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EX-31.2 - EX-31.2 - RR Donnelley & Sons Corrd-ex312_8.htm
EX-32.1 - EX-32.1 - RR Donnelley & Sons Corrd-ex321_14.htm
EX-32.2 - EX-32.2 - RR Donnelley & Sons Corrd-ex322_7.htm
EX-31.1 - EX-31.1 - RR Donnelley & Sons Corrd-ex311_11.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

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

 

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)

 

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   x    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  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large Accelerated filer

 

x

  

Accelerated filer

 

¨

 

 

 

  

 

 

 

Non-Accelerated filer

 

¨  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ¨    No  x

As of April 29, 2016, 209.4 million shares of common stock were outstanding.

 

 

 

 

 


R.R. DONNELLEY & SONS COMPANY

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016

TABLE OF CONTENTS

 

 

 

 

Page

 

 

PART I

 

FINANCIAL INFORMATION

 

 

 

 

 

Item 1:

 

Condensed Consolidated Financial Statements (unaudited)

3

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015

3

 

 

 

 

 

 

Condensed Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015

4

 

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015

5

 

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015

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

44

 

 

 

 

Item 4:

 

Controls and Procedures

44

 

 

 

 

 

 

PART II

 

 

 

 

 

OTHER INFORMATION

 

 

 

Item 1:

 

Legal Proceedings

45

 

Item 2:

 

Unregistered Sales of Equity Securities and Use of Proceeds

45

 

 

 

 

Item 4:

 

Mine Safety Disclosures

45

 

 

 

 

Item 6:

 

Exhibits

46

 

 

 

 

Signatures

49

 

 

 

 

2


PART I. FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

 

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

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except per share data)

(UNAUDITED)

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

ASSETS

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

263.7

 

 

$

389.6

 

Receivables, less allowances for doubtful accounts of $43.8 in 2016 (2015 - $41.5)

 

 

1,948.6

 

 

 

2,000.4

 

Inventories (Note 3)

 

 

607.3

 

 

 

592.0

 

Prepaid expenses and other current assets

 

 

117.4

 

 

 

119.7

 

Total current assets

 

 

2,937.0

 

 

 

3,101.7

 

Property, plant and equipment-net (Note 4)

 

 

1,412.4

 

 

 

1,448.1

 

Goodwill (Note 5)

 

 

1,747.1

 

 

 

1,743.6

 

Other intangible assets-net (Note 5)

 

 

420.4

 

 

 

438.0

 

Deferred income taxes

 

 

177.0

 

 

 

178.2

 

Other noncurrent assets

 

 

392.2

 

 

 

369.7

 

Total assets

 

$

7,086.1

 

 

$

7,279.3

 

LIABILITIES

 

 

 

 

 

 

 

 

Accounts payable

 

$

1,009.2

 

 

$

1,322.3

 

Accrued liabilities

 

 

779.5

 

 

 

780.4

 

Short-term and current portion of long-term debt (Note 14)

 

 

634.4

 

 

 

234.6

 

Total current liabilities

 

 

2,423.1

 

 

 

2,337.3

 

Long-term debt (Note 14)

 

 

2,942.9

 

 

 

3,188.3

 

Pension liabilities

 

 

489.6

 

 

 

514.4

 

Other postretirement benefits plan liabilities

 

 

169.4

 

 

 

168.8

 

Other noncurrent liabilities

 

 

363.6

 

 

 

373.9

 

Total liabilities

 

 

6,388.6

 

 

 

6,582.7

 

Commitments and Contingencies (Note 13)

 

 

 

 

 

 

 

 

EQUITY (Note 9)

 

 

 

 

 

 

 

 

RR Donnelley shareholders' equity

 

 

 

 

 

 

 

 

Preferred stock, $1.00 par value

 

 

 

 

 

 

 

 

Authorized: 2.0 shares; Issued: None

 

 

 

 

 

 

Common stock, $1.25 par value

 

 

 

 

 

 

 

 

Authorized: 500.0 shares;

 

 

 

 

 

 

 

 

Issued: 267.0 shares in 2016 and 2015

 

 

333.7

 

 

 

333.7

 

Additional paid-in-capital

 

 

3,135.2

 

 

 

3,164.3

 

Accumulated deficit

 

 

(635.1

)

 

 

(620.6

)

Accumulated other comprehensive loss

 

 

(776.1

)

 

 

(793.2

)

Treasury stock, at cost, 57.6 shares in 2016 (2015 – 58.2 shares)

 

 

(1,373.9

)

 

 

(1,401.5

)

Total RR Donnelley shareholders' equity

 

 

683.8

 

 

 

682.7

 

Noncontrolling interests

 

 

13.7

 

 

 

13.9

 

Total equity

 

 

697.5

 

 

 

696.6

 

Total liabilities and equity

 

$

7,086.1

 

 

$

7,279.3

 

  

(See Notes to Condensed Consolidated Financial Statements)

 

 

 

 

3


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

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share data)

(UNAUDITED)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Products net sales

$

2,172.2

 

 

$

2,260.3

 

Services net sales

 

479.2

 

 

 

485.8

 

Total net sales

 

2,651.4

 

 

 

2,746.1

 

 

 

 

 

 

 

 

 

Products cost of sales (exclusive of depreciation and amortization)

 

1,701.2

 

 

 

1,780.3

 

Services cost of sales (exclusive of depreciation and amortization)

 

380.9

 

 

 

386.1

 

Total cost of sales

 

2,082.1

 

 

 

2,166.4

 

 

 

 

 

 

 

 

 

Products gross profit

 

471.0

 

 

 

480.0

 

Services gross profit

 

98.3

 

 

 

99.7

 

Total gross profit

 

569.3

 

 

 

579.7

 

Selling, general and administrative expenses (exclusive of depreciation and amortization)

 

331.6

 

 

 

330.9

 

Restructuring, impairment and other charges-net (Note 6)

 

9.7

 

 

 

19.8

 

Depreciation and amortization

 

107.0

 

 

 

113.4

 

Other operating income

 

(12.3

)

 

 

 

Income from operations

 

133.3

 

 

 

115.6

 

Interest expense-net

 

68.2

 

 

 

69.0

 

Investment and other expense-net

 

 

 

 

28.3

 

Earnings before income taxes

 

65.1

 

 

 

18.3

 

Income tax expense

 

25.0

 

 

 

6.4

 

Net earnings

 

40.1

 

 

 

11.9

 

Less: Income (loss) attributable to noncontrolling interests

 

0.3

 

 

 

(10.4

)

Net earnings attributable to RR Donnelley common shareholders

$

39.8

 

 

$

22.3

 

 

 

 

 

 

 

 

 

Net earnings per share attributable to RR Donnelley common shareholders (Note 10):

 

 

 

 

 

 

 

Basic net earnings per share

$

0.19

 

 

$

0.11

 

Diluted net earnings per share

$

0.19

 

 

$

0.11

 

 

 

 

 

 

 

 

 

Dividends declared per common share

$

0.26

 

 

$

0.26

 

 

 

 

 

 

 

 

 

Weighted average number of common shares outstanding:

 

 

 

 

 

 

 

Basic

 

209.6

 

 

 

200.6

 

Diluted

 

210.8

 

 

 

202.1

 

 

(See Notes to Condensed Consolidated Financial Statements)

 

 

 

 

4


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

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in millions)

(UNAUDITED)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

Net earnings

$

40.1

 

 

$

11.9

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of tax (Note 11):

 

 

 

 

 

 

 

Translation adjustments

 

17.9

 

 

 

(22.6

)

Adjustment for net periodic pension and postretirement benefits plan cost

 

(0.6

)

 

 

2.2

 

Other comprehensive income (loss)

 

17.3

 

 

 

(20.4

)

Comprehensive income (loss)

 

57.4

 

 

 

(8.5

)

Less: comprehensive income (loss) attributable to noncontrolling interests

 

0.5

 

 

 

(10.2

)

Comprehensive income attributable to RR Donnelley common shareholders

$

56.9

 

 

$

1.7

 

  

(See Notes to Condensed Consolidated Financial Statements)

 

 

 

 

5


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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(UNAUDITED)

 

 

Three Months Ended

 

 

March 31,

 

 

2016

 

 

2015

 

OPERATING ACTIVITIES

 

 

 

 

 

 

 

Net earnings

$

40.1

 

 

$

11.9

 

Adjustments to reconcile net earnings to net cash used in operating activities:

 

 

 

 

 

 

 

Impairment (income) charges – net

 

(0.8

)

 

 

0.8

 

Depreciation and amortization

 

107.0

 

 

 

113.4

 

Provision for doubtful accounts receivable

 

4.1

 

 

 

5.9

 

Share-based compensation

 

3.5

 

 

 

3.5

 

Deferred income taxes

 

1.8

 

 

 

(8.0

)

Changes in uncertain tax positions

 

(1.3

)

 

 

(1.5

)

Gain on investments and other assets - net

 

(12.2

)

 

 

(0.2

)

Loss related to Venezuela currency remeasurement - net

 

 

 

 

29.9

 

Net pension and other postretirement benefits plan income

 

(18.9

)

 

 

(10.8

)

Other

 

0.2

 

 

 

11.8

 

Changes in operating assets and liabilities - net of acquisitions:

 

 

 

 

 

 

 

Accounts receivable - net

 

55.0

 

 

 

9.8

 

Inventories

 

(11.0

)

 

 

(1.0

)

Prepaid expenses and other current assets

 

(9.0

)

 

 

(3.4

)

Accounts payable

 

(316.0

)

 

 

(173.7

)

Income taxes payable and receivable

 

8.6

 

 

 

4.1

 

Accrued liabilities and other

 

(35.9

)

 

 

(128.5

)

Pension and other postretirement benefits plan contributions

 

(8.0

)

 

 

(8.3

)

Net cash used in operating activities

 

(192.8

)

 

 

(144.3

)

INVESTING ACTIVITIES

 

 

 

 

 

 

 

Capital expenditures

 

(48.1

)

 

 

(48.5

)

Acquisitions of businesses, net of cash acquired

 

 

 

 

(2.0

)

Disposition of businesses

 

13.4

 

 

 

(0.2

)

Proceeds from sales of investments and other assets

 

2.3

 

 

 

5.4

 

Transfers from restricted cash

 

5.0

 

 

 

 

Other investing activities

 

(2.1

)

 

 

(0.4

)

Net cash used in investing activities

 

(29.5

)

 

 

(45.7

)

FINANCING ACTIVITIES

 

 

 

 

 

 

 

Net change in short-term debt

 

1.0

 

 

 

1.7

 

Payments of current maturities and long-term debt

 

(1.4

)

 

 

(0.3

)

Net proceeds from credit facility borrowings

 

145.0

 

 

 

 

Dividends paid

 

(54.3

)

 

 

(52.0

)

Other financing activities

 

1.7

 

 

 

3.0

 

Net cash provided by (used in) financing activities

 

92.0

 

 

 

(47.6

)

Effect of exchange rate on cash and cash equivalents

 

4.4

 

 

 

(21.6

)

Net decrease in cash and cash equivalents

 

(125.9

)

 

 

(259.2

)

Cash and cash equivalents at beginning of year

 

389.6

 

 

 

527.9

 

Cash and cash equivalents at end of period

$

263.7

 

 

$

268.7

 

 

 

 

 

 

 

 

 

Supplemental non-cash disclosure:

 

 

 

 

 

 

 

Assumption of warehousing equipment related to customer contract

$

8.8

 

 

$

 

  

(See Notes to Condensed Consolidated Financial Statements)

 

 

 

6


 

1. Basis of Presentation

 

The accompanying unaudited condensed consolidated interim financial statements include the accounts of R.R. Donnelley & Sons Company and its subsidiaries (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 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, 2015 filed with the SEC on February 25, 2016. Operating results for the three months ended March 31, 2016 are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2016. 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.

 

Proposed Spinoff Transactions

On August 4, 2015, the Company announced that its Board of Directors intends to create three independent public companies: (i) a financial communications services company (“Donnelley Financial Solutions”), (ii) a publishing and retail-centric print services company (“LSC Communications”), and (iii) a multichannel communications management company (“RR Donnelley & Sons Company”). Donnelley Financial Solutions is expected to consist of the current financial reporting unit of the Company’s Strategic Services segment.  LSC Communications is expected to consist of the Company’s current Publishing and Retail Services segment, as well as the current office products reporting unit of the Company’s Variable Print segment, substantially all of the operations currently within the Europe reporting unit of the Company’s International segment, certain Mexican operations currently within the Latin America reporting unit of the Company’s International segment and the co-mail and related list services operations currently within the logistics reporting unit of the Company’s Strategic Services segment.  RR Donnelley & Sons Company is expected to consist of the Company’s current Variable Print segment (except for the office products reporting unit that will become part of LSC Communications), the current logistics reporting unit of the Company’s Strategic Services segment (except for the operations that will become part of LSC Communications), the current sourcing and digital and creative solutions reporting units of the Company’s Strategic Services segment, and the Company’s current International segment (except for substantially all of the Europe reporting unit and certain Mexican operations that will become part of LSC Communications). The transactions are expected to take the form of a tax-free distribution to RR Donnelley shareholders of at least 80% of the shares of common stock in Donnelley Financial Solutions and LSC Communications. Immediately following the completion of the transactions, existing RR Donnelley shareholders will own shares in all three companies.

Donnelley Financial Solutions and LSC Communications each filed a Form 10 on March 31, 2016. Additionally, the expected leadership of the three companies was announced in the Company’s Form 8-K filed on April 13, 2016. The transactions are subject to customary conditions, including obtaining rulings from the Internal Revenue Service and/or tax opinions, execution of inter-company agreements and final approval by the Company’s Board of Directors. The Company expects to complete the transactions in October 2016, but there can be no assurance that the transactions will be completed on the anticipated timeline, or at all, or that the terms of the transactions will not change.

Upon separation, the historical results of Donnelley Financial Solutions and LSC Communications will be presented as discontinued operations.

 

 

 

7


 

2. Acquisitions and Dispositions

For the three months ended March 31, 2016, the Company recorded $0.6 million of acquisition-related expenses associated with contemplated acquisitions within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

2016 Disposition

On January 11, 2016, the Company sold two entities within the business process outsourcing reporting unit for net proceeds of $13.4 million, all of which was received as of March 31, 2016, resulting in a gain of $12.3 million during the three months ended March 31, 2016.  The gain was recorded in other operating income in the Condensed Consolidated Statements of Operations.  The operations of these entities were included in the International segment.

 

2015 Acquisitions

On June 8, 2015, the Company acquired Courier Corporation (“Courier”), a leader in digital printing and publishing primarily in the United States, specializing in educational, religious and trade books. The acquisition expanded the Company’s digital printing and content management capabilities. The purchase price for Courier was $137.3 million in cash and 8.0 million shares of RR Donnelley common stock, or a total transaction value of $291.5 million based on the Company’s closing share price on June 5, 2015, plus the assumption of Courier’s debt of $78.2 million. Courier had $20.9 million of cash as of the date of acquisition. Immediately following the acquisition, the Company repaid substantially all of the debt assumed. Courier’s book manufacturing operations are included in the Publishing and Retail Services segment, publishing operations are included in the Strategic Services segment and Brazilian operations are included in the International segment.

For the three months ended March 31, 2015, the Company recorded $10.5 million of acquisition-related expenses associated with acquisitions completed or contemplated, within selling, general and administrative expenses in the Condensed Consolidated Statements of Operations.

The Courier acquisition was recorded by allocating the cost of the acquisition to the assets acquired, including other intangible assets, based on their estimated fair values at the acquisition date.  The excess of the cost over the net amounts assigned to the fair value of the assets acquired was recorded as goodwill. The goodwill associated with this acquisition is primarily attributable to the synergies expected to arise as a result of the acquisition.

In addition to the acquisition of Courier, the Company completed three insignificant acquisitions in 2015, one of which included the settlement of accounts receivable in exchange for the acquisition of the business.  

The tax deductible goodwill related to acquisitions was $15.0 million.

Based on the valuations, the final purchase price allocation for the Courier acquisition as well as the purchase price allocation for three insignificant acquisitions was as follows:

 

Accounts receivable

$

36.2

 

Inventories

 

59.0

 

Prepaid expenses and other current assets

 

38.8

 

Property, plant and equipment

 

163.8

 

Other intangible assets

 

108.8

 

Other noncurrent assets

 

7.9

 

Goodwill

 

66.3

 

Accounts payable and accrued liabilities

 

(24.6

)

Other noncurrent liabilities

 

(10.5

)

Deferred taxes—net

 

(83.7

)

Total purchase price-net of cash acquired

 

362.0

 

Less: debt assumed

 

80.2

 

Less: settlement of accounts receivable for acquisition of a business

 

8.6

 

Less: value of common stock issued

 

155.2

 

Net cash paid

$

118.0

 

 

 

8


 

The fair values of other intangible assets, technology and goodwill associated with the acquisition of Courier were determined to be Level 3 under the fair value hierarchy.  The following table presents the fair value, valuation techniques and related unobservable inputs for these Level 3 measurements:

 

 

Fair Value

 

 

Valuation Technique

 

Unobservable Input

 

Range

 

Customer relationships

$

98.4

 

 

Excess earnings

 

Discount rate

Attrition rate

 

14.0% - 17.0%

0.0% - 7.5%

 

Trade names

 

10.1

 

 

Relief-from-royalty method

 

Discount rate

Royalty rate (pre-tax)

 

12.0%

0.3% - 1.0%

 

Technology

 

1.6

 

 

Relief-from-royalty method

 

Discount rate

Royalty rate (pre-tax)

 

11.0%

15.0%

 

Non-compete agreement

0.3

 

 

Excess earnings

 

Discount rate

 

 

17.0%

 

 

The fair values of property, plant and equipment associated with the Courier acquisition were determined to be Level 3 under the fair value hierarchy and were estimated using either the market approach, if a secondhand market existed, or cost approach.

2015 Disposition

On April 29, 2015, the Company sold its 50.1% interest in its Venezuelan operating entity. The proceeds were de minimis, and the sale resulted in a net loss of $14.7 million, which was recognized in net investment and other expense in the Consolidated Statement of Operations for the year ended December 31, 2015. The Company’s Venezuelan operations had net sales of $15.6 million and a loss before income taxes of $23.4 million for the three months ended March 31, 2015.

Pro forma results

The following unaudited pro forma financial information for the three months ended March 31, 2015 presents the combined results of operations of the Company and the 2015 acquisitions described above, as if the acquisitions had occurred as of January 1 of the year prior to acquisition.

The unaudited pro forma financial information is not intended to represent or be indicative of the Company’s consolidated results of operations or financial condition that would have been reported had these acquisitions been completed as of the beginning of the period presented and should not be taken as indicative of the Company’s future consolidated results of operations or financial condition.  Pro forma adjustments are tax-effected at the applicable statutory tax rates.

 

 

Three Months Ended March 31, 2015

 

Net sales

$

2,806.7

 

Net earnings attributable to RR Donnelley common shareholders

 

33.4

 

Net earnings per share attributable to RR Donnelley common shareholders:

 

 

 

Basic

$

0.16

 

Diluted

$

0.16

 

 

The following table outlines unaudited pro forma financial information for the three months ended March 31, 2015:

 

 

Three Months Ended March 31, 2015

 

Amortization of purchased intangibles

$

21.4

 

Restructuring, impairment and other charges

 

17.2

 

 

9


 

 

Additionally, the pro forma adjustments affecting net earnings attributable to RR Donnelley common shareholders for the three months ended March 31, 2015 were as follows:

 

 

Three Months Ended March 31, 2015

 

Depreciation and amortization of purchased assets, pre-tax

$

2.4

 

Acquisition-related expenses, pre-tax

 

23.3

 

Restructuring, impairment and other charges, pre-tax

 

3.0

 

Other pro forma adjustments, pre-tax

 

0.8

 

Income taxes

 

(0.9

)

 

 

3. Inventories

The components of the Company’s inventories, net of excess and obsolescence reserves for raw materials and finished goods, at March 31, 2016 and December 31, 2015 were as follows:

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Raw materials and manufacturing supplies

$

251.8

 

 

$

247.2

 

Work in process

 

166.6

 

 

 

156.1

 

Finished goods

 

275.5

 

 

 

275.2

 

LIFO reserve

 

(86.6

)

 

 

(86.5

)

Total

$

607.3

 

 

$

592.0

 

  

 

4. Property, Plant and Equipment

The components of the Company’s property, plant and equipment at March 31, 2016 and December 31, 2015 were as follows:

 

 

March 31,

 

 

December 31,

 

 

2016

 

 

2015

 

Land

$

112.5

 

 

$

113.6

 

Buildings

 

1,221.7

 

 

 

1,224.7

 

Machinery and equipment

 

6,158.6

 

 

 

6,160.3

 

 

 

7,492.8

 

 

 

7,498.6

 

Less: Accumulated depreciation

 

(6,080.4

)

 

 

(6,050.5

)

Total

$

1,412.4

 

 

$

1,448.1

 

  

During the three months ended March 31, 2016 and 2015, depreciation expense was $78.3 million and $82.9 million, respectively.

 

 

 

10


 

5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill by segment for the three months ended March 31, 2016 were as follows:

 

 

Publishing and Retail

 

 

Variable

 

 

Strategic

 

 

International

 

 

 

 

 

 

Services

 

 

Print

 

 

Services

 

 

Services

 

 

Total

 

Net book value as of December 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

$

739.2

 

 

$

1,914.0

 

 

$

991.5

 

 

$

1,123.6

 

 

$

4,768.3

 

Accumulated impairment losses

 

(688.0

)

 

 

(1,105.2

)

 

 

(219.7

)

 

 

(1,011.8

)

 

 

(3,024.7

)

Total

 

51.2

 

 

 

808.8

 

 

 

771.8

 

 

 

111.8

 

 

 

1,743.6

 

Foreign exchange and other adjustments

 

 

 

 

0.9

 

 

 

0.4

 

 

 

2.2

 

 

 

3.5

 

Net book value as of March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

739.2

 

 

 

1,914.9

 

 

 

992.0

 

 

 

1,133.1

 

 

 

4,779.2

 

Accumulated impairment losses

 

(688.0

)

 

 

(1,105.2

)

 

 

(219.8

)

 

 

(1,019.1

)

 

 

(3,032.1

)

Total

$

51.2

 

 

$

809.7

 

 

$

772.2

 

 

$

114.0

 

 

$

1,747.1

 

 

The components of other intangible assets at March 31, 2016 and December 31, 2015 were as follows:

 

 

March 31, 2016

 

 

December 31, 2015

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Gross

 

 

 

 

 

 

 

 

 

 

Carrying

 

 

Accumulated

 

 

Net Book

 

 

Carrying

 

 

Accumulated

 

 

Net Book

 

 

Amount

 

 

Amortization

 

 

Value

 

 

Amount

 

 

Amortization

 

 

Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

933.7

 

 

$

(573.5

)

 

$

360.2

 

 

$

932.1

 

 

$

(555.3

)

 

$

376.8

 

Patents

 

2.0

 

 

 

(2.0

)

 

 

 

 

 

98.3

 

 

 

(98.3

)

 

 

 

Trademarks, licenses and agreements

 

30.7

 

 

 

(30.1

)

 

 

0.6

 

 

 

30.6

 

 

 

(29.9

)

 

 

0.7

 

Trade names

 

47.5

 

 

 

(20.0

)

 

 

27.5

 

 

 

47.5

 

 

 

(19.1

)

 

 

28.4

 

Total amortizable other intangible assets

 

1,013.9

 

 

 

(625.6

)

 

 

388.3

 

 

 

1,108.5

 

 

 

(702.6

)

 

 

405.9

 

Indefinite-lived trade names

 

32.1

 

 

 

 

 

 

32.1

 

 

 

32.1

 

 

 

 

 

 

32.1

 

Total other intangible assets

$

1,046.0

 

 

$

(625.6

)

 

$

420.4

 

 

$

1,140.6

 

 

$

(702.6

)

 

$

438.0

 

 

Amortization expense for other intangible assets was $18.3 million and $19.0 million for the three months ended March 31, 2016 and 2015, respectively.

The following table outlines the estimated annual amortization expense related to other intangible assets as of March 31, 2016:

 

For the year ending December 31,

Amount

 

2016

$

64.7

 

2017

 

58.8

 

2018

 

52.9

 

2019

 

48.7

 

2020

 

45.2

 

2021 and thereafter

 

136.3

 

Total

$

406.6

 

 

 

 

11


 

6. Restructuring, Impairment and Other Charges

Restructuring, Impairment and Other Charges Recognized in Results of Operations

For the three months ended March 31, 2016 and 2015, the Company recorded the following net restructuring, impairment and other charges:

 

Three Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

March 31, 2016

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Publishing and Retail Services

 

$

0.6

 

 

$

1.0

 

 

$

1.6

 

 

$

1.0

 

 

$

0.8

 

 

$

3.4

 

Variable Print

 

 

0.2

 

 

 

0.9

 

 

 

1.1

 

 

 

(0.3

)

 

 

0.4

 

 

 

1.2

 

Strategic Services

 

 

0.3

 

 

 

0.5

 

 

 

0.8

 

 

 

 

 

 

0.2

 

 

 

1.0

 

International

 

 

3.7

 

 

 

1.5

 

 

 

5.2

 

 

 

(2.7

)

 

 

 

 

 

2.5

 

Corporate

 

 

0.2

 

 

 

0.2

 

 

 

0.4

 

 

 

1.2

 

 

 

 

 

 

1.6

 

Total

 

$

5.0

 

 

$

4.1

 

 

$

9.1

 

 

$

(0.8

)

 

$

1.4

 

 

$

9.7

 

 

Three Months Ended

 

Employee

 

 

Other

Restructuring

 

 

Total

Restructuring

 

 

 

 

 

 

Other

 

 

 

 

 

March 31, 2015

 

Terminations

 

 

Charges

 

 

Charges

 

 

Impairment

 

 

Charges

 

 

Total

 

Publishing and Retail Services

 

$

2.8

 

 

$

1.1

 

 

$

3.9

 

 

$

(0.4

)

 

$

0.8

 

 

$

4.3

 

Variable Print

 

 

2.0

 

 

 

1.3

 

 

 

3.3

 

 

 

1.3

 

 

 

0.4

 

 

 

5.0

 

Strategic Services

 

 

1.6

 

 

 

0.5

 

 

 

2.1

 

 

 

 

 

 

0.1

 

 

 

2.2

 

International

 

 

7.7

 

 

 

0.2

 

 

 

7.9

 

 

 

(0.2

)

 

 

 

 

 

7.7

 

Corporate

 

 

0.1

 

 

 

0.5

 

 

 

0.6

 

 

 

 

 

 

 

 

 

0.6

 

Total

 

$

14.2

 

 

$

3.6

 

 

$

17.8

 

 

$

0.7

 

 

$

1.3

 

 

$

19.8

 

  

Restructuring and Impairment Charges

For the three months ended March 31, 2016, the Company recorded net restructuring charges of $5.0 million for employee termination costs for 353 employees, of whom 350 were terminated as of March 31, 2016. These charges primarily related to the announcement of two facility closures in the International segment and the reorganization of certain operations. Additionally, for the three months ended March 31, 2016, the Company recorded $4.1 million of lease termination and other restructuring charges and $0.8 million of income primarily related to the gains on sales of previously impaired long-lived assets.

For the three months ended March 31, 2015, the Company recorded net restructuring charges of $14.2 million for employee termination costs for 894 employees, all of whom were terminated as of March 31, 2016. These charges primarily related to one facility closure in the International segment, one facility closure in the Variable Print segment and the reorganization of certain operations. Additionally, for the three months ended March 31, 2015, the Company recorded lease termination and other restructuring charges of $3.6 million and net impairment charges of $0.7 million primarily related to buildings and machinery and equipment associated with facility closures.

Other Charges

For the three months ended March 31, 2016 and 2015, the Company recorded other charges of $1.4 million and $1.3 million, respectively, for multi-employer pension plan withdrawal obligations unrelated to facility closures. The total liabilities for the withdrawal obligations associated with the Company’s decision to withdraw from certain multi-employer pension plans included in accrued liabilities and other noncurrent liabilities are $10.9 million and $81.1 million, respectively, as of March 31, 2016.

 

 

12


 

The Company’s withdrawal liabilities could be affected by the financial stability of other employers participating in the plans and any decisions by those employers to withdraw from the plans in the future. While it is not possible to quantify the potential impact of future events or circumstances, reductions in other employers’ participation in multi-employer pension plans, including certain plans from which the Company has previously withdrawn, could have a material impact on the Company’s previously estimated withdrawal liabilities, consolidated results of operations, financial position or cash flows.

As a result of the acquisition of Courier, the Company participates in two multi-employer pension plans, for one of which the Company’s contributions are approximately 85% of the total plan contributions. Both plans are estimated to be underfunded and have a Pension Protection Act zone status of critical (“red”). Red status identifies plans that are less than 65% funded.

Restructuring Reserve

The restructuring reserve as of December 31, 2015 and March 31, 2016, and changes during the three months ended March 31, 2016, were as follows:

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

Restructuring

 

 

Exchange and

 

 

Cash

 

 

March 31,

 

 

2015

 

 

Charges

 

 

Other

 

 

Paid

 

 

2016

 

Employee terminations

$

20.2

 

 

$

5.0

 

 

$

(0.1

)

 

$

(16.8

)

 

$

8.3

 

Multi-employer pension withdrawal obligations