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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 "RR Donnelley") 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. These unaudited condensed consolidated interim financial statements 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, 2009 filed with the SEC on February 24, 2010. Operating results for the three and nine months ended September 30, 2010 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2010. 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.
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2. Acquisitions
2009 Acquisitions
On June 18, 2009, the Company acquired Prospectus Central, LLC ("Prospectus"), an e-delivery company located in Fitzgerald, Georgia. The purchase price for Prospectus was $3.0 million. Prospectus's operations are included in the U.S. Print and Related Services segment.
On January 2, 2009, the Company acquired the assets of PROSA, a web printing company located in Santiago, Chile. The purchase price for PROSA was approximately $23.6 million. PROSA's operations are included in the International segment.
The operations of these acquired businesses are complementary to the Company's existing products and services. As a result, the addition of these businesses is expected to improve the Company's ability to serve customers, increase capacity utilization, and reduce management, procurement and manufacturing costs.
The PROSA and Prospectus acquisitions were recorded by allocating the cost of the acquisitions to the assets acquired, including intangible assets, based on their estimated fair values at the acquisition date. The excess of the cost of the acquisitions over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill, none of which is tax deductible. Based on the valuations, the final purchase price allocations for these 2009 acquisitions were as follows:
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Accounts receivable |
$ | 2.4 | ||
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Property, plant and equipment |
9.2 | |||
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Amortizable intangible assets |
11.6 | |||
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Goodwill |
6.5 | |||
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Accounts payable and accrued liabilities |
(2.5 | ) | ||
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Deferred taxes—net |
(0.6 | ) | ||
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Net cash paid |
$ | 26.6 | ||
Pro forma results
For the three and nine months ended September 30, 2010 and 2009, there was no material impact from pro forma adjustments related to the 2009 acquisitions on net sales or net earnings attributable to RR Donnelley common shareholders.
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3. Inventories
| September 30, 2010 |
December 31, 2009 |
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Raw materials and manufacturing supplies |
$ | 249.5 | $ | 229.9 | ||||
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Work in process |
191.9 | 190.1 | ||||||
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Finished goods |
211.3 | 219.6 | ||||||
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LIFO reserve |
(86.8 | ) | (77.8 | ) | ||||
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Total |
$ | 565.9 | $ | 561.8 | ||||
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4. Property, Plant and Equipment
| September 30, 2010 |
December 31, 2009 |
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Land |
$ | 93.0 | $ | 89.6 | ||||
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Buildings |
1,140.4 | 1,140.0 | ||||||
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Machinery and equipment |
6,045.2 | 6,001.7 | ||||||
| 7,278.6 | 7,231.3 | |||||||
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Less: Accumulated depreciation |
(5,206.7 | ) | (4,959.9 | ) | ||||
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Total |
$ | 2,071.9 | $ | 2,271.4 | ||||
During the three and nine months ended September 30, 2010, depreciation expense was $102.1 million and $318.6 million, respectively. During the three and nine months ended September 30, 2009, depreciation expense was $115.1 million and $348.1 million, respectively.
Assets Held for Sale
Primarily as a result of recent restructuring actions, certain facilities and equipment are considered held for sale. The net book value of assets held for sale was $7.0 million at September 30, 2010 and $8.7 million at December 31, 2009. These assets were included in other current assets in the Condensed Consolidated Balance Sheets at September 30, 2010 and December 31, 2009 at the lower of their historical net book value or their estimated fair value, less estimated costs to sell.
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5. Goodwill and Other Intangible Assets
Goodwill at September 30, 2010 and December 31, 2009 was as follows:
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Goodwill |
U.S. Print and Related Services |
International | Total | |||||||||
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Net book value at December 31, 2009 |
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Goodwill(1) |
$ | 2,977.6 | $ | 1,216.2 | $ | 4,193.8 | ||||||
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Accumulated impairment losses(1) |
(878.2 | ) | (982.3 | ) | (1,860.5 | ) | ||||||
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Total |
2,099.4 | 233.9 | 2,333.3 | |||||||||
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Acquisitions |
— | — | — | |||||||||
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Foreign exchange and other adjustments |
(1.8 | ) | (1.8 | ) | (3.6 | ) | ||||||
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Net book value at September 30, 2010 |
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Goodwill(1) |
2,975.8 | 1,209.6 | 4,185.4 | |||||||||
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Accumulated impairment losses(1) |
(878.2 | ) | (977.5 | ) | (1,855.7 | ) | ||||||
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Total |
$ | 2,097.6 | $ | 232.1 | $ | 2,329.7 | ||||||
| (1) | Includes foreign exchange. Certain prior year amounts have been reclassified to reflect the Company's current presentation of goodwill. |
The components of other intangible assets at September 30, 2010 and December 31, 2009 were as follows:
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Other Intangible Assets |
September 30, 2010 | December 31, 2009 | ||||||||||||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
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Trademarks, licenses and agreements |
$ | 25.6 | $ | (22.8 | ) | $ | 2.8 | $ | 25.6 | $ | (22.3 | ) | $ | 3.3 | ||||||||||
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Patents |
98.3 | (80.5 | ) | 17.8 | 98.3 | (71.4 | ) | 26.9 | ||||||||||||||||
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Customer relationship intangibles |
1,089.6 | (500.5 | ) | 589.1 | 1,125.0 | (440.1 | ) | 684.9 | ||||||||||||||||
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Trade names |
21.3 | (7.5 | ) | 13.8 | 21.4 | (7.2 | ) | 14.2 | ||||||||||||||||
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Total amortizable purchased intangible assets |
1,234.8 | (611.3 | ) | 623.5 | 1,270.3 | (541.0 | ) | 729.3 | ||||||||||||||||
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Indefinite-lived trade names |
18.1 | — | 18.1 | 18.1 | — | 18.1 | ||||||||||||||||||
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Total purchased intangible assets |
$ | 1,252.9 | $ | (611.3 | ) | $ | 641.6 | $ | 1,288.4 | $ | (541.0 | ) | $ | 747.4 | ||||||||||
In the third quarter of 2010, the Company recorded a non-cash charge of $26.9 million to reflect impairment of acquired customer relationship intangible assets in the Global Turnkey Solutions reporting unit. See Note 6 for further discussion regarding this impairment charge.
For the nine months ended September 30, 2010, there were no additions to other intangible assets. Amortization expense for other intangible assets was $24.5 million and $25.7 million for the three months ended September 30, 2010 and 2009, respectively, and $73.5 million and $74.4 million for the nine months ended September 30, 2010 and 2009, respectively. The estimated annual amortization expense related to intangible assets as of September 30, 2010 is as follows.
| Amount | ||||
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For the year ending December 31, |
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2010 |
$ | 97.7 | ||
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2011 |
95.8 | |||
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2012 |
83.2 | |||
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2013 |
80.9 | |||
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2014 |
78.5 | |||
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2015 and thereafter |
260.9 | |||
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Total |
$ | 697.0 | ||
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6. Restructuring and Impairment Charges
Restructuring and Impairment Costs Charged to Results of Operations
For the three months ended September 30, 2010 and 2009, the Company recorded the following net restructuring and impairment charges:
| Three Months Ended September 30, 2010 | Three Months Ended September 30, 2009 | |||||||||||||||||||||||||||||||
| Employee Terminations |
Other Charges |
Impairment | Total | Employee Terminations |
Other Charges |
Impairment | Total | |||||||||||||||||||||||||
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U.S. Print and Related Services |
$ | 0.7 | $ | 16.9 | $ | 0.9 | $ | 18.5 | $ | 2.0 | $ | 2.3 | $ | (0.7 | ) | $ | 3.6 | |||||||||||||||
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International |
2.6 | (0.6 | ) | 27.6 | 29.6 | 5.6 | 119.0 | 2.7 | 127.3 | |||||||||||||||||||||||
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Corporate |
(0.1 | ) | 0.7 | — | 0.6 | — | 0.8 | — | 0.8 | |||||||||||||||||||||||
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Total |
$ | 3.2 | $ | 17.0 | $ | 28.5 | $ | 48.7 | $ | 7.6 | $ | 122.1 | $ | 2.0 | $ | 131.7 | ||||||||||||||||
For the nine months ended September 30, 2010 and 2009, the Company recorded the following net restructuring and impairment charges:
| Nine Months Ended September 30, 2010 | Nine Months Ended September 30, 2009 | |||||||||||||||||||||||||||||||
| Employee Terminations |
Other Charges |
Impairment | Total | Employee Terminations |
Other Charges |
Impairment | Total | |||||||||||||||||||||||||
|
U.S. Print and Related Services |
$ | 4.8 | $ | 20.2 | $ | 2.9 | $ | 27.9 | $ | 33.4 | $ | 16.3 | $ | 12.6 | $ | 62.3 | ||||||||||||||||
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International |
13.9 | 3.8 | 27.9 | 45.6 | 35.2 | 121.0 | 10.3 | 166.5 | ||||||||||||||||||||||||
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Corporate |
(0.2 | ) | 1.4 | 0.2 | 1.4 | 2.8 | 2.5 | — | 5.3 | |||||||||||||||||||||||
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Total |
$ | 18.5 | $ | 25.4 | $ | 31.0 | $ | 74.9 | $ | 71.4 | $ | 139.8 | $ | 22.9 | $ | 234.1 | ||||||||||||||||
For the three and nine months ended September 30, 2010, the Company recorded a non-cash charge of $26.9 million for the impairment of acquired customer relationship intangible assets in the Global Turnkey Solutions reporting unit within the International segment. The impairment of these intangible assets primarily resulted from the termination of a customer contract. After recording the impairment charge, remaining customer relationship intangible assets in the Global Turnkey Solutions reporting unit were $46.6 million as of September 30, 2010. In addition, for the three and nine months ended September 30, 2010, the Company recorded net restructuring charges of $3.2 million and $18.5 million, respectively, for employee termination costs for 1,137 employees, of whom 1,109 were terminated as of September 30, 2010. These terminations were associated with actions resulting from the reorganization of certain operations, including those within the business process outsourcing and Latin America reporting units. In addition, continuing charges resulting from the closing of two Global Turnkey Solutions manufacturing facilities in 2009 within the International segment were recorded in 2010. These actions also included the reorganization of certain operations within the magazine, catalog and retail insert and variable print reporting units and the closing of one Forms and Labels manufacturing facility within the U.S. Print and Related Services segment. Additionally, the Company incurred other restructuring charges of $17.0 million and $25.4 million, respectively, for the three and nine months ended September 30, 2010. Of this amount, $13.6 million related to multi-employer pension plan partial withdrawal charges primarily attributable to two closed manufacturing facilities within the U.S. Print and Related Services segment. The remaining charges included lease termination and other facility closure costs partially offset by the gain on the sale of a previously closed facility in the International segment. For the three and nine months ended September 30, 2010, the Company also recorded $1.6 million and $4.1 million, respectively, of impairment charges primarily for machinery and equipment and leasehold improvements associated with the facility closings. The fair values of the machinery and equipment and leasehold improvements were determined to be Level 3 under the fair value hierarchy and were estimated based on discussions with machinery and equipment brokers, dealer quotes, and internal expertise related to the equipment and current marketplace conditions. In addition, the impairment of the acquired customer relationship intangible assets was determined using Level 3 inputs and was estimated based on cash flow analysis and management's assumptions related to the future revenues and profitability of certain customers.
For the three and nine months ended September 30, 2009, the Company recorded net restructuring and impairment charges, discounted for future cash payments, of $117.3 million for the termination of a significant long-term customer contract in the business process outsourcing reporting unit within the International segment, of which $116.4 million, $0.8 million and $0.1 million are reflected in other charges, impairment and employee terminations, respectively. In addition, for the three and nine months ended September 30, 2009, the Company recorded net restructuring charges of $7.5 million and $71.3 million, respectively, for employee termination costs for 3,635 employees, all of whom were terminated as of September 30, 2010, associated with actions resulting from the reorganization of certain operations. These actions included the closings of two magazine, catalog and retail insert manufacturing facilities, two book manufacturing facilities and one digital solutions facility within the U.S. Print and Related Services segment, as well as the closing of one Global Turnkey Solutions manufacturing facility, one business process outsourcing facility, one Latin America manufacturing facility and one European manufacturing facility within the International segment. Additionally, the Company incurred other restructuring charges of $5.7 million and $23.4 million for the three and nine months ended September 30, 2009, respectively, including lease termination and other facility closure costs. For the three and nine months ended September 30, 2009, the Company also recorded $1.2 million and $22.1 million, respectively, of impairment charges primarily for machinery and equipment associated with the facility closings.
Restructuring Reserve
Activity impacting the Company's restructuring reserve for the nine months ended September 30, 2010 was as follows:
| December 31, 2009 |
Restructuring Costs Charged to Results of Operations |
Foreign Exchange and Other |
Cash Paid |
September 30, 2010 |
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Employee terminations |
$ | 20.4 | $ | 18.5 | $ | (0.2 | ) | $ | (27.8 | ) | $ | 10.9 | ||||||||
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Other |
120.5 | 25.4 | (2.3 | ) | (70.9 | ) | 72.7 | |||||||||||||
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Total |
$ | 140.9 | $ | 43.9 | $ | (2.5 | ) | $ | (98.7 | ) | $ | 83.6 | ||||||||
$64.5 million of the total restructuring reserve was current and included in accrued liabilities at September 30, 2010, while the long-term portion of $19.1 million, primarily related to multi-employer pension plan partial withdrawal charges and lease termination costs, was included in other noncurrent liabilities at September 30, 2010.
The Company anticipates that payments associated with these employee terminations will be substantially completed by September of 2011.
The restructuring liabilities classified as "other" consist of the estimated remaining payments related to the termination of a significant long-term customer contract in 2009, multi-employer pension plan partial withdrawal charges, lease termination costs and other facility closing costs. The Company paid $57.5 million in January 2010 and expects to pay approximately $39.6 million, subject to changes in foreign exchange rates, in December 2010 or January 2011, related to the termination of the significant long-term customer contract. The Company transferred funds to restricted cash for this payment. Payments on certain of these lease obligations are scheduled to continue until 2017. Market conditions and the Company's ability to sublease these properties could affect the ultimate charge related to these lease obligations. Any potential recoveries or additional charges could affect amounts reported in the Consolidated Financial Statements of future periods.
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7. Employee Benefits
The components of the estimated pension and postretirement benefits expense for the three and nine months ended September 30, 2010 and 2009 were as follows:
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2010 | 2009 | 2010 | 2009 | |||||||||||||
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Pension expense |
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Service cost |
$ | 20.1 | $ | 17.5 | $ | 60.3 | $ | 52.4 | ||||||||
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Interest cost |
46.2 | 44.5 | 138.1 | 132.9 | ||||||||||||
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Expected return on assets |
(64.8 | ) | (64.2 | ) | (193.7 | ) | (191.7 | ) | ||||||||
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Amortization, net |
6.5 | — | 19.2 | 3.6 | ||||||||||||
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Net pension expense (benefit) |
$ | 8.0 | $ | (2.2 | ) | $ | 23.9 | $ | (2.8 | ) | ||||||
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Postretirement benefits expense |
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Service cost |
$ | 3.1 | $ | 2.6 | $ | 9.2 | $ | 7.7 | ||||||||
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Interest cost |
7.1 | 7.7 | 21.3 | 23.1 | ||||||||||||
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Expected return on assets |
(3.8 | ) | (3.9 | ) | (11.6 | ) | (11.7 | ) | ||||||||
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Amortization, net |
(2.5 | ) | (4.3 | ) | (7.2 | ) | (12.9 | ) | ||||||||
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Net postretirement benefits expense |
$ | 3.9 | $ | 2.1 | $ | 11.7 | $ | 6.2 | ||||||||
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10. Comprehensive Income
| Three Months Ended September 30, |
Nine Months Ended September 30, |
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| 2010 | 2009 | 2010 | 2009 | |||||||||||||
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Net earnings |
$ | 52.8 | $ | 14.6 | $ | 191.0 | $ | 57.2 | ||||||||
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Translation adjustments |
77.4 | 39.4 | 5.4 | 84.1 | ||||||||||||
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Adjustment for net periodic pension and postretirement benefit cost, net of tax |
2.6 | (0.4 | ) | 7.5 | (12.5 | ) | ||||||||||
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Change in fair value of derivatives, net of tax |
0.1 | 1.8 | 0.3 | 2.2 | ||||||||||||
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Comprehensive income |
132.9 | 55.4 | 204.2 | 131.0 | ||||||||||||
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Less: comprehensive income (loss) attributable to noncontrolling interests |
(0.2 | ) | 1.4 | (3.5 | ) | 5.0 | ||||||||||
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Comprehensive income attributable to RR Donnelley common shareholders |
$ | 133.1 | $ | 54.0 | $ | 207.7 | $ | 126.0 | ||||||||
For the three and nine months ended September 30, 2010, the changes in other comprehensive income were net of tax provisions of less than $0.1 million and $0.2 million, respectively, related to the change in fair value of derivatives and tax benefits of $1.4 million and $4.3 million, respectively, for the adjustment for net periodic pension and postretirement benefit costs. For the three and nine months ended September 30, 2009, the changes in other comprehensive income were net of tax provisions of $1.1 million and $1.4 million, respectively, related to the change in fair value of derivatives and tax benefits of $1.8 million and $4.4 million, respectively, for the adjustment for net periodic pension and postretirement benefit costs.
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11. Equity
The following table summarizes the Company's equity activity for the nine months ended September 30, 2010:
| RR Donnelley Shareholders' Equity |
Noncontrolling Interests |
Total Equity |
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Balance at December 31, 2009 |
$ | 2,134.0 | $ | 27.0 | $ | 2,161.0 | ||||||
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Net earnings (loss) |
194.7 | (3.7 | ) | 191.0 | ||||||||
|
Other comprehensive income |
13.0 | 0.2 | 13.2 | |||||||||
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Share-based compensation |
22.4 | — | 22.4 | |||||||||
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Withholdings for share-based awards and other |
(1.6 | ) | — | (1.6 | ) | |||||||
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Cash dividends paid |
(160.7 | ) | — | (160.7 | ) | |||||||
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Distributions to noncontrolling interests |
— | (1.6 | ) | (1.6 | ) | |||||||
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Balance at September 30, 2010 |
$ | 2,201.8 | $ | 21.9 | $ | 2,223.7 | ||||||
The following table summarizes the Company's equity activity for the nine months ended September 30, 2009:
| RR Donnelley Shareholders' Equity |
Noncontrolling Interests |
Total Equity |
||||||||||
|
Balance at December 31, 2008 |
$ | 2,318.5 | $ | 23.4 | $ | 2,341.9 | ||||||
|
Net earnings |
52.2 | 5.0 | 57.2 | |||||||||
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Other comprehensive income |
73.8 | — | 73.8 | |||||||||
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Share-based compensation |
19.3 | — | 19.3 | |||||||||
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Withholdings for share-based awards and other |
(1.5 | ) | — | (1.5 | ) | |||||||
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Cash dividends paid |
(160.1 | ) | — | (160.1 | ) | |||||||
|
Distributions to noncontrolling interests |
— | (2.2 | ) | (2.2 | ) | |||||||
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Balance at September 30, 2009 |
$ | 2,302.2 | $ | 26.2 | $ | 2,328.4 | ||||||
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12. Segment Information
The Company operates primarily in the printing industry, with related service offerings designed to offer customers complete solutions for communicating their messages to target audiences. The Company's reportable segments reflect the management reporting structure of the organization and the manner in which the chief operating decision-maker regularly assesses information for decision-making purposes, including the allocation of resources. The Company's segments and their products and service offerings are summarized below:
U.S. Print and Related Services
The U.S. Print and Related Services segment includes the Company's U.S. printing operations, managed as one integrated platform, along with related logistics, premedia and print-management services. This segment's products and related service offerings include magazines, catalogs, retail inserts, books, directories, financial print, direct mail, forms, labels, office products, statement printing, premedia and logistics services.
International
The International segment includes the Company's non-U.S. printing operations in Asia, Europe, Latin America and Canada. Additionally, this segment includes the Company's business process outsourcing and Global Turnkey Solutions operations. Business process outsourcing provides transactional print and outsourcing services, statement printing, direct mail and print management services through its operations in Europe, Asia and North America. Global Turnkey Solutions provides outsourcing capabilities, including product configuration, customized kitting and order fulfillment for technology, medical device and other companies around the world through its operations in Europe, North America and Asia.
Corporate
Corporate consists of unallocated general and administrative activities and associated expenses including, in part, executive, legal, finance, information technology, human resources, certain facility costs and LIFO inventory provisions. In addition, certain costs and earnings of employee benefit plans, primarily components of net pension and postretirement benefits expense other than service cost, are included in Corporate and not allocated to operating segments.
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.
| Total Sales | Intersegment Sales |
Net Sales |
Income (Loss) from Operations |
Depreciation and Amortization |
Capital Expenditures |
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|
Three months ended September 30, 2010 |
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|
U.S. Print and Related Services |
$ | 1,868.8 | $ | (7.4 | ) | $ | 1,861.4 | $ | 168.3 | $ | 94.6 | $ | 24.7 | |||||||||||
|
International |
638.8 | (12.1 | ) | 626.7 | 23.5 | 28.2 | 19.1 | |||||||||||||||||
|
Total operating segments |
2,507.6 | (19.5 | ) | 2,488.1 | 191.8 | 122.8 | 43.8 | |||||||||||||||||
|
Corporate |
— | — | — | (43.1 | ) | 7.5 | 6.6 | |||||||||||||||||
|
Total operations |
$ | 2,507.6 | $ | (19.5 | ) | $ | 2,488.1 | $ | 148.7 | $ | 130.3 | $ | 50.4 | |||||||||||
|
Three months ended September 30, 2009 |
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|
U.S. Print and Related Services |
$ | 1,829.8 | $ | (5.0 | ) | $ | 1,824.8 | $ | 164.9 | $ | 106.4 | $ | 27.8 | |||||||||||
|
International |
651.0 | (12.7 | ) | 638.3 | (72.3 | ) | 30.6 | 8.7 | ||||||||||||||||
|
Total operating segments |
2,480.8 | (17.7 | ) | 2,463.1 | 92.6 | 137.0 | 36.5 | |||||||||||||||||
|
Corporate |
— | — | — | 0.8 | 8.0 | 4.3 | ||||||||||||||||||
|
Total operations |
$ | 2,480.8 | $ | (17.7 | ) | $ | 2,463.1 | $ | 93.4 | $ | 145.0 | $ | 40.8 | |||||||||||
| Total Sales | Intersegment Sales |
Net Sales |
Income (Loss) from Operations |
Assets of Operations |
Depreciation and Amortization |
Capital Expenditures |
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|
Nine months ended September 30, 2010 |
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|
U.S. Print and Related Services |
$ | 5,529.4 | $ | (21.9 | ) | $ | 5,507.5 | $ | 511.6 | $ | 6,149.8 | $ | 294.3 | $ | 69.3 | |||||||||||||
|
International |
1,840.9 | (36.6 | ) | 1,804.3 | 99.9 | 2,231.2 | 86.0 | 49.2 | ||||||||||||||||||||
|
Total operating segments |
7,370.3 | (58.5 | ) | 7,311.8 | 611.5 | 8,381.0 | 380.3 | 118.5 | ||||||||||||||||||||
|
Corporate |
— | — | — | (141.7 | ) | 443.8 | 23.4 | 26.4 | ||||||||||||||||||||
|
Total operations |
$ | 7,370.3 | $ | (58.5 | ) | $ | 7,311.8 | $ | 469.8 | $ | 8,824.8 | $ | 403.7 | $ | 144.9 | |||||||||||||
|
Nine months ended September 30, 2009 |
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|
U.S. Print and Related Services |
$ | 5,533.6 | $ | (20.2 | ) | $ | 5,513.4 | $ | 417.8 | $ | 6,573.4 | $ | 318.8 | $ | 82.5 | |||||||||||||
|
International |
1,804.2 | (43.3 | ) | 1,760.9 | (32.9 | ) | 2,198.5 | 91.6 | 37.7 | |||||||||||||||||||
|
Total operating segments |
7,337.8 | (63.5 | ) | 7,274.3 | 384.9 | 8,771.9 | 410.4 | 120.2 | ||||||||||||||||||||
|
Corporate |
— | — | — | (69.1 | ) | 148.9 | 26.3 | 12.7 | ||||||||||||||||||||
|
Total operations |
$ | 7,337.8 | $ | (63.5 | ) | $ | 7,274.3 | $ | 315.8 | $ | 8,920.8 | $ | 436.7 | $ | 132.9 | |||||||||||||
|
|||
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 not discounted. The Company has been designated as a potentially responsible party in thirteen federal and state Superfund sites. In addition to the Superfund sites, the Company may also have the obligation to remediate six other previously owned facilities and three other 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 Superfund 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 established reserves, recorded in accrued liabilities and other noncurrent liabilities, that it believes are adequate to cover its share of the potential costs of remediation at each of the Superfund sites and the previously and currently owned facilities. While 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, 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 adverse effect on the Company's consolidated annual results of operations, financial position or cash flows.
From time to time, the Company's customers 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 adverse effect on the Company's consolidated annual results of operations, financial position or cash flows.
|
|||
14. Debt
The Company's debt consists of the following:
| September 30, 2010 |
December 31, 2009 |
|||||||
|
4.95% senior notes due May 15, 2010 |
$ | — | $ | 325.7 | ||||
|
5.625% senior notes due January 15, 2012 |
158.5 | 158.5 | ||||||
|
4.95% senior notes due April 1, 2014 |
599.2 | 599.0 | ||||||
|
5.50% senior notes due May 15, 2015 |
499.6 | 499.6 | ||||||
|
8.60% senior notes due August 15, 2016 |
345.9 | 345.3 | ||||||
|
6.125% senior notes due January 15, 2017 |
621.9 | 621.5 | ||||||
|
11.25% debentures due February 1, 2019 |
400.0 | 400.0 | ||||||
|
7.625% senior notes due June 15, 2020 |
400.0 | — | ||||||
|
8.875% debentures due April 15, 2021 |
80.9 | 80.9 | ||||||
|
6.625% debentures due April 15, 2029 |
199.3 | 199.3 | ||||||
|
8.820% debentures due April 15, 2031 |
68.9 | 68.9 | ||||||
|
Other, including capital leases |
41.2 | 23.7 | ||||||
|
Total debt |
3,415.4 | 3,322.4 | ||||||
|
Less: current portion |
(8.0 | ) | (339.9 | ) | ||||
|
Long-term debt |
$ | 3,407.4 | $ | 2,982.5 | ||||
The fair values of the senior notes and debentures, which were based upon the 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 debt was greater than its book value by approximately $303.6 million and $177.9 million at September 30, 2010 and December 31, 2009, respectively.
Interest income was $5.5 million and $7.4 million for the nine months ended September 30, 2010 and 2009, respectively.
On June 21, 2010, the Company issued $400.0 million of 7.625% senior notes due June 15, 2020. Interest on the notes is payable semi-annually on June 15 and December 15 of each year, commencing on December 15, 2010. The net proceeds from the offering were used to repay borrowings under the revolving credit facility and for general corporate purposes.
|
|||
15. Derivatives
All derivatives are recorded as other current or noncurrent assets or other current or noncurrent liabilities on the Condensed Consolidated Balance Sheets at their respective fair values with unrealized gains and losses 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. For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, are recognized in the Condensed Consolidated Statements of Operations. Changes in the fair value of derivatives that do not meet the criteria for designation as a hedge at inception, or fail to meet the criteria thereafter, are recognized currently in the Condensed Consolidated Statements of Operations. 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 recognized currently 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 most 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 operating unit, the Company is exposed to currency risk. Periodically, the Company uses foreign exchange forward contracts and cross-currency swaps to hedge exposures resulting from foreign exchange fluctuations. Accordingly, the implied gains and losses associated with the fair values of foreign currency exchange contracts and cross-currency interest rate swaps 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 Company has entered into foreign exchange forward contracts in order to manage the currency exposure of certain receivables and liabilities. The foreign exchange forward contracts were not designated as hedges, and accordingly, the fair value gains or losses from these foreign currency derivatives are recognized currently in the Condensed Consolidated Statements of Operations, generally offsetting the foreign exchange gains or losses on the exposures being managed. The aggregate notional value of the forward contracts at September 30, 2010 and December 31, 2009 was $74.5 million and $437.0 million, respectively. The fair values of foreign exchange forward contracts were determined to be Level 2 under the fair value hierarchy and are valued using market exchange rates.
On April 9, 2010, the Company entered into interest rate swap agreements to manage interest rate risk exposure. The interest rate swap agreements effectively changed the interest rate on $600 million of its fixed-rate senior notes to floating rate LIBOR plus a basis point spread. These interest rate swaps, with a notional value of $600 million, are designated as fair value hedges against changes in the value of the Company's 4.95% senior notes due April 1, 2014, which are attributable to changes in the benchmark interest rate. The Company evaluates the credit value adjustments of the interest rate swap agreements, which take into account the possibility of counterparty and the Company's own default, on at least a quarterly basis. The Company's agreements with each of its counterparties contain a provision where the Company could be declared in default on its derivative obligations if it either defaults or, in certain cases, is capable of being declared in default of any of its indebtedness greater than specified thresholds. These agreements also contain a provision where the Company could be declared in default subsequent to a merger or restructuring type event if the creditworthiness of the resulting entity is materially weaker. The fair values of the interest rate swaps were determined to be Level 2 under the fair value hierarchy and are valued using market interest rates.
At September 30, 2010 and December 31, 2009, the total fair value of the Company's forward contracts and fair value hedges and the accounts in the Condensed Consolidated Balance Sheets in which the fair value amounts are included are shown below:
| September 30, 2010 |
December 31, 2009 |
|||||||
|
Derivatives not designated as hedges |
||||||||
|
Prepaid expenses and other current assets |
$ | 1.2 | $ | 1.3 | ||||
|
Accrued liabilities |
0.2 | 6.8 | ||||||
|
Derivatives designated as fair value hedges |
||||||||
|
Other noncurrent assets |
$ | 25.5 | $ | — | ||||
The pre-tax gains (losses) related to derivatives not designated as hedges recognized in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2010 and 2009 are shown in the table below:
| Classification of Gain (Loss) Recognized in the Condensed Consolidated Statements of Operations |
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Derivatives not designated as hedges |
||||||||||||||||||||
|
Foreign exchange forward contracts |
|
Selling, general and |
|
$ | 2.2 | $ | (1.6 | ) | $ | (2.2 | ) | $ | (13.7 | ) | ||||||
|
Total gain (loss) recognized in the condensed consolidated statements of operations |
$ | 2.2 | $ | (1.6 | ) | $ | (2.2 | ) | $ | (13.7 | ) | |||||||||
For derivatives designated as fair value hedges, the pre-tax gains (losses) related to the hedged items, attributable to changes in the hedged benchmark interest rate, and the offsetting gain or loss on the related interest rate swaps for the three and nine months ended September 30, 2010 and 2009 are shown in the table below:
| Classification of Gain (Loss) Recognized in the Condensed Consolidated Statements of Operations |
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Fair Value Hedges |
||||||||||||||||||||
|
Interest rate swaps |
|
Investment and other income (expense) |
|
$ | 11.3 | $ | — | $ | 25.5 | $ | — | |||||||||
|
Hedged items |
|
Investment and other income (expense) |
|
(10.7 | ) | — | (23.7 | ) | — | |||||||||||
|
Total gain (loss) recognized as ineffectiveness in the condensed consolidated statements of operations |
|
Investment and other income (expense) |
|
$ | 0.6 | $ | — | $ | 1.8 | $ | — | |||||||||
The Company also recognized a net reduction to interest expense of $2.1 million and $4.3 million for the three and nine months ended September 30, 2010, respectively, related to the Company's fair value hedges, which includes interest accruals on the derivatives and amortization of the basis in the hedged items.
The pre-tax gains (losses) related to derivatives designated as cash flow hedges for the three months ended September 30, 2010 and 2009 are shown in the table below:
| Gain (Loss) Recognized in OCI (Effective Portion) |
Classification of Loss Reclassified from AOCI into Income (Effective Portion) |
Loss Reclassified from AOCI into Income (Effective Portion) |
Classification of Gain (Loss) Recognized in Income (Ineffective Portion) |
Gain (Loss) Recognized in Income (Ineffective Portion) |
||||||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||
|
Cash Flow Hedges |
||||||||||||||||||||||||||||||||
|
Interest rate lock |
$ | — | $ | — | Interest expense—net | $ | (0.1 | ) | $ | (0.1 | ) | Interest expense—net | $ | — | $ | — | ||||||||||||||||
|
Interest rate lock |
— | — | |
Investment and other expense |
|
— | (2.7 | ) | |
Investment and other expense |
|
— | — | |||||||||||||||||||
|
Total loss |
$ | — | $ | — | $ | (0.1 | ) | $ | (2.8 | ) | $ | — | $ | — | ||||||||||||||||||
The pre-tax gains (losses) related to derivatives designated as cash flow hedges for the nine months ended September 30, 2010 and 2009 are shown in the table below:
| Gain (Loss) Recognized in OCI (Effective Portion) |
Classification of Loss Reclassified from AOCI into Income (Effective Portion) |
Loss Reclassified from AOCI into Income (Effective Portion) |
Classification of Gain (Loss) Recognized in Income (Ineffective Portion) |
Gain (Loss) Recognized in Income (Ineffective Portion) |
||||||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||
|
Cash Flow Hedges |
||||||||||||||||||||||||||||||||
|
Interest rate lock |
$ | — | $ | — | Interest expense—net | $ | (0.4 | ) | $ | (0.9 | ) | Interest expense—net | $ | — | $ | — | ||||||||||||||||
|
Interest rate lock |
— | — | |
Investment and other expense |
|
— | (2.7 | ) | |
Investment and other expense |
|
— | — | |||||||||||||||||||
|
Total loss |
$ | — | $ | — | $ | (0.4 | ) | $ | (3.6 | ) | $ | — | $ | — | ||||||||||||||||||
Terminated Derivatives
In May 2005, the Company terminated its interest rate lock agreements which were used to hedge against fluctuations in interest rates. This termination resulted in a loss of $12.9 million recorded in accumulated other comprehensive loss, which was being recognized in interest expense over the term of the hedged forecasted interest payments. During the third quarter of 2009, the Company repurchased $174.2 million of the 4.95% senior notes due May 15, 2010 which were hedged as part of the interest rate lock agreements. A pre-tax loss of $2.7 million was reclassified from accumulated other comprehensive loss as a result of the change in expected forecasted interest payments for the senior notes due May 15, 2010. At September 30, 2010, a balance of $2.3 million remains in accumulated other comprehensive loss, of which $0.4 million is expected to be reclassified to earnings over the next twelve months.
|
|||
16. Fair Value Measurement
Certain assets and liabilities are required to be recorded at fair value on a recurring basis. The Company's only assets and liabilities adjusted to fair value on a recurring basis are pension plan assets and other postretirement plan assets, foreign exchange forward contracts and interest rate swaps. See Note 15 for further discussion on the fair value of the Company's foreign exchange forward contracts and interest rate swaps as of September 30, 2010 and December 31, 2009.
In addition to assets and liabilities that are recorded at fair value on a recurring basis, the Company is required to record certain assets and liabilities at fair value on a nonrecurring basis, generally as a result of acquisitions or impairment charges. See Note 2 for further discussion on the fair value of assets and liabilities associated with acquisitions. For the three and nine months ended September 30, 2010, the Company recorded a non-cash charge of $26.9 million for the impairment of acquired customer relationship intangible assets in the Global Turnkey Solutions reporting unit within the International segment. The determination of the impairment was based on Level 3 inputs, including cash flow analysis and management's assumptions related to the future revenues and profitability of certain customers. See Note 6 for further discussion regarding the impairment charge. There have been no other significant impairment charges since December 31, 2009.
See Note 14 for further discussion on the fair value of the Company's debt.
|
|||
17. Income Taxes
The Company's unrecognized tax benefits at September 30, 2010 and December 31, 2009 were as follows:
|
Balance at December 31, 2009 |
$ | 176.4 | ||
|
Additions for tax positions of the current year |
6.0 | |||
|
Additions for tax positions of the prior years |
5.8 | |||
|
Reductions for tax positions of prior years |
(4.5 | ) | ||
|
Settlements during the year |
(8.7 | ) | ||
|
Foreign exchange and other |
0.5 | |||
|
Balance at September 30, 2010 |
$ | 175.5 | ||
As of September 30, 2010, it is reasonably possible that the total amounts of unrecognized tax benefits will decrease within twelve months by as much as $81.3 million due to the resolution of audits or expirations of statutes of limitations related to U.S. federal and state tax positions.
|
|||
18. New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2010-06 "Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures about Fair Value Measurements" ("ASU 2010-06"), which requires additional disclosures regarding transfers between Levels 1, 2 and 3 of the fair value hierarchy, as well as a more detailed reconciliation of recurring Level 3 measurements. Certain aspects of ASU 2010-06 were effective and adopted by the Company in the first quarter of 2010. However, this adoption did not have and is not expected to have a material impact on the Company's consolidated financial position, annual results of operations or cash flows.
In February 2010, the FASB issued Accounting Standards Update No. 2010-09 "Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements" ("ASU 2010-09"), which amends the Subsequent Events Topic by no longer requiring an SEC filer to disclose the date through which subsequent events have been evaluated. ASU 2010-09 was adopted in the first quarter of 2010 and did not have a material impact on the Company's consolidated financial position, annual results of operations or cash flows.
In July 2010, the FASB issued Accounting Standards Update No. 2010-20 "Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses" ("ASU 2010-20"), which amends existing disclosure requirements and requires additional quantitative and qualitative disclosures concerning financing receivables, credit risk exposures and the allowance for credit losses. Certain aspects of ASU 2010-20 will be effective for the Company in the fourth quarter of 2010. The adoption of ASU 2010-20 is not expected to have a material impact on the Company's consolidated financial position, annual results of operations or cash flows.
|
|||
|
Accounts receivable |
$ | 2.4 | ||
|
Property, plant and equipment |
9.2 | |||
|
Amortizable intangible assets |
11.6 | |||
|
Goodwill |
6.5 | |||
|
Accounts payable and accrued liabilities |
(2.5 | ) | ||
|
Deferred taxes—net |
(0.6 | ) | ||
|
Net cash paid |
$ | 26.6 | ||
|
|||
| September 30, 2010 |
December 31, 2009 |
|||||||
|
Raw materials and manufacturing supplies |
$ | 249.5 | $ | 229.9 | ||||
|
Work in process |
191.9 | 190.1 | ||||||
|
Finished goods |
211.3 | 219.6 | ||||||
|
LIFO reserve |
(86.8 | ) | (77.8 | ) | ||||
|
Total |
$ | 565.9 | $ | 561.8 | ||||
|
|||
| September 30, 2010 |
December 31, 2009 |
|||||||
|
Land |
$ | 93.0 | $ | 89.6 | ||||
|
Buildings |
1,140.4 | 1,140.0 | ||||||
|
Machinery and equipment |
6,045.2 | 6,001.7 | ||||||
| 7,278.6 | 7,231.3 | |||||||
|
Less: Accumulated depreciation |
(5,206.7 | ) | (4,959.9 | ) | ||||
|
Total |
$ | 2,071.9 | $ | 2,271.4 | ||||
|
|||
|
Goodwill |
U.S. Print and Related Services |
International | Total | |||||||||
|
Net book value at December 31, 2009 |
||||||||||||
|
Goodwill(1) |
$ | 2,977.6 | $ | 1,216.2 | $ | 4,193.8 | ||||||
|
Accumulated impairment losses(1) |
(878.2 | ) | (982.3 | ) | (1,860.5 | ) | ||||||
|
Total |
2,099.4 | 233.9 | 2,333.3 | |||||||||
|
Acquisitions |
— | — | — | |||||||||
|
Foreign exchange and other adjustments |
(1.8 | ) | (1.8 | ) | (3.6 | ) | ||||||
|
Net book value at September 30, 2010 |
||||||||||||
|
Goodwill(1) |
2,975.8 | 1,209.6 | 4,185.4 | |||||||||
|
Accumulated impairment losses(1) |
(878.2 | ) | (977.5 | ) | (1,855.7 | ) | ||||||
|
Total |
$ | 2,097.6 | $ | 232.1 | $ | 2,329.7 | ||||||
| (1) | Includes foreign exchange. Certain prior year amounts have been reclassified to reflect the Company's current presentation of goodwill. |
|
Other Intangible Assets |
September 30, 2010 | December 31, 2009 | ||||||||||||||||||||||
| Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
Gross Carrying Amount |
Accumulated Amortization |
Net Book Value |
|||||||||||||||||||
|
Trademarks, licenses and agreements |
$ | 25.6 | $ | (22.8 | ) | $ | 2.8 | $ | 25.6 | $ | (22.3 | ) | $ | 3.3 | ||||||||||
|
Patents |
98.3 | (80.5 | ) | 17.8 | 98.3 | (71.4 | ) | 26.9 | ||||||||||||||||
|
Customer relationship intangibles |
1,089.6 | (500.5 | ) | 589.1 | 1,125.0 | (440.1 | ) | 684.9 | ||||||||||||||||
|
Trade names |
21.3 | (7.5 | ) | 13.8 | 21.4 | (7.2 | ) | 14.2 | ||||||||||||||||
|
Total amortizable purchased intangible assets |
1,234.8 | (611.3 | ) | 623.5 | 1,270.3 | (541.0 | ) | 729.3 | ||||||||||||||||
|
Indefinite-lived trade names |
18.1 | — | 18.1 | 18.1 | — | 18.1 | ||||||||||||||||||
|
Total purchased intangible assets |
$ | 1,252.9 | $ | (611.3 | ) | $ | 641.6 | $ | 1,288.4 | $ | (541.0 | ) | $ | 747.4 | ||||||||||
| Amount | ||||
|
For the year ending December 31, |
||||
|
2010 |
$ | 97.7 | ||
|
2011 |
95.8 | |||
|
2012 |
83.2 | |||
|
2013 |
80.9 | |||
|
2014 |
78.5 | |||
|
2015 and thereafter |
260.9 | |||
|
Total |
$ | 697.0 | ||
|
| Three Months Ended September 30, 2010 | Three Months Ended September 30, 2009 | |||||||||||||||||||||||||||||||
| Employee Terminations |
Other Charges |
Impairment | Total | Employee Terminations |
Other Charges |
Impairment | Total | |||||||||||||||||||||||||
|
U.S. Print and Related Services |
$ | 0.7 | $ | 16.9 | $ | 0.9 | $ | 18.5 | $ | 2.0 | $ | 2.3 | $ | (0.7 | ) | $ | 3.6 | |||||||||||||||
|
International |
2.6 | (0.6 | ) | 27.6 | 29.6 | 5.6 | 119.0 | 2.7 | 127.3 | |||||||||||||||||||||||
|
Corporate |
(0.1 | ) | 0.7 | — | 0.6 | — | 0.8 | — | 0.8 | |||||||||||||||||||||||
|
Total |
$ | 3.2 | $ | 17.0 | $ | 28.5 | $ | 48.7 | $ | 7.6 | $ | 122.1 | $ | 2.0 | $ | 131.7 | ||||||||||||||||
| Nine Months Ended September 30, 2010 | Nine Months Ended September 30, 2009 | |||||||||||||||||||||||||||||||
| Employee Terminations |
Other Charges |
Impairment | Total | Employee Terminations |
Other Charges |
Impairment | Total | |||||||||||||||||||||||||
|
U.S. Print and Related Services |
$ | 4.8 | $ | 20.2 | $ | 2.9 | $ | 27.9 | $ | 33.4 | $ | 16.3 | $ | 12.6 | $ | 62.3 | ||||||||||||||||
|
International |
13.9 | 3.8 | 27.9 | 45.6 | 35.2 | 121.0 | 10.3 | 166.5 | ||||||||||||||||||||||||
|
Corporate |
(0.2 | ) | 1.4 | 0.2 | 1.4 | 2.8 | 2.5 | — | 5.3 | |||||||||||||||||||||||
|
Total |
$ | 18.5 | $ | 25.4 | $ | 31.0 | $ | 74.9 | $ | 71.4 | $ | 139.8 | $ | 22.9 | $ | 234.1 | ||||||||||||||||
| December 31, 2009 |
Restructuring Costs Charged to Results of Operations |
Foreign Exchange and Other |
Cash Paid |
September 30, 2010 |
||||||||||||||||
|
Employee terminations |
$ | 20.4 | $ | 18.5 | $ | (0.2 | ) | $ | (27.8 | ) | $ | 10.9 | ||||||||
|
Other |
120.5 | 25.4 | (2.3 | ) | (70.9 | ) | 72.7 | |||||||||||||
|
Total |
$ | 140.9 | $ | 43.9 | $ | (2.5 | ) | $ | (98.7 | ) | $ | 83.6 | ||||||||
|
|||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Pension expense |
||||||||||||||||
|
Service cost |
$ | 20.1 | $ | 17.5 | $ | 60.3 | $ | 52.4 | ||||||||
|
Interest cost |
46.2 | 44.5 | 138.1 | 132.9 | ||||||||||||
|
Expected return on assets |
(64.8 | ) | (64.2 | ) | (193.7 | ) | (191.7 | ) | ||||||||
|
Amortization, net |
6.5 | — | 19.2 | 3.6 | ||||||||||||
|
Net pension expense (benefit) |
$ | 8.0 | $ | (2.2 | ) | $ | 23.9 | $ | (2.8 | ) | ||||||
|
Postretirement benefits expense |
||||||||||||||||
|
Service cost |
$ | 3.1 | $ | 2.6 | $ | 9.2 | $ | 7.7 | ||||||||
|
Interest cost |
7.1 | 7.7 | 21.3 | 23.1 | ||||||||||||
|
Expected return on assets |
(3.8 | ) | (3.9 | ) | (11.6 | ) | (11.7 | ) | ||||||||
|
Amortization, net |
(2.5 | ) | (4.3 | ) | (7.2 | ) | (12.9 | ) | ||||||||
|
Net postretirement benefits expense |
$ | 3.9 | $ | 2.1 | $ | 11.7 | $ | 6.2 | ||||||||
|
|||
| Three Months Ended September 30, |
Nine Months Ended September 30, |
|||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||
|
Net earnings |
$ | 52.8 | $ | 14.6 | $ | 191.0 | $ | 57.2 | ||||||||
|
Translation adjustments |
77.4 | 39.4 | 5.4 | 84.1 | ||||||||||||
|
Adjustment for net periodic pension and postretirement benefit cost, net of tax |
2.6 | (0.4 | ) | 7.5 | (12.5 | ) | ||||||||||
|
Change in fair value of derivatives, net of tax |
0.1 | 1.8 | 0.3 | 2.2 | ||||||||||||
|
Comprehensive income |
132.9 | 55.4 | 204.2 | 131.0 | ||||||||||||
|
Less: comprehensive income (loss) attributable to noncontrolling interests |
(0.2 | ) | 1.4 | (3.5 | ) | 5.0 | ||||||||||
|
Comprehensive income attributable to RR Donnelley common shareholders |
$ | 133.1 | $ | 54.0 | $ | 207.7 | $ | 126.0 | ||||||||
|
||||||
| RR Donnelley Shareholders' Equity |
Noncontrolling Interests |
Total Equity |
||||||||||
|
Balance at December 31, 2009 |
$ | 2,134.0 | $ | 27.0 | $ | 2,161.0 | ||||||
|
Net earnings (loss) |
194.7 | (3.7 | ) | 191.0 | ||||||||
|
Other comprehensive income |
13.0 | 0.2 | 13.2 | |||||||||
|
Share-based compensation |
22.4 | — | 22.4 | |||||||||
|
Withholdings for share-based awards and other |
(1.6 | ) | — | (1.6 | ) | |||||||
|
Cash dividends paid |
(160.7 | ) | — | (160.7 | ) | |||||||
|
Distributions to noncontrolling interests |
— | (1.6 | ) | (1.6 | ) | |||||||
|
Balance at September 30, 2010 |
$ | 2,201.8 | $ | 21.9 | $ | 2,223.7 | ||||||
| RR Donnelley Shareholders' Equity |
Noncontrolling Interests |
Total Equity |
||||||||||
|
Balance at December 31, 2008 |
$ | 2,318.5 | $ | 23.4 | $ | 2,341.9 | ||||||
|
Net earnings |
52.2 | 5.0 | 57.2 | |||||||||
|
Other comprehensive income |
73.8 | — | 73.8 | |||||||||
|
Share-based compensation |
19.3 | — | 19.3 | |||||||||
|
Withholdings for share-based awards and other |
(1.5 | ) | — | (1.5 | ) | |||||||
|
Cash dividends paid |
(160.1 | ) | — | (160.1 | ) | |||||||
|
Distributions to noncontrolling interests |
— | (2.2 | ) | (2.2 | ) | |||||||
|
Balance at September 30, 2009 |
$ | 2,302.2 | $ | 26.2 | $ | 2,328.4 | ||||||
|
||||||||
| Total Sales | Intersegment Sales |
Net Sales |
Income (Loss) from Operations |
Depreciation and Amortization |
Capital Expenditures |
|||||||||||||||||||
|
Three months ended September 30, 2010 |
||||||||||||||||||||||||
|
U.S. Print and Related Services |
$ | 1,868.8 | $ | (7.4 | ) | $ | 1,861.4 | $ | 168.3 | $ | 94.6 | $ | 24.7 | |||||||||||
|
International |
638.8 | (12.1 | ) | 626.7 | 23.5 | 28.2 | 19.1 | |||||||||||||||||
|
Total operating segments |
2,507.6 | (19.5 | ) | 2,488.1 | 191.8 | 122.8 | 43.8 | |||||||||||||||||
|
Corporate |
— | — | — | (43.1 | ) | 7.5 | 6.6 | |||||||||||||||||
|
Total operations |
$ | 2,507.6 | $ | (19.5 | ) | $ | 2,488.1 | $ | 148.7 | $ | 130.3 | $ | 50.4 | |||||||||||
|
Three months ended September 30, 2009 |
||||||||||||||||||||||||
|
U.S. Print and Related Services |
$ | 1,829.8 | $ | (5.0 | ) | $ | 1,824.8 | $ | 164.9 | $ | 106.4 | $ | 27.8 | |||||||||||
|
International |
651.0 | (12.7 | ) | 638.3 | (72.3 | ) | 30.6 | 8.7 | ||||||||||||||||
|
Total operating segments |
2,480.8 | (17.7 | ) | 2,463.1 | 92.6 | 137.0 | 36.5 | |||||||||||||||||
|
Corporate |
— | — | — | 0.8 | 8.0 | 4.3 | ||||||||||||||||||
|
Total operations |
$ | 2,480.8 | $ | (17.7 | ) | $ | 2,463.1 | $ | 93.4 | $ | 145.0 | $ | 40.8 | |||||||||||
| Total Sales | Intersegment Sales |
Net Sales |
Income (Loss) from Operations |
Assets of Operations |
Depreciation and Amortization |
Capital Expenditures |
||||||||||||||||||||||
|
Nine months ended September 30, 2010 |
||||||||||||||||||||||||||||
|
U.S. Print and Related Services |
$ | 5,529.4 | $ | (21.9 | ) | $ | 5,507.5 | $ | 511.6 | $ | 6,149.8 | $ | 294.3 | $ | 69.3 | |||||||||||||
|
International |
1,840.9 | (36.6 | ) | 1,804.3 | 99.9 | 2,231.2 | 86.0 | 49.2 | ||||||||||||||||||||
|
Total operating segments |
7,370.3 | (58.5 | ) | 7,311.8 | 611.5 | 8,381.0 | 380.3 | 118.5 | ||||||||||||||||||||
|
Corporate |
— | — | — | (141.7 | ) | 443.8 | 23.4 | 26.4 | ||||||||||||||||||||
|
Total operations |
$ | 7,370.3 | $ | (58.5 | ) | $ | 7,311.8 | $ | 469.8 | $ | 8,824.8 | $ | 403.7 | $ | 144.9 | |||||||||||||
|
|||
| September 30, 2010 |
December 31, 2009 |
|||||||
|
4.95% senior notes due May 15, 2010 |
$ | — | $ | 325.7 | ||||
|
5.625% senior notes due January 15, 2012 |
158.5 | 158.5 | ||||||
|
4.95% senior notes due April 1, 2014 |
599.2 | 599.0 | ||||||
|
5.50% senior notes due May 15, 2015 |
499.6 | 499.6 | ||||||
|
8.60% senior notes due August 15, 2016 |
345.9 | 345.3 | ||||||
|
6.125% senior notes due January 15, 2017 |
621.9 | 621.5 | ||||||
|
11.25% debentures due February 1, 2019 |
400.0 | 400.0 | ||||||
|
7.625% senior notes due June 15, 2020 |
400.0 | — | ||||||
|
8.875% debentures due April 15, 2021 |
80.9 | 80.9 | ||||||
|
6.625% debentures due April 15, 2029 |
199.3 | 199.3 | ||||||
|
8.820% debentures due April 15, 2031 |
68.9 | 68.9 | ||||||
|
Other, including capital leases |
41.2 | 23.7 | ||||||
|
Total debt |
3,415.4 | 3,322.4 | ||||||
|
Less: current portion |
(8.0 | ) | (339.9 | ) | ||||
|
Long-term debt |
$ | 3,407.4 | $ | 2,982.5 | ||||
|
| September 30, 2010 |
December 31, 2009 |
|||||||
|
Derivatives not designated as hedges |
||||||||
|
Prepaid expenses and other current assets |
$ | 1.2 | $ | 1.3 | ||||
|
Accrued liabilities |
0.2 | 6.8 | ||||||
|
Derivatives designated as fair value hedges |
||||||||
|
Other noncurrent assets |
$ | 25.5 | $ | — | ||||
| Classification of Gain (Loss) Recognized in the Condensed Consolidated Statements of Operations |
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Derivatives not designated as hedges |
||||||||||||||||||||
|
Foreign exchange forward contracts |
|
Selling, general and |
|
$ | 2.2 | $ | (1.6 | ) | $ | (2.2 | ) | $ | (13.7 | ) | ||||||
|
Total gain (loss) recognized in the condensed consolidated statements of operations |
$ | 2.2 | $ | (1.6 | ) | $ | (2.2 | ) | $ | (13.7 | ) | |||||||||
| Classification of Gain (Loss) Recognized in the Condensed Consolidated Statements of Operations |
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||||||||||
|
Fair Value Hedges |
||||||||||||||||||||
|
Interest rate swaps |
|
Investment and other income (expense) |
|
$ | 11.3 | $ | — | $ | 25.5 | $ | — | |||||||||
|
Hedged items |
|
Investment and other income (expense) |
|
(10.7 | ) | — | (23.7 | ) | — | |||||||||||
|
Total gain (loss) recognized as ineffectiveness in the condensed consolidated statements of operations |
|
Investment and other income (expense) |
|
$ | 0.6 | $ | — | $ | 1.8 | $ | — | |||||||||
| Gain (Loss) Recognized in OCI (Effective Portion) |
Classification of Loss Reclassified from AOCI into Income (Effective Portion) |
Loss Reclassified from AOCI into Income (Effective Portion) |
Classification of Gain (Loss) Recognized in Income (Ineffective Portion) |
Gain (Loss) Recognized in Income (Ineffective Portion) |
||||||||||||||||||||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||
|
Cash Flow Hedges |
||||||||||||||||||||||||||||||||
|
Interest rate lock |
$ | — | $ | — | Interest expense—net | $ | (0.1 | ) | $ | (0.1 | ) | Interest expense—net | $ | — | $ | — | ||||||||||||||||
|
Interest rate lock |
— | — | |
Investment and other expense |
||||||||||||||||||||||||||||