grantee would not otherwise know and that is not otherwise readily available. Such knowledge is essential to the business of the Company and Grantee recognizes that, if Grantee has a Separation from Service, the Company will be required to rebuild that customer relationship to retain the customer's business. Grantee recognizes that during a period following Separation from Service, the Company is entitled to protection from Grantee’s use of the information and customer and employee relationships with which Grantee has been entrusted by the Company during Grantee’s employment.
(b) Grantee acknowledges and agrees that any injury to the Company’s customer relationships, or the loss of those relationships, would cause irreparable harm to the Company. Accordingly, Grantee shall not, while employed by the Company and for a period of one year from the date of Grantee’s Separation from Service for any reason, including Separation from Service initiated by the Company with or without cause, directly or indirectly, either on Grantee’s own behalf or on behalf of any other person, firm or entity, solicit or provide services that are the same as or similar to the services the Company provided or offered while Grantee was employed by the Company to any customer or prospective customer of the Company (i) with whom Grantee had direct contact during the last two years of Grantee’s employment with the Company or about
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whom Grantee learned confidential information as a result of his or her employment with the Company or (ii) with whom any person over whom Grantee had supervisory authority at any time had direct contact during the last two years of Grantee’s employment with the Company or about whom such person learned confidential information as a result of his or her employment with the Company.
(c)Grantee shall not, while employed by the Company and for a period of two years following Grantee’s Separation from Service for any reason, including Separation from Service initiated by the Company with or without cause, either directly or indirectly solicit, induce or encourage any individual who was a Company employee at the time of, or within six months prior to, Grantee’s Separation from Service, to terminate their employment with the Company or accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, nor shall Grantee cooperate with any others in doing or attempting to do so. As used herein, the term "solicit, induce or encourage" includes, but is not limited to, (i) initiating communications with a Company employee relating to possible employment, (ii) offering bonuses or other compensation to encourage a Company employee to terminate his or her employment with the Company and accept employment with any entity, including but not limited to a competitor, supplier or customer of the Company, or (iii) referring Company employees to personnel or agents employed by any entity, including but not limited to competitors, suppliers or customers of the Company.
(a)Nothing in this Award shall confer upon Grantee any right to continue in the employ of the Company or any other company that is controlled, directly or indirectly, by the Company or to interfere in any way with the right of the Company to terminate Grantee’s employment at any time.
(b)This Award shall be governed in accordance with the laws of the state of Delaware.
(c)This Award shall be binding upon and inure to the benefit of any successor or successors to the Company.
(d)Neither this Award nor the Stock Units nor any rights hereunder or thereunder may be transferred or assigned by Grantee other than by will or the laws of descent and distribution or pursuant to beneficiary designation procedures approved by the Company or other procedures approved by the Company. Any other transfer or attempted assignment, pledge or hypothecation, whether or not by operation of law, shall be void.
(e)The Human Resources Committee of the Board of Directors of the Company (the “Committee”), as from time to time constituted, shall have the right to determine any questions which arise in connection with this Agreement or the Stock Units. This Agreement and the Stock Units are subject to the provisions of the 2017 PIP and shall be interpreted in accordance therewith.
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(f)If there is any inconsistency between the terms and conditions of this Award and the terms and conditions of Grantee’s employment agreement, employment letter or other similar agreement, the terms and conditions of such agreement shall control.
(g)This Award is intended to be exempt from or to comply with section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder. This Award shall be administered and interpreted to the extent possible in a manner consistent with the intent expressed in this paragraph. If any compensation or benefits provided by this Award may result in the application of section 409A of the Code or adverse tax consequences thereunder, the Company shall, in consultation with Grantee, modify this Award as necessary in order to exclude such compensation from the definition of “deferred compensation” within the meaning of such section 409A of the Code or in order to comply with the provisions of section 409A of the Code. By signing this Agreement Grantee acknowledge that if any amount paid or payable to Grantee becomes subject to section 409A of the Code, Grantee is solely responsible for the payment of any taxes and interest due as a result.
IN WITNESS WHEREOF, the Company has caused this Award to be duly executed by its duly authorized officer.
R.R. Donnelley & Sons Company
Title: EVP, Chief Human Resources Officer
All of the terms of this Award are accepted as of this _____ day of XXXXXX, 2018.
______________________________
ACTIVE 228424467
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Exhibit 31.1
Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act of 1934
I, Daniel L. Knotts, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of R.R. Donnelley & Sons Company; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 2, 2018
/s/ DANIEL L. KNOTTS |
Daniel L. Knotts President and Chief Executive Officer |
Exhibit 31.2
Certification Pursuant to Rule 13a-14(a) and Rule 15d-14(a)
of the Securities Exchange Act of 1934
I, Terry D. Peterson, certify that:
1. |
I have reviewed this Quarterly Report on Form 10-Q of R.R. Donnelley & Sons Company; |
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
(a) |
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
(a) |
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: May 2, 2018
/s/ TERRY D. PETERSON |
Terry D. Peterson Executive Vice President and Chief Financial Officer |
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)
AND SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE (18 U.S.C. 1350),
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of R. R. Donnelley & Sons Company (the “Company”) on Form 10-Q for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel L. Knotts, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
May 2, 2018
/s/ DANIEL L. KNOTTS |
Daniel L. Knotts |
President and Chief Executive Officer |
Exhibit 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
CERTIFICATION PURSUANT TO RULE 13a-14(b) OR RULE 15d-14(b)
AND SECTION 1350 OF CHAPTER 63 OF TITLE 18
OF THE UNITED STATES CODE (18 U.S.C. 1350),
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of R. R. Donnelley & Sons Company (the “Company”) on Form 10-Q for the period ended March 31, 2018 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Terry D. Peterson, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge:
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(1) |
The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
May 2, 2018
/s/ TERRY D. PETERSON |
Terry D. Peterson |
Executive Vice President and Chief Financial Officer |
Document and Entity Information - shares shares in Millions |
3 Months Ended | |
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Mar. 31, 2018 |
Apr. 27, 2018 |
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Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Mar. 31, 2018 | |
Document Fiscal Year Focus | 2018 | |
Document Fiscal Period Focus | Q1 | |
Trading Symbol | RRD | |
Entity Registrant Name | RR Donnelley & Sons Co | |
Entity Central Index Key | 0000029669 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 70.3 |
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
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Statement Of Financial Position [Abstract] | ||
Receivables, allowance for doubtful accounts | $ 38.4 | $ 32.4 |
Preferred stock, par value | $ 1.00 | $ 1.00 |
Preferred stock, authorized | 2,000,000 | 2,000,000 |
Preferred stock, Issued | 0 | 0 |
Common stock, par value | $ 0.01 | $ 0.01 |
Common stock, Authorized | 165,000,000 | 165,000,000 |
Common stock, Issued | 89,000,000 | 89,000,000 |
Treasury stock, shares | 18,700,000 | 18,900,000 |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) - USD ($) $ in Millions |
3 Months Ended | |
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Mar. 31, 2018 |
Mar. 31, 2017 |
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Statement Of Income And Comprehensive Income [Abstract] | ||
Net loss | $ (9.3) | $ (49.8) |
Other comprehensive income (loss), net of tax (Note 11): | ||
Translation adjustments | 18.9 | 9.0 |
Adjustment for net periodic pension and postretirement benefits plan cost | 2.6 | 0.7 |
Adjustment for available-for-sale securities | (32.3) | |
Other comprehensive income (loss) | 21.5 | (22.6) |
Comprehensive income (loss) | 12.2 | (72.4) |
Less: comprehensive income attributable to noncontrolling interests | 0.8 | 0.5 |
Comprehensive income (loss) attributable to RRD common stockholders | $ 11.4 | $ (72.9) |
Basis of Presentation |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Basis of Presentation | 1. Basis of Presentation The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (the “Company” or “RRD”) 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 the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC on February 28, 2018. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2018. 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. Spinoff Transactions On October 1, 2016, we completed the separation of our financial communications and data services business (“Donnelley Financial Solutions, Inc.” or “Donnelley Financial”) and our publishing and retail-centric print services and office products business (“LSC Communications, Inc.” or “LSC”) into two separate publicly-traded companies (the “Separation”). We completed the tax-free distribution of approximately 26.2 million shares, or 80.75%, of the outstanding common stock of each of Donnelley Financial and LSC, to RRD stockholders (the “Distribution”). The Distribution was made to RRD stockholders of record as of the close of business on September 23, 2016, who received one share of Donnelley Financial common stock and one share of LSC common stock for every eight shares of RRD common stock held as of the record date. Immediately following the Distribution, we held approximately 6.2 million shares of Donnelley Financial common stock and approximately 6.2 million shares of LSC common stock. In March 2017, we sold all of the approximately 6.2 million shares of LSC common stock retained by us and used the proceeds to repay a portion of the outstanding borrowings under the Company’s then-existing credit facility. In June 2017 and August 2017, we exchanged all of the approximately 6.2 million shares of Donnelley Financial common stock for certain outstanding senior indebtedness of the Company, which obligations were subsequently cancelled and discharged upon delivery to the Company. Revision of Net Sales and Cost of Sales During the third quarter of 2017, the Company identified an error in the accounting for certain contracts with an inventory buy-back option in the Business Services segment. As a result, the error, which was determined by management to be immaterial to the previously issued financial statements, has been corrected herein from the amounts previously reported. There was no impact to net loss, net loss per share, or the Condensed Consolidated Statements of Comprehensive Income (Loss). The impact of the revision was to reduce previously reported net sales and cost of sales by $17.4 million, respectively, for the three months ended March 31, 2017. The following table presents the impact of the related balance sheet revision on the March 31, 2017 Condensed Consolidated Balance Sheet:
The March 31, 2017 Consolidated Statement of Cash Flows has also been revised to reflect the impact of the above balance sheet revision. Cash, Cash Equivalents and Restricted Cash The following table provides a reconciliation of cash, cash equivalents and restricted cash at March 31, 2018 and December 31, 2017 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.
Income Taxes The effective income tax rate for the three months ended March 31, 2018 was (132.5%), compared to (0.4%) in the same period in 2017, and is primarily driven by the inability to recognize a tax benefit on certain losses and limitations on the Company’s interest expense deduction as a result of the Tax Cuts and Jobs Act of 2017 (the “Tax Act”). Non-deductible interest expense will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance was recorded. The effective income tax rate for the three months ended March 31, 2017 reflects the impact of the $51.6 million realized loss on the sale of LSC retained shares. The sale generated a capital loss which will be carried forward; however it is more likely than not that the benefit of such deferred tax asset will not be fully realized and a valuation allowance was recorded. Cash payments for income taxes were $9.2 million and $15.2 million for the three months ended March 31, 2018 and 2017, respectively. Cash refunds for income taxes were $7.1 million and $18.9 million for the three months ended March 31, 2018 and 2017, respectively. On December 22, 2017, the SEC issued Staff Accounting Bulletin 118 (SAB 118) which provides guidance for companies analyzing their accounting for the income tax effects of the Tax Act. SAB 118 provides that a company may report provisional amounts based on reasonable estimates. The provisional estimates are then subject to adjustment during a measurement period up to one year and should be accounted for as a prospective change. At December 31, 2017, we were able to make reasonable provisional estimates of the one-time transition tax and impact to deferred taxes; however we continue to analyze our data and refine our estimated amounts accordingly, and continue to interpret any guidance or subsequent clarification of the tax law. As a result, we may make adjustments to the provisional amounts recorded, throughout the year, in accordance with the guidance outlined in SAB 118. During the first quarter of 2018, we made an adjustment of $2.3 million to increase the provisional amounts recorded at December 31, 2017. Deferred U.S. income taxes and foreign taxes have historically not been provided on the excess of the investment value for financial reporting over the tax basis of investments in those foreign subsidiaries for which such excess is considered to be permanently reinvested in those operations. We continue to analyze the global working capital and cash requirements and the potential tax liabilities attributable to repatriation, but we have yet to determine whether to change the prior assertion and repatriate earnings. We will record the tax effects of any change in the prior assertion in the period the analysis is complete and reasonable estimates are made. |
Revenue Recognition |
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Revenue From Contract With Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Revenue Recognition | 2. Revenue Recognition On January 1, 2018, we adopted ASC Topic 606, “Revenue from Contracts with Customers” using the modified retrospective method applied to those contracts which were not completed as of January 1, 2018. Results for reporting periods beginning after January 1, 2018 are presented under Topic 606, while prior period amounts are not adjusted and continue to be reported in accordance with our historical accounting under Topic 605. All revenue recognized in the Condensed Statements of Operations is considered to be revenue from contracts with customers. We recorded a net increase to opening retained earnings of $12.9 million as of January 1, 2018 due to the cumulative impact of adopting Topic 606, with the impact primarily related to the timing of revenue recognition for certain inventory that has been billed but not yet shipped. Disaggregation of Revenue The following table presents the Company’s net sales disaggregated by products and services:
Products Our products revenue is primarily recognized at a point in time. We generally recognize revenue for products sales upon the transfer of control of the products to the client which typically occurs upon transfer of title and risk of ownership, which is generally upon shipment to the client. For certain products sales, we are able to recognize revenue for completed inventory billed but not yet shipped at the client’s direction. The following is a description of our products: Commercial Print We generate revenue by providing various commercial printing products and offer a full range of branded materials including manuals, publications, brochures, business cards, flyers, post cards, posters and promotional items. Statements We generate revenue by creating critical business communications, including customer billings, financial statements, healthcare communications and insurance documents. Our capabilities include design and composition, variable imaging, email, archival and digital mail interaction, as well as our innovative RRDigital solution set. Direct Mail We generate revenue by providing print production, including touch mailings, and postal optimization strategies. Packaging We generate revenue by providing packaging print for clients in consumer electronics, life sciences, cosmetics and consumer packaged goods industries. Labels We generate revenue by producing custom labels for clients across multiple industries including warehouse and distribution, retail, pharmaceutical, manufacturing and consumer packaging. We offer distribution and shipping labels, healthcare and durable goods labels, promotional labels and consumer product goods packaging labels. Digital Print and Fulfillment We generate revenue by providing various in-store marketing materials, using our digital and offset printing capabilities, including in-store signage and point-of-purchase displays. We also create photobooks. Supply Chain Management We generate revenue by providing workflow design to assembly, configuration, kitting and fulfillment for clients in consumer electronics, telecommunications, life sciences, cosmetics, education and industrial industries. Forms We generate revenue by producing a variety of forms including invoices, order forms and business forms that support both the private and public sectors for clients in financial, government, retail, healthcare and business services industries. Services Our services revenue is recognized both at a point in time as well as over time. Our logistics revenue is primarily recognized over time as the performance obligation is completed. Due to the short transit period of logistics performance obligations, the timing of revenue recognition does not require significant judgment. Our business process outsourcing and digital and creative solutions revenue is recognized over time or at a point in time, depending on the nature of the service which could be either recurring or project-based. Logistics We generate revenue by providing specialized transportation and distribution services. These services are comprised of freight services, including truckload, less-than-truckload, intermodal and international freight forwarding; international mail and parcel distribution; print logistics services, including distribution of retail and newsstand printed materials; and courier services including same day and next day delivery. Business Process Outsourcing We generate revenue by providing outsourcing services including creative services, research and analytics, financial management and other services for legal providers, insurance, telecommunications, utilities, retail and financial services companies. Digital and Creative Solutions We generate revenue by creating and managing content designed to speak directly to customers, including print and digital advertising, direct marketing and direct mail design, packaging design, marketing and sales collateral and in-store marketing. 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 assets and contract liabilities from contracts with clients:
Contract liabilities primarily relate to client advances received prior to completion of performance obligations. Reductions in contract liabilities are a result of the Company’s completion of performance obligations. Revenue recognized during the three months ended March 31, 2018 from amounts included in contract liabilities at the beginning of the period was approximately $21.0 million. During the three months ended March 31, 2018, we reclassified $4.0 million of contract assets to receivables as a result of the completion of the performance obligation and the right to the consideration becoming unconditional. Practical Expedients and Exemptions As part of the adoption of Topic 606, we have elected practical expedients and exemptions allowable under the guidance. We account for shipping and handling activities performed after the control of a good has been transferred to the client as a fulfillment cost. We accrue for the costs of shipping and handling activities if revenue is recognized before contractually agreed shipping and handling activities occur. We apply Topic 606 to a portfolio of contracts (or performance obligations) with similar characteristics as we reasonably expect that the effects on the financial statements of applying this guidance to the portfolio would not differ significantly from applying this guidance to the individual contracts (or performance obligations) within that portfolio. When the output method for measure of progress is determined appropriate, we recognize revenue in the amount for which we have the right to invoice for revenue that is recognized over time and for which we can demonstrate that the invoiced amount corresponds directly with the value to the client for the performance completed to date. We generally expense sales commissions and other costs to obtain a contract when incurred, because the amortization period would have been one year or less. These costs are recorded within selling, general and administrative expenses. We exclude sales taxes and other similar taxes from the measurement of the transaction price. We do not disclose the value of unsatisfied performance obligations, nor do we disclose the timing of revenue recognition for contracts with an original expected length of one year or less. |
Inventories |
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Inventories | 3. Inventories The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at March 31, 2018 and December 31, 2017 were as follows:
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Property, Plant and Equipment |
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Property, Plant and Equipment | 4. Property, Plant and Equipment The components of the Company’s property, plant and equipment at March 31, 2018 and December 31, 2017 were as follows:
During the three months ended March 31, 2018 and 2017, depreciation expense was $33.3 million and $35.7 million, respectively. During the fourth quarter of 2017, we entered into an agreement to sell a building and transfer the related land use rights to a third party for a facility in the Business Services segment. During the three months ended December 31, 2017 and March 31, 2018, we received deposits in accordance with the terms of the agreement of approximately $12.5 million and $32.1 million, respectively, which are recorded in other noncurrent liabilities on the Condensed Consolidated Balance Sheets. The terms of the agreement require the buyer to make additional deposits to us through the close date, which is expected to occur in 2020. As of March 31, 2018, we continue to classify the carrying cost of the building within property, plant and equipment and record depreciation expense. The carrying cost of the land use rights are classified in other noncurrent assets. |
Goodwill and Other Intangible Assets |
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Goodwill And Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets | 5. Goodwill and Other Intangible Assets The changes in the carrying amount of goodwill for the three months ended March 31, 2018 were as follows:
The components of other intangible assets at March 31, 2018 and December 31, 2017 were as follows:
Amortization expense for other intangible assets was $7.0 million and $7.5 million for the three months ended March 31, 2018 and 2017, respectively. |
Restructuring and Other |
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Restructuring And Related Activities [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Restructuring and Other | 6. Restructuring and Other For the three months ended March 31, 2018 and 2017, the Company recorded the following net restructuring and other expenses:
Restructuring and Other For the three months ended March 31, 2018, the Company recorded net restructuring charges of $3.2 million for employee termination costs. These charges primarily relate to the reorganization of selling, general and administrative functions across each segment and an announced facility closure in the Business Services segment. The Company also incurred lease termination and other restructuring charges of $1.6 million for the three months ended March 31, 2018. Additionally, the Company recorded a $4.9 million net gain on the sale of previously impaired assets in the Business Services segment. These assets were impaired in 2015. For the three months ended March 31, 2017, the Company recorded net restructuring charges of $6.4 million for employee termination costs. These charges primarily related to ceasing the Company’s relationship in a joint venture within the Business Services segment, the reorganization of certain operations and one facility closure in the Marketing Solutions segment. The Company also incurred lease termination and other restructuring charges of $1.6 million for the three months ended March 31, 2017 and recorded impairment charges of $0.5 million related to equipment associated with a facility closure in the Marketing Solutions segment. Multi-Employer Pension Plan (MEPP) Charges For the three months ended March 31, 2018 and 2017, the Company recorded charges of $0.6 million for MEPP withdrawal obligations unrelated to facility closures. The total liabilities for the withdrawal obligations associated with the Company’s decision to withdraw from all multi-employer pension plans included in accrued liabilities and other noncurrent liabilities are $5.1 million and $31.0 million, respectively, as of March 31, 2018. Restructuring Reserve The restructuring reserve as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
The current portion of restructuring reserves of $9.1 million at March 31, 2018 was included in accrued liabilities, while the long-term portion of $12.2 million, primarily related to multi-employer pension plan withdrawal obligations related to facility closures, employee terminations in litigation within the Business Services segment and lease termination costs, was included in other noncurrent liabilities at March 31, 2018. The Company anticipates that payments associated with the employee terminations reflected in the above table will be substantially completed by March 2019, excluding employee terminations in litigation within the Business Services segment. Payments on all of the Company’s multi-employer pension plan 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 multi-employer pension plan withdrawals. The restructuring liabilities classified as “lease terminations and other” consisted of lease terminations, other facility closing costs and contract termination costs. Payments on certain of the lease obligations are scheduled to continue until 2020. Market conditions and the Company’s ability to sublease these properties could affect the ultimate charges related to the lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Company’s financial statements. |
Employee Benefits |
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Compensation And Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Employee Benefits | 7. Employee Benefits The components of the estimated net pension and other postretirement benefits plan income for the three months ended March 31, 2018 and 2017 were as follows:
During the three months ended March 31, 2018, the Company contributed $6.3 million to its benefit plans. The Company adopted ASU No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost”, with retrospective adoption, during the first quarter of 2018 and records benefit service costs in cost of sales and selling, general and administrative expenses. The other components, which include interest cost, expected return on plan assets, net amortization and settlements, are recorded in Investment and other (income) expense-net within the Condensed Consolidated Statements of Operations. Previously, all pension and postretirement benefits expense (income) was recorded in cost of sales and selling, general and administrative expenses. See Note 16, New Accounting Pronouncements, for further discussion and impact of adoption. |
Share-Based Compensation |
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Share Based Compensation [Abstract] | |
Share-Based Compensation | 8. Share-Based Compensation Share-based compensation expense totaled $1.2 million and $1.9 million for the three months ended March 31, 2018 and 2017, respectively. In March 2018, the Company awarded its annual share-based compensation grants, which consisted of 683,076 restricted stock units with a grant date fair value of $6.10 per unit and 683,076 performance share units also with a grant date fair value of $6.10 per unit. The restricted stock units are subject to a three year graded vesting period and the performance share units are subject to a 34 month cliff vesting period. Dividends are not paid on restricted stock units. In addition, during the three months ended March 31, 2018, the Company granted 798,105 cash-settled stock units (“phantom stock units”). The Company’s share price on the date of grant was $7.31. The phantom stock units vest and are payable in three equal installments over a period of three years after the grant date. Phantom stock units are not shares of the Company’s common stock and therefore the recipients of these awards do not receive ownership interest in the Company or shareholder voting rights. Phantom stock unit awards are subject to forfeiture upon termination of employment prior to vesting, subject in some cases to early vesting upon specified events, including death or permanent disability of the grantee, termination of the grantee’s employment under certain circumstances or a change in control of the Company. All phantom stock unit awards are classified as liability awards due to their expected settlement in cash, and are included in accrued liabilities in the Condensed Consolidated Balance Sheets. Compensation expense for these awards is measured based upon the fair value of the awards at the end of each reporting period. Dividends are not paid on phantom stock units. |
Equity |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity | 9. Equity The Company’s equity as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
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Earnings per Share |
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Earnings per Share | 10. 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 the Company’s stock price during the applicable period. In periods when the Company is 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. During the three months ended March 31, 2018 and 2017, no shares of common stock were purchased by the Company; however shares were withheld for tax liabilities upon the vesting of equity awards. 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 months ended March 31, 2018 and 2017 were as follows:
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Other Comprehensive Income (Loss) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Income (Loss) | 11. Other Comprehensive Income (Loss) The components of other comprehensive income (loss) and income tax expense (benefit) allocated to each component for the three months ended March 31, 2018 and 2017 were as follows:
Accumulated other comprehensive income (loss) by component as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
Accumulated other comprehensive income (loss) by component as of December 31, 2016 and March 31, 2017, and changes during the three months ended March 31, 2017, were as follows:
Reclassifications from accumulated other comprehensive income (loss) for the three months ended March 31, 2018 and 2017 were as follows:
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Segment Information |
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Segment Information | 12. Segment Information During the first quarter of 2018, management realigned the Company’s reportable segments to reflect changes in the global operating structure of the Company and the manner in which the chief operating decision maker assesses information for decision-making purposes. All prior year amounts have been reclassified to conform to the Company’s current reporting structure. The Company’s 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, logistics, statement printing, labels, packaging, supply chain management, forms and business process outsourcing. This segment also includes all of the Company’s 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 mail, in-store marketing, digital print, kitting, fulfillment, digital and creative solutions and list services. Corporate Corporate consists of unallocated selling, general and administrative activities and associated expenses including, in part, 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 other postretirement benefits plan expense (income) and share-based compensation, are included in Corporate and not allocated to the operating segments. Corporate also manages the Company’s cash pooling structures, which enables participating international locations to draw on our international cash resources to meet local liquidity needs. Information by Segment The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported within the Condensed Consolidated Financial Statements.
Restructuring and other expenses by segment are described in Note 6, Restructuring and Other. |
Commitments and Contingencies |
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Commitments And Contingencies Disclosure [Abstract] | |
Commitments and Contingencies | 13. Commitments and Contingencies The Company is subject to laws and regulations relating to the protection of the environment. The Company provides 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. The Company has been designated as a potentially responsible party or has received claims in two active federal and state Superfund and other multiparty remediation sites. In addition to these sites, the Company may also have the obligation to remediate six other previously and currently owned facilities. At the Superfund sites, the Comprehensive Environmental Response, Compensation and Liability Act provides that the Company’s liability could be joint and several, meaning that the Company could be required to pay an amount in excess of its proportionate share of the remediation costs. The Company’s 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 the Company’s estimated liability. The Company believes that its recorded reserves, recorded in accrued liabilities and other noncurrent liabilities, are adequate to cover its 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 the Company may undertake in the future. However, in the opinion of management, compliance with the present environmental protection laws, before taking into account estimated recoveries from third parties, will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows. From time to time, the Company’s clients and others file voluntary petitions for reorganization under United States bankruptcy laws. In such cases, certain pre-petition payments received by the Company from these parties could be considered preference items and subject to return. In addition, the Company may be party to certain litigation arising in the ordinary course of business. Management believes that the final resolution of these preference items and litigation will not have a material effect on the Company’s consolidated results of operations, financial position or cash flows. |
Debt |
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt | 14. Debt The Company’s debt at March 31, 2018 and December 31, 2017 consisted of the following:
The fair values of the senior notes and debentures, which were determined using the market approach based upon interest rates available to the Company for borrowings with similar terms and maturities, were determined to be Level 2 under the fair value hierarchy. The fair value of the Company’s total debt was greater than its book value by approximately $34.6 million and $18.8 million at March 31, 2018 and December 31, 2017, respectively. On September 29, 2017, the Company entered into an asset-based revolving credit facility (the “Credit Agreement”) which amended and restated the Company’s prior $800.0 million senior secured revolving credit facility dated September 30, 2016. The Credit Agreement provides for a senior secured asset-based revolving credit facility of up to $800.0 million subject to a borrowing base. The amount available to be borrowed under the Credit Agreement is equal to the lesser of (a) $800.0 million and (b) the aggregate amount of accounts receivable, inventory, machinery and equipment and fee-owned real estate of the Company and certain of its domestic subsidiaries (the “Guarantors”) (collectively, the “Borrowing Base”), subject to certain eligibility criteria and advance rates. The aggregate amount of real estate, machinery and equipment that can be included in the Borrowing Base cannot exceed $200.0 million. The Company’s obligations under the Credit Agreement are guaranteed by the Guarantors and are secured by a security interest in certain assets of the Company and its domestic subsidiaries, including accounts receivable, inventory, deposit accounts, securities accounts, investment property, machinery, equipment and, to the extent related to the foregoing, general intangibles, documents and instruments, as well as 65% of the equity interests of their first-tier foreign subsidiaries. The Credit Agreement contains customary restrictive covenants, including a covenant which requires the Company to maintain a minimum fixed charge coverage ratio under certain circumstances. In addition, the Company’s ability to undertake certain actions, including, among other things, prepay certain junior debt, incur additional unsecured indebtedness and make certain restricted payments depends on satisfaction of certain conditions, including, among other things, meeting minimum availability thresholds under the Credit Agreement. The Credit Agreement generally allows annual dividend payments of up to $60.0 million in aggregate, though additional dividends may be allowed subject to certain conditions. Borrowings under the Credit Agreement bear interest at a rate dependent on the average quarterly availability under the Credit Agreement and is calculated according to a base rate (prime rate) or a Eurocurrency rate (London Inter-bank Offered Rate or “LIBOR”) plus an applicable margin. The applicable margin for base rate loans ranges from 0.25% to 0.50% and the applicable margin for Eurocurrency loans ranges from 1.25% to 1.50%. In addition, a fee is payable quarterly on the unused portion of the amount available to be borrowed under the Credit Agreement. The fee accrues at a rate of either 0.25% or 0.375% depending upon the average usage of the facility. The Credit Agreement is scheduled to mature on September 29, 2022, at which time all outstanding amounts under the Credit Agreement will be due and payable. Borrowings under the Credit Agreement may be used for working capital and general corporate purposes. Based on the Company’s borrowing base as of March 31, 2018 and existing borrowings, the Company had approximately $477.3 million borrowing capacity available under the Credit Agreement. The weighted average interest rate on borrowings under the Company’s current and prior credit facilities was 3.1% and 3.5% during the three months ended March 31, 2018 and 2017, respectively. Interest paid, net of interest capitalized, was $38.1 million and $38.3 million for the three months ended March 31, 2018 and 2017, respectively. Interest income was $0.5 million and $0.9 million for the three months ended March 31, 2018 and 2017, respectively. |
Derivatives |
3 Months Ended |
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Mar. 31, 2018 | |
Derivative Instruments And Hedging Activities Disclosure [Abstract] | |
Derivatives | 15. 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 other comprehensive income (loss), net of applicable income taxes, or in the Condensed Consolidated Statements of Operations, depending on the purpose for which the derivative is held. At the inception of a hedge transaction, the Company formally documents the hedge relationship and the risk management objective for undertaking the hedge. In addition, the Company assesses 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. The Company is exposed to the impact of foreign currency fluctuations in certain countries in which it operates. The exposure to foreign currency movements is limited in many countries because the operating revenues and expenses of its various subsidiaries and business units are substantially in the local currency of the country in which they operate. To the extent borrowings, sales, purchases, revenues, expenses or other transactions are not in the local currency of the subsidiary or operating unit, the Company is exposed to currency risk. Periodically, the Company uses foreign exchange spot and forward contracts to hedge exposures resulting from foreign exchange fluctuations. Accordingly, the gains and losses associated with the fair values of foreign currency exchange contracts are recognized in the Condensed Consolidated Statements of Operations and are generally offset by gains and losses on underlying payables, receivables and net investments in foreign subsidiaries. The Company does not use derivative financial instruments for trading or speculative purposes. The aggregate notional value of the forward contracts at March 31, 2018 and December 31, 2017 was $189.6 million and $215.9 million, respectively. The fair values of foreign currency contracts were determined to be Level 2 under the fair value hierarchy and are valued using market exchange rates. The total fair value of the Company’s foreign currency contracts, which were the only derivatives not designated as hedges, included in prepaid expenses and other current assets at March 31, 2018 and December 31, 2017 was $3.9 million and $2.2 million, respectively. In addition, there was $0.1 million of these derivatives included in accrued liabilities at March 31, 2018. |
New Accounting Pronouncements |
3 Months Ended |
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Mar. 31, 2018 | |
Accounting Changes And Error Corrections [Abstract] | |
New Accounting Pronouncements | 16. New Accounting Pronouncements Recently Adopted Accounting Pronouncements In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2017-07 “Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost,” which changed the presentation of net periodic pension and postretirement benefit cost (net benefit cost) within the Statement of Operations. Under the previous guidance, net benefit cost was reported as an employee cost within income from operations. The amendment required the bifurcation of net benefit cost, with the service cost component presented with other employee compensation costs in income from operations while the other components are presented separately outside of income from operations. The Company retrospectively adopted this guidance as of January 1, 2018. See Note 7, Employee Benefits, for further discussion. The impact of adoption was a $1.0 million increase in cost of sales, $3.1 million increase in selling, general and administrative expenses and $4.1 million decrease in investment and other expense-net for the three months ended March 31, 2017 to the amounts previously reported. In May 2014, the FASB issued ASU No. 2014-09 “Revenue from Contracts with Customers (Topic 606),” which outlined a single comprehensive model for entities to use in accounting for revenue using a five-step process that superseded virtually all existing revenue guidance. ASU 2014-09 also required additional quantitative and qualitative disclosures. During 2016, the FASB issued ASU 2016-08 “Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net),” ASU 2016-10 “Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing,” and ASU 2016-12 “Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,” which clarified the revenue recognition implementation guidance on principal versus agent considerations, identifying performance obligations, determining whether an entity's promise to grant a license provides a customer with either a right to use or a right to access the entity's intellectual property, assessing the collectability criteria, presentation of sales and similar taxes, noncash consideration and various other items. The standard allowed the option of either a full retrospective adoption, meaning the standard is applied to all periods presented, or a modified retrospective adoption, meaning the standard is applied only to the most current period. The Company adopted the guidance as of January 1, 2018 using the modified retrospective approach. See Note 2, Revenue Recognition, for further discussion. In accordance with Topic 606, the impact of adoption as compared to the prior guidance on the Company’s Condensed Consolidated Statements of Operations was an increase of $5.2 million in total net sales and increase of $1.2 million in total gross profit for the three months ended March 31, 2018. Additionally, the impact of adoption as compared to the prior guidance was a decrease of $67.6 million in inventories, decrease of $80.7 million in accrued liabilities and increase of $14.0 million in stockholders' equity at March 31, 2018. No other financial statement line item was materially impacted. Accounting Pronouncements Issued and Not Yet Adopted In February 2018, the FASB issued ASU No. 2018-02 “Income Statement—Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income,” which permits the reclassification of tax effects stranded in accumulated other comprehensive income to retained earnings as a result of the Tax Act. The standard also requires entities to disclose whether or not they elected to reclassify the tax effects related to the Tax Act as well as their policy for releasing income tax effects from accumulated other comprehensive income. The standard allows the option of applying either a retrospective adoption, meaning the standard is applied to all periods in which the effect of the Tax Act is recognized, or applying the amendments in the period of adoption, meaning an adjustment is made to stockholders’ equity as of the beginning of the reporting period. ASU 2018-02 will be effective in the first quarter of 2019; however early adoption is permitted for interim and annual periods, including the reporting period in which the Tax Act was enacted. The Company is currently evaluating the impact of ASU 2018-02 on the Condensed Consolidated Financial Statements. In January 2018, the FASB released guidance on the accounting for tax on the global intangible low-taxed income ("GILTI") provisions in the Tax Act. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of foreign corporations. The guidance indicates that either accounting for deferred taxes related to GILTI inclusions or treating any taxes on GILTI inclusions as period cost are both acceptable methods subject to an accounting policy election. The Company has not yet completed its assessment and therefore has not yet elected an accounting policy. In February 2016, the FASB issued ASU No. 2016-02 “Leases (Topic 842)” which requires lessees to record most leases on the balance sheet but recognize expense on the income statement in a manner similar to current accounting. For lessors, ASU 2016-02 also modifies the classification criteria and the accounting for sales-type and direct financing leases. The standard requires a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements and is effective in the first quarter of 2019. Early adoption of ASU 2016-02 is permitted; however the Company plans to adopt the standard in the first quarter of 2019. The Company is currently evaluating the impact of ASU 2016-02 on the Condensed Consolidated Financial Statements.
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Basis of Presentation (Tables) |
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Revision of Balance Sheet | The following table presents the impact of the related balance sheet revision on the March 31, 2017 Condensed Consolidated Balance Sheet:
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Reconciliation of Cash, Cash Equivalents and Restricted Cash | The following table provides a reconciliation of cash, cash equivalents and restricted cash at March 31, 2018 and December 31, 2017 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.
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Revenue Recognition (Tables) |
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Revenue From Contract With Customer [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net Sales Disaggregated by Products and Services | The following table presents the Company’s net sales disaggregated by products and services:
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Contract Assets and Contract Liabilities from Contracts with Clients | The following table provides information about contract assets and contract liabilities from contracts with clients:
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Inventories (Tables) |
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Inventory Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Inventories | The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at March 31, 2018 and December 31, 2017 were as follows:
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Property, Plant and Equipment (Tables) |
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Property Plant And Equipment [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Property, Plant and Equipment | The components of the Company’s property, plant and equipment at March 31, 2018 and December 31, 2017 were as follows:
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Goodwill and Other Intangible Assets (Tables) |
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Goodwill And Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Changes in the Carrying Value of Goodwill by Segment | The changes in the carrying amount of goodwill for the three months ended March 31, 2018 were as follows:
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Components of Other Intangible Assets | The components of other intangible assets at March 31, 2018 and December 31, 2017 were as follows:
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Restructuring and Other (Tables) |
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Restructuring And Related Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Net Restructuring and Other Expenses | For the three months ended March 31, 2018 and 2017, the Company recorded the following net restructuring and other expenses:
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Schedule of Changes in the Restructuring Reserve | The restructuring reserve as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
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Employee Benefits (Tables) |
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Compensation And Retirement Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Components of Estimated Net Pension and Other Postretirement Benefit Plan Income | The components of the estimated net pension and other postretirement benefits plan income for the three months ended March 31, 2018 and 2017 were as follows:
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Equity (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the Company's Equity Activity | The Company’s equity as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
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Earnings per Share (Tables) |
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Earnings Per Share [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Earnings per Share | 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 months ended March 31, 2018 and 2017 were as follows:
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Other Comprehensive Income (Loss) (Tables) |
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Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Components of Other Comprehensive Income (Loss) and Income Tax Expense (Benefit) Allocated to Each Component | The components of other comprehensive income (loss) and income tax expense (benefit) allocated to each component for the three months ended March 31, 2018 and 2017 were as follows:
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Summary of Changes in Accumulated Other Comprehensive Income (Loss) | Accumulated other comprehensive income (loss) by component as of December 31, 2017 and March 31, 2018, and changes during the three months ended March 31, 2018, were as follows:
Accumulated other comprehensive income (loss) by component as of December 31, 2016 and March 31, 2017, and changes during the three months ended March 31, 2017, were as follows:
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Reclassifications from Accumulated Other Comprehensive Income (Loss) | Reclassifications from accumulated other comprehensive income (loss) for the three months ended March 31, 2018 and 2017 were as follows:
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Segment Information (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Segment Reporting Information | The Company has disclosed income (loss) from operations as the primary measure of segment earnings (loss). This is the measure of profitability used by the Company’s chief operating decision-maker and is most consistent with the presentation of profitability reported within the Condensed Consolidated Financial Statements.
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Debt (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Mar. 31, 2018 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of the Company's Debt | The Company’s debt at March 31, 2018 and December 31, 2017 consisted of the following:
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New Accounting Pronouncements (Tables) |
3 Months Ended |
---|---|
Mar. 31, 2018 | |
Accounting Standards Update 2014-09 | |
Impact of Adoption of Topic 606 to Condensed Consolidated Statements of Operations and Balance Sheet | In accordance with Topic 606, the impact of adoption as compared to the prior guidance on the Company’s Condensed Consolidated Statements of Operations was an increase of $5.2 million in total net sales and increase of $1.2 million in total gross profit for the three months ended March 31, 2018. Additionally, the impact of adoption as compared to the prior guidance was a decrease of $67.6 million in inventories, decrease of $80.7 million in accrued liabilities and increase of $14.0 million in stockholders' equity at March 31, 2018. No other financial statement line item was materially impacted. |
Basis of Presentation - Schedule of Revision of Balance Sheet (Detail) - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
Mar. 31, 2017 |
---|---|---|---|
Error Corrections And Prior Period Adjustments Restatement [Line Items] | |||
Receivables, less allowance for doubtful accounts | $ 1,345.4 | $ 1,417.6 | $ 1,244.1 |
Inventories | 339.9 | 416.8 | 382.4 |
Accounts payable | $ 860.8 | $ 1,094.7 | 866.5 |
As Reported | |||
Error Corrections And Prior Period Adjustments Restatement [Line Items] | |||
Receivables, less allowance for doubtful accounts | 1,268.9 | ||
Inventories | 375.9 | ||
Accounts payable | 884.8 | ||
Adjustments | |||
Error Corrections And Prior Period Adjustments Restatement [Line Items] | |||
Receivables, less allowance for doubtful accounts | (24.8) | ||
Inventories | 6.5 | ||
Accounts payable | $ (18.3) |
Basis of Presentation - Reconciliation of Cash, Cash Equivalents and Restricted Cash (Detail) - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Accounting Policies [Abstract] | ||
Cash and cash equivalents | $ 235.2 | $ 273.4 |
Restricted cash - current | 24.1 | 28.0 |
Restricted cash - noncurrent | 0.1 | 0.1 |
Total cash, cash equivalents and restricted cash | $ 259.4 | $ 301.5 |
Revenue Recognition - Narrative (Details) - Accounting Standards Update 2014-09 - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Jan. 01, 2018 |
|
Revenue Initial Application Period Cumulative Effect Transition [Line Items] | ||
Revenue recognized from deferred revenue | $ 21.0 | |
Contract asset reclassified to receivables | $ 4.0 | |
Retained Earnings | ||
Revenue Initial Application Period Cumulative Effect Transition [Line Items] | ||
Net increase to opening retained earnings | $ 12.9 |
Revenue Recognition - Contract Assets and Contract Liabilities from Contracts with Clients (Details) - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Revenue From Contract With Customer [Abstract] | ||
Contract Assets, Short-Term | $ 5.2 | $ 4.0 |
Contract Liabilities, Short-Term | 23.7 | 30.3 |
Contract Liabilities, Long-Term | $ 1.2 | $ 1.4 |
Inventories - Components of Inventories (Detail) - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
Mar. 31, 2017 |
---|---|---|---|
Inventory Net [Abstract] | |||
Raw materials and manufacturing supplies | $ 152.9 | $ 161.1 | |
Work in process | 72.0 | 75.0 | |
Finished goods | 132.5 | 198.2 | |
LIFO reserve | (17.5) | (17.5) | |
Total inventories | $ 339.9 | $ 416.8 | $ 382.4 |
Property, Plant and Equipment - Components of Property, Plant and Equipment (Detail) - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Property Plant And Equipment [Abstract] | ||
Land | $ 53.6 | $ 56.1 |
Buildings | 414.5 | 417.3 |
Machinery and equipment | 1,899.5 | 1,885.2 |
Property, plant and equipment, gross | 2,367.6 | 2,358.6 |
Less: Accumulated depreciation | (1,778.9) | (1,743.5) |
Total property, plant and equipment-net | $ 588.7 | $ 615.1 |
Property, Plant and Equipment - Narrative (Detail) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Property Plant And Equipment [Abstract] | |||
Depreciation expense | $ 33.3 | $ 35.7 | |
Building and related land sales, deposit received | $ 32.1 | $ 12.5 |
Goodwill and Other Intangible Assets - Schedule of Changes in the Carrying Value of Goodwill by Segment (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
Goodwill [Line Items] | ||
Goodwill gross | $ 3,294.7 | $ 3,279.3 |
Accumulated impairment losses | (2,704.0) | (2,690.8) |
Goodwill | 590.7 | 588.5 |
Foreign exchange | 2.2 | |
Business Services | ||
Goodwill [Line Items] | ||
Goodwill gross | 2,775.2 | 2,759.8 |
Accumulated impairment losses | (2,449.9) | (2,436.7) |
Goodwill | 325.3 | 323.1 |
Foreign exchange | 2.2 | |
Marketing Solutions | ||
Goodwill [Line Items] | ||
Goodwill gross | 519.5 | 519.5 |
Accumulated impairment losses | (254.1) | (254.1) |
Goodwill | $ 265.4 | $ 265.4 |
Goodwill and Other Intangible Assets - Narrative (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Goodwill And Intangible Assets Disclosure [Abstract] | ||
Amortization expense for other intangible assets | $ 7.0 | $ 7.5 |
Restructuring and Other - Narrative (Detail) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018
USD ($)
|
Mar. 31, 2017
USD ($)
Facility
|
|
Restructuring Cost And Reserve [Line Items] | ||
Employee termination costs | $ 3.2 | $ 6.4 |
Other restructuring charges | 1.6 | $ 1.6 |
Business Services | ||
Restructuring Cost And Reserve [Line Items] | ||
Gain on sale of previously impaired assets | $ 4.9 | |
Marketing Solutions | ||
Restructuring Cost And Reserve [Line Items] | ||
Number of facilities closed | Facility | 1 | |
Marketing Solutions | Facility Closures | ||
Restructuring Cost And Reserve [Line Items] | ||
Impairment of other long lived assets | $ 0.5 |
Restructuring and Other - Multi-Employer Pension Plan Charges - Narrative (Detail) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Restructuring Cost And Reserve [Line Items] | |||
Multi-employer pension plan charges | $ 0.6 | $ 0.6 | |
Accrued liabilities | 349.2 | $ 447.5 | |
Other noncurrent liabilities | 208.6 | $ 180.2 | |
Multi-employer pension plan withdrawal obligations | |||
Restructuring Cost And Reserve [Line Items] | |||
Accrued liabilities | 5.1 | ||
Other noncurrent liabilities | $ 31.0 |
Restructuring and Other - Schedule of Changes in the Restructuring Reserve (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Restructuring Cost And Reserve [Line Items] | ||
Balance at the beginning | $ 23.5 | |
Restructuring Charges | 4.8 | $ 8.0 |
Foreign Exchange and Other | (0.1) | |
Cash Paid | (6.9) | |
Balance at the end | 21.3 | |
Employee terminations | ||
Restructuring Cost And Reserve [Line Items] | ||
Balance at the beginning | 9.6 | |
Restructuring Charges | 3.2 | |
Foreign Exchange and Other | (0.1) | |
Cash Paid | (5.1) | |
Balance at the end | 7.6 | |
Multi-employer pension plan withdrawal obligations | ||
Restructuring Cost And Reserve [Line Items] | ||
Balance at the beginning | 11.0 | |
Restructuring Charges | 0.2 | |
Cash Paid | (0.4) | |
Balance at the end | 10.8 | |
Lease terminations and other | ||
Restructuring Cost And Reserve [Line Items] | ||
Balance at the beginning | 2.9 | |
Restructuring Charges | 1.4 | |
Cash Paid | (1.4) | |
Balance at the end | $ 2.9 |
Restructuring and Other - Restructuring Reserve - Narrative (Detail) $ in Millions |
Mar. 31, 2018
USD ($)
|
---|---|
Restructuring And Related Activities [Abstract] | |
Current restructuring reserve (included in accrued liabilities) | $ 9.1 |
Noncurrent restructuring reserve (included in noncurrent liabilities) | $ 12.2 |
Employee Benefits - Components of Estimated Net Pension and Other Postretirement Benefit Plan Income (Detail) - USD ($) $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Pension expense (income) | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Service cost | $ 0.2 | $ 0.2 |
Interest cost | 7.8 | 7.8 |
Expected return on plan assets | (12.6) | (12.3) |
Amortization, net | 2.0 | 1.7 |
Settlements | (0.3) | |
Net pension income | (2.3) | (2.6) |
Other postretirement benefits plan expense (income) | ||
Defined Benefit Plan Disclosure [Line Items] | ||
Service cost | 0.4 | 0.3 |
Interest cost | 2.6 | 2.8 |
Expected return on plan assets | (3.5) | (3.4) |
Amortization, net | (0.7) | (0.7) |
Net pension income | $ (1.2) | $ (1.0) |
Employee Benefits - Narrative (Details) $ in Millions |
3 Months Ended |
---|---|
Mar. 31, 2018
USD ($)
| |
Compensation And Retirement Disclosure [Abstract] | |
Contribution to benefit plans | $ 6.3 |
Share-Based Compensation - Narrative (Detail) - USD ($) $ / shares in Units, $ in Millions |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Share-based compensation | $ 1.2 | $ 1.9 |
Restricted stock units | ||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Annual share-based compensation grants | 683,076 | |
Grant date fair value | $ 6.10 | |
Graded vesting period | 3 years | |
Performance share units | ||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Annual share-based compensation grants | 683,076 | |
Grant date fair value | $ 6.10 | |
Cliff vesting period | 34 months | |
Phantom stock units | ||
Share Based Compensation Arrangement By Share Based Payment Award [Line Items] | ||
Annual share-based compensation grants | 798,105 | |
Grant date share price | $ 7.31 | |
Payment description | payable in three equal installments over a period of three years after the grant date | |
Payment term | 3 years | |
Dividend payable | $ 0.0 |
Earnings per Share - Narrative (Detail) - shares |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
|
Earnings Per Share [Abstract] | ||
Treasury stock, shares acquired | 0 | 0 |
Commitments and Contingencies - Narrative (Detail) |
Mar. 31, 2018
Facility
|
---|---|
Commitments And Contingencies Disclosure [Abstract] | |
Number of sites cited as potentially responsible party | 2 |
Number of previously and currently owned sites with potential remediation obligations | 6 |
Debt - Schedule of the Company's Debt (Parenthetical) (Detail) |
3 Months Ended | |
---|---|---|
Mar. 31, 2018 |
Dec. 31, 2017 |
|
11.25% Senior Notes Due February 1, 2019 | ||
Debt Instrument [Line Items] | ||
Interest rate | 11.25% | |
Maturity date | Feb. 01, 2019 | |
Effective interest rate | 13.25% | 13.25% |
7.625% Senior Notes Due June 15, 2020 | ||
Debt Instrument [Line Items] | ||
Interest rate | 7.625% | |
Maturity date | Jun. 15, 2020 | |
7.875% Senior Notes Due March 15, 2021 | ||
Debt Instrument [Line Items] | ||
Interest rate | 7.875% | |
Maturity date | Mar. 15, 2021 | |
8.875% Debentures Due April 15, 2021 | ||
Debt Instrument [Line Items] | ||
Interest rate | 8.875% | |
Maturity date | Apr. 15, 2021 | |
7.00% Senior Notes Due February 15, 2022 | ||
Debt Instrument [Line Items] | ||
Interest rate | 7.00% | |
Maturity date | Feb. 15, 2022 | |
6.50% Senior Notes Due November 15, 2023 | ||
Debt Instrument [Line Items] | ||
Interest rate | 6.50% | |
Maturity date | Nov. 15, 2023 | |
6.00% Senior Notes Due April 1, 2024 | ||
Debt Instrument [Line Items] | ||
Interest rate | 6.00% | |
Maturity date | Apr. 01, 2024 | |
6.625% Debentures Due April 15, 2029 | ||
Debt Instrument [Line Items] | ||
Interest rate | 6.625% | |
Maturity date | Apr. 15, 2029 | |
8.820% Debentures Due April 15, 2031 | ||
Debt Instrument [Line Items] | ||
Interest rate | 8.82% | |
Maturity date | Apr. 15, 2031 |
Debt - Narrative (Detail) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Sep. 29, 2017 |
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Debt Instrument [Line Items] | ||||
Amount of difference between fair value and book value | $ 34,600,000 | $ 18,800,000 | ||
Weighted average interest rate on borrowings | 3.10% | 3.50% | ||
Interest paid, net of interest capitalized | $ 38,100,000 | $ 38,300,000 | ||
Interest income from investments/other | $ 500,000 | $ 900,000 | ||
Credit Agreements | ||||
Debt Instrument [Line Items] | ||||
Line of credit maximum borrowing base capacity | $ 200,000,000 | |||
Line of credit borrowing capacity description | The amount available to be borrowed under the Credit Agreement is equal to the lesser of (a) $800.0 million and (b) the aggregate amount of accounts receivable, inventory, machinery and equipment and fee-owned real estate of the Company and certain of its domestic subsidiaries (the “Guarantors”) (collectively, the “Borrowing Base”), subject to certain eligibility criteria and advance rates. The aggregate amount of real estate, machinery and equipment that can be included in the Borrowing Base cannot exceed $200.0 million. | |||
Percentage of collateralize equity interest on first-tier foreign subsidiaries | 65.00% | |||
Allowable annual dividend payment under credit agreement | $ 60,000,000 | |||
Maturity date | Sep. 29, 2022 | |||
Borrowing capacity available under credit agreement | $ 477,300,000 | |||
Credit Agreements | Minimum | ||||
Debt Instrument [Line Items] | ||||
Unused line fee | 0.25% | |||
Credit Agreements | Maximum | ||||
Debt Instrument [Line Items] | ||||
Unused line fee | 0.375% | |||
Credit Agreements | Base Rate | ||||
Debt Instrument [Line Items] | ||||
Credit facility maximum borrowing capacity | $ 800,000,000 | |||
Credit Agreements | Base Rate | Minimum | ||||
Debt Instrument [Line Items] | ||||
Interest rate margin on borrowings | 0.25% | |||
Credit Agreements | Base Rate | Maximum | ||||
Debt Instrument [Line Items] | ||||
Interest rate margin on borrowings | 0.50% | |||
Credit Agreements | Eurocurrency | ||||
Debt Instrument [Line Items] | ||||
Credit facility maximum borrowing capacity | $ 800,000,000 | |||
Credit Agreements | Eurocurrency | Minimum | ||||
Debt Instrument [Line Items] | ||||
Interest rate margin on borrowings | 1.25% | |||
Credit Agreements | Eurocurrency | Maximum | ||||
Debt Instrument [Line Items] | ||||
Interest rate margin on borrowings | 1.50% |
Derivatives - Narrative (Detail) - Not Designated as Hedging Instrument - USD ($) $ in Millions |
Mar. 31, 2018 |
Dec. 31, 2017 |
---|---|---|
Prepaid Expenses and Other Current Assets | ||
Derivative [Line Items] | ||
Derivatives assets | $ 3.9 | $ 2.2 |
Accrued Liabilities | ||
Derivative [Line Items] | ||
Derivatives liabilities | 0.1 | |
Foreign Currency Contracts | ||
Derivative [Line Items] | ||
Aggregate notional value | $ 189.6 | $ 215.9 |
New Accounting Pronouncements - Narrative (Detail) - USD ($) $ in Millions |
3 Months Ended | ||
---|---|---|---|
Mar. 31, 2018 |
Mar. 31, 2017 |
Dec. 31, 2017 |
|
Item Effected [Line Items] | |||
Net sales | $ 1,707.8 | $ 1,658.9 | |
Total gross profit | 294.7 | 326.8 | |
Inventories | (339.9) | (382.4) | $ (416.8) |
Accrued liabilities | (349.2) | (447.5) | |
Stockholders equity | (202.8) | $ (217.6) | |
Accounting Standards Update 2014-09 | Difference between Revenue Guidance in Effect before and after Topic 606 | |||
Item Effected [Line Items] | |||
Net sales | 5.2 | ||
Total gross profit | 1.2 | ||
Inventories | 67.6 | ||
Accrued liabilities | 80.7 | ||
Stockholders equity | $ 14.0 | ||
Cost of Sales | Accounting Standards Update 2017 07 | |||
Item Effected [Line Items] | |||
Operating change by adoption of new accounting standard | (1.0) | ||
Selling, General and Administrative Expenses | Accounting Standards Update 2017 07 | |||
Item Effected [Line Items] | |||
Operating change by adoption of new accounting standard | (3.1) | ||
Investment And Other Expense Net | Accounting Standards Update 2017 07 | |||
Item Effected [Line Items] | |||
Operating change by adoption of new accounting standard | $ 4.1 |
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