rrd-10q_20200630.htm

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 June 30, 2020

☐	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		36-1004130
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

35 West Wacker Drive, Chicago, Illinois		60601
(Address of principal executive offices)		(Zip code)

(312) 326-8000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	RRD	New York Stock Exchange
Preferred Stock Purchase Rights		New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

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	☐	Accelerated filer	☒

Non-Accelerated filer	☐	Smaller reporting company	☐

		Emerging growth company	☐

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 July 27, 2020, 71.4 million shares of common stock were outstanding.

R.R. DONNELLEY & SONS COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2020

TABLE OF CONTENTS

		Page
	PART I

Item 1.	Condensed Consolidated Balance Sheets as of June 30, 2020 and December 31, 2019	3
	Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2020 and 2019	4
	Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2020 and 2019	5
	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	39

	PART II

Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41
Item 4.	Mine Safety Disclosures	41
Item 6.	Exhibits	42

Signatures		43

PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(UNAUDITED)

	June 30,			December 31,
	2020			2019
ASSETS
Cash and cash equivalents	$	341.9		$	190.8
Receivables, less allowances for credit losses of $25.5 in 2020 (2019 - $20.5)		950.4			1,161.6
Inventories (Note 3)		307.7			301.8
Prepaid expenses and other current assets		123.8			98.6
Total current assets		1,723.8			1,752.8
Property, plant and equipment-net (Note 4)		459.2			500.0
Goodwill (Note 5)		433.5			457.8
Other intangible assets-net (Note 5)		88.1			99.7
Deferred income taxes		65.0			57.8
Operating lease assets		213.1			205.5
Other noncurrent assets		220.8			256.5
Total assets	$	3,203.5		$	3,330.1
LIABILITIES
Accounts payable	$	648.1		$	852.2
Accrued liabilities and other		283.9			334.2
Short-term operating lease liabilities		70.6			68.7
Short-term and current portion of long-term debt (Note 14)		155.6			71.2
Total current liabilities		1,158.2			1,326.3
Long-term debt (Note 14)		1,880.3			1,747.2
Pension liabilities		103.9			113.6
Other postretirement benefits plan liabilities		59.0			61.7
Long-term income tax liability		68.3			75.8
Long-term operating lease liabilities		147.6			141.0
Other noncurrent liabilities		252.1			234.8
Total liabilities		3,669.4			3,700.4
Commitments and Contingencies (Note 13)
EQUITY (Note 9)
RRD stockholders' equity
Preferred stock, $1.00 par value
Authorized: 2.0 shares; Issued: None		—			—
Common stock, $0.01 par value
Authorized: 165.0 shares;
Issued: 89.0 shares in 2020 and 2019		0.9			0.9
Additional paid-in-capital		3,261.2			3,348.0
Accumulated deficit		(2,409.4	)		(2,336.8	)
Accumulated other comprehensive loss		(201.0	)		(176.2	)
Treasury stock, at cost, 17.6 shares in 2020 (2019 - 18.1 shares)		(1,130.2	)		(1,219.6	)
Total RRD stockholders' equity		(478.5	)		(383.7	)
Noncontrolling interests		12.6			13.4
Total equity		(465.9	)		(370.3	)
Total liabilities and equity	$	3,203.5		$	3,330.1

See Notes to Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Products net sales	$	947.6		$	1,214.7		$	2,093.1		$	2,445.6
Services net sales		214.6			294.0			478.6			585.0
Total net sales		1,162.2			1,508.7			2,571.7			3,030.6

Products cost of sales (exclusive of depreciation and amortization)		773.5			994.1			1,696.3			2,002.9
Services cost of sales (exclusive of depreciation and amortization)		173.9			236.4			386.8			471.2
Total cost of sales		947.4			1,230.5			2,083.1			2,474.1

Products gross profit		174.1			220.6			396.8			442.7
Services gross profit		40.7			57.6			91.8			113.8
Total gross profit		214.8			278.2			488.6			556.5
Selling, general and administrative expenses (exclusive of depreciation and amortization)		156.0			199.0			335.1			398.6
Restructuring, impairment and other expense-net (Note 6)		28.5			16.0			60.4			33.1
Depreciation and amortization		38.2			40.0			79.0			82.7
Other operating expense (income)		8.0			2.3			21.2			(2.1	)
(Loss) income from operations		(15.9	)		20.9			(7.1	)		44.2
Interest expense-net		34.6			38.1			68.5			78.2
Investment and other income-net		(3.4	)		(2.2	)		(7.2	)		(6.7	)
Loss on debt extinguishment		0.4			—			0.2			—
Loss before income taxes		(47.5	)		(15.0	)		(68.6	)		(27.3	)
Income tax expense (benefit)		9.7			(7.6	)		1.5			(11.4	)
Net loss		(57.2	)		(7.4	)		(70.1	)		(15.9	)
Less: (loss) income attributable to noncontrolling interests		—			(0.4	)		0.1			(0.1	)
Net loss attributable to RRD common stockholders	$	(57.2	)	$	(7.0	)	$	(70.2	)	$	(15.8	)

Net loss per share attributable to RRD common stockholders (Note 10):
Basic net loss per share	$	(0.79	)	$	(0.10	)	$	(0.98	)	$	(0.22	)
Diluted net loss per share	$	(0.79	)	$	(0.10	)	$	(0.98	)	$	(0.22	)

Weighted average number of common shares outstanding:
Basic		72.2			71.3			71.9			71.0
Diluted		72.2			71.3			71.9			71.0

See Notes to Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(in millions)

(UNAUDITED)

	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020			2019			2020			2019
Net loss	$	(57.2	)	$	(7.4	)	$	(70.1	)	$	(15.9	)

Other comprehensive income (loss), net of tax (Note 11):
Translation adjustments		6.8			(3.2	)		(13.2	)		(2.0	)
Adjustments for net periodic pension and postretirement benefits plan cost		0.7			(0.2	)		1.5			(0.4	)
Changes in fair value of derivatives		(1.3	)		—			(13.3	)		—
Other		—			0.9			—			1.5
Other comprehensive income (loss)		6.2			(2.5	)		(25.0	)		(0.9	)
Comprehensive loss		(51.0	)		(9.9	)		(95.1	)		(16.8	)
Less: comprehensive loss attributable to non-controlling interests		—			(0.5	)		(0.1	)		—
Comprehensive loss attributable to RRD common stockholders	$	(51.0	)	$	(9.4	)	$	(95.0	)	$	(16.8	)

See Notes to Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)

	Six Months Ended
	June 30,
	2020			2019
OPERATING ACTIVITIES
Net loss	$	(70.1	)	$	(15.9	)
Adjustments to reconcile net loss to net cash used in operating activities:
Impairment charges and other-net		20.8			0.4
Depreciation and amortization		79.0			82.7
Provision for credit losses		5.9			5.8
Share-based compensation		3.2			6.7
Deferred income taxes		(3.1	)		1.4
Net pension and other postretirement benefits plan income		(6.7	)		(8.1	)
Loss (gain) on disposition of businesses and other assets		9.4			(10.6	)
Loss on debt extinguishments		0.2			—
Other		1.1			11.6
Changes in operating assets and liabilities:
Accounts receivable-net		174.6			123.1
Inventories		(9.1	)		(11.2	)
Prepaid expenses and other current assets		(4.0	)		(10.6	)
Accounts payable		(188.6	)		(205.7	)
Current income taxes		(4.8	)		(55.6	)
Accrued liabilities and other		(47.8	)		(27.3	)
Pension and other postretirement benefits plan contributions		(4.2	)		(3.8	)
Net cash used in operating activities		(44.2	)		(117.1	)
INVESTING ACTIVITIES
Capital expenditures		(38.1	)		(76.4	)
Disposition of businesses		16.1			10.4
Proceeds from sales of investments and other assets		4.7			1.4
Proceeds (payments) related to company-owned life insurance		3.1			(2.9	)
Net cash used in investing activities		(14.2	)		(67.5	)
FINANCING ACTIVITIES
Payments on other short-term debt		—			(8.0	)
Payments of current maturities and long-term debt		(152.7	)		(175.1	)
Proceeds from credit facility borrowings		578.0			797.8
Payments on credit facility borrowings		(210.0	)		(586.8	)
Dividends paid		(2.1	)		(4.3	)
Payments of withholding taxes on share-based compensation		(0.6	)		(0.9	)
Other financing activities		(1.5	)		(1.0	)
Net cash provided by financing activities		211.1			21.7
Effect of exchange rate on cash, cash equivalents and restricted cash		(4.3	)		0.2
Net increase (decrease) in cash, cash equivalents and restricted cash		148.4			(162.7	)
Cash, cash equivalents and restricted cash at beginning of year		223.8			403.6
Cash, cash equivalents and restricted cash at end of period	$	372.2		$	240.9

See Notes to Condensed Consolidated Financial Statements

R.R. DONNELLEY & SONS COMPANY AND SUBSIDIARIES (“RRD”)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

(in millions, except per share data, unless otherwise indicated)

1. Basis of Presentation

The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (“RRD,” the “Company,” “we,” “us,” and “our”) and have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the rules and regulations of the United States Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited condensed consolidated interim financial statements reflect all normal and recurring adjustments that are, in the opinion of management, necessary for a fair presentation of the results for the interim periods and should be read in conjunction with the consolidated financial statements and the related notes thereto included in our latest Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 26, 2020. Operating results for the six months ended June 30, 2020 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2020. 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.

Due to the relationship of our various jurisdictional projections of full-year pre-tax earnings and income tax expense, as well as the projected impact of permanent tax differences and other items, our historic approach of using an estimated full-year world-wide effective income tax rate to determine interim period tax expense produced an income tax provision for the current year-to-date period that was not meaningful because tax expense calculated under the historical approach was not reflective of what taxes would be due and payable based on six-month year to date pre-tax earnings. Accordingly, we calculated year-to-date fiscal 2020 tax expense based on domestic year-to-date earnings before tax to determine an estimate of the actual U.S. tax liability while using an estimated full-year international effective income tax rate on our international year-to-date earnings to determine interim period tax expense for our international jurisdictions. The second quarter tax expense is the fiscal year-to-date tax expense computed as of June 30, 2020 less tax expense recognized in the first quarter.

Cash, Cash Equivalents and Restricted Cash

The following table provides a reconciliation of cash, cash equivalents and restricted cash at June 30, 2020 and December 31, 2019 reported within the Condensed Consolidated Balance Sheets that sum to the total of the same such amounts shown in the Condensed Consolidated Statement of Cash Flows.

		June 30, 2020				December 31, 2019
Cash and cash equivalents		$	341.9